Prepaid Accounts Under the Electronic Fund Transfer Act (Regulation E) and the Truth in Lending Act (Regulation Z)

 
CONTENT

Federal Register, Volume 79 Issue 246 (Tuesday, December 23, 2014)

Federal Register Volume 79, Number 246 (Tuesday, December 23, 2014)

Proposed Rules

Pages 77101-77335

From the Federal Register Online via the Government Printing Office www.gpo.gov

FR Doc No: 2014-27286

Page 77101

Vol. 79

Tuesday,

No. 246

December 23, 2014

Part II

Bureau of Consumer Financial Protection

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12 CFR Parts 1005 and 1026

Prepaid Accounts Under the Electronic Fund Transfer Act (Regulation E) and the Truth in Lending Act (Regulation Z); Proposed Rule

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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Parts 1005 and 1026

Docket No. CFPB-2014-0031

RIN 3170-AA22

Prepaid Accounts Under the Electronic Fund Transfer Act (Regulation E) and the Truth in Lending Act (Regulation Z)

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Proposed rule; request for public comment.

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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is proposing to amend Regulation E, which implements the Electronic Fund Transfer Act (EFTA); Regulation Z, which implements the Truth in Lending Act (TILA); and the official interpretations to the regulations. The proposal would create comprehensive consumer protections for prepaid financial products. The proposal would expressly bring such products within the ambit of Regulation E as prepaid accounts and create new provisions specific to such accounts. The proposal would generally cover those prepaid accounts that are cards, codes, or other devices capable of being loaded with funds and usable at unaffiliated merchants or for person-to-person transfers, and are not gift cards (or certain other related types of cards). The proposal would modify Regulation E to establish disclosure requirements specific to prepaid accounts that would require financial institutions to provide certain disclosures to consumers prior to and after the acquisition of a prepaid account. The proposal would also include an option for an alternative to Regulation E's periodic statement requirement that would permit prepaid product providers to make available to consumers certain methods for access to account information in lieu of sending periodic statements. Additionally, the proposal would apply Regulation E's limited liability and error resolution provisions to prepaid accounts, with certain modifications, including applying these provisions after account registration. Moreover, the proposal would require prepaid account issuers to provide the Bureau with terms and conditions for prepaid accounts, which it would post on a Web site maintained by the Bureau. Relatedly, issuers would also be required to post the terms and conditions on their own Web sites or make them available upon request. Finally, the proposal would also contain amendments to Regulations Z and E to regulate prepaid accounts with overdraft services or credit features. Among other things, prepaid cards that access overdraft services or credit features for a fee would generally be credit cards subject to Regulation Z and its credit card rules. Moreover, the proposal would require that consumers consent to overdraft services or credit features and give them at least 21 days to repay the debt incurred in connection with using such services or features. Further, Regulation E would be amended to include disclosures about overdraft services or credit features that could be linked to prepaid accounts. The compulsory use provision under Regulation E would also be amended so that prepaid account issuers would be prohibited from requiring consumers to set up preauthorized electronic fund transfers to repay credit extended through an overdraft service or credit feature.

DATES: Comments must be received on or before March 23, 2015.

ADDRESSES: You may submit comments, identified by Docket No. CFPB-2014-

0031 or RIN 3170-AA22, by any of the following methods:

Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments.

Email: FederalRegisterComments@cfpb.gov. Include Docket No. CFPB-2014-0031 and/or RIN 3170-AA22 in the subject line of the email.

Mail: Monica Jackson, Office of the Executive Secretary, Consumer Financial Protection Bureau, 1700 G Street NW., Washington, DC 20552.

Hand Delivery/Courier: Monica Jackson, Office of the Executive Secretary, Consumer Financial Protection Bureau, 1275 First Street NE., Washington, DC 20002.

Instructions: All submissions should include the agency name and docket number or Regulatory Information Number (RIN) for this rulemaking. Because paper mail in the Washington, DC area and at the Bureau is subject to delay, commenters are encouraged to submit comments electronically. In general, all comments received will be posted without change to http://www.regulations.gov. In addition, comments will be available for public inspection and copying at 1275 First Street NE., Washington, DC 20002, on official business days between the hours of 10 a.m. and 5 p.m. Eastern Time. You can make an appointment to inspect the documents by telephoning (202) 435-7275.

All comments, including attachments and other supporting materials, will become part of the public record and subject to public disclosure. Sensitive personal information, such as account numbers or social security numbers, should not be included. Comments generally will not be edited to remove any identifying or contact information.

FOR FURTHER INFORMATION CONTACT: Kristine Andreassen, Morgan Harper, and Jane Raso, Counsels; Krista Ayoub, Joseph Baressi, and Eric Goldberg, Senior Counsels, Office of Regulations, at (202) 435-7700.

SUPPLEMENTARY INFORMATION:

  1. Summary of the Proposed Rule

    The Bureau of Consumer Financial Protection (Bureau) is issuing this notice to propose comprehensive consumer protections for prepaid financial products (or prepaid products). Such products are among the fastest growing types of payment instruments in the United States. However, with certain limited exceptions, prepaid products have not been subject to the existing Federal consumer regulatory regimes that provide consumer disclosures, error resolution and protection from unauthorized transfers. See generally 12 CFR part 1005.

    The Bureau is proposing to establish a new definition of ``prepaid account'' within Regulation E and adopt comprehensive consumer protection rules for such accounts. The proposal would extend Regulation E protections to prepaid products that are cards, codes, or other devices capable of being loaded with funds, not otherwise accounts under Regulation E and redeemable upon presentation at multiple, unaffiliated merchants for goods or services, or usable at either automated teller machines or for person-to-person (P2P) transfers; and are not gift cards (or certain other types of limited purpose cards), by bringing these products under the proposed definition of ``prepaid account.''

    The Bureau is also proposing to modify Regulation E, as it would pertain to prepaid accounts, in several key respects. First, the Bureau proposes to require financial institutions to make certain disclosures available to consumers before a consumer agrees to acquire a prepaid account. These disclosures would take two forms, whether provided in oral, written, or electronic form. The first would be a short form highlighting key fees that the Bureau believes are most important for consumers to know about prior to acquisition. The second would be a long form that would set forth all of the prepaid account's fees and the conditions under which those fees could be imposed. When certain

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    conditions are met, the proposed rule would provide an exception for financial institutions that offer prepaid cards for sale over the phone or in retail stores that would allow such institutions to provide consumers with access to the long form disclosure by telephone or internet, but otherwise not make the long form available until a consumer has acquired the prepaid account. To facilitate compliance, the Bureau is additionally proposing model forms and sample forms. The use of the model forms would establish a safe harbor for compliance with the short form disclosure requirement. The Bureau is also proposing revisions to existing Regulation E model forms and model clauses to provide model language.

    In addition, with certain modifications, the Bureau is proposing to extend to all prepaid accounts the existing Regulation E requirements regarding the provision of transaction information to accountholders that currently apply to payroll card accounts, Federal government benefit accounts, and non-needs tested State and local government benefit accounts. These provisions would allow financial institutions to either provide periodic statements or, alternatively, make available to the consumer: (1) The account balance, through a readily-available telephone line; (2) an electronic history of account transactions that covers at least 18 months; and (3) a written history of account transactions that covers at least 18 months upon request. For all prepaid accounts, the Bureau proposes to require financial institutions to disclose monthly and annual summary totals of all fees imposed on a prepaid account, as well as the total amount of all deposits to and debits from a prepaid account when providing a periodic statement or electronic or written account history.

    Further, the Bureau is proposing to modify Regulation E to adopt error resolution and limited liability provisions specific to prepaid accounts. Currently, Regulation E limits consumers' liability for unauthorized transfers, provided that the consumer gives timely notice to the financial institution, and requires financial institutions to resolve certain errors in covered accounts. The Bureau proposes to extend this regime to prepaid accounts, with modification to the timing requirements for reporting unauthorized transfers and errors when a financial institution follows the periodic statement alternative described above. The Bureau is also proposing not to apply the limited liability and error resolution requirements of Regulation E to unregistered prepaid accounts. Moreover, the proposed rule would include provisions that would require prepaid account issuers to post prepaid account agreements on the issuers' Web sites (or make them available upon request in limited circumstances) and to submit those agreements to the Bureau for posting on a Web site maintained by the Bureau.

    The Bureau is also proposing to revise various other provisions in subparts A and B of Regulation E. With respect to subpart A, the proposed amendments include a revision that would provide that, similar to payroll card accounts, a consumer cannot be required to establish an account for receipt of government benefit. Additionally, the Bureau proposes to revise official interpretations to Regulation E to incorporate a preemption determination the Bureau made regarding certain State laws related to unclaimed gift cards. With respect to subpart B, which applies to remittance transfers, the Bureau proposes a conforming change to the official interpretations.

    Overdraft Services and Credit Features

    The Bureau is also proposing to modify Regulations Z and E to address the treatment of overdraft services and other credit features offered in connection with prepaid accounts.

    Regulation Z. The Bureau is proposing changes to Regulation Z so that prepaid account issuers that offer overdraft services or other credit features in connection with such accounts and charge a fee for the service (such as interest, transaction fees, annual fees, or other participation fees) generally would be subject to Regulation Z's credit card rules and disclosure requirements for open-end (not home-secured) consumer credit plans. In addition, the Bureau proposes to revise Regulation Z so that its credit card rules would apply to separate lines of credit linked to prepaid accounts. The proposal would also require an issuer to obtain a consumer's consent before adding overdraft services and credit features to a prepaid account and would prohibit the issuer from adding such features until at least 30 calendar days after a consumer registers the prepaid account. Moreover, the proposal would amend Regulation Z as it pertains to credit on prepaid accounts to provide that a consumer would receive a periodic statement not more often than once per month and then have at least 21 days to repay the debt the consumer incurred in connection with using the overdraft service or credit feature. The proposal would also prevent an issuer from requiring, as terms of the credit feature, that it could immediately take incoming payments to a prepaid account, such as cash loads or direct deposits, to repay and replenish the credit line.

    Regulation E. The Bureau is proposing to revise Regulation E to include disclosures about overdraft services or credit features that could be linked to prepaid accounts in the short and long form disclosures. The Bureau is also proposing to provide that the compulsory use provision would apply to overdraft services or other credit features linked to prepaid accounts. As proposed, prepaid account issuers would be prohibited from requiring consumers to set up preauthorized electronic fund transfers to repay credit extended through an overdraft service or credit feature. Lastly, the Bureau proposes to amend Regulation E to restrict issuers from applying to a consumer's prepaid account different terms and conditions such as charging different fees for accessing funds in a prepaid account, depending on whether the consumer elects to link the prepaid account to an overdraft service or credit feature.

    Effective Date

    The Bureau proposes that with certain exceptions, the effective date for the requirements set forth in a final rule would be nine months after the final rule is published in the Federal Register. The exception proposed herein is that for a period of 12 months after the final rule is published in the Federal Register, financial institutions would be permitted to continue selling prepaid accounts that do not comply with the final rule's pre-acquisition disclosure requirements, if the account and its packaging material were printed prior to the proposed effective date.

  2. Background

    1. Prepaid Financial Products

      As noted above, prepaid products--in various forms--are among the fastest growing types of payment instruments in the United States. A 2013 study by the Board of Governors of the Federal Reserve System (the Board) reported that compared with noncash payments such as credit, debit, automated clearing house (ACH), and check, prepaid card payments increased at the fastest rate from 2009 to 2012.\1\ Among other

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      things, the report found that the number of prepaid card payments reached 9.2 billion transactions in 2012 (up from 5.9 billion in 2009).\2\

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      \1\ Fed. Reserve Sys., The 2013 Federal Reserve Payments Study, Recent and Long-Term Payment Trends in the United States: 2003-2012, Detailed Report and Updated Data Release (2014), available at https://.frbservices.org/files/communications/pdf/general/

      2013_fed_res_paymt_study_detailed_rpt.pdf.

      \2\ Id. at 37.

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      There is significant variation among prepaid products. For example, some prepaid products are ``reloadable,'' meaning that a consumer or other authorized party can add funds to the account after the account is issued, while others are not. Additionally, some prepaid products, such as certain gift cards, are ``closed-loop,'' meaning that a consumer can only use the product at a specific merchant or group of merchants. Regulation E currently regulates closed-loop gift cards and similar products. See Sec. 1005.20. Other prepaid products are ``open-

      loop.'' Like gift cards, these products are used to store funds. However, unlike closed-loop prepaid products, they can be used on payment and automated teller machine (ATM) networks.\3\

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      \3\ Payment networks include Visa, MasterCard, American Express, and Discover; ATM networks include NYCE, PULSE, STAR and Cirrus.

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      Consumers may acquire prepaid products in a variety of ways. Prepaid products may be sold directly to consumers in retail locations, over the telephone, or online. They may also be provided at no charge through an entity that uses the prepaid product to distribute funds to a recipient, such as an employer that distributes wages to an employee on a payroll card. Further, as discussed in greater detail below, prepaid products may not be tied to a physical card or device, and instead may be accessible and usable online or at a physical location through a mobile device such as a smartphone.

      Typically, consumers may not spend more than the total amount of funds loaded onto a prepaid product, although some products permit consumers to access additional funds for a fee in a manner similar to overdraft services or credit features offered with checking accounts. As discussed below, a ``general purpose reloadable'' (GPR) card is one type of reloadable, open-loop prepaid product. Others include prepaid products onto which third parties distribute funds, also as discussed in greater detail below. These include payroll cards and cards for the disbursement of student loan proceeds or insurance proceeds, and cards used to disburse Federal and non-needs based State and local government benefits.\4\

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      \4\ As described in more detail below, payroll card accounts and cards used to distribute certain government benefit payments are currently regulated by Regulation E.

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      GPR Cards

      A GPR card is one of the most common and widely-available forms of open-loop, reloadable prepaid products. A financial institution generally issues a GPR card for an amount paid to load the card by a consumer less the purchase price of the card, if any. A GPR card can be reloaded by the consumer, meaning that once the card is registered, the consumer can add funds to the card. Based on the Bureau's research, it understands that currently, the top five GPR card programs (as measured by load volume) identified by the Aite Group have maximum load amounts generally ranging from approximately $2,500 to $15,000, with some exceptions made for large tax refunds. The prevalence of GPR cards has grown rapidly. According to projections by the Mercator Advisory Group, the amount loaded onto GPR cards grew from less than $1 billion in 2003 to nearly $65 billion in 2012. This makes GPR cards among the fastest-

      growing forms of prepaid products over that decade, growing from less than 8 percent of prepaid load to over 36 percent during that same period. The growth rate has continued. According to Mercator's projections, the total dollar value loaded onto GPR cards is expected to continue to grow to over $98 billion in 2014.\5\

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      \5\ Mercator Advisory Grp., Eleventh Annual U.S. Prepaid Cards Market Forecasts, 2014-2017 at 13 (Nov. 2014).

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      Virtual GPR cards. As noted above, prepaid products may not be tied to a physical card or device, and instead may be accessible and usable online or at a physical location through a mobile device such as a smartphone. The Bureau understands that the use of GPR prepaid products not linked to a physical card or device to store and transfer funds via the internet, text, or mobile phone application is growing. To use these ``virtual GPR cards'' (``virtual'' because these accounts are not linked to a physical card or device), consumers may receive account information such as the account number that they can then use to make purchases.

      GPR Card Functionality

      As noted above, consumers generally purchase GPR cards at retail locations, over the telephone, or online. When buying a GPR card at a retail location, consumers typically pay an upfront purchase fee. Program managers may waive this fee for GPR cards that consumers purchase online. A newly-purchased GPR card is usually loaded by the retailer at the time of purchase with funds provided by the consumer. However, in order to take advantage of all of the GPR card's features, consumers are often required to contact the GPR card's program manager and register the card, or at least to activate it. Indeed, the Bureau understands that it is common that unless a consumer registers the consumer's newly-purchased GPR card, the consumer only has a ``temporary card,'' because program managers do not send a ``permanent card'' embossed with the consumer's name until the consumer registers the card. Further, the Bureau understands that unless a GPR card is registered, there is typically a cap on the amount of funds a consumer can load onto the card and restrictions on the consumer's use of the card (e.g., the consumer might not be able to use the card at ATMs or reload funds onto the card).

      Registration typically requires the consumer to provide specific identifying information (i.e., full name, domestic residential address, date of birth, and a Social Security Number or Taxpayer Identification Number, or, in some instances, another government-issued identification number). The information is used by the program manager or issuing bank to verify the consumer's identity. If the consumer's identity cannot be verified, the card is not considered registered. As noted above, customers with unregistered GPR cards are generally able to spend their initial load but will not be able to reload the card or use it at an ATM. Activation may require a consumer to provide less identifying information than registration.

      GPR cards can generally be reloaded through direct deposit of wages, pensions, or government benefits; a cash purchase of a reload product; direct cash reload; transfer from another prepaid product or a deposit account; or deposit of a check at a participating check-cashing outlet or via remote deposit capture.\6\ Consumers can typically obtain cash from their prepaid products via ATM withdrawals, bank teller transactions, or by electing to obtain cash back on a personal identification number (PIN) transaction at a merchant. Additionally, consumers can typically make purchases with their GPR cards wherever the payment network brand appearing on the card is accepted. A number of programs also offer an online bill pay function, which sometimes has a fee associated with it. Consumers can typically obtain updates

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      regarding their GPR card's account balance (and, for some programs, recent transaction activity) via toll-free telephone calls, text messages, email alerts, the card program's Web site, or written account histories. Some GPR card providers charge consumers to speak to a customer service agent or to receive a written copy of their account history. Consumers may incur fees to obtain balance information at an ATM.

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      \6\ The Bureau understands that in limited circumstances, a consumer can reload a GPR card via paper check.

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      In fact, the Bureau understands that GPR cards can vary substantially with respect to the fees and charges assessed to consumers, both in terms of their total volume as well as in the number and type of fees assessed. Based on its review of the 2012 FRB Philadelphia Study, the Bureau believes average cardholder costs for GPR and payroll cards range from approximately $7.00 to $11.00 per month, depending on the type and distribution channel of the account.\7\ In a 2014 paper, the Pew Charitable Trusts estimated that the median consumer using one of the 66 major GPR cards it examined would be charged approximately $10.00 to $30.00 every month for use of the cards, on average, depending on the consumer's understanding of the card's fee structure and ability to alter behavior to avoid fees.\8\ The 2012 FRB Philadelphia Study also found that in terms of total value, maintenance and ATM withdrawal fees are among the most significant fees incurred by users of open-loop prepaid products.\9\

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      \7\ Stephanie Wilshusen et al., Fed. Reserve Bank of Phila., Consumers' Use of Prepaid Cards: A Transaction-Based Analysis, at 39 (2012) (2012 FRB Philadelphia Study), available at http://www.philadelphiafed.org/consumer-credit-and-payments/payment-cards-center/publications/discussion-papers/2012/D-2012-August-Prepaid.pdf. The authors of the report noted that the report's primary focus is on GPR cards and payroll cards, which will be discussed in greater detail below.

      \8\ The Pew Charitable Trusts, Consumers Continue to Load Up on Prepaid Cards, at 39 (Feb. 2014) (2014 Pew Study), available at http://www.pewtrusts.org/en/research-and-analysis/reports/2014/02/06/consumers-continue-to-load-up-on-prepaid-cards.

      \9\ 2012 FRB Philadelphia Study, at 6.

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      Consumers' Use of GPR Cards

      The 2012 FRB Philadelphia Study found that most of the prepaid products in its study are used for both cash withdrawals and purchases of goods and services. In particular, it found that depending on the product, cash withdrawals account for about one-third to one-half of the value taken off the product. The study also reported that it believed that prepaid cards are used primarily to purchase nondurable goods and noted that many of the products studied are also used to pay bills.\10\

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      \10\ Id.

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      Further, as discussed in greater detail below, both the type of consumers who use GPR cards and the reasons for which they use them vary. Although it has been reported that the majority of users of open-

      loop prepaid products have had checking accounts at some point and that most users also have experience using credit cards,\11\ it also has been observed that for some consumers, the lack of access to checking accounts and other types of more established financial products and services such as credit cards appear to be the key driver of their use of GPR cards.\12\ The 2014 Pew Survey found that 58 percent of consumers that use prepaid products are currently without checking accounts, but indicated they want to have a checking account in the future.\13\ The survey also found that 26 percent of prepaid product users without checking accounts indicated that they use prepaid products because, among other reasons, they would not be approved for a checking account.\14\

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      \11\ The Pew Charitable Trusts, Why Americans Use Prepaid Cards: A Survey of Cardholders' Motivations and Views, at 7 (Feb. 2014) (2014 Pew Survey). It appears that the prepaid products discussed in the report included GPR cards, payroll cards, and government benefit cards. The study excluded closed-loop prepaid products.

      \12\ 2014 Pew Survey, at 7-8, 11.

      \13\ Id. at 10-11.

      \14\ Id. at 14.

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      When consumers open a checking or savings account, they must satisfy the depository institution or credit union's customer identification program (CIP) obligations, which is part of the institution's Bank Secrecy Act (BSA) and anti-money laundering compliance program.\15\ In addition, banks and credit unions generally review information about prospective customers obtained from specialized reporting agencies that can reveal prior history of involuntary account closure, unsatisfied balances, and other issues with prior checking account use.

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      \15\ See e.g., Federal Financial Institutions Examination Council Bank Secrecy Act/Anti-Money Laundering InfoBase, http://www.ffiec.gov/bsa_aml_infobase/pages_manual/olm_011.htm.

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      Customer identification and verification procedures (other than those related to credit or similar inquiries) are largely identical between checking and GPR accounts. First, the customer identification and verification requirements for providers and sellers of prepaid access issued by the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury Department (Treasury), are largely similar to the CIP requirements for depository institutions and credit unions. Second, the Bureau understands that for most prepaid products, the issuer (i.e., the depository institution or credit union providing access to the networks and holding the funds) sets the minimum standards for the CIP.\16\ However, there are differences. The primary difference is usually with respect to the method of customer verification. Checking and savings accounts are more frequently opened in person at a financial institution's branch location (and thus use ``documentary'' forms of identification, such as a driver's license or passport, to verify identity). Prepaid products, however, even those purchased at retail locations, are usually registered via telephone or online (and thus use ``non-documentary'' forms of verification such as using information obtained from consumer reporting agencies).

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      \16\ Mercator Advisory Grp., Customer Identification Programs in Prepaid: Best Practices, at 2 (July 2013).

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      When consumers apply for credit cards, a card issuer will generally rely on a rigorous process to determine whether an applicant is an appropriate credit risk. In contrast, most GPR cards do not contain similar requirements. The 2014 Pew Survey found that 33 percent of monthly users of open-loop prepaid products have never had a credit card.\17\ GPR cards may also be more accessible to consumers than debit cards that require the cardholder to have opened a traditional transactional account such as a checking account as a prerequisite. The 2014 Pew Survey found that 41 percent of monthly users of open-loop prepaid products currently do not have a checking account.\18\ Similarly, a 2013 survey by the Federal Deposit Insurance Commission (FDIC) found that of those people whom it surveyed, approximately 33 percent of those who reported using a prepaid card in the 30 days prior to being surveyed were unbanked.\19\ Additionally, debit card issuers may evaluate potential customers for credit risk more closely than prepaid card issuers. The Bureau understands that debit card issuers often provide faster fund availability than prepaid card issuers and thus may bear

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      greater depositor credit risk such as the risk that a deposited check never clears.

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      \17\ See 2014 Pew Survey, at 7. The Bureau recognizes that this figure may include consumers that have never tried opening a credit card account, as well as those that tried to open a credit card account, but had their application denied.

      \18\ Id.

      \19\ See also Fed. Deposit Ins. Corp., Appendix to 2013 FDIC National Survey of Unbanked and Underbanked Households (Oct. 2014) (2013 FDIC Survey), at 46, available at https://www.fdic.gov/householdsurvey/report.pdf.

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      The 2013 FDIC Survey also suggests that unbanked and underbanked consumers are more likely than the general population to use open-loop prepaid products such as GPR cards. It found that there are approximately 30 million unbanked and underbanked households in the United States.\20\ It also found that these households tend to be disproportionate users of GPR cards and payroll cards. It observed that 19.7 percent of underbanked and 27.1 percent of unbanked households, as well as 33 percent of previously banked households, reported having used such cards (compared with 12 percent reported use in the entire population).\21\ The FDIC also found that while usage among all households remained relatively stable since 2009, the proportion of unbanked households that had used a prepaid card increased from 12.2 percent in 2009 to 17.8 percent in 2011 and 27.1% in 2013.\22\ In addition to the lack of access to traditional financial products and services as a shared characteristic of some of the consumers that use GPR cards, the FDIC study shows that prepaid card users were more likely than the general population to be young, single mothers, disabled, or have sub-$50,000 incomes, and less likely to be homeowners, white, have college degrees, or be employed.\23\

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      \20\ 2013 FDIC Survey, at 4.

      \21\ 2013 FDIC Survey, at 35-36.

      \22\ 2013 FDIC Survey, at 29.

      \23\ 2013 FDIC Survey appendix, at 46-47.

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      Further, the 2014 Pew Survey noted that the desire to avoid fee-

      based overdraft services associated with checking accounts appear to motivate some consumers to choose open-loop prepaid products over checking accounts. Indeed, the survey concluded that 41 percent of users have closed or lost a checking account due to overdraft fees.\24\ Checking accounts can become costly. For instance, Bureau staff has determined that the median checking account overdraft fee charged as of July 2014 among the largest fifty U.S. depository institutions ranked by consumer checking balances is $35 per item.\25\ By contrast, except for a few exceptions discussed below, GPR cards are generally not offered with an overdraft service nor other credit features.\26\ Moreover, GPR card providers that offer such services or features charge lower fees than the fees depository institutions or credit unions charge for checking account overdraft.\27\ Thus, for consumers who do not want to, or cannot open a checking account, the Bureau believes that a GPR card could be a viable substitute. Indeed, the Bureau observes that many GPR cards are advertised as a ``safe'' or ``secure'' alternative to a checking account.\28\

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      \24\ 2014 Pew Survey, at 8; see also id. at 13-14 (explaining that 46 percent of respondents indicated that one of the major reasons they use prepaid cards is to ``Avoid overdraft fees;'' 51 percent of respondents said one of their major reasons is ``Helping you not spend more money than you actually have'').

      \25\ Nearly all depository institutions the Bureau considered assess overdraft fees on a per-item basis. Among those that do, both the median and modal lowest-tier overdraft fee is $35. Some depository institutions have higher overdraft fees that apply after a certain number of overdraft occurrences. However, the Bureau's analysis considers only the lowest-tier fees a consumer would encounter if de minimis or other policies do not preclude a fee. For depository institutions that charge different amounts in different regions, Bureau staff considered pricing for the region where the depository institution is headquartered.

      \26\ See, e.g., 2014 Pew Study, at 4, 9-10.

      \27\ Id.

      \28\ See, e.g., NBCPA Web site, What are Prepaid Cards, http://www.nbpca.com/en/What-Are-Prepaid-Cards/Prepaid-Card-Benefits.aspx (``With prepaid cards . . . avoid the risk of over-spending or overdraft, thus avoiding the interest, fees and potential negative credit score implications of traditional credit cards. For parents, prepaid cards help maintain control over children's spending.'')

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      Consumers with access to traditional financial products and services use GPR cards as well.\29\ The Bureau understands that one of the ways in which many consumers use such cards is for a limited purpose such as while traveling or making online purchases, because they may believe that using prepaid cards is safer than using cash, a credit card, or a debit card in those situations.\30\ These consumers may not ever register and reload the card. Instead, they may let the card become dormant or discard it after spending down the initial balance, and then purchase another GPR card at a later date if new needs arise. The Bureau understands that another popular way in which consumers use GPR cards is as a budgeting tool. For example, a family might budget a fixed amount each month for dining out and put that money on a GPR card, or parents may provide a GPR card to a child at college to control the child's spending.

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      \29\ 2014 Pew Survey, at 7 (59 percent of prepaid card users also have a checking account.)

      \30\ See, e.g., 2014 Pew Survey, at 1, 13.

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      Further, based on the Bureau's market research and analysis, the Bureau believes that additional consumers will continue to adopt GPR cards. It also believes that consumers that currently use GPR cards may increasingly find that they no longer want to have traditional financial products and services such as a checking account or a credit card in addition to their GPR card. The Bureau notes that GPR card functionality has been expanding. For example, some GPR card programs have started to offer checking account-like features such as check-

      writing using pre-authorized checks, the ability to send direct deposits via an ACH to the GPR card, and, in some limited cases, the ability of third parties to debit and credit the GPR card account via ACH (e.g., crediting the card account through direct deposit). Additionally, many GPR card programs have offered consumers ways to access their account online, including through mobile devices such as smartphones. For example, oftentimes consumers can use mobile phone applications to closely monitor their GPR card transactions, balances, and fees; to load funds to their GPR cards; and to transfer funds between accounts. Lastly, like credit and debit cards, GPR cards provide access to payment networks. Consumers may find this to be an important feature of GPR cards in that some merchants may only accept payment through a card that provides access to one of these networks.

      Marketing and Sale of GPR Cards

      In recent years, the GPR card segment has grown increasingly competitive, which has resulted in a decrease in prices, coupled with an increase in transparency for many products.\31\ Nevertheless, GPR card providers market the cards in ways that may negatively affect consumers' ability to make meaningful comparisons.\32\ Card packaging is often limited in size. Because many of them are designed to be sold in retail stores, the card package, also known as a J-hook package, is no larger than 4 inches by 5.25 inches.\33\ Thus, card packages have limited space in which to explain their product and disclose key features. It has also been reported that fee information for prepaid products is sometimes hard to find and difficult to understand, thus making comparison shopping challenging.\34\

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      However, the Bureau believes that consumers benefit from comparison shopping. For example, the 2012 FRB Philadelphia Study found that total cardholder costs vary by the type of open-loop prepaid product. \35\

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      \31\ See, e.g., Fed. Reserve Bank of St. Louis, Cards, Cards and More Cards: The Evolution to Prepaid Cards, Inside the Vault, Fall 2011, at 1, 2, available at http://www.stlouisfed.org/publications/itv/articles/?id=2168 (``Competition among prepaid card issuers and increased volume have helped lower card fees and simplify card terms''); 2014 Pew Study, at 2 (``Our research finds that the providers are competing for business by lowering some fees and are facing pressure from new entrants in the market'').

      \32\ 2014 Pew Survey, at 5, 6.

      \33\ A j-hook is a looped hook used by retailers to hang prepaid cards (and other products). Retailers often sell prepaid cards on j-

      hooks in a standalone display rack at the end of an aisle in a store.

      \34\ See, e.g., Consumer Reports, Prepaid Cards: How They Rate on Value, Convenience, Safety and Fee Accessibility and Clarity, (July 2013), at 24, available at http://www.consumerfinance.gov/blog/prepaid-cards-help-design-a-new-disclosure/.

      \35\ 2012 FRB Study, at 6, 39, 72; Fumiko Hayashi & Emily Cuddy, General Purpose Reloadable Prepaid Cards: Penetration, Use, Fees and Fraud Risks, at 33-35 (Fed. Reserve Bank of Kansas City, Working Paper No. RWP 14-01, 2014) (Kansas City Fed Study), available at https://www.kansascityfed.org/publicat/reswkpap/pdf/rwp14-01.pdf.

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      In addition to the size limitations to GPR card packaging related to the fact that many GPR cards are sold through the retail channel on J-hooks, certain aspects of purchasing GPR cards in retail settings may pose additional issues. For instance, some retail locations may only offer one or a handful of products. Retailers may not always have a broad selection of GPR cards that consumers can compare while in a particular store, because prepaid card providers can establish exclusive marketing arrangements that may prevent competitors' cards from being sold in the same store.\36\ The Bureau acknowledges that the lack of choice is not necessarily unique to GPR cards sold in certain retail locations. For example, any one bank or credit union may only offer a limited range of transactional accounts. Further, in some stores, prepaid products including GPR cards may be displayed behind a register, requiring a consumer to ask to see each product packaging individually. The Bureau believes that this process likely makes comparison-shopping more time-consuming, even when choice among products exists. Lastly, in a retail setting, GPR cards may be displayed near closed-loop prepaid products such as gift cards. This could contribute to consumer confusion. For the above reasons, the Bureau believes that a consumer looking to comparison shop among different GPR cards in a retail setting may incur high search costs.

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      \36\ For example, earlier this year Blackhawk Network Holdings, Inc. extended its exclusive distribution arrangement with Safeway Inc. through 2019. See Press Release, Blackhawk Network, Safeway and Blackhawk extend exclusive prepaid card distribution agreement through 2019 (Mar. 7, 2014), available at http://.com/blackhawk-

      comments-on-parent-company-safeways-spin-off-announcement/.

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      Additionally, in a retail setting, consumers desiring to purchase GPR cards may only allot limited time to consider their purchases. The Bureau believes that consumers often purchase a GPR card while purchasing groceries and convenience items, and may not take the time to fully review and comprehend the terms of the card that they are acquiring. Moreover, the selling of GPR cards in convenience and other retail stores that do not otherwise sell financial products (as opposed to, for example, at a bank) may not be conducive to helping a consumer understand the terms and conditions of the GPR card or that the consumer may be starting a long-term financial relationship that could entail significant expense for the consumers. For example, the Bureau believes that a salesperson at a convenience store where a GPR card is sold may not be able to provide adequate information to a consumer about the product. In contrast, the Bureau expects that an employee at a bank or credit union would be better informed.

      Further, once a consumer can review the full terms and conditions of a GPR card, the consumer has typically already purchased the card and loaded funds onto it, making returns difficult or impossible due to the inability of the retail store to refund the cash loaded onto a prepaid product including a GPR card. During outreach, several prepaid product providers have informed the Bureau that they provide refunds related to the purchase of a prepaid card, but the Bureau believes that few consumers realize that this is an option. The Bureau acknowledges that consumers who determine they do not want to establish a long term relationship with the GPR prepaid card they purchased may also end the relationship more easily (as compared to closing a checking or credit card account). Such consumers could spend down the funds initially loaded onto the card and then discard it. However, the Bureau believes that the consumer could still incur fees such as monthly maintenance fees for using the GPR card.

      Structure of Typical GPR Card Programs

      GPR card products are generally provided by combinations of entities working together rather than by a single, vertically-

      integrated entity operating all aspects of the program. In fact, the Bureau understands that the typical GPR card supply chain involves more parties than the supply chains for traditional checking or savings accounts or for credit cards. Although a consumer may only interact with a single entity or limited number of entities involved in the supply chain such as those entities whose logos are displayed on the GPR card or its packaging, the Bureau believes that the fact that many different entities can be involved in the supply chain could expose consumers as well as the entities themselves to greater risks such as potential losses resulting from the insolvency or malfeasance of other entities involved in the supply chain, when compared to the risks associated with a traditional checking or savings account. The Bureau discussed the various entities that may be involved in a typical GPR card program below.

      Entities involved in a typical GPR card program. First, entities known in the industry as program managers may design, manage, market, and generally operate GPR card programs. Program managers may include depository institutions and credit unions, but are typically non-

      depository entities. Program managers typically establish or negotiate a GPR card program's terms and conditions, market the card, assume most of the financial risks associated with the program, and reap the bulk of the revenue from the program.\37\ The program manager is also, in most cases, the primary consumer-facing party in connection with a GPR card, because it is typically the program manager's brand on the card as well as its packaging.\38\ While a handful of program managers appear to have had a large majority of the market share as recently as 2012, the Bureau notes that the GPR card industry is fast-changing. Indeed, it appears that new entrants--both start-ups and established financial institutions--have led to both increased competition and growth in the market over just the last few years.\39\

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      \37\ See Kansas City Fed Study, at 6.

      \38\ See Aite Grp. LLC, Prepaid Debit Card Realities: Cardholder Demographics and Revenue Models, at 17 (Nov. 2013).

      \39\ Id.

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      Program managers typically contract with various third-party service providers for various tasks. One of the most important entities involved in GPR card program is the prepaid card issuer, which is typically either a depository institution or credit union. Virtually all GPR cards must be issued by depository institutions or credit unions that are authorized by the retail electronic payment card networks. Issuers may manage the accounts that hold funds loaded onto the cards. Some depository institutions and credit unions are actively involved in the GPR cards they issue by serving as both issuer and program manager for their own programs. Other depository institutions may only act as an issuer and provide sponsorship into specific payment networks, but may work closely with the entity that is the program manager for a specific GPR card program to design, market and administer the

      Page 77108

      program. In sum, the particular services that issuers provide and their degree of involvement in any GPR card program may vary.\40\ The Bureau understands that variations can be due to the extent to which the program manager performs particular services by itself, as well as due to the particular features of a specific GPR card program.

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      \40\ In some cases, a white label model is used whereby banks and credit unions rely upon another institution to issue prepaid accounts, which may be branded with the bank or credit union's name. There are a handful of such programs through which banks and credit unions, including some that are small, offer prepaid accounts (typically as a convenience to their customers or members).

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      To produce, market and sell GPR cards, program managers work with, as applicable, manufacturers and distributors. The Bureau understands that distributors arrange for GPR cards to be sold through various channels including through retailers, money transfer agents, tax preparers, check cashers, and payday lenders. Further, in many cases, the Bureau understands that third-party processors may provide many of the back-office processing functions associated with initial account opening (including those related to transitioning from temporary to permanent cards), transaction processing, and account reporting. Lastly, the payment networks themselves also establish and enforce their own rules and security standards related to payment cards generally and prepaid products such as GPR cards specifically. The networks also facilitate card acceptance, routing, processing, and settling of transactions between merchants and card issuers.

      How funds are held. In contrast to a traditional checking or savings account, prepaid products including GPR cards are unique in that the underlying funds are typically held in a pooled account at a depository institution or credit union. This means that rather than establish individual accounts for each cardholder, a program manager may establish a single account at a depository institution or credit union in its own name, but typically title the account to indicate that it is held for the benefit of each individual underlying cardholder. The Bureau understands that the program manager, sometimes in conjunction with the issuing depository institution or credit union or the depository institution or credit union holding the funds, will typically establish policies and procedures and put in place systems to demarcate each cardholder's funds within the pooled account. As discussed in detail below, these pooled accounts may qualify for, as applicable, FDIC pass-through deposit insurance or National Credit Union Administration's (NCUA) Share Insurance Fund (NCUSIF) pass-

      through share insurance. Whether the accounts in fact qualify depends on how the account is structured and whether certain other conditions are met. Also discussed in greater detail below, both the FDIC and NCUA have special rules, regarding how pool accounts may qualify for, as applicable, FDIC or NCUSIF pass-through insurance.

      Revenue generation. The Bureau understands that GPR cards typically generate revenue through an up-front purchase price paid by the consumer, the assessment of various monthly maintenance and transactional fees, and interchange fees collected from merchants by the payment networks. The 2012 FRB Philadelphia Study found that ``while not as important as cardholder fees, interchange revenues (fees paid by a merchant or acquiring bank for the purpose of compensating an issuer for its involvement in an electronic prepaid, debit, or credit card transaction) account for more than one-fifth of the issuer revenues in the general-purpose programs and almost half of revenues in the payroll programs.'' \41\ Revenue is shared among some or all of the entities involved in the GPR card supply chain, although as also discussed above, program managers generally reap the bulk of the revenue from GPR card programs. Further, the Bureau notes that publicly-available details of how revenue is distributed and expenses are accounted for are sparse. Additionally, the Bureau believes that the distribution of revenue and the sharing of expenses among the entities involved the GPR card supply chain likely vary across programs.

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      \41\ 2012 FRB Philadelphia Study, at 6.

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      Prepaid Products Loaded by Third Parties

      The Bureau understands that consumers also receive network-branded open-loop prepaid products from third parties that disburse funds to consumers by loading the funds onto such accounts. Previously, funds may have been distributed to the consumer via paper check, direct deposit into a traditional checking or saving account, or cash. Payroll cards are the most common example of prepaid products used by third parties to distribute funds to consumers. In 2013, over five million payroll cards were issued, and $30.6 billion was loaded onto them.\42\ The Bureau understands that an employer may establish payroll cards for its employees, directly or indirectly, for the express purpose of delivering on an ongoing basis, recurring payments of an employee's wages, salary, or other compensation, and an employee may choose having his compensation distributed via a payroll card over other options for receiving compensation.

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      \42\ Mercator Advisory Grp., Eleventh Annual U.S. Prepaid Cards Market Forecasts, 2014-2017, at 32 (Nov. 2014).

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      If an employee chooses a payroll card, the Bureau understands that the employer will provide the employee with a network-branded prepaid card that accesses a subaccount assigned to the individual employee. Moreover, on each payday, the employer will transfer the employee's compensation to the payroll card account, instead of providing the employee with a paper check or making a direct deposit of funds to the employee's checking or savings account. The employee can use the payroll card to withdraw funds at an ATM or over-the-counter via a bank teller. The employee can also use the payroll card to make purchases online and at physical retail locations. An employee may even be able to obtain cash back at the point-of-sale (POS). Some payroll cards may offer features such as convenience checks and electronic bill payment. The Bureau understands that employers market payroll cards as an effective means for employees who may lack a traditional banking relationship to receive wages. Indeed, the Bureau believe that payroll cards may provide some consumers a more suitable, cheaper, and safer method of receiving their wages, as compared to other methods, such as receiving a check and going to a check-cashing store, if the consumer does not have a checking account.

      Within the last ten years, however, there have been increasing concerns raised about payroll cards, with specific focus on potentially harmful fees and practices associated with payroll cards. As explained in greater detail below, the Board extended a modified form of Regulation E coverage to payroll cards in 2006, but did not extend these rules to GPR cards and other prepaid products. Among the relevant provisions of Regulation E that apply to payroll cards is the provision on compulsory use. Pursuant to this provision, no financial institution or other person can mandate that a consumer receive an electronic fund transfer into an account at a particular institution as a condition of employment. 12 CFR 1005.10(e)(2).

      The Bureau issued a guidance bulletin in September 2013 to clarify the application of Sec. 1005.10(e)(2) to payroll

      Page 77109

      card accounts.\43\ The bulletin reminded employers that they cannot require their employees to receive wages on a payroll card. It also explained some of the Regulation E protections that apply to payroll card accounts, such as those pertaining to fee disclosure, access to account history, limited liability for unauthorized use, and error resolution rights. Since the Bureau issued the bulletin, it understands that certain industry stakeholders have worked to develop industry standards incorporating and building upon the guidance given in it.\44\ Nevertheless, the Bureau believes that concerns persist as to whether and how employers and financial institutions are complying with the compulsory use provision and other provisions of Regulation E, as well as related State laws applicable to the distribution of wages.\45\ For example, employees may not always be aware of the ways in which they may receive their wages, because States may have differing and evolving requirements.\46\

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      \43\ CFPB Bulletin 2013-10, Payroll Card Accounts (Regulation E) (Sept. 12, 2013), available at http://.consumerfinance.gov/f/

      201309_cfpb_payroll-card-bulletin.pdf.

      \44\ See, e.g., Press Release, MasterCard MasterCard Introduces Payroll Card Standards (Dec. 13, 2013), available at http://newsroom.mastercard.com/press-releases/mastercard-introduces-payroll-card-standards/.

      \45\ See, e.g., N.Y. State Attorney Gen., Labor Bureau, The Impact of Payroll Cards on Low-Wage Workers, available at http://www.ag.ny.gov/pdfs/Pinched by Plastic.pdf.

      \46\ See, e.g., http://paycard.americanpayroll.org/compliance-regulations (listing the various State regulations that apply to payroll cards).

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      The Bureau additionally believes that payroll card accounts raise disclosure issues beyond those addressed by its payroll card accounts guidance bulletin, discussed above. Employers may offer a payroll card account when an employee starts employment, and the issue of how the employee is to be paid is likely to be one among the many and varied human resource issues confronting the employee during orientation. An employee may be provided with a stack of forms to complete and may not have the time or opportunity to review them. It is also possible that the employee may be unaware that receiving wages via a payroll card account is optional, particularly if the employer does not present the options clearly. These forms the employee may receive from the employer may not always include all of the relevant information regarding the terms and conditions of the payroll card account, such as fees associated with the card and how cardholders can withdraw funds on the card. Separately, some have raised concerns about the extent to which payroll card providers share program revenue with employers and, if so, whether that revenue sharing has negative consequences for cardholders.

      Payroll cards are just one type of network-branded open-loop prepaid products consumers may receive from third parties that disburse funds to consumers by loading the funds onto such accounts. For example, institutions of higher education may partner with certain entities to disburse student financial aid proceeds into network-

      branded open-loop prepaid products endorsed by those institutions. See 34 CFR 668.164(c)(2) (setting forth that certain Federal student aid payments disbursed via ``an account that underlies a stored-value card'' is considered a direct payment to a student or parent). Like with payroll card accounts, some have raised concerns about revenue sharing in connection with prepaid cards provided to students.

      A 2014 Government Accountability Office (GAO) report found that of the U.S. colleges and universities participating in Federal student aid programs for the 2011-2012 school year that had agreements with financial firms to provide debit and prepaid card services for students, approximately 80 percent of such agreements were for debit cards, with the remainder for prepaid cards.\47\ The report also stated that more than 80 percent of the schools identified in the report with card agreements indicated that students could use their cards to receive financial aid and other funds from the school.\48\ Further, the report found instances where certain third-party providers involved in college card programs work with a bank partner.\49\

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      \47\ U.S. Gov't Accountability Office, GAO-14-91, College Debit Cards Actions Needed to Address ATM Access, Student Choice and Transparency, at 8 (Feb. 2014) (GAO 2014 College Card Report), available at http://www.gao.gov/assets/670/660919.pdf.

      \48\ GAO 2014 College Card Report, at 9.

      \49\ Id. at 15.

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      Among other things, the GAO noted concerns about the fees on student debit and prepaid cards, as well as the lack of ATM access and the lack of the schools' neutrality toward the card programs.\50\ It found instances in which schools appeared to encourage students to enroll in the school's specific prepaid card program, rather than present neutral information about disbursement options for financial aid.\51\ Relatedly, the Department of Education is in the process of a negotiated rulemaking regarding the use of third-party entities to disburse Federal student aid, including those that may distribute funds via prepaid products.\52\

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      \50\ U.S. Gov't Accountability Office, GAO Highlights: Highlights of GAO-14-91, a Report to the Chairman, Committee on Health, Education, Labor, and Pension, U.S. Senate (Feb. 2014), available at http://www.gao.gov/assets/670/660920.pdf.

      \51\ Id.

      \52\ 78 FR 69612 (Nov. 20, 2013).

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      Further, the Bureau understands that prepaid cards are also used by some insurance providers to pay certain insurance claims such as claims related to a property or casualty loss.\53\ During outreach, some insurance providers informed the Bureau that, where permitted by State law, it is faster and more economical to provide workers compensation payments on prepaid cards relative to mailing paper checks. Additionally, after a natural disaster, the disbursement of funds from insurance claims onto prepaid cards may allow funds to be delivered to consumers that may be unable to use or access traditional checking or savings accounts.

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      \53\ Mercator Advisory Grp., Tenth Annual U.S. Prepaid Cards Market Forecasts, 2013-2016, at 42-43 (Oct. 2013).

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      Similarly, taxpayers may direct tax refunds onto prepaid cards provided by tax preparers or government entities. These prepaid cards are typically open-loop cards. Other disbursements onto prepaid cards include disbursement of mass transit or other commuting-related funds, which are typically onto restricted closed loop cards. However, the Bureau understands that new transit payment models are emerging, and these models tend to involve open-loop prepaid cards.\54\ Aid distributed by relief organizations or government agencies in response to natural disasters is usually loaded onto open-loop cards. In some of these cases, the cards may be reloaded by the entity that initially disbursed funds onto the card.

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      \54\ See e.g., https://www.ventrachicago.com/ (The city of Chicago's mass transit card has reloadable open-loop features). See also http://www.septa.org/key/ (The city of Philadelphia announced that its mass transit card will also have reloadable open-loop features).

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      Finally, government entities also distribute various funds onto prepaid products. In addition to distributing tax refunds onto such products, the Federal government and various State governments may use prepaid products to distribute government benefits such as Social Security Payments,\55\ unemployment insurance benefits,\56\

      Page 77110

      child support payments, and other types of disbursements including needs-tested benefits. Needs-tested benefits include funds related to Temporary Assistance for Needy Families (TANF), Special Supplemental Nutrition Program for Women, Infants and Children (WIC) and the Supplemental Nutrition Assistance Program (SNAP). State and local government programs for distributing needs-tested benefits are typically referred to as electronic benefit (EBT) programs. Most States offer a choice between at least direct deposit to a traditional checking or savings account or a prepaid product for the receipt of unemployment insurance benefits. However, the Bureau understands that several States require the distribution of such benefits onto prepaid products.\57\ With respect to other government benefits, as noted below in the discussion of relevant law, Regulation E does not apply to EBT programs.\58\ In addition, Treasury's Bureau of the Fiscal Service, on behalf of the United States military, provides both closed-loop and open-loop prepaid cards for use by servicemembers and contractors in the various branches of the armed forces.\59\ The features of and fees charged in connection with these cards may vary.

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      \55\ Treasury has established the Direct Express program for the distribution of government benefits such as Social Security payments.

      \56\ See e.g., Nat'l Consumer Law Ctr., 2013 Survey of Unemployment Compensation Prepaid Cards, at 7 (Jan. 2013), available at http://www.nclc.org/issues/unemployment-compensation-prepaid-cards.html (noting that 42 States offer some form of prepaid card for distribution of employment compensation payments).

      \57\ Id. at 1.

      \58\ See EFTA section 904(d)(2)(B); Regulation E Sec. 1005.15(a)(2).

      \59\ See, e.g., Navy Cash/Marine Cash, http://fms.treas.gov/navycash/index.html and Eagle Cash, http://fms.treas.gov/eaglecash/index.html. As discussed further below, the Navy Cash and Marine Cash products may have multiple ``purses'' such that one ``purse'' can only be used at a limited number of linked merchants (such as various places on a Naval vessel) while the other ``purse'' can be linked to a payment card network that provides global acceptance to unaffiliated merchants.

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      The Bureau believes that as a general matter, prepaid products loaded by third parties present some of the same consumer protection issues as GPR cards such as the lack of clear disclosures about fees and other important terms and conditions, and the lack of opportunity for consumers to compare and evaluate different products before acceptance. Consumers may use these products as their primary transaction account, particularly when the product is loaded with all of the consumer's incoming funds (e.g., wages, unemployment benefits, student loan proceeds, etc.). In accepting the product, a consumer may not fully grasp all of its fees and terms and how those fees and terms might impact the consumer over time. In addition and as previously noted, consumers may be offered these products in situations that make comparison shopping difficult. However, the Bureau believes that many prepaid accounts with funds loaded by third parties may present distinct set of issues as well. The Bureau understands many types of these accounts are distributed to very specific segments of consumers such as college-age students or very low-income consumers, and accordingly, there may be distinct consumer protection issues associated with these prepaid products.

      Digital Wallets

      In recent years, there has been increasing industry interest in developing ``digital wallets'' and ``mobile wallets.'' A consumer may keep cash, debit and credit cards, GPR cards, and gift cards in a physical wallet or purse. Digital wallets have been marketed as a viable alternative to a physical wallet, because a number of digital wallets currently available can store one or more of the consumer's payment credentials electronically.\60\ For example, a digital wallet may allow a consumer to store the consumer's bank account, debit card, credit card, and/or prepaid card credentials in the wallet, which may be accessed by the consumer through a Web site. Digital wallets that a consumer could access using a mobile device such as a smartphone have been described as mobile wallets.\61\ Further, some, but not all, digital wallets currently available to consumers allow a consumer to store funds in it directly or by funding a prepaid product, and draw down the stored funds.\62\

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      \60\ Aite Grp. LLC, Money Goes Mobile, (May 2014), available at http://www.aitegroup.com/report/money-goes-mobile.

      \61\ Id.

      \62\ See e.g., http://www.google.com/wallet/index.html (last accessed on Oct. 28, 2014) (``The Wallet Balance is the money in your Google Wallet . . . money will be stored in the wallet. Use your Wallet Balance to send money to friends and shop, or transfer money to your bank account. You can also add money to your Wallet Balance . . . from a credit card, debit card or linked bank account.''); see also, https://www.serve.com/ (last accessed on Oct. 28, 2014) (``Use the American Express Serve Mobile App to check your balance and recent transactions, pay bills on the go, add checks, and send money to family or friends who have a Serve Account. Download the American Express Serve Mobile App for iOS or Android.'').

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      Digital wallets have been marketed as allowing consumers to electronically transmit funds in multiple settings. Currently, digital wallets can be used by a consumer for online purchases,\63\ payments at brick-and-mortar retailers through, for example, contactless communication at the point of sale,\64\ as well as person-to-business (i.e. bill pay) and P2P transfers.\65\ The Bureau understands that there may be significant variations in how funds are held in digital wallets and how payments are processed by digital wallets and that payment processing by digital wallets is evolving quickly. For instance, some digital wallets provide methods for accessing the ACH system to make a payment. In this case, a consumer might use a digital wallet to pay for an online purchase, and the digital wallet facilitates the transfer of funds from the consumer's checking account to fund the transaction. In other cases, the consumer's funds are first transferred to the digital wallet either by the consumer or by the digital wallet provider, and then transferred to ultimate payee. For example, it may be possible for a consumer to maintain a positive balance in the wallet through transfers from sources such as a bank account, a credit, debit, or prepaid card, or a P2P transfer. The consumer's digital wallet balance may be held in the name of the digital wallet provider in a pooled account that is not further divided into subaccounts that are held in the name of any individual consumer.

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      \63\ See e.g., Visa Checkout Terms of Service, https://secure.checkout.visa.com/pages/terms?country=US&locale=en (last accessed on Oct. 28, 2014).

      \64\ See e.g., Google Wallet Terms of Service, https://wallet.google.com/termsOfService?type=BUYER&gl=US (last accessed on Oct. 28, 2014).

      \65\ See e.g., Boost Mobile Wallet Terms of Service, (https://boostmobile.wipit.me/legal/terms.aspx (last accessed on Oct. 28, 2014).

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      A mobile wallet may act as a pass-through that enables consumers to pay for goods at a store using payment credentials for other accounts, such as credentials for a consumer's credit card, debit, or prepaid card that the consumer has stored on the mobile wallet. For example, a consumer could use a mobile wallet on a smartphone to select the consumer's debit card to fund a payment for a good or service, and then use near field communication to tap the phone at a point-of-sale terminal to pay. The Bureau expects that variations of digital wallets will continue to grow and observes that the methods described herein are a few of the funding options available in the current market.

      Credit Features, Overdraft Programs & Prepaid Products

      As currently offered and marketed, most prepaid products do not allow consumers to spend more money than is loaded onto the product. Although there are a few exceptions, most providers of prepaid products do not currently offer overdraft services,\66\ a linked line of

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      credit,\67\ access to a deposit advance product \68\ or other method of accessing credit in connection with a prepaid product.\69\ Instead, prepaid products, including many GPR cards, are actively marketed as ``safe'' alternatives to checking accounts with opt-in overdraft services, credit cards, or other credit options.\70\

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      \66\ As discussed further below, overdraft services evolved from ad hoc, discretionary programs in which financial institutions would sometimes cover particular transactions that would otherwise overdraw an account as a courtesy to the consumer rather than return the transaction and subject the consumer to a non-sufficient-funds (NSF) fee, merchant fees, and other negative consequences from bounced checks. Overdraft services fees are imposed on a per transaction basis, and the financial institution takes the balance owed as soon as additional funds are deposited into the account. Further, as explained below, the Board exempted overdraft services from regulation under TILA and Regulation Z, as long as they are provided pursuant to an agreement that does not obligate the financial institution to cover any particular transaction. In addition, these programs are not typically subject to traditional underwriting processes used for other credit products. Under Regulation E, financial institutions must obtain an opt-in by the consumer before imposing overdraft fees on ATM and one-time point of sale transactions by debit card. See Regulation E, Sec. 1005.17(b).

      \67\ A linked line of credit is a separate line of credit that a financial institution ``links'' to a deposit account or prepaid product to draw funds automatically where transaction made using funds from the account or product would otherwise take the balance on the account or product negative. Such a credit feature is generally subject to interest rates, traditional credit underwriting, and the Truth in Lending Act and Regulation Z. Similarly, some financial institutions offer consumers an option to link their credit card to a deposit account to provide automatic ``pulls'' to cover transactions that would otherwise exceed the balance in the account.

      \68\ A deposit advance product (DAP) is a small-dollar, short-

      term loan or line of credit that a financial institution makes available to a customer whose deposit account reflects recurring direct deposits. The customer obtains a loan, which is to be repaid from the proceeds of the next direct deposit. DAPs typically do not assess interest and are fee-based products. Repayments are typically collected from ensuing deposits, often in advance of the customer's other bills. (See CFPB Whitepaper on Payday and Deposit Advance Products: Initial Data Findings, Apr. 30, 2013, see also OCC and FDIC Final Guidance on Supervisory Concerns and Expectations Regarding Deposit Advance Products, 78 FR 70552, 70624 (Nov. 26, 2013). Publication of the Bureau's White Paper and the guidance issued by the FDIC and OCC has caused many financial institutions to reevaluate their DAP programs.

      \69\ For example, a financial institution could offer a product whereby consumers with a credit account access that account and ``push'' the credit into their prepaid accounts where it can be spent.

      \70\ See, e.g., NBCPA, What are Prepaid Cards?, http://www.nbpca.com/en/What-Are-Prepaid-Cards/Prepaid-Card-Benefits.aspx (last visited Oct. 28, 2014) (``For many Americans, prepaid cards serve as a tool with which to more effectively budget their spending. With a prepaid card, consumers avoid the risk of over-

      spending or overdraft, thus avoiding the interest, fees and potential negative credit score implications of traditional credit cards. And for parents, prepaid cards provide tools to maintain control over their teens' or college students' spending.''); see also Examining Issues in the Prepaid Card Market: Hearing before the Subcomm. On Fin. Inst. and Consumer Prot., S. Comm. on Banking, Housing and Urban Affairs, 112th Cong. 2 (2012) (Remarks of Dan Henry, Chief Executive Officer, NetSpend Holdings, Inc.) (``Our customers are typically working Americans who want control. . . .'').

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      As the Bureau observed above, it appears that a desire to avoid fee-based overdraft services motivates a sizeable portion of consumers to choose prepaid products, such as GPR cards, over checking accounts.\71\ Further, a slight majority of consumers that participated in the 2014 Pew Survey stated that one of the major reasons that they use prepaid products is that they help those consumers control their spending.\72\ Similarly, the Bureau's own focus groups also found that many consumers choose prepaid products because they help them control their spending.\73\ Unlike deposit accounts with an overdraft feature or linked lines of credit, credit cards, and other credit products, consumers that use prepaid products without credit features (i.e., most prepaid consumers) cannot spend funds that have not been loaded into the account.

      ---------------------------------------------------------------------------

      \71\ 2014 Pew Survey, at 14 ex.12 (noting that the top two reasons consumers claim to use prepaid cards related to avoiding credit card debt (67 percent) and helping them not spend more money than they actually have (66 percent).

      \72\ 2014 Pew Survey, at 13-14.

      \73\ ICF Report, at 5.

      ---------------------------------------------------------------------------

      It also appears that many consumers specifically seek to acquire prepaid products that do not offer overdraft services or credit features because they have had negative experiences with credit products, including checking accounts with overdraft features or want to avoid fees related to such products. For example, the 2014 Pew Survey found that many prepaid consumers previously had a checking account and either lost that account (due to failure to repay overdrafts or related issues) or gave up the checking account due to overdraft or bounced check fees.\74\ Relatedly, prepaid products are often used by consumers who cannot obtain a checking account due to bad credit or other issues.\75\ GPR cards--which are sometimes marketed as involving ``no credit check''--provide consumers with access to electronic payment networks, the ability to make online purchases, and increased security and convenience over alternatives such as cash.\76\ Prepaid consumers often are unable to open credit card accounts and cannot get a traditional checking account with a debit card due to negative reports with credit reporting agencies focusing on checking-

      account related credit issues.

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      \74\ 2014 Pew Survey, at 7-8 (noting both that ``Most prepaid card users who have had a checking account in the past have paid associated overdraft fees for debit card usage'' and that ``Among those prepaid card users who have ever had a bank account, 41 percent of them say they have closed or lost a checking account because of overdraft or bounced check fees'').

      \75\ Id. at 8 (noting that one-third of prepaid consumers who have ever had a checking account say they have closed a bank checking account themselves because of overdraft or bounced check fees and 21 percent who say they have had a financial institution close their account because of overdraft or bounced check fees).

      \76\ See ICF Report, at 5; 2014 Pew Survey, at 14 ex.12 (noting that 72 percent of prepaid consumers say that a reason they have a prepaid card is to make purchases online and other places that do not accept cash).

      ---------------------------------------------------------------------------

      Apart from consumers' reasons for favoring prepaid products, regulatory factors may also have discouraged prepaid product providers from offering overdraft services or credit features in connection with their products. The Bureau understands that some prepaid product issuers have received guidance from their prudential regulators that has deterred those financial institutions from allowing prepaid products they issue to offer overdraft services or credit features. Relatedly, the Bureau believes that a 2011 Office of Thrift Supervision enforcement action regarding a linked deposit advance feature may also have had a chilling effect on the growth of DAPs.\77\ Finally, while a number of industry commenters to the Bureau's Advance Notice of Proposed Rulemaking (Prepaid ANPR) expressed interest in offering overdraft services or credit features in connection with prepaid products, some industry commenters also expressed their reluctance to proceed until there is greater certainty as to whether this rulemaking would alter the permissible bounds of such a program.

      ---------------------------------------------------------------------------

      \77\ See In the Matter of MetaBank, Office of Thrift Supervision, Order No. CN 11-25 (July 15, 2011), available at http://www.occ.gov/static/ots/enforcement/97744.pdf.

      ---------------------------------------------------------------------------

      The Bureau understands that the only credit features being offered on prepaid accounts currently are structured as overdraft services.\78\ To date, overdraft services on prepaid accounts have been generally structured similar to overdraft services offered by financial institutions on checking accounts, but in some ways, are more consumer-

      friendly. For example, the programs charge a per-transaction fee each time the consumer incurs an overdraft (e.g., one program

      Page 77112

      charges $15) although the fee tends to be lower than fees typically charged for checking accounts (median fee as of July 2014 is $35).\79\ In addition, issuers of certain prepaid products with overdraft services will waive the overdraft fee if the consumer repays the overdraft quickly (e.g., within 24 hours) or if the overdraft is only for a nominal amount (e.g., $5 or $10). Further, these terms and conditions also limit the number of overdrafts that will be permitted in a given month and the amount by which the account balance can go negative, and contain ``cooling off'' periods after a consumer has incurred more than a certain number of overdrafts. During the cooling off period, the consumer is typically prohibited from using the overdraft service.

      ---------------------------------------------------------------------------

      \78\ See CFSI Prepaid Industry Scorecard (noting that only two in a survey of 18 GPR programs representing 25% of the market currently offers an opt-in overdraft service); CFPB Overdraft Whitepaper, at 14 (summarizing data showing that most banks and credit unions offer opt-in overdraft programs). Apart from actual overdraft programs, some prepaid programs, according to their terms and conditions, reserve the right to impose a fee for a negative balance on a prepaid account. (These programs' agreements typically state that the cardholder is not permitted to spend beyond the balance in the prepaid account, but if circumstances were to occur that cause the balance to go negative, a fee will or may be imposed. Some agreements state that repeated attempts to spend beyond the card balance will or may result in the prepaid account being closed). Roughly 10 percent of reviewed agreements noted such a charge.

      \79\ Bureau staff determined the median figure for checking account overdraft fees through an analysis of the overdraft fees charged by the largest 50 U.S. banks ranked by consumer checking balances.

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      With respect to the issue of fees, revenue from overdraft services does not appear to have significantly influenced the pricing structure of prepaid products in the same way that overdraft services have influenced traditional checking accounts. Indeed, as discussed above, overdraft services offered in connection with prepaid products are relatively rare, and fees are relatively modest compared to similar fees associated with checking account overdraft programs. As discussed in greater detail in the section-by-section analysis below, as a result of several regulatory exemptions discussed below, the Bureau believes that checking account overdraft programs have evolved from courtesy programs under which financial institutions would decide on a manual, ad hoc basis to cover particular transactions and help consumers avoid negative consequences to automated programs that are the source of as much as two-thirds of financial institutions' deposit account revenue.\80\ As a result, depository institutions and credit unions have developed checking accounts to have low (or sometimes no) up-front costs, to add services such as online bill pay (including not only electronic payments through the ACH network but also manual generation of checks authorized through the bank or credit union's on-line bill pay portal) at no additional cost, and to rely on ``back end'' fees such as per-transaction overdraft fees and NSF fees to maintain profitability. While some prepaid products may also have low or no upfront fees associated with them, the Bureau believes that this is largely due to the fact that as a general matter, fixed costs for prepaid products are substantially lower than similar costs for many checking accounts.\81\ Moreover, financial institutions that issue prepaid accounts typically do not earn their revenue from ``back-end'' overdraft fees or NSF fees. Instead, they earn revenue from other types of fees, such as ATM fees, and interchange fees collected from use of a prepaid account on a payment network.\82\

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      \80\ According to information supplied to the Bureau as part of its large bank overdraft study and reported in its Overdraft White Paper, overdraft and NSF-related fees from consumer checking accounts constituted 61 percent of consumer and 37 percent of total deposit account service charges earned by study banks in 2011. If aggregate study bank fee revenue ratios could be extrapolated to all FDIC-insured institutions, this would imply the banking industry earned roughly $12.6 billion in consumer NSF and overdraft fees in 2011. See CFPB Overdraft White Paper, at 14-15.

      \81\ See Cathy Corby Parker, Is ``What's Old New Again'' for Financial Institutions in Prepaid? (Aug. 2012), available at https://www.aba.com/Tools/Offers/Documents/What's Old Is New Again White Paper.pdf.

      \82\ For example, in 2013 one major program manager derived approximately 32 percent of its operating revenue from cash-reload fees and 30 percent from interchange fees. See Green Dot Corp., 2013 Annual Report, at 30 (2014) available at http://phx.corporate-ir.net/phoenix.zhtml?c=235286&p=irol-reportsAnnual.

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      As discussed in greater detail below, certain prepaid products, such as payroll card accounts and prepaid accounts that receive Federal payments, must comply with Regulation E's overdraft provisions. However, because many prepaid products are not now currently subject to Regulation E, they may not be required to comply with its provisions specific to overdraft services. Nonetheless, the Bureau understands that program managers of prepaid products with overdraft services or credit features have structured their products to comply with Regulation E's rules regarding overdraft services. Specifically, the Bureau understands that overdraft programs on GPR cards and payroll card accounts typically provide a disclosure similar to Model Form A-9 in appendix A to Regulation E.\83\ This model form contains disclosures that require a consumer to opt-in to the overdraft service before a financial institution may charge the consumer a fee for a point-of-sale debit or ATM transaction that results in an overdraft of a consumer's account.\84\

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      \83\ The Bureau understands that prepaid product providers that offer overdraft services typically do so with respect to both their GPR cards and payroll card accounts, to the extent they offer both products.

      \84\ The Bureau found in its Study of Prepaid Account Agreements that some programs' agreements state that while they do not offer formal overdraft services, they will impose negative balance or other similar fees for transactions that may take an account negative despite generally not permitting such activity. See Study of Prepaid Account Agreements, at 24-25. The Bureau does not believe such fees are typically charged.

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      The Bureau understands that prepaid products that are associated with overdraft services or credit features generally offer such services only to those consumers that meet specified criteria, such as evidence of recurring deposits over a certain dollar amount. These recurring deposits presumably allow the financial institution to have some confidence that there will be incoming funds of adequate amounts to repay the debt. Further, the Bureau understands that the terms and conditions of prepaid product overdraft programs typically require that the next deposit of funds into the prepaid product--through either recurring deposits or cash reloads--be used to repay the overdraft, or they will claim such funds for the purpose of repaying the overdraft.

    2. Existing Regulation of Prepaid Products

      There are several Federal regulatory regimes, including those regarding consumer protection; receipt of Federal payments; interchange; and international money laundering, terrorist financing, and other financial crimes that apply to some or all types of prepaid products. In addition to EFTA, its implementing regulation, Regulation E, and related guidance, other relevant regulations include Treasury's Financial Management Service's rule on the receipt of Federal payments on prepaid cards; \85\ the Board's Regulation II on debit card interchange and routing (12 CFR part 235); and FinCEN's prepaid access rule.\86\

      ---------------------------------------------------------------------------

      \85\ 75 FR 80335 (Dec. 22, 2010).

      \86\ 76 FR 45403 (July 29, 2011).

      ---------------------------------------------------------------------------

      Prudential regulators have also issued guidance about the application of their regulations to prepaid products, program managers, and financial institutions that issue prepaid products. For example, the FDIC has issued guidance regarding pass-through deposit insurance for prepaid accounts.\87\ The Office of the Comptroller of the Currency (OCC) has published a guidance bulletin to provide guidance to national banks for assessing and managing the risks associated with prepaid access programs.\88\ However, as

      Page 77113

      discussed below, the Bureau believes that there are gaps in the existing Federal regulatory regimes that cause certain prepaid products not to receive full consumer protections, in particular under Regulation E. In addition to Federal regulations that apply to prepaid products, the Bureau also discusses below some State consumer protection laws and other regulations specific to prepaid products.

      ---------------------------------------------------------------------------

      \87\ FDIC General Counsel Opinion No. 8, Insurability of Funds Underlying Stored Value Cards and Other Nontraditional Access Mechanisms, 73 FR 67155, 67157 (Nov. 13, 2008) (FDIC 2008 General Counsel Opinion).

      \88\ Office of the Comptroller of Currency, OCC Bulletin 2011-

      27, Prepaid Access Programs, Risk Management Guidance and Sound Practices (June 28, 2011), available at http://www.occ.gov/news-issuances/bulletins/2011/bulletin-2011-27.html.

      ---------------------------------------------------------------------------

      1. The Electronic Fund Transfer Act and Related Provisions in Regulation E Core Provisions of EFTA and Regulation E

        Congress enacted EFTA in 1978 with the purpose of ``providing a basic framework establishing the rights, liabilities, and responsibilities of participants in electronic fund transfer systems.'' However, EFTA's primary objective is ``the provision of individual consumer rights.'' \89\ Congress also empowered the Board to promulgate regulations implementing EFTA. EFTA section 904(a). With the adoption of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-

        Frank Act), authority to implement most of EFTA transferred to the Bureau.\90\ See Dodd-Frank Act sections 1061(b) and 1084; 12 U.S.C. 5581(b); 15 U.S.C. 1693a et seq.

        ---------------------------------------------------------------------------

        \89\ See Public Law 95-630; 92 Stat. 3728 (1978).

        \90\ Public Law 111-203, section 1084, 124 Stat. 2081 (2010) (codified at 12 U.S.C. 1693).

        ---------------------------------------------------------------------------

        The regulations first promulgated by the Board to implement EFTA now reside in subpart A of Regulation E, 12 CFR part 1005.\91\ These rules provide a broad suite of protections to consumers who make electronic fund transfers (EFTs). An EFT is any transfer of funds initiated through an electronic terminal, telephone, computer, or magnetic tape for the purpose of ordering, instructing, or authorizing a financial institution to debit or credit a consumer's account. Sec. 1005.3(b)(1). Regulation E also provides protections for accounts from which consumers can make EFTs. In its initial rulemaking to implement EFTA, the Board developed a broad definition of ``account,'' which closely mirrored the definition of ``account'' in EFTA.\92\ The definition provides that, subject to certain specific exceptions, an account is a demand deposit (checking), savings, or other consumer asset account (other than an occasional or incidental credit balance in a credit plan) held directly or indirectly by a financial institution and established primarily for personal, family, or household purposes. Sec. 1005.2(b)(1).

        ---------------------------------------------------------------------------

        \91\ These provisions were originally adopted as 12 CFR part 205 but, upon transfer of authority in the Dodd-Frank Act to implement Regulation E to the Bureau were renumbered as 12 CFR part 1005. 76 FR 81020 (Dec. 27, 2011). Unless otherwise noted, historical provisions noted described as residing in 12 CFR part 1005 originally were contained in 12 CFR part 205.

        \92\ 44 FR 18468, 18480 (Mar. 28, 1979).

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        For covered accounts, Regulation E mandates that consumers receive certain initial disclosures, in writing and in a form that the consumer can keep. Sec. 1005.4(a)(1). As applicable, the initial disclosures must include, among other things, disclosures regarding a consumer's liability for unauthorized EFTs, an error resolution notice, contact information for the financial institution providing the account, the types of transfers a consumer may make and any limitations on the frequency and dollar amount of transfers, and the fees associated with making EFTs. See generally Sec. 1005.7(b). Regulation E also sets forth substantive provisions on error resolution and impose limits on a consumer's liability for unauthorized EFTs. See Sec. Sec. 1005.6 and 1005.11. Moreover, Regulation E contains, among other things, provisions specific to periodic statements that generally must be provided in writing (Sec. 1005.9(b)), the issuance of access devices (Sec. 1005.5),\93\ preauthorized EFTs and compulsory use (Sec. 1005.10), requirements for overdraft services (Sec. 1005.17), and ATM disclosures (Sec. 1005.16).

        ---------------------------------------------------------------------------

        \93\ An access device is a card, code, or other means of access to a consumer's account, or any combination thereof, that may be used by the consumer to initiate EFTs. Sec. 1005.2(a)(1).

        ---------------------------------------------------------------------------

        As discussed above, the Dodd-Frank Act transferred authority to implement most of EFTA from the Board to the Bureau. Since assuming the transferred authority, the Bureau has amended Regulation E in two substantive respects. First, as discussed in more detail in the section-by-section analysis below, the Bureau added consumer protections to Regulation E for certain international fund transfers. 12 CFR 1005.30 et seq. Additionally, the Bureau amended Regulation E with respect to certain rules pertaining to ATM fee notices.\94\ However, before authority transferred from the Board to the Bureau, the Board had revised Regulation E on multiple occasions to add, among other things, protections for products used for the electronic distribution of government benefits, payroll card accounts, gift cards, and gift certificates. The Board's amendments to Regulation E to expand coverage to these additional account types are discussed below.

        ---------------------------------------------------------------------------

        \94\ 78 FR 18221 (Mar. 26, 2013).

        ---------------------------------------------------------------------------

        Amendments to Regulation E Regarding Additional Account Types

        In 1994, the Board amended Regulation E to extend Regulation E's protections to accounts used for the electronic distribution of government benefits in what was then 12 CFR 205.15 (1994 EBT Rule).\95\ After the Board finalized the 1994 EBT Rule, Congress limited the application of EFTA and Regulation E with respect to State and local electronic benefit transfer programs to only those programs that are ``non-needs tested,'' when it enacted the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, a comprehensive welfare reform law.\96\

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        \95\ 59 FR 10678 (Mar. 7, 1994).

        \96\ Public Law 104-193, 110 Stat. 2105 (1996).

        ---------------------------------------------------------------------------

        The enactment of the statute necessitated a change to the 1994 EBT Rule to exempt needs-tested government benefit programs established or administered under State or local law (e.g., benefits such as those provided under SNAP and the Aid to Families with Dependent Children program). As the Board explained at the time, the revision to EFTA was ``enacted by the Congress at the urging of State officials, who expressed concern about the costs of compliance with EFTA and Regulation E. In particular, the States believed that EFTA provisions limiting a recipient's liability for unauthorized transfers could raise serious budgetary problems at the State level.'' \97\ As a result, the Board ultimately adopted a rule exempting EBT programs established or administered by State or local government agencies from Regulation E. However, all accounts used to distribute benefits for Federally-

        administered programs (including Federal needs-tested programs) and non-needs tested State and local government benefit programs, such as employment-related ones, remained covered by Regulation E.\98\

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        \97\ 62 FR 3242, 3243 (Jan. 22, 1997).

        \98\ 62 FR 43467 (Aug. 14, 1997).

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        When the Board resumed rulemaking after enactment of the welfare reform legislation, it also took notice that prepaid cards (at the time referred to as stored-value cards) were beginning to be used by more consumers. The Board sought comment on whether to adopt rules specific to prepaid financial products (other than government benefit accounts) pursuant to its authority under EFTA (1996 Stored-Value Proposal).\99\ The Board explained that the facts, as it understood them, supported a determination to include stored-value accounts as accounts under Regulation E. Among the provisions considered in the 1996 Stored-Value Proposal, the Board proposed to extend Regulation E's error resolution

        Page 77114

        provisions to stored-value accounts and provide a periodic statement alternative for such accounts similar to what was adopted for government benefit cards in the 1994 EBT Rule. In the proposal, the Board noted pending legislation in Congress that would address stored-

        value cards. H.R. 2520, 104th Cong., Sec. 443; S. 650, 104th Cong., Sec. 601 (1995).

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        \99\ 61 FR 19696 (May 2, 1996).

        ---------------------------------------------------------------------------

        Ultimately, Congress directed the Board to conduct a study to evaluate whether provisions of EFTA could be applied to stored-value products without adversely affecting the cost, development, and operation of such products.\100\ The Board concluded in a March 1997 report that:

        ---------------------------------------------------------------------------

        \100\ Public Law 104-208, 110 Stat. 3009 (1996).

        Given the limited experience at that time with electronic stored-value products to date, it is difficult to predict whether the benefits to consumers from any particular Regulation E provision would outweigh the corresponding costs of compliance. . . . Full application of Regulation E would likely impose substantial operating and opportunity costs of compliance. Partial application of Regulation E would be less burdensome than full application but, depending on the details, could still impose significant operating and opportunity costs for some electronic stored-value ---------------------------------------------------------------------------

        products.\101\

        \101\ Bd. of Governors of the Fed. Reserve Sys., Report to Congress on the Application of the Electronic Fund Transfer Act to Electronic Stored-Value Products, at 75 (Mar. 1997), available at http://www.Federalreserve.gov/boarddocs/rptcongress/efta_rpt.pdf. Notably, the products examined by the Board in this report differ from most prepaid products in use today.

        ---------------------------------------------------------------------------

        The Board ultimately did not finalize the 1996 Stored-Value Proposal. In the report, it concluded that the market was evolving rapidly and was not yet ripe for regulation.\102\

        ---------------------------------------------------------------------------

        \102\ Id.

        ---------------------------------------------------------------------------

        The Board next considered changes to Regulation E with respect to prepaid products in 2004, when it proposed amendments to Regulation E to extend it to payroll card accounts established by an employer for providing an employee's compensation on a regular basis.\103\ The Board concluded that extending a modified form of Regulation E protections was warranted for payroll card accounts because they are often used as account substitutes. However, as discussed in greater detail below, yet again, the Board decided not to extend such protections to other prepaid products such as general-use prepaid cards, because it concluded that consumers used such cards in many different ways.

        ---------------------------------------------------------------------------

        \103\ 69 FR 55996 (Sept. 17, 2004).

        ---------------------------------------------------------------------------

        In its final rule, the Board included payroll card accounts within the definition of account in Sec. 1005.2(b) (Payroll Card Rule).\104\ The Board also established provisions in Regulation E specific to payroll card accounts that modified certain Regulation E provisions as the Board deemed appropriate. As noted above, Regulation E generally requires financial institutions to provide periodic statements in writing. See Sec. 1005.9(b). The Board allowed providers of payroll card accounts to avoid this requirement, if the institution makes available to the consumer: (1) The account balance, through a readily available telephone line; (2) an electronic history of account transactions that covers at least 60 days (including all the information required in periodic statements by Sec. 1005.9(b)); and (3) a written history of account transactions that is provided promptly in response to an oral or written request and that covers at least 60 days (including all the information required in periodic statements by Sec. 1005.9(b)). See Sec. 1005.18(b). Related provisions in Sec. 1005.18(c) modify other requirements of Regulation E with respect to payroll card accounts. They include modification related to the requirements for initial disclosures, annual error resolution notices (otherwise required by Sec. 1005.8(b)), and error resolution and limitations on liability, in recognition of the modified periodic statement requirement.

        ---------------------------------------------------------------------------

        \104\ 71 FR 51437, 51438 (Aug. 30, 2006).

        ---------------------------------------------------------------------------

        As noted above, in adopting the Payroll Card Rule, the Board considered whether also to include GPR cards within Regulation E. The Board ultimately concluded that, as of 2006, it was premature to do so. In its view of the marketplace at that time, the Board noted that consumers did not often use other prepaid products such as general-use prepaid cards in the same way that they used payroll card accounts. The Board stated that ``For payroll card accounts that are established through an employer, there is a greater likelihood than for general-

        use prepaid cards that the account will serve as a consumer's principal transaction account and hold significant funds for an extended period of time.'' \105\

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        \105\ 71 FR 51437, 51441 (Aug 30, 2006).

        ---------------------------------------------------------------------------

        Similarly, in an earlier interim final rule that established that payroll card accounts are covered accounts under Regulation E, the Board expressed its belief that to the extent that consumers use general-use prepaid cards like gift cards, ``consumers would derive little benefit from receiving full Regulation E protections for a card that may only be used on a limited, short-term basis and which may hold minimal funds, while the costs of providing Regulation E initial disclosures, periodic statements, and error resolution rights would be quite significant for the issuer.'' \106\ It also noted that GPR cards are ``generally designed to make one-time or a limited number of payments to consumers and are not intended to be used on a long-term basis.'' \107\

        ---------------------------------------------------------------------------

        \106\ 71 FR 1473, 1475 (Jan. 10, 2006).

        \107\ Id.

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        In 2009, Congress enacted the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act).\108\ Among other provisions, the Credit CARD Act instructed the Board to promulgate new rules regarding expiration dates and dormancy or inactivity fees for gift cards, gift certificates, and certain types of general-use prepaid cards that are marketed or labeled as gift cards. The statute generally excluded general-use prepaid cards that are reloadable and not marketed or labeled as a gift card or gift certificate. Credit CARD Act section 401; EFTA section 915. In 2010, the Board issued the resulting implementing regulations, set forth in Sec. 1005.20 of current Regulation E (Gift Card Rule).\109\

        ---------------------------------------------------------------------------

        \108\ Public Law 111-24, 123 Stat. 1734 (2009).

        \109\ 75 FR 16580 (Apr. 1, 2010).

        ---------------------------------------------------------------------------

        Following the Credit CARD Act, the Gift Card Rule only covers certain general-use prepaid cards. Under the rule, covered general-use prepaid cards are those that are non-reloadable cards or that are reloadable and marketed or sold as a gift card. See Sec. 1005.20(a)(3) (definition of a ``general-use prepaid card''). Moreover, like the statute, the Gift Card Rule excludes those general-use prepaid cards that are reloadable and not marketed or labeled as a gift card or gift certificate. Sec. 1005.20(b)(2). For covered prepaid products, the Gift Card Rule requires the disclosure of certain fees and restricts a person's ability to impose dormancy, inactivity, or service fees for certain prepaid products, primarily gift cards. Sec. 1005.20(d) and (f). Additionally, among other things, the Gift Card Rule generally prohibits the sale or issuance of covered prepaid products that have an expiration date of less than five years. Sec. 1005.20(e). In adopting the Gift Card Rule, the Board did not apply the majority of Regulation E's protections, including provisions regarding periodic statements, liability for unauthorized transactions, and error resolution to covered prepaid products. However, Congress explicitly gave the Board the authority to do so. Credit CARD Act section 401; EFTA section 915(d)(1).

        Page 77115

      2. FMS Regulations of the Treasury Department

        The Treasury Financial Management Service (FMS), now part of Treasury's Bureau of the Fiscal Service, manages all Federal payments. In 2010, it promulgated an interim final rule that permitted delivery of Federal payment to prepaid cards (the FMS Rule).\110\ Among other things, the FMS Rule provides that for a prepaid card to be eligible to receive Federal payments, the card account must be held at an insured financial institution. Additionally, the card account must be set up to meet the requirements for FDIC or NCUSIF pass-through deposit or share insurance, as discussed in greater detail below. Additionally, the card account must not have an attached line of credit or loan feature that triggers automatic repayment from the card account. Moreover, the card account issuer must comply with all of the requirements, and provide the cardholder with all of the consumer protections, that apply to payroll card accounts under Regulation E. 31 CFR 210(b)(5)(i).

        ---------------------------------------------------------------------------

        \110\ 75 FR 80335 (Dec. 22, 2010). Prior to the effective date of the FMS Rule, prepaid cards (other than those issued under FMS-

        established programs) were not eligible to receive Federal payments.

        ---------------------------------------------------------------------------

        Based on Bureau outreach including discussions with industry participants, comment letters received in response to the Prepaid ANPR,\111\ as well as a review of numerous prepaid products' terms and conditions, discussed in more detail below, the Bureau believes that many providers currently comply with the FMS Rule for all of their prepaid products, including those not receiving Federal payments. The Bureau further believes that to comply with the FMS Rule, many prepaid product providers had to adjust their systems and programs.\112\ For example, to the extent that a provider did not maintain procedures for resolving errors with respect to the prepaid products it offered (or maintained procedures different from what Regulation E requires), the provider had to either adjust its processes to provide these protections or ensure that their prepaid products do not receive Federal payments.

        ---------------------------------------------------------------------------

        \111\ 77 FR 30923 (May 24, 2012).

        \112\ In issuing the FMS Rule, Treasury noted that it:

        Believes that a number of prepaid cards already provide most, though not necessarily all, of the payroll card protections to cardholders. It is our expectation that some issuers of existing prepaid cards will choose to modify the terms and conditions of the card accounts to include all of the payroll card protections to cardholders, so that their cards will be eligible to receive Federal payments. We also anticipate that as new prepaid card programs are developed, issuers seeking to make the cards available to Federal payment recipients will structure their cards to incorporate Regulation E's payroll card protections.

        75 FR 80335, 80338 (Dec. 22, 2010).

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      3. Pass-Through Deposit Insurance

        The FDIC, among other things, protects funds placed by depositors in insured depository institutions. FDIC insurance protects deposit accounts, including checking and savings accounts, money market deposit accounts and certificates of deposit against loss up to $250,000 per depositor, per insured depository institution, within each account ownership category (e.g., for individual owners, co-owners, trust beneficiaries, and the like).\113\ The NCUSIF plays a similar role for insured credit unions.\114\

        ---------------------------------------------------------------------------

        \113\ See, e.g., http://www.fdic.gov/deposit/deposits/dis/.

        \114\ See, e.g., http://www.ncua.gov/DataApps/Pages/SI-NCUA.aspx.

        ---------------------------------------------------------------------------

        As noted above, the Bureau understands that funds loaded onto prepaid products are typically held in pooled accounts at depository institutions or credit unions. Both the FDIC and NCUA have special rules, discussed below, regarding how such accounts may qualify for, as applicable, FDIC or NCUSIF pass-through insurance. The Bureau believes that provided these requirements are met, most prepaid products are eligible for FDIC (or NCUSIF) pass-through deposit (or share) insurance.

        With respect to the FDIC's rules for determining the ownership of deposits placed at insured depository institutions by agents or custodians of the true holder of the funds, its 2008 General Counsel Opinion No. 8 provides that FDIC's deposit insurance coverage will ``pass through'' the custodian to the underlying individual owners of the deposits in the event of failure of an insured depository institution, provided that three specific criteria are met. Those criteria are as follows. First, the account records of the insured depository institution must disclose the existence of the agency or custodial relationship. This requirement can be satisfied by opening the account under a title such as the following: ``ABC Company as Custodian for Cardholders.'' Second, the records of the insured depository institution or records maintained by the custodian or other party must disclose the identities of the actual owners and the amount owned by each such owner. Third, the funds in the account actually must be owned (under the agreements among the parties or applicable law) by the purported owners and not by the custodian (or other party).\115\

        ---------------------------------------------------------------------------

        \115\ FDIC General Counsel Opinion No. 8, Insurability of Funds Underlying Stored Value Cards and Other Nontraditional Access Mechanisms, 73 FR 67155, 67157 (Nov. 13, 2008), internal citations omitted.

        ---------------------------------------------------------------------------

        The NCUA's regulations similarly state that:

        If the account records of an insured credit union disclose the existence of a relationship which may provide a basis for additional insurance, the details of the relationship and the interest of other parties in the account must be ascertainable either from the records of the credit union or the records of the member maintained in good faith and in the regular course of business.

        12 CFR 745.2(c)(2). NCUA regulations governing share insurance for specific types of accounts provide additional details. For example, provisions governing retirement and other employee benefit plan accounts specifically address pass-through insurance, stating that ``any shares of an employee benefit plan in an insured credit union shall be insured on a `pass-through' basis, in the amount of up to the Standard Maximum Share Insurance Amount for the non-contingent interest of each plan participant, in accordance with Sec. 745.2 of this part.'' 12 CFR 745.9-2(a); see also, e.g., 12 CFR 745.3, 745.4, 745.5, 745.8, 745.9-1.

      4. Interchange and the Board's Regulation II

        Section 1075 of the Dodd-Frank Act added new section 920 to EFTA regarding debit card interchange and amended EFTA section 904(a) to give the Board sole authority to prescribe rules to carry out the purposes of section 920.\116\ It contains several provisions related to debit cards and electronic debit transactions. EFTA section 920(a)(2) requires that the amount of any interchange fee that an issuer of debit cards receives or charges with respect to an electronic debit transaction be reasonable and proportional to the cost incurred by the issuer with respect to the transaction. It directs the Board to establish standards for assessing whether the amount of any interchange fee is reasonable and

        Page 77116

        proportional to the cost incurred by the issuer. However, as discussed below, there are a few exemptions from the limitation on interchange fees that an issuer may receive from or charge to a merchant.

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        \116\ The amendment is known as ``The Durbin Amendment,'' after U.S. Senator Richard Durbin of Illinois, who was the amendment's chief sponsor. See, e.g., David Morrison, Durbin Amendment Lawsuit Unresolved as 2013 Winds Down, Credit Union Times Magazine, Dec. 18, 2013, available at http://www.cutimes.com/2013/12/18/durbin-amendment-lawsuit-unresolved-as-2013-winds; see also Zhu Wang, Debit Card Interchange Fee Regulation: Some Assessments and Considerations, 98 Econ. Q. 159 (2012) available at https://www.richmondfed.org/publications/research/economic_quarterly/2012/q3/pdf/wang.pdf.

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        EFTA section 920(c) sets forth definitions that apply solely for the purposes of EFTA section 920. Section 920(c)(5) defines an electronic debit transaction as ``a transaction in which a person uses a debit card.'' Additionally, section 920(c)(2) defines debit card to include ``a general-use prepaid card, as that term is defined in section 915(a)(2)(A),'' which is the Credit CARD Act's definition of general-use prepaid card. Accordingly, interchange transaction fees for transactions made with general-use prepaid cards (as defined under the Credit CARD Act) would be subject to the debit card interchange fee restrictions set forth in EFTA section 920(a).

        As noted above, EFTA section 920(a) provides certain exemptions from the interchange fee limitations for certain cards. Section 920(a)(7)(A) provides exemptions from the fee restrictions for general-

        use prepaid (and debit) cards provided to a consumer pursuant to government-administered payment programs and for certain general purpose reloadable prepaid cards. In addition, there is a blanket exemption from the interchange fee limitations for cards of issuers with total assets of less than $10 billion. EFTA section 920(a)(6). Thus, interchange fees for transactions made with these prepaid cards meeting the criteria for the statutory exemptions are generally not subject to the fee restrictions of EFTA section 920(a). However, EFTA section 920(a)(7)(B) provides that after July 21, 2012, interchange fees for transactions made with prepaid cards that receive the exemption set forth in EFTA section 920(a)(7)(A) are nonetheless limited by the Act's interchange fee restrictions if certain fees such as an overdraft fee may be charged with respect to the card. The exemption for interchange fees of cards of issuers with total assets below $10 billion is not subject to section 920(a)(7)(B). In July 2011, the Board promulgated Regulation II (12 CFR part 235) to implement EFTA section 920. The provisions regarding debit card interchange fee restrictions became effective as of October 1 of that year.\117\

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        \117\ 76 FR 43394 (July 20, 2011); 76 FR 43478 (July 20, 2011); amended by 77 FR 46258 (Aug. 3, 2012).

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      5. FinCEN Rules

        FinCEN also regulates prepaid products pursuant to its mission, which it describes as to safeguard the financial system from illicit use and combat money laundering and promote national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities. As noted above, it has issued regulations to regulate certain prepaid products. In 2011, pursuant to a mandate under the Credit CARD Act, FinCEN published a final rule to amend BSA regulations applicable to money services businesses with respect to stored value or ``prepaid access'' (FinCEN's Prepaid Access Rule).\118\ Subject to certain specific exemptions, a ``prepaid program'' is defined as an ``arrangement under which one or more persons acting together provide(s) prepaid access.'' 31 CFR 1010.100(ff)(4)(iii). The term ``prepaid access'' is defined as ``access to funds or the value of funds that have been paid in advance and can be retrieved or transferred at some point in the future through an electronic device or vehicle, such as a card, code, electronic serial number, mobile identification number, or personal identification.'' 31 CFR 1010.100(ww).

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        \118\ 76 FR 45403 (July 29, 2011).

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        FinCEN's Prepaid Access Rule established a comprehensive approach toward regulating prepaid access. Among other things, the Rule requires each provider or seller of prepaid access to: (1) File suspicious activity reports; (2) collect and retain certain customer and transactional information; and (3) maintain an anti-money laundering program. These BSA requirements are similar to those that apply to other categories of money services businesses.\119\

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        \119\ 76 FR 45403, 45419 (July 29, 2011).

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      6. State Laws

        Many States have passed consumer protection laws or other rules to regulate prepaid products in general, and in particular, certain types of prepaid products such as government benefits cards. Illinois is an example of a State that has issued regulations applicable to prepaid products in general. In 2013, Illinois imposed pre-acquisition, on-card and at-the-time-of-purchase disclosure requirements on ``general-use reloadable prepaid cards.'' \120\ IL SB 1829 (2013), Public Act 098-

        0545, codified at 205 Ill. Comp. Stat. 616/10 and 616/46. California is an example of a State that has enacted laws on specific types of prepaid products. In 2013, California enacted a law that extended protections similar to the FMS Rule to prepaid products receiving unemployment benefits and basic-needs benefits from the State of California. CA A 1820 (2013), ch. 557, codified at Cal. Unemp. Ins. Code Sec. 1339.1 and Cal. Welf. & Inst. Code Sec. 11006.2. In 2014, California enacted another law extending similar protections to cards used for distribution of child support payments. CA A 2252 (2014), ch. 180, codified at Cal. Fam. Code Sec. 17325.

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        \120\ The Illinois law defines ``general use reloadable card'' as:

        A card, code, or other access device that is: (1) Issued on a prepaid basis primarily for personal, family, or household purposes to a consumer in a specified amount in exchange for payment; (2) issued under an agreement containing terms and conditions that permit funds to be added to the card, code, or other device after the initial purchase or issuance, including a temporary non-

        reloadable card issued solely in connection with a general use reloadable card, code, or other device; and (3) not marketed or labeled as a gift card or gift certificate; and (4) redeemable upon presentation at multiple, unaffiliated merchants for goods or services or usable at automated teller machines.

        205 ILCS 616/10.

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        Further, the Bureau understands that many States have money transmitter laws that may apply to prepaid product providers. The laws vary by State but generally require companies to be licensed and to post a surety bond to cover accountholder losses, if the providers become insolvent. Most States further require that the companies hold high-grade investments to back the money in customer accounts. However, the Bureau also understands that States vary in the amount of their oversight of companies licensed under the money transmitter laws, and many may not have streamlined processes to pay out funds in the event a prepaid product provider were to file for bankruptcy protection.\121\

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        \121\ See, e.g., Pew Charitable Trusts, Imperfect Protection--

        Using Money Transmitter Laws to Insure Prepaid Cards (Mar. 2013).

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    3. Existing Regulation of Credit Products and Overdraft Services Offered in Connection With Transaction Accounts

      In this rulemaking, the Bureau has considered whether and to what extent it should regulate credit features offered in connection with prepaid accounts. In approaching this question, the Bureau is conscious of the regulatory framework that has developed, including for credit products subject to Regulation Z and overdraft services on traditional deposit accounts that are exempt from Regulation Z but subject to certain parts of Regulation E. On several occasions, Federal regulators have addressed deposit account overdraft services in various rulemakings including those conducted pursuant to Regulations E and Z as well as in public guidance documents. The relevant actions are discussed below.

      Page 77117

      1. Open-End (Not Home-Secured) Credit Products Under the Truth in Lending Act and the Electronic Fund Transfer Act

        Credit products are generally subject to the Truth in Lending Act and Regulation Z, although the application of specific provisions of the statute and regulation depends on the attributes of the particular credit product. In 1968, Congress enacted TILA to promote the informed use of consumer credit by requiring disclosures about its terms and cost and to provide standardized disclosures. Congress has revised TILA several times and its purpose now is to ``assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing and credit card practices.'' 15 U.S.C. 1601(a). TILA thus defined credit broadly to mean the right granted by a creditor to a debtor to defer payment of debt or incur debt and defer its payment. 15 U.S.C. 1602(f).\122\

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        \122\ The term creditor in Regulation Z generally means a person who regularly extends consumer credit that is subject to a finance charge or is payable by written agreement in more than four installments (not including a down payment), and to whom the obligation is initially payable, either on the face of the note or contract, or by agreement when there is no note or contract. See Sec. 1026.2(a)(17)(i).

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        Congress has amended TILA on several occasions to provide consumers of certain types of credit products with additional protections. The Fair Credit Billing Act (FCBA),\123\ enacted in 1974, added a number of substantive protections for consumers who use open-end credit \124\ or use credit cards subject to TILA. Public Law 93-495 (Oct. 28, 1974). For example, the FCBA increased rights and remedies for consumers who assert billing errors and required a minimum 14-day grace period for payments for creditors that offer a grace period, prompt re-crediting of refunds, and refunds of credit balances. Credit cards are also subject to these requirements,\125\ but also to a broad range of additional protections. Regulation Z defines the term ``credit card'' to mean any card, plate, or other single credit device that may be used from time to time to obtain credit. See Sec. 1026.2(a)(15)(i). A charge card is a credit card on an account for which no periodic rate is used to compute a finance charge. See Sec. 1026.2(a)(15)(iii). Cognizant that many financial institutions issue credit cards to cardholders with whom they also have a deposit account relationship, Congress in the FCBA also restricted the right of such institutions from taking funds out of a deposit account to satisfy their credit card claims.\126\ In 1988, Congress amended TILA through the Fair Credit and Charge Card Disclosure Act. These revisions required issuers of credit cards and charge cards to provide certain disclosures at the time of application and solicitation.

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        \123\ Public Law 93-495, 88 Stat. 1511 (1974).

        \124\ As discussed in greater detail in the section-by-section analysis of Sec. 1026.2(a)(20), open-end credit exists where there is a plan in which the creditor reasonably contemplates repeated transactions; the creditor may impose a finance charge from time to time on an outstanding unpaid balance; and the amount of credit that may be extended to the consumer during the term of the plan (up to any limit set by the creditor) is generally made available (even if not disclosed) to the extent that any outstanding balance is repaid. Sec. 1026.2(a)(20). Closed-end credit is credit that does not meet the definition of open-end credit. Sec. 1026.2(a)(10).

        \125\ Indeed, credit cards are subject to specialized and heightened disclosure requirements in advertisements, at the time of account opening, periodically for each billing cycle (i.e., periodic statements), and when certain terms of the account change. In addition, for credit card accounts disclosures generally are required on or with applications or solicitations. Among the required disclosures for credit cards on or with an application or solicitation is a tabular disclosure setting forth seven different disclosures. Sec. 1026.60. This ``Schumer box'' must be similar to model forms in Regulation Z appendix G-10 and must set forth certain fees, interest rates, transaction charges, and other required charges.

        \126\ See Gardner v. Montgomery County Teachers Fed. Credit Union, 864 F.Supp.2d (D. Md. 2012) (providing an overview of the FCBA's no offset provision).

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        In 2009, Congress enhanced protections for credit cards in the Credit CARD Act, which it enacted to ``establish fair and transparent practices related to the extension of credit'' in the credit card market.\127\ The Credit CARD Act regulates both the underwriting and pricing of credit card accounts. Specifically, it prohibits credit card issuers from extending credit without assessing the consumer's ability to pay and imposes special rules regarding the extension of credit to persons under the age of 21 and to college students. The Credit CARD Act also restricts the fees that an issuer can charge during the first year after an account is opened, and limits the instances and the amount of such fees in which issuers can charge ``back-end'' penalty fees when a consumer makes a late payment or exceeds his or her credit limit. The CARD Act also restricts the circumstances under which issuers can increase interest rates on credit cards and establishes procedures for doing so. The Board generally implemented these provisions in subpart G of Regulation Z. Thus, while all open-end (not home-secured) credit plans receive some of TILA's protections, generally only open-end (not home-secured) credit plans that are accessed by credit cards receive the additional protections of the Credit CARD Act.

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        \127\ Public Law 111-24, 123 Stat. 1734 (2009).

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        Although EFTA does not generally focus on credit issues, Congress provided one important protection in that statute as well. Known as the compulsory use provision, it provides that no person may ``condition the extension of credit to a consumer on such consumer's repayment by means of preauthorized electronic fund transfers.'' EFTA section 913(1).\128\ (A preauthorized electronic fund transfer is an electronic fund transfer authorized in advance to recur at substantially regular intervals, such as a recurring direct deposit or ACH debit.) Where applicable, the compulsory use provision thus prevents a creditor from requiring a particular form of payment, such as a recurring ACH debit to another account, as a form of repayment of the credit. This provides consumers with the ability to control how and when they repay credit and does not allow a creditor to insist on a particular form of repayment. Thus, as implemented in Regulations Z and E, some of these protections are broadly applicable to credit generally while others are specific to particular credit products. For example, open-end lines of credit that consumers can link to a deposit account to pull funds when the account has insufficient funds are subject to certain disclosure requirements under Regulation Z, certain provisions of the FCBA, and the compulsory use provision under Regulation E (although compulsory use exempts overdraft lines of credit).

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        \128\ As implemented in Regulation E, Sec. 1005.10(e)(1), this provision contains an exception for overdraft credit plans: ``No financial institution or other person may condition an extension of credit to a consumer on the consumer's repayment by preauthorized electronic fund transfers, except for credit extended under an overdraft credit plan or extended to maintain a specified minimum balance in the consumer's account.''

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      2. Federal Regulatory Treatment of Deposit Account Overdraft Services

        A separate regulatory regime has evolved over the years with regard to treatment of overdraft services, which started as courtesy programs under which financial institutions would decide on a manual, ad hoc basis to cover particular transactions for which a consumer lacked funds in their deposit account rather than to return the transactions and subject consumers to a

        Page 77118

        not-sufficient-funds (NSF) fee, merchant fees, and other negative consequences from bounced checks. Although Congress did not exempt overdraft services or similar programs offered in connection with deposit accounts from TILA, the Board in issuing Regulation Z in 1969 carved financial institutions' ``bounce-protection'' programs out of the new regulation.\129\ See, e.g., Sec. 1026.4(c)(3) (excluding charges imposed by a financial institution for paying items that overdraw an account from the definition of ``finance charge,'' unless the payment of such items and the imposition of the charge were previously agreed upon in writing); Sec. 1026.4(b)(2).\130\ The Board distinguished between ``bounce protection programs'' where there is no written agreement to pay items that overdraw the account, and more formal, line-of-credit overdraft programs where there is a written agreement to pay overdrafts. Because financial institutions reserved discretion to pay particular overdrafts and exercised that discretion on an ad hoc basis, the Board exempted informal bounce protection programs but subjected overdraft lines of credit to Regulation Z when the creditor imposes a finance charge or the line of credit is accessed by a debit card.\131\

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        \129\ 34 FR 2002 (Feb. 11, 1969).

        \130\ Section 1026.4(b)(2) provides that any charge imposed on a checking or other transaction account is an example of a finance charge only to the extent that the charge exceeds the charge for a similar account without a credit feature.

        \131\ Later in the 1970s, the Board added provisions in Regulation Z specifically addressing credit cards. 40 FR 43200 (Sept. 19, 1975). The Board subsequently carved debit cards, where there is no agreement to extend credit, out of the definition of credit card. 46 FR 50288, 50293 (Oct. 9, 1981).

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        The Board revisited the exception of bounce protection programs from Regulation Z in 1981, in a rulemaking in which the Board implemented the Truth in Lending Simplification and Reform Act.\132\ In the related proposal, the Board considered adjusting its overdraft exemption to apply only to ``inadvertent'' overdrafts because, the Board stated, a charge imposed for honoring an instrument under any agreement between the institution and the consumer is a charge imposed for a credit extension and thus fits the general definition of a finance charge, regardless of whether the charge and the honoring of the check are reflected in a written agreement.\133\ Ultimately, however, the Board made only a ``few minor editorial changes'' to the exception in Sec. 1026.4(c)(3) from the definition of finance charge that applied to fees for paying items that overdraw an account where there is no written agreement to pay, concluding that it would exclude from Regulation Z ``overdraft charges from the definition of finance charge unless there is an agreement in writing to pay items and impose a charge.'' \134\

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        \132\ Public Law 96-221, sec. 601, 94 Stat. 132; 45 FR 80648 (Dec. 5, 1980).

        \133\ Id. at 80657.

        \134\ 46 FR 20848, 20855 (Apr. 7, 1981).

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        The Board also took up the status of bounce protection programs in the early 1980s in connection with the enactment of EFTA. As noted above, EFTA's compulsory use provision generally prohibits financial institutions or other persons from conditioning the extension of credit on a consumer's repayment by means of preauthorized electronic fund transfers. The Board, however, exercised its EFTA section 904(c) exception authority to create an exception to the compulsory use provision for credit extended under an overdraft credit plan or extended to maintain a specified minimum balance in the consumer's account. See Sec. 1005.10(e)(1). In adopting this exception, the Board aligned Regulation E with its approach to overdraft in Regulation Z--it exempted overdraft services from rules otherwise applicable to credit products. The Board stated that ``overdraft protection is a service that financial institutions have been providing to consumers at little or no extra cost beyond the cost of the protected account.'' \135\

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        \135\ 46 FR 2972, 2973 (Jan. 13, 1981).

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        Overdraft services in the 1990s began to evolve away from the historical model of bounce protection programs in a number of ways. One major industry change was a shift away from manual ad hoc decision-

        making by financial institution employees to a system involving heavy reliance on automated programs to process transactions and to make overdraft decisions. A second was to impose higher overdraft fees. In addition, broader changes in payment transaction types also increased the impacts of these other changes on overdraft services. In particular, debit card use expanded dramatically, and financial institutions began extending overdraft services to debit card transactions. In the 1990s, many institutions expanded transactional capabilities by replacing consumers' ATM-only cards with debit cards that consumers could use to make electronic payments to merchants and service providers directly from their checking accounts using the major payment networks (and thus most merchants could accept them).\136\ As a result, debit card transaction volumes grew quickly as payment networks that enable these transactions broadened. Acceptance by grocery stores, gas stations, fast food restaurants, and other retailers helped to drive the popularity of debit card payments across regional and global ATM networks (accessed by using a PIN). By the late 1990s, ``signature debit'' transaction volumes became the most common type of debit card transaction.\137\ These debit cards offered acceptance at all merchants that honored payments from the major payment networks, such as internet retailers.\138\

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        \136\ See R. Borzekowski et al., Consumers' Use of Debit Cards: Patterns, Preferences, and Price Response, at 2 (Apr. 2006) available at http://www.federalreserve.gov/pubs/feds/2006/200616/200616pap.pdf (noting that, as of 2006, ``Annual debit card transactions at the point of sale have been growing at over twenty percent per year since 1996 and now exceed credit card transactions.''). By 2006, debit card payment transaction volumes in the United States had exceeded both check and credit card payments, and from 2006 to 2011, the total volume of U.S. consumer debit card transactions nearly doubled.

        \137\ Fumiko Hayashi, Fed. Reserve Bank of Kansas City, The New Debit Card Regulations: Initial Effects on Networks and Banks, Econ. Rev., 4th quarter 2012, at 83 chart 2. With respect to ``signature debit'' transactions, a consumer does not use a PIN but instead typically signs a copy of a transaction receipt provided by the merchant in order to affirm the consumer's identity. For further information on the difference between signature-based and PIN-based card transactions, see, for example, the preamble of the Board's proposed rule to implement the Durbin amendment, 75 FR 81722, 81723 (Dec. 28, 2010).

        \138\ See generally CFPB Overdraft White Paper, at 11-17 (explaining growth of debit card transactions from consumers' deposit accounts) available at http://files.consumerfinance.gov/f/201306_cfpb_whitepaper_overdraft-practices.pdf.

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        As a result of these operational changes, overdraft services became a significant source of revenue for banks and credit unions as the volume of transactions involving checking accounts increased due primarily to the growth of debit cards.\139\ Before debit card use grew, overdraft fees on check and ATM transactions formed a greater portion of deposit account overdrafts. Debit card transactions presented consumers with markedly more opportunities to incur an overdraft fee when making a purchase because of increased acceptance and use of debit cards for relatively small transactions (e.g., fast food and grocery stores).\140\ Over time, revenue from overdraft increased and began to influence significantly the overall cost structure for many deposit accounts, as providers began relying heavily on back-end pricing while eliminating or reducing front-end pricing (i.e., free checking accounts) as discussed above.\141\

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        \139\ CFPB Overdraft White Paper, at 16.

        \140\ See CFPB Overdraft White Paper, at 11-12.

        \141\ See id., at 16-17.

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        Page 77119

        As a result of the growth of debit card transactions and the changing landscape of deposit account overdraft services, Federal banking regulators expressed increasing concern about consumer protection issues and began a series of issuances and rulemakings. First, in September 2001, the Office of the Comptroller of the Currency (OCC) released an interpretive letter expressing concern about overdraft protection services.\142\ The letter noted that overdraft services are extensions of credit but that related fees may not be finance charges under Regulation Z. In declining to issue a ``comfort letter'' regarding an unnamed overdraft service, the OCC called attention to a number of troubling practices, including inadequate disclosure to consumers of the risk of harm from overdraft services and failure to properly help consumers who were using overdraft services as ``a means of meeting regular obligations'' to find more economical forms of credit.\143\

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        \142\ Office of the Comptroller of Currency, Interpretive Letter No. 914, 3rd Party Program, (Aug. 3, 2001) available at http://www.occ.gov/static/interpretations-and-precedents/sep01/int914.pdf.

        \143\ OCC Interpretive Letter No. 914.

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        The Board also signaled concern with overdraft services in a number of rulemaking actions. In a 2002 proposal to amend Regulation Z with regard to the status of certain credit card-related fees and other issues, the Board noted that some overdraft services may not be all that different from overdraft lines of credit and requested comment on whether and how Regulation Z should be applied to banks' bounce-

        protection services, in light of the Regulation's exclusion of such services but inclusion of lines-of-credit where a finance charge is imposed or is accessed by a debit card.\144\ The Board did not modify the Regulation Z exemptions when it issued final rules in 2003,\145\ but proposed revisions to Regulation DD (which implements the Truth in Savings Act) and its commentary in 2004 to address concerns about the uniformity and adequacy of institutions' disclosure of overdraft fees generally and to address concerns about advertised automated overdraft services in particular.\146\ The Board specifically noted that it was not proposing to cover overdraft services under TILA and Regulation Z, but that further consideration of the need for such coverage would be appropriate if consumer protection concerns about these overdraft services were to persist in the future.\147\ When the Board finalized the Regulation DD proposal in 2005, it noted that it declined at that time to extend Regulation Z to overdraft services. In doing so, it noted that industry commenters were concerned about the cost of imposing Regulation Z requirements on deposit accounts and about the compliance burden of providing an APR calculated based on overdraft fees without corresponding benefits to consumers in better understanding the costs of credit. The Board also noted that some members of its Consumer Advisory Council believed that overdraft services are the functional equivalent of a traditional overdraft line of credit and thus should be subject to Regulation Z, but that financial institutions' historical practice of paying occasional overdrafts on an ad hoc basis should not be covered by Regulation Z. While not specifically addressing these concerns, the Board emphasized that its decision not to apply Regulation Z did not preclude future consideration regarding whether it was appropriate to extend Regulation Z to overdraft services.\148\

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        \144\ 67 FR 72618, 72620 (Dec. 6, 2002).

        \145\ The March 2003 final rule preamble stated that ``the Board's staff is continuing to gather information on these services, which are not addressed in the final rule.'' 68 FR 16185 (Apr. 3, 2003).

        \146\ 69 FR 31760 (June 7, 2004).

        \147\ Id. at 31761.

        \148\ 70 FR 29582, 29584-85 (May 24, 2005). In this 2005 rulemaking, the Board revised Regulation DD to address concerns about the uniformity and adequacy of information provided to consumers when they overdraw their deposit accounts. Among other things, the final rule required institutions that promote the payment of overdrafts in an advertisement to disclose on periodic statements, total fees imposed for paying overdrafts and total fees imposed for returning items unpaid on periodic statements, both for the statement period and the calendar year to date, and to include certain other disclosures in advertisements of overdraft services. Ultimately, in 2009, the Board expanded this provision to all institutions not just those that promote the payments of overdrafts. See 74 FR 5584 (Jan. 29, 2009).

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        In February 2005 (prior to the Board having finalized the Regulation DD changes discussed above), the Federal banking agencies also issued joint guidance on overdraft programs in response to the increased availability and customer use of overdraft services (Joint Guidance).\149\ The purpose of the Joint Guidance was to assist insured depository institutions in the responsible disclosure and administration of overdraft protection services. It grew out of concern that

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        \149\ 70 FR 9127 (Feb. 24, 2005) (Joint Guidance) available at http://www.gpo.gov/fdsys/pkg/FR-2005-02-24/pdf/05-3499.pdf. See also Office of Thrift Supervision Guidance on Overdraft Protection Programs, 70 FR 8428 (Feb. 18, 2005).

        Disclosure, and implementation of some overdraft protection programs, intended essentially as short-term credit facilities, are of concern to the Federal banking agencies. For example, some institutions have promoted this credit service in a manner that leads consumers to believe that it is a line of credit by informing consumers that their account includes an overdraft protection limit of a specified dollar amount without clearly disclosing the terms and conditions of the service, including how fees reduce overdraft protection dollar limits, and how the service differs from a line of credit.\150\

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        \150\ 70 FR 9127, 9129 (Feb. 24, 2005).

        The Joint Guidance stated that ``the existing regulatory exceptions i.e., exceptions in Regulation Z such that the Regulation does not apply were created for the occasional payment of overdrafts, and as such could be reevaluated by the Board in the future, if necessary. Were the Board to address these issues more specifically, it would do so separately under its clear TILA authority.'' \151\ The Joint Guidance went on to state that ``when overdrafts are paid, credit is extended. Overdraft protection programs may expose an institution to more credit risk (e.g., higher delinquencies and losses) than overdraft lines of credit and other traditional overdraft protection options to the extent these programs lack individual account underwriting.'' \152\ This guidance remains in effect.

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        \151\ Id. at 9128.

        \152\ Id.

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        In the late 2000s as controversy regarding overdraft services continued to mount despite the increase in regulatory activity, Federal agencies began exploring various additional measures with regard to overdraft, including whether to require that consumers affirmatively opt in before being charged for overdraft services. First, in May 2008, the Board along with the National Credit Union Administration and the former Office of Thrift Supervision proposed to exercise their authority under section 5 of the Federal Trade Commission Act (FTC Act) \153\ to prohibit institutions from assessing any fees on a consumer's account in connection with an overdraft service, unless the consumer was given notice and the right to opt out of the service, and the consumer did not opt out.\154\ At the same time, the Board issued a proposal under Regulation DD to expand disclosure requirements and revise periodic statement requirements to provide aggregate totals for overdraft fees and for returned item fees for the periodic statement period and year-to-date.\155\ The Board finalized portions of

        Page 77120

        the Regulation DD proposal in January 2009.\156\ In addition, although the three agencies did not finalize their FTC Act proposal, the Board ultimately adopted a similar opt-in requirement for ATM and point of sale transactions under Regulation E in late 2009.

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        \153\ Section 5 of the FTC Act prohibits ``unfair or deceptive acts or practices in or affecting commerce.'' 15 U.S.C. 45. See also Federal Deposit Ins. Act section 8 (extending to the Board authority to take appropriate action when unfair or deceptive acts or practices are discovered). 12 U.S.C. 1818.

        \154\ 73 FR 28904 (May 19, 2008).

        \155\ 73 FR 28730 (May 19, 2008).

        \156\ 74 FR 5584 (Jan. 29, 2009). Specifically, this rule required, among other things, all depository institutions to disclose aggregate overdraft fees on periodic statements, and not solely institutions that promote the payment of overdrafts.

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        The overdraft opt-in rule in Regulation E applies to all accounts covered by Regulation E, including payroll card accounts. In addressing overdraft services for the first time as a feature of deposit accounts in Regulation E,\157\ the Board concluded that the opt-in rule carried out ``the express purposes of EFTA by: (a) Establishing notice requirements to help consumers better understand the cost of overdraft services for certain EFTs; and (b) providing consumers with a choice as to whether they want overdraft services for ATM and one-time debit card transactions in light of the costs associated with those services.'' \158\ Not surprisingly, the rule did not expressly discuss GPR cards, which as noted above, the Board had not subjected to Regulation E coverage.\159\

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        \157\ 74 FR 59033 (Nov. 17, 2009).

        \158\ Id. at 59037.

        \159\ Id. at 59040.

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        Following the adoption of the Board's overdraft opt-in-rule, the FDIC expanded on the previously-issued Joint Guidance when it issued a Financial Institution Letter that reaffirmed its existing supervisory expectations with respect to overdraft payment programs generally and provided specific guidance with respect to automated overdraft payment programs.\160\ In 2011, the OCC proposed similar guidance regarding automatic overdraft programs and deposit advance products. This guidance, if finalized, would have clarified the OCC's application of principles of safe and sound banking practices in connection with deposit-related consumer credit products such as automated overdraft services and direct deposit advance programs.\161\ The OCC withdrew this proposed guidance in 2013.\162\

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        \160\ Fed. Deposit Ins. Corp., Fin. Inst. Letter FIL-81-2010, Overdraft Payment Programs and Consumer Protection Final Overdraft Payment Supervisory Guidance, (Nov. 24, 2010) (FDIC Overdraft Payment Supervisory Guidance), available at https://www.fdic.gov/news/news/financial/2010/fil10081.html.

        \161\ 76 FR 33409 (June 8, 2011).

        \162\ 78 FR 25353 (Apr. 30, 2013).

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        Since the Bureau assumed authority from the Board for implementing most of EFTA in 2011, it has taken a number of steps--including research, analysis, and solicitation of comment--to assess the impact and efficacy of the Board's 2009 overdraft opt-in rule as it pertains to deposit accounts. In early 2012, the Bureau issued a Request For Information (RFI) that sought input from the public on a number of overdraft topics, including: Lower cost alternatives to overdraft protection programs, consumer alerts and information provided regarding balances and overdraft triggers, the impact of changes to Regulations DD and E and overdraft opt-in rates, the impact of changes in financial institutions' operating policies, the economics of overdraft programs, and the long-term impact on consumers.\163\ In response, the Bureau received over 1000 comments. This RFI did not request information specific to prepaid products, and few commenters specifically addressed prepaid products. The Bureau has also undertaken significant research into overdraft services that has resulted, to date, in the release of a white paper of initial data findings in June 2013 and a data point in July 2014.\164\

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        \163\ 77 FR 12031 (Feb. 28, 2012).

        \164\ CFPB Overdraft White Paper, available at http://files.consumerfinance.gov/f/201306_cfpb_whitepaper_overdraft-practices.pdf.; CFPB Overdraft Data Point, available at http://www.consumerfinance.gov/reports/data-point-checking-account-overdraft/.

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        The Bureau has previously indicated that it is considering whether rules governing overdraft and related services in connection with deposit accounts are warranted, and, if so, what types of rules would be appropriate. A possible rulemaking might include new or revised disclosures or address specific acts or practices.\165\

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        \165\ See http://www.reginfo.gov/public/do/eAgendaViewRule?pubId=201404&RIN=3170-AA42.

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      3. Other Relevant Federal Regulatory Activity

        In addition to the two general regulatory regimes governing credit products generally and overdraft services as outlined above, two Federal initiatives have specifically addressed the possibility of credit features being offered in connection with prepaid products. First, the Treasury FMS Rule (described above), adopted in late December 2011, only permits Federal payments to be deposited onto a prepaid product if the product is not attached to a line of credit or loan agreement under which repayment from the account is triggered upon delivery of the Federal payments, among other conditions. See 31 CFR 210.5(b)(5)(i)(C). The Supplementary Information to that Interim Final Rule indicates that the goal of this requirement is to prevent payday lending and other arrangements in which a financial institution or creditor ``advances'' funds to a cardholder's account, and then repays itself for the advance and any related fees by taking some or all of the cardholder's next deposit.\166\ The Treasury FMS Rule does not, however, directly address the permissibility of overdraft services.

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        \166\ 75 FR 80335 (Dec. 22, 2010).

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        Second, as is discussed above in the broader regulatory overview, the Board's Regulation II implementing provisions of the Dodd-Frank Act generally caps interchange fees that may be imposed on debit cards. However, Regulation II provides exemptions from the fee restrictions for certain GPR cards; as a result, interchange fees for transactions made with these prepaid cards are generally not subject to the fee restrictions of EFTA section 920(a). 12 CFR 235.5(d)(1). However, EFTA, as amended by the Dodd-Frank Act, carves out of this exemption interchange fees for transactions made with these prepaid cards if, with respect to the card, an overdraft fee may be charged. EFTA and Regulation E provide a separate, blanket exemption for cards or issuers with assets of less than $10 billion, so these cards are not subject to the fee restrictions even if overdraft fees may be charged on the account.

        Separately, the Department of Defense (the Department) recently proposed amendments to its regulation (32 CFR part 232) that implements the Military Lending Act (MLA), 10 U.S.C. 987, et se.\167\ Under the MLA, a creditor generally may not apply a military annual percentage rate (MAPR) greater than 36 percent in connection with an extension of consumer credit to a military service member or dependent. 10 U.S.C. 987(b). The Department's proposal would modify its regulation to expand the scope of coverage to which the regulation applies to a broad range of open-end and closed end credit products, but would exclude overdraft services that are exempted from Regulation Z as discussed above.\168\ For open-end (not home secured) credit card accounts, any credit-

        related charge that is a finance charge under Regulation Z (as well as certain other charges) would be included in calculating the MAPR \169\ for a particular billing cycle and the MAPR for that billing cycle could not

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        exceed 36 percent.\170\ For such credit card accounts, the Department's proposal, however, provides that a card issuer does not have to include in the calculation of the MAPR any charge that is a bona fide fee and that is reasonable and customary for that type of fee.\171\

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        \167\ 79 FR 58602 (Sept. 29, 2014).

        \168\ 79 FR 58602 at 58616.

        \169\ 79 FR 58602 at 58610.

        \170\ 79 FR 58602 at 58619.

        \171\ 79 FR 58602 at 58638. See proposed Sec. 232.4(d) of the Department's proposal. The exclusion from the MAPR calculation for bona fide fees does not apply to periodic rates. It also does not apply to any credit insurance premium, including charges for single premium credit insurance, fees for debt cancellation or debt suspension agreements, or to any fees for credit related ancillary products sold in connection with and either at or before consummation of the credit transaction or upon account opening, because those charges are expressly included in the definition of ``interest'' in the applicable statute (10 U.S.C. 987(i)(3)) and therefore must be included in the MAPR calculation.

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    4. The Bureau's May 2012 Advance Notice of Proposed Rulemaking

      As noted above, the Bureau issued the Prepaid ANPR, which posed a series of questions for public comment about how the Bureau might consider regulating GPR cards. The Bureau sought input on the following topics: (1) The disclosure of fees and terms; (2) if consumers should be informed whether their funds are protected by FDIC pass-through deposit insurance; (3) unauthorized transactions and the costs and benefits of requiring card issuers to provide limited liability protection from unauthorized transactions similar to those protections available for other accounts under Regulation E; and (4) other product features including credit features in general and overdraft services in particular, linked savings accounts, and credit repair or credit building features such as features that claim to offer consumers the opportunity to improve or build credit).

      The Bureau received over 220 comments from a variety of commenters.\172\ Industry commenters, including depository institutions and credit unions, prepaid program managers, payment networks and industry trade associations, submitted the majority of comments. The Bureau also received comment letters from consumer and other interest groups, as well as several individual consumers. In preparing this notice, the Bureau has evaluated the comments received in response to the Prepaid ANPR and has engaged in additional analysis of prepaid products and consumer behavior. As discussed in greater detail in the section-by-section analysis below, the proposal covers a variety of prepaid products including GPR cards. The Bureau notes that covered account types have different characteristics.

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      \172\ The comments can be reviewed at http://www.regulations.gov/#!documentDetail;D=CFPB-2012-0019-0001.

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    5. Other Payments-Related Bureau Actions

      In June 2014, the Bureau issued a Request for Information regarding the opportunities and challenges associated with the use of mobile financial products and services (Mobile RFI).\173\ As part of the Mobile RFI, the Bureau is exploring how mobile technologies are impacting economically vulnerable consumers with limited access to traditional banking systems. The Mobile RFI asked questions on a number of topics, including access for economically vulnerable consumers and the ways that mobile technologies could expand access to financial services, the use of mobile technologies for real-time money management, the types of customer service or technical assistance that are available to consumers when they use mobile products, and privacy and data security issues. The comment period on the Mobile RFI ended on September 10, 2014. The Bureau received approximately 48 comments, which it is in the process of reviewing.

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      \173\ 79 FR 33731 (June 12, 2014).

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      In July 2014, the Bureau began accepting consumer complaints about prepaid products.\174\ In addition to prepaid cards, consumers may also submit complaints about payroll cards, government benefit cards, gift cards, and mobile wallets.\175\ In August 2014, the Bureau issued a consumer advisory on virtual currencies that discussed the risks to consumers posed by such currencies.\176\ At the same time, the Bureau also began accepting consumer complaints regarding virtual currencies.\177\

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      \174\ Press Release, CFPB Begins Accepting Consumer Complaints on Prepaid Cards and Additional Nonbank Products, available at http://www.consumerfinance.gov/newsroom/cfpb-begins-accepting-consumer-complaints-on-prepaid-cards-and-additional-nonbank-products./.

      \175\ See http://www.consumerfinance.gov/complaint/#credit-card.

      \176\ CFPB Consumer Advisory, Risks to Consumers Posed by Virtual Currencies (Aug. 2014), available at http://files.consumerfinance.gov/f/201408_cfpb_consumer-advisory_virtual-currencies.pdf.

      \177\ See http://www.consumerfinance.gov/complaint/#money-transfer.

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      The section-by-section analysis below discusses in greater detail the potential application of this proposed rule to certain mobile financial products and services. The Bureau also recognizes that the proposed rule may have potential application to virtual currency and related products and services. As a general matter, however, the Bureau's analysis of mobile financial products and services, as well as and virtual currencies and related products and services, including the applicability of existing regulations and this proposed regulation to such products and services, is ongoing.

  3. Overview of Outreach and Related Industry and Consumer Research

    The Bureau conducted extensive and significant additional outreach and research since it issued the Prepaid ANPR as part of its efforts to study and evaluate prepaid products. In addition to reviewing the comments received, the Bureau has engaged in a variety of outreach and other research efforts to understand better how consumers use prepaid products and where problems might exist or potentially develop. These efforts include meetings with industry, consumer groups, and non-

    partisan research and advocacy organizations, market research and monitoring, and related efforts. Relatedly, the Bureau has collected information from industry participants pursuant to section 1022(c)(4) of the Dodd-Frank Act, which allows the Bureau to gather information from time to time regarding the organization, business conduct, markets, and activities of covered persons and service providers to aid its market monitoring efforts.

    Further, as discussed in greater detail below, the Bureau conducted qualitative testing of prototype disclosure forms with consumers who use prepaid cards and reviewed numerous prepaid products' terms and conditions. The Bureau sought to determine current industry practices in a number of areas to inform its understanding of the potential costs and benefits of extending various Regulation E provisions to prepaid accounts. As described in greater detail below, Bureau staff conducted a study of publicly-available account agreements for prepaid products that appear to meet the Bureau's proposed definition of the term ``prepaid account.''

    1. Focus Groups and Consumer Testing

      As noted above, in formulating this notice, the Bureau engaged a third-party vendor, ICF International (ICF), to coordinate qualitative consumer testing consisting of informal focus groups and one-on-one interviews. The Bureau sought to gain insight about how and why consumers use prepaid cards (including GPR and payroll cards), as well as to see how they interact with prototype forms developed by the Bureau. Under direction from the Bureau, ICF facilitated four focus groups in December 2013 to gather in-depth

      Page 77122

      information about how consumer shop for prepaid cards and factors they consider when acquiring such products. Each focus group lasted approximately ninety minutes, included eight to ten participants, and was held in Bethesda, Maryland. In early 2014, ICF facilitated three rounds of one-on-one interviews, each lasting approximately 60 to 75 minutes, in Baltimore, Maryland; Los Angeles, California; and Kansas City, Missouri. Each round included nine or ten participants. In conjunction with the release of this notice, the Bureau is making available a report prepared by ICF regarding the focus groups and consumer testing (ICF Report).\178\ The testing and focus groups were conducted in accordance with OMB Control Number 3170-0022.

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      \178\ For a detailed discussion of the Bureau's consumer testing, see ICF Report, available at http://files.consumerfinance.gov/f/201411_cfpb_summary-findings-design-testing-prepaid-card-disclosures.pdf.

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      A total of sixty-nine consumers representing a range of ages, races, and education levels participated in the focus groups and individual interviews.\179\ Specifically, 40 consumers participated in the focus groups, and 29 consumers participated in the interviews. All testing was conducted in English, but both the focus groups and individual interviews included native speakers of languages other than English. All participants self-identified as having used a prepaid card in the previous six months (for focus group participants) or 12 months (for interview participants).\180\ Several participants had payroll cards in addition to or in lieu of GPR cards.

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      \179\ For a detailed discussion of the methodology used in the consumer testing, including participant selection, see ICF Report, at 2-4.

      \180\ Based on oral responses, it appeared that perhaps one out of the forty focus group participants may have only used a gift card and not a GPR or payroll card. See ICF Report, at 4.

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      Participants reported that they used prepaid cards for a variety of reasons. While some participants reported using, as applicable, a GPR card or payroll card, in lieu of a deposit account, others reported that they also had a deposit account and used their prepaid cards only occasionally. Still others specifically mentioned using their cards primarily for online purchases. These participants expressed the belief that prepaid cards addressed some of their privacy and security concerns, in that cards could remain anonymous and cardholders could not lose more funds than what they loaded onto the card. Some participants, particularly those that did not have deposit accounts, described prior bad experiences with banks in general and overdraft fees on checking accounts in particular, in explaining why they chose to use a prepaid card.

      Focus group findings highlights. Few focus group participants reported doing any formal comparison shopping before purchasing a prepaid card in a retail store. Further, while some participants who had purchased their cards online reported doing more research about different cards' terms and conditions pre-purchase, they, too, rarely engaged in systematic comparison shopping. Most participants reported that they were very aware of the fees associated with their current prepaid card, but few reported understanding all of the fees when they purchased their prepaid cards. Instead, most reported learning about a card's fees post-acquisition after unknowingly incurring certain fees and seeing that the fees were deducted from their card balance. When asked about which fees were most important to them, almost all participants cited one of the following fees: (1) Monthly maintenance fees; (2) per purchase fees; (3) ATM withdrawal fees; and (4) cash reload fees. ICF also asked participants to share their thoughts about how easily they could understand the information included in on-package disclosures from two existing prepaid cards (brand names redacted). Comprehension varied. Many participants overlooked any asterisks included on these disclosures to explain how fees may be assessed or how fees differ from what was disclosed. Participants were also confused about whether the disclosures provided a comprehensive overview of all potential fees.

      Based on the observations from and information gathered in focus groups and the Bureau's outreach more generally, the Bureau and ICF developed several prototype disclosure forms to test with participants in the individual interview segment of the consumer testing. The Bureau and ICF focused mainly on designing and testing ``short form'' disclosures that would highlight key information about a hypothetical prepaid product in a format that would be easy to understand, yet small enough to fit on existing packaging material used to market prepaid products on J-hooks in retail stores.\181\ The Bureau and ICF developed short form prototypes that would accommodate prepaid products that have a single service plan and prototypes for products that have multiple service plans. A ``long form'' prototype form that included all of the hypothetical prepaid product's fees was also developed.

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      \181\ The Bureau notes, however, that under the proposal, the short form would be disclosed in all acquisition scenarios, not just retail stores. See section-by-section analysis of Sec. 1005.18(b), below.

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      Individual interviews findings highlights. ICF asked participants questions to assess how well they were able to comprehend the fees and other information included on prototype forms. In some cases, ICF asked participants to engage in shopping exercises to compare fee information printed on different prototype forms. After each round of testing, ICF analyzed and briefed the Bureau on the results of testing. The Bureau used this feedback to make changes, as necessary, to the form design for the following round of testing.

      In the first round of testing, the Bureau focused on testing a variety of prototype short form disclosures. Specifically, the Bureau tested short forms that: (1) Included a ``top-line'' of four fees displayed more prominently than the other fees; (2) grouped similar fees by category; or (3) listed fees without including either the top-

      line or categories. Generally, participants were able to understand the basic fee information presented in all of the prototype disclosure forms. However, many participants expressed a desire for a form that is both easy to read and that prominently displays the most important fee information. These participants also expressed that they felt that prototype forms that included a ``top line'' disclosure of certain fees accomplished these objectives.

      Another design issue on which the Bureau and ICF focused was whether and how to develop a form that might not include all of a prepaid product's fees and full explanations of the conditions under which those fees could be imposed. In other words, the Bureau used testing to determine how to best present a subset of key information about a prepaid product in the short form disclosure, while effectively indicating to consumers that additional information not included on the form was also available. The first round's prototype forms included multiple asterisks to indicate additional information was available for fees that could vary in amount. Many participants, however, did not notice the text associated with the asterisks or struggled to accurately identify which symbol was associated with which fee.

      In an attempt to improve comprehension, the Bureau introduced forms in the second round of testing that only included a single symbol and explanatory sentence to indicate all of the fees that might vary on the form. This modification appeared to increase the frequency with which participants

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      noticed the language associated with the symbol, and thus, the frequency which participants noticed that fees could vary also increased. In the third round of testing, in addition to reviewing additional short form prototypes, participants engaged in a shopping exercise with a prototype long form disclosure to compare the relative utility of the short form and long form disclosures.

      Before the second round of testing, the Bureau also posted a blog on its Web site that included two of the prototype short form designs used during the second round of testing in Los Angeles.\182\ The Bureau invited the public to provide impressions of the prototypes and suggest how the Bureau could improve their design and submit their feedback through comments directly on the blog, by sending an email, or through posting a message to the Bureau via social media. The Bureau received over 80 comments from industry, consumer advocacy groups and individual consumers, in addition to email submissions and other correspondence. These comments informed the Bureau's form design process for the third round of testing as well as the model forms.

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      \182\ Eric Goldberg, Prepaid cards: Help design a new disclosure, CFPB Blog Post, (Mar.18, 2014), http://www.consumerfinance.gov/blog/prepaid-cards-help-design-a-new-disclosure/.

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    2. Study of Prepaid Product Features

      In order to better understand existing compliance with Regulation E and other features and protections currently offered by prepaid products, the Bureau conducted a study of publicly-available account agreements for prepaid products that appear to meet the Bureau's proposed definition of the term ``prepaid account'' (Study of Prepaid Account Agreements).\183\ Specifically, the Bureau sought to determine current industry practices in a number of areas to inform its understanding of the potential costs and benefits of extending various Regulation E provisions to prepaid accounts. Bureau staff examined certain key provisions in the account agreements of prepaid cards and other similar prepaid programs currently available to consumers and compared those terms against one another and, for some provisions, against the protections presently provided by Regulation E for payroll card accounts and cards used for the distribution of certain government benefits \184\ (and, by virtue the FMS Rule, to other prepaid cards receiving Federal payments as well).

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      \183\ Available at http://files.consumerfinance.gov/f/201411_cfpb_study-of-prepaid-account-agreements.pdf.

      \184\ See existing Sec. Sec. 1005.18 and 1005.15, respectively.

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      The Study of Prepaid Account Agreements covers 325 publicly-

      available account agreements for prepaid programs that, the Bureau believes, could be subject to the definition of prepaid account set forth in this proposal.\185\ The analysis includes agreements for GPR card programs (including GPR cards marketed for specific purposes, such as travel or receipt of tax refunds, or for specific users, such as teenagers or students), as well as payroll cards, cards used for the distribution of certain government benefits, and similar card programs were included. Agreements for prepaid programs specifically used for P2P transfers that appeared to be encompassed by the proposed definition of prepaid account were also included. Gift, incentive and rebate card programs, health spending account and flexible spending account programs, and needs-tested State and local government benefit card programs were not included in the analysis, as the Bureau is proposing to exclude such products from this proposed rulemaking. While the Bureau collected a large number of agreements, it cautions that this collection is neither comprehensive or nor complete. The Bureau only included programs for which agreements were readily available online. In addition, there does not currently exist any comprehensive listing of prepaid card issuers, program managers, or programs against which the Bureau could compare the completeness of its analysis.

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      \185\ The Bureau does not intend for a program's inclusion in or exclusion from the Study of Prepaid Account Agreements to be a determination as to whether this proposed rule would or would not apply to that prepaid account program.

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      The Study of Prepaid Account Agreements examines key provisions regarding error resolution protections (including provisional credit); limited liability protections; access to account information; overdraft and treatment of negative balances and declined transaction fees; FDIC (or NCUSIF) pass-through deposit (or share) insurance; and general disclosure of fees. Where relevant, results of the analysis are discussed in the section-by-section analysis below. The Study of Prepaid Account Agreements is being published concurrently with this notice. It explains how Bureau staff identified publicly available prepaid account agreements online for inclusion in the analysis. It also discusses the Bureau's methodology, key assumptions, observations, and findings for each category of review. The Bureau cautions that its analysis is, in many ways, subjective and thus is not intended to be relied upon as an assessment of any legal issue including whether a prepaid program actually complies with Regulation E's existing provisions governing payroll card accounts or cards used for the distribution of certain government benefits, the FMS Rule, or this proposed rule.

  4. Legal Authority

    1. Electronic Fund Transfer Act

      EFTA section 902 establishes that the purpose of the statute is to provide a basic framework establishing the rights, liabilities, and responsibilities of participants in electronic fund and remittance transfer systems but that its primary objective is the provision of individual consumer rights. Among other things, EFTA contains provisions regarding disclosures made at the time a consumer contracts for an electronic fund transfer service (EFTA section 905(a)), notices of certain changes to account terms or conditions (EFTA section 905(b)), provision of written documentation to consumers regarding electronic fund transfers (EFTA section 906), error resolution (EFTA section 908), consumers' and financial institutions' liability for unauthorized electronic fund transfers (EFTA sections 909 and 910), and compulsory use of electronic fund transfers (EFTA section 913). With respect to disclosures provided prior to opening an account, EFTA section 905(a) states that the terms and conditions of electronic fund transfers involving a consumer's account shall be disclosed at the time the consumer contracts for an electronic fund transfer service, in accordance with regulations of the Bureau. It also establishes that the Bureau shall issue model clauses for optional use by financial institutions to facilitate compliance with the disclosure requirements of EFTA section 905 and to aid consumers in understanding the rights and responsibilities of participants in electronic fund transfers by utilizing readily understandable language. As discussed in more detail below, proposed revisions to Sec. 1005.18(b) (pre-acquisition disclosure requirements) are proposed pursuant to the Bureau's disclosure authority under EFTA section 905, and its adjustments and exceptions authority under EFTA section 904.

      As amended by the Dodd-Frank Act, EFTA section 904(a) authorizes the Bureau to prescribe regulations

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      necessary to carry out the purposes of EFTA. As noted above, the express purposes of EFTA, are to establish ``the rights, liabilities, and responsibilities of participants in electronic fund and remittance transfer systems'' and to provide ``individual consumer rights.'' EFTA section 902(b). EFTA section 904(c) further provides that regulations prescribed by the Bureau may contain such classifications, differentiations, or other provisions, and may provide for such adjustments or exceptions, for any class of electronic fund transfers or remittance transfers that the Bureau deems necessary or proper to effectuate the purposes of EFTA, to prevent circumvention or evasion, or to facilitate compliance. The Senate Report accompanying EFTA noted that regulations are ``essential to the act's effectiveness'' and ``permit the Bureau to modify the act's requirements to suit the characteristics of individual EFT services. Moreover, since no one can foresee EFT developments in the future, regulations would keep pace with new services and assure that the act's basic protections continue to apply.'' \186\ For reasons discussed in this notice, the Bureau is proposing amendments to Regulation E with respect to prepaid accounts that may offer an overdraft service or credit feature pursuant to the Bureau's authority under, as applicable, sections 904(a) and (c).

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      \186\ See S. Rept. No. 95-1273, at 26 (Oct. 4, 1978).

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    2. Section 1022 of the Dodd-Frank Act

      Section 1022(b)(1) of the Dodd-Frank Act authorizes the Bureau to prescribe rules ``as may be necessary or appropriate to enable the Bureau to administer and carry out the purposes and objectives of the Federal consumer financial laws, and to prevent evasions thereof.'' Among other statutes, title X of the Dodd-Frank Act, EFTA, and TILA are Federal consumer financial laws.\187\ Accordingly, in adopting this final rule, the Bureau is exercising its authority under Dodd-Frank Act section 1022(b) to prescribe rules under EFTA, TILA, and title X that carry out the purposes and objectives and prevent evasion of those laws. Section 1022(b)(2) of the Dodd-Frank Act prescribes certain standards for rulemaking that the Bureau must follow in exercising its authority under section 1022(b)(1). See Section 1022(b) Analysis below for a discussion of the Bureau's standards for rulemaking under Dodd-

      Frank Act section 1022(b)(2).

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      \187\ Dodd-Frank Act section 1002(14) (defining ``Federal consumer financial law'' to include the ``enumerated consumer laws'' and the provisions of title X of the Dodd-Frank Act); Dodd-Frank Act section 1002(12) (defining ``enumerated consumer laws'' to include TILA and EFTA).

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      Dodd-Frank Act section 1022(c)(1) provides that, to support its rulemaking and other functions, the Bureau shall monitor for risks to consumers in the offering or provision of consumer financial products or services, including developments in markets for such products or services. The Bureau may make public such information obtained by the Bureau under this section as is in the public interest. Dodd-Frank Act section 1022(c)(3). Moreover, section 1022(c)(4) provides that, in conducting such monitoring or assessments, the Bureau shall have the authority to gather information from time to time regarding the organization, business conduct, markets, and activities of covered persons and service providers. Proposed Sec. 1005.19 is proposed pursuant to the Bureau's authority under Dodd-Frank sections 1022(c) and 1032(a), as well as its authority under EFTA sections 904 and 905. As discussed in the section-by-section analysis below, proposed Sec. 1005.19 would mandate the collection of and posting by the Bureau of prepaid account terms and conditions and posting on a Bureau-maintained Web site. It would also require that financial institutions disclose such terms and conditions.

    3. Section 1032 of the Dodd-Frank Act

      Section 1032(a) of the Dodd-Frank Act provides that the Bureau ``may prescribe rules to ensure that the features of any consumer financial product or service, both initially and over the term of the product or service, are fully, accurately, and effectively disclosed to consumers in a manner that permits consumers to understand the costs, benefits, and risks associated with the product or service, in light of the facts and circumstances.'' The authority granted to the Bureau in section 1032(a) is broad, and empowers the Bureau to prescribe rules regarding the disclosure of the ``features'' of consumer financial products and services generally. Accordingly, the Bureau may prescribe disclosure requirements in rules regarding particular features even if other Federal consumer financial laws do not specifically require disclosure of such features.

      Dodd-Frank Act section 1032(c) provides that, in prescribing rules pursuant to section 1032, the Bureau ``shall consider available evidence about consumer awareness, understanding of, and responses to disclosures or communications about the risks, costs, and benefits of consumer financial products or services.'' Accordingly, in developing the proposed rule under Dodd-Frank Act section 1032(a), the Bureau has considered available studies, reports, and other evidence about consumer awareness, understanding of, and responses to disclosures or communications about the risks, costs, and benefits of consumer financial products or services. Moreover, the Bureau has considered the evidence developed through its consumer testing of the model forms as discussed above and in the ICF Report.

      In addition, Dodd-Frank Act section 1032(b)(1) provides that ``any final rule prescribed by the Bureau under section 1032 requiring disclosures may include a model form that may be used at the option of the covered person for provision of the required disclosures.'' Any model form issued pursuant to that authority shall contain a clear and conspicuous disclosure that, at a minimum, uses plain language that is comprehensible to consumers, contains a clear format and design, such as an easily readable type font, and succinctly explains the information that must be communicated to the consumer. Dodd-Frank Act section 1032(b)(2). As discussed in more detail below, certain portions of the proposed rule are proposed pursuant to the Bureau's disclosure authority under Dodd-Frank section 1032(a).

    4. The Truth in Lending Act

      As discussed above, TILA is a Federal consumer financial law. In adopting TILA, Congress explained that:

      Economic stabilization would be enhanced and the competition among the various financial institutions and other firms engaged in the extension of consumer credit would be strengthened by the informed use of credit. The informed use of credit results from an awareness of the cost thereof by consumers. It is the purpose of this subchapter to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing and credit card practices.\188\

      \188\ TILA section 102(a); 15 U.S.C. 1601(a).

      TILA and Regulation Z define credit broadly as the right granted by a creditor to a debtor to defer payment of debt or to incur debt and defer its payment. TILA section 103(f); 15 U.S.C. 1602(f); 12 CFR 1026.2(a)(14); 15 U.S.C. 1602(f). TILA and Regulation Z set forth disclosure and other requirements that apply to creditors. Different rules apply to creditors depending on whether they are extending ``open-end credit'' or ``closed-end credit.'' Under the statute and Regulation Z, open-end credit exists

      Page 77125

      where there is a plan in which the creditor reasonably contemplates repeated transactions; the creditor may impose a finance charge from time to time on an outstanding unpaid balance; and the amount of credit that may be extended to the consumer during the term of the plan (up to any limit set by the creditor) is generally made available to the extent that any outstanding balance is repaid. Sec. 1026.2(a)(20). Typically, closed-end credit is credit that does not meet the definition of open-end credit. Sec. 1026.2(a)(10).

      The term ``creditor'' generally means a person who regularly extends consumer credit that is subject to a finance charge or is payable by written agreement in more than four installments (not including a down payment), and to whom the obligation is initially payable, either on the face of the note or contract, or by agreement when there is no note or contract. See TILA section 103(g); 15 U.S.C. 1602(g); 12 CFR 1026.2(a)(17)(i). TILA defines finance charge broadly as the sum of all charges, payable directly or indirectly by the person to whom the credit is extended, and imposed directly or indirectly by the creditor as an incident to the extension of credit. TILA section 106(a); 12 U.S.C. 1605(a); see 12 CFR 1026.4.

      The term ``creditor'' also includes a card issuer, which is a person or it's agent that issues credit cards, when that person extends credit accessed by the credit card. See Sec. 1026.2(a)(17)(iii) and (iv); TILA section 103(g); 15 U.S.C. 1602(g). Regulation Z defines the term ``credit card'' to mean any card, plate, or other single credit device that may be used from time to time to obtain credit. See Sec. 1026.2(a)(15). A charge card is a credit card on an account for which no periodic rate is used to compute a finance charge. See Sec. 1026.2(a)(15)(iii). In addition to being creditors under TILA and Regulation Z, card issuers also generally must comply with the credit card rules set forth in the FCBA and in the Credit CARD Act (if the card accesses an open-end credit plan), as implemented in Regulation Z subparts B and G. See generally Sec. Sec. 1026.5(b)(2)(ii), .7(b)(11), .12 and .51-.60.

      TILA section 105(a). As amended by the Dodd-Frank Act, TILA section 105(a), 15 U.S.C. 1604(a), directs the Bureau to prescribe regulations to carry out the purposes of TILA, and provides that such regulations may contain additional requirements, classifications, differentiations, or other provisions, and may provide for such adjustments and exceptions for all or any class of transactions, that the Bureau judges are necessary or proper to effectuate the purposes of TILA, to prevent circumvention or evasion thereof, or to facilitate compliance. As discussed above, pursuant to TILA section 102(a), a purpose of TILA is ``to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit.'' Moreover, this stated purpose is tied to Congress' finding that ``economic stabilization would be enhanced and the competition among the various financial institutions and other firms engaged in the extension of consumer credit would be strengthened by the informed use of credit.'' TILA section 102(a). Thus, strengthened competition among financial institutions is a goal of TILA, achieved through the effectuation of TILA's purposes.

      Historically, TILA section 105(a) has served as a broad source of authority for rules that promote the informed use of credit through required disclosures and substantive regulation of certain practices. However, Dodd-Frank Act section 1100A clarified the Bureau's section 105(a) authority by amending that section to provide express authority to prescribe regulations that contain ``additional requirements'' that the Bureau finds are necessary or proper to effectuate the purposes of TILA, to prevent circumvention or evasion thereof, or to facilitate compliance. This amendment clarified the authority to exercise TILA section 105(a) to prescribe requirements beyond those specifically listed in the statute that meet the standards outlined in section 105(a). Accordingly, as amended by the Dodd-Frank Act, TILA section 105(a) authority to make adjustments and exceptions to the requirements of TILA applies to all transactions subject to TILA, except with respect to the provisions of TILA section 129 that apply to the high-

      cost mortgages referred to in TILA section 103(bb), 15 U.S.C. 1602(bb).

      For the reasons discussed in this notice, the Bureau is proposing amendments to Regulation Z with respect to certain prepaid accounts that are associated with overdraft services or credit features to carry out TILA's purposes and is proposing such additional requirements, adjustments, and exceptions as, in the Bureau's judgment, are necessary and proper to carry out the purposes of TILA, prevent circumvention or evasion thereof, or to facilitate compliance. In developing these aspects of the proposal pursuant to its authority under TILA section 105(a), the Bureau has considered the purposes of TILA, including ensuring meaningful disclosures, facilitating consumers' ability to compare credit terms, and helping consumers avoid the uninformed use of credit, and the findings of TILA, including strengthening competition among financial institutions and promoting economic stabilization.

  5. Section-by-Section Analysis of the Proposed Rule

    Regulation E

    Subpart A--General

    Section 1005.2 Definitions

    2(b) Account

    Section 1005.2(b)(1) defines an ``account'' for purposes of Regulation E as a demand deposit (checking), savings, or other consumer asset account (other than an occasional or incidental credit balance in a credit plan) held directly or indirectly by a financial institution and established primarily for personal, family, or household purposes. As discussed above, the Board in 2006 added a definition for ``payroll card account'' to the definition of account in Regulation E. Under the current regulation, a payroll card account is an account that is directly or indirectly established through an employer and to which electronic fund transfers of the consumer's wages, salary, or other employee compensation (such as commissions), are made on a recurring basis, whether the account is operated or managed by the employer, a third-party payroll processor, a depository institution or any other person. Sec. 1005.2(b)(2). EFTA and Regulation E currently apply to payroll card accounts, except as provided in existing Sec. 1005.18. Similar exceptions and other provisions specific to accounts used for the distribution of government benefits are in existing Sec. 1005.15. Gift cards, although not included in the Sec. 1005.2(b) definition of account, are addressed in Sec. 1005.20.

    The Board, in adopting rules to include payroll card accounts within the ambit of Regulation E, explicitly acknowledged that Regulation E did not, at that time, cover general spending cards to which a consumer might transfer by direct deposit some portion of the consumer's wages.\189\ As a result, some regulators, the prepaid industry, and others have thus interpreted Regulation E not to apply to various types of prepaid products that are not payroll card accounts, accounts used for

    Page 77126

    the distribution of government benefits, or gift cards.\190\

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    \189\ 71 FR 51437, 51441 (Aug. 30, 2006).

    \190\ See, e.g., FMS Rule, 75 FR 80335, 80337 (Dec. 22, 2010). However, as evidenced by the Study of Prepaid Account Agreements, many prepaid providers have, for a variety of reasons, elected to apply some or all of Regulation E's provisions (as modified by the Payroll Card Rule) to their non-payroll prepaid products generally.

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    After the Bureau assumed authority for implementing most of EFTA pursuant to the transfer of certain authorities from the Board to the Bureau under the Dodd-Frank Act, it analyzed whether other types of prepaid products, in addition to payroll card accounts, certain government benefit accounts, and gift cards, could or should be expressly included within Regulation E. In the Prepaid ANPR, the Bureau explained that in the six years that had elapsed since the Board issued the Payroll Card Rule, the prepaid card market had changed markedly. Beyond just industry growth, consumers also have increasingly used prepaid products the same way other consumers use traditional demand deposit accounts. Further, as general use prepaid cards become a more accepted and well-known alternative financial product, the difference between prepaid and traditional deposit accounts begins to blur. Thus, the Bureau sought comment in the Prepaid ANPR on how the Bureau should define GPR cards in the context of Regulation E and whether certain prepaid products should not be included in this definition, such as cards that may serve a limited purpose (e.g., university cards or health spending cards).\191\

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    \191\ 77 FR 30923, 30925 (May 23, 2012).

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    In the first instance, most commenters to the Prepaid ANPR (industry, consumer advocacy groups, and others) did not object to bringing prepaid products within the ambit of Regulation E, at least at some broad level. While there were some concerns from industry and others, which are discussed further below, about exactly which types of prepaid products the Bureau might subject to Regulation E, most commenters favored inclusion of GPR cards, with some reservations about specific provisions of the rule. Among other reasons, several trade associations noted that insofar as many GPR card issuers and program managers already voluntarily comply with Regulation E, the Bureau should formalize GPR cards' inclusion in Regulation E as a means of standardizing protections for consumers.

    Most comments focused on the types of prepaid products the Bureau should include in this rulemaking and the scope of any resulting rules. Many industry commenters urged the Bureau to focus its rulemaking only on those products that consumers can or do use in the same ways as traditional demand deposit accounts. Many commenters contrasted such products, which include GPR cards (which do not have limits on where and how consumers can use the product), with those that are issued with restrictions on use. Commenters suggested, for example, that the Bureau exclude Health Savings Account cards because they cannot be used in the place of a traditional demand deposit account due to limitations on their use. Similarly, industry commenters also suggested that the Bureau exclude limited-use transit cards, university cards, and mall cards. Some industry commenters also urged the Bureau to exclude certain corporate-related cards, such as those used for expense reimbursement or for distribution of health or transit benefits. Within this vein, industry commenters also suggested that the Bureau exclude cards used to disburse insurance payments because, one commenter argued, they are not part of the class of consumer asset accounts intended to be regulated under Regulation E. Another industry commenter argued that cards that are not reloadable by the consumer or that are corporate-funded typically serve a limited audience for a limited use and therefore should not be covered by the proposed rule. Further, these commenters warned that if such cards were covered by the definition of prepaid accounts, the cost of adding Regulation E protections could cause issuers of those cards to discontinue offering them.

    In addition, industry commenters disagreed over whether the Bureau should limit its proposed rule to products represented by physical cards or whether it should also include other types of prepaid products such as those that are entirely online (and might use a barcode or QR code displayed on a mobile device such as a smartphone or other online means to interact with a payment network). One prepaid card distributor commenter urged the Bureau to include these non-card products because such products may have the same features as physical cards. However, commenters urged the Bureau to distinguish between digital wallets that simply store payment credentials for other accounts or cards and those non-card products that in fact store funds themselves. To the extent that the credentials loaded into a digital wallet are for other accounts are protected by Regulations E or Z, commenters argued that those products should provide consumers with sufficient protections without direct regulation of the wallets themselves. With the exception of these few topics, however, industry commenters generally discussed how Regulation E's substantive requirements should be tailored to prepaid products rather than what products should be defined as prepaid accounts in the first instance. These comments are discussed in detail below.

    Consumer group commenters generally did not favor restrictions on any definition the Bureau might propose; they instead favored inclusion of limited purpose products such as university cards, health spending cards, and other similar products. They argued that the Bureau should include in its proposed definition all products that act like debit cards and that are currently not covered by Regulation E, as well as certain reloadable gift cards. Like many industry commenters, consumer groups urged the Bureau to apply Regulation E to those prepaid products that consumers can use as transaction account substitutes because, in part, consumers do not know that debit cards may have protections that prepaid products lack. The consumer groups diverged from industry commenters, however, by largely urging the Bureau not to modify the substantive requirements of Regulation E in applying them to prepaid products. These differences are discussed in detail below.

    In addition to reviewing the comments it received on the Prepaid ANPR, the Bureau has conducted significant outreach to aid its understanding of the scope and diversity of the prepaid product marketplace. In particular, the Bureau has spoken with prepaid card program managers, issuers, distributors, processors, and other parties involved in various aspects of the prepaid card industry, as well as government agencies and non-profits that are involved in administering prepaid card programs. This outreach has included providers of prepaid products that are not sold to consumers, such as prepaid cards used to distribute financial aid to students and insurance payouts to consumers. The Bureau understands (based on its outreach efforts as well as its Study of Prepaid Account Agreements) that many providers of prepaid products voluntarily comply with most or all of Regulation E, as it applies to payroll card accounts. As discussed in detail below, the Bureau believes that objections about the burden of including various types of products within the ambit of this proposed rule are largely negated by the

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    fact that a significant majority of these products are already substantially in compliance with existing Regulation E provisions.

    In developing this proposal, the Bureau first considered the applicability of EFTA to prepaid products. EFTA, among other things, governs transactions that involve an electronic fund transfer to or from a consumer's account. It defines an account to be ``a demand deposit, savings deposit, or other asset account . . . as described in regulations of the Bureau, established primarily for personal, family, or household purposes. . . .'' EFTA section 903(2), 15 U.S.C. 1693a(2). Insofar as the statute defines account broadly to include any other asset account and for the other reasons discussed below, the Bureau believes it is reasonable to interpret ``account'' in EFTA to include prepaid accounts. Thus, it proposes to include prepaid accounts expressly within Regulation E's definition of account. To clarify the scope of the proposed rule and to modify Regulation E to reflect the characteristics of prepaid accounts, the Bureau proposes to modify the definition of ``account'' under Sec. 1005.2(b) to create a specific sub-definition for prepaid account.

    The Bureau believes that proposing to apply Regulation E to prepaid accounts is appropriate for several reasons. As noted above and by many commenters, prepaid products are more frequently being used today by consumers as transaction account substitutes. In particular, GPR cards (including those sold at retail locations and online) are increasingly being used by consumers as a substitute for a checking account, credit card, or both. The Bureau also understands that consumers use other types of prepaid products as transaction account substitutes as well. For example, students may receive financial aid disbursements onto prepaid cards that the students then use as their primary transaction vehicle during the school term. Insurers may pay out insurance claims for property or casualty losses or workers' compensation claims onto prepaid cards. Consumers, in turn, may use this card as their primary transaction vehicle until the funds are depleted.

    The Bureau recognizes that not all consumers use prepaid products as transaction account substitutes and that not all types of prepaid products lend themselves to use as transaction account substitutes. Nevertheless, the Bureau believes that the features of non-GPR card prepaid products as well as the ways consumers can and do use those products warrant their inclusion as prepaid accounts for several reasons. First, inclusion aligns appropriately with the purposes of EFTA. The legislative history of EFTA indicates that Congress' primary goal was to protect consumers using electronic fund transfer services. Although, at the time, providers of electronic payment services argued that enactment of EFTA was premature and that the electronic payment market should be allowed to develop further on its own, Congress believed that establishing a framework of rights and duties for all parties would benefit both consumers and providers.\192\ Likewise, the Bureau believes that now it is appropriate to establish such a framework for prepaid accounts, because doing so would benefit both consumers and providers. In addition, were it to finalize this proposal, the Bureau believes that consumers will be better able to assess the risks of using prepaid products. Indeed, the Bureau is concerned that because prepaid cards can be so similar to credit and debit cards (which are protected under Regulations Z and E), consumers may not realize that their prepaid cards lack the same benefits and protections as those other cards. This proposal, if finalized, would serve to make these protections more consistent and eliminate a regulatory gap.

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    \192\ See S. Rept. No. 95-915, at 2-3 (1978) and H.R. Rept. No. 95-1315, at 2-4 (1978).

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    Second, the Bureau believes that the Board's reasoning in 2006 for excluding GPR cards from the Payroll Card Rule is now, eight years later, no longer applicable. At the time, the Board concluded that it was premature to cover other prepaid cards under Regulation E because, in its view of the marketplace at that time, consumers did not often use prepaid cards in the same way that they used payroll cards; the Board noted, ``for payroll card accounts that are established through an employer, there is a greater likelihood than for GPR cards that the account will serve as a consumer's principal transaction account and hold significant funds for an extended period of time.'' \193\ The Board also noted that, in its opinion, to the extent that consumers use GPR cards like gift cards, ``consumers would derive little benefit from receiving full Regulation E protections for a card that may only be used on a limited, short-term basis and which may hold minimal funds, while the costs of providing Regulation E initial disclosures, periodic statements, and error resolution rights would be quite significant for the issuer.'' \194\

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    \193\ 71 FR 51441 (Aug. 30, 2006).

    \194\ 71 FR 1473, 1475 (Jan. 10, 2006) (also noting that GPR cards are ``generally designed to make one-time or a limited number of payments to consumers and are not intended to be used on a long-

    term basis'').

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    Third, consumers' use of prepaid products has evolved significantly since 2006. Although some consumers may continue to treat GPR cards and other prepaid products as if they were gift cards, many do not. Many consumers now use other types of prepaid products in the same ways and to fill the same needs as they did payroll card accounts in 2006. Consumers can and do have wages and/or benefits loaded onto prepaid cards through direct deposit and thus may load substantial sums onto their cards.\195\ Consumers use prepaid cards for a variety of purposes, including making purchases, paying bills, and receiving payments.\196\ For those consumers without other transaction accounts, they may depend entirely on their prepaid cards to meet their payment account needs.\197\ As a result, the Bureau believes that such products should be considered consumer asset accounts subject to EFTA and Regulation E. The Bureau notes that while not all prepaid products can or will be used as transaction account substitutes, the proposed prepaid account definition discussed below appropriately includes a variety of prepaid product types that the Bureau believes warrant protection under Regulation E. The Bureau is concerned that to try to carve out very specific types of products that are, or can be, used for short-term limited purposes is complicated and could result in consumer confusion as to what protections might apply to otherwise indistinguishable products.

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    \195\ See, e.g., Fed. Deposit Ins. Corp, Appendix to 2013 FDIC National Survey of Unbanked and Underbanked Households (Oct. 2014) (2013 FDIC Survey), at 55, available at https://www.fdic.gov/householdsurvey/2013report.pdf (finding that for households that reloaded prepaid debit cards in the last 12 months, 17.7 percent of all households and 27.7 percent of unbanked households did so via direct deposit of a paycheck).

    \196\ See, e.g., id. at 48 (finding that for all households that used prepaid debit cards in the last 12 months, 44.5 percent did so to pay for everyday purchases or to pay bills and 19.4 percent did so to receive payments).

    \197\ See, e.g., id. (finding that finding that for unbanked households that used prepaid debit cards in the last 12 months, 65 percent did so to pay for everyday purchases or to pay bills and 41.8 percent did so to receive payments).

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    As the Bureau's consumer testing and industry studies have shown, many consumers are using prepaid accounts in the same ways as they use other types of accounts, such as debit and credit card accounts. Even if not all consumers

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    use their prepaid accounts in this way, consumers may not realize that, in many ways, their prepaid accounts may provide fewer protections than substitute products (and, in fact, may expect their prepaid cards to be safer).\198\ Further, to the extent the Board determined that consumers in 2006 did not use prepaid accounts in a way that warranted regulatory protections, the Bureau believes that those conditions no longer exist. As discussed in detail below, the Bureau is proposing to bring a broad range of prepaid products within the ambit of Regulation E and also is proposing to modify certain substantive provisions of Regulation E as appropriate for different types of prepaid accounts.

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    \198\ See, e.g., ICF Report, at 10 (noting that ``When asked what would happen if there were a fraudulent or inaccurate charge on their prepaid account, most participants believed that their prepaid card provider would credit the funds to their account. This belief seemed to be based almost exclusively on prior experiences with prepaid card providers and other financial institutions, rather than an understanding of any legal protections that may or may not exist.'')

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    In crafting the proposed definition of prepaid account, the Bureau has focused on prepaid product attributes and consumer use cases. While consumers are increasingly using prepaid accounts as transaction account substitutes, the Bureau does realize, as discussed above, that not all consumers will use prepaid accounts in that way and that many continue to maintain checking and other deposit accounts while also using prepaid accounts. The Bureau also acknowledges that certain accounts subject to the proposed definition (e.g., products usable only for person-to-person transfers and products that cannot be reloaded) cannot be used as transaction account substitutes. Nevertheless, because the Bureau believes that consumer protections are best understood when they apply evenly across like products, the Bureau is proposing a definition that would focus on attributes relating to how prepaid accounts are issued and used, instead of how or where they are loaded (and by whom). The Bureau believes it appropriate to cast a wide net in including products within the proposed definition of prepaid account even if, as discussed further below, it may also be appropriate to adjust certain provisions in Regulation E depending on a particular product's features and how it can be used.

    The proposed definition of prepaid account is discussed below. It is followed by a discussion of the modifications and limitations the Bureau is proposing for that definition. Finally, the new requirements and modifications the Bureau is proposing to Regulation E for prepaid accounts are discussed.

    2(b)(2) Bona Fide Trust Account

    The current definition of account in Regulation E includes an exception for bona fide trust accounts. See existing Sec. 1005.2(b)(3). To accommodate the proposed definition for the term prepaid account and a proposed adjustment to the definition of payroll card account, the Bureau proposes to renumber the exception for bona fide trust accounts as Sec. 1005.2(b)(2) without any substantive changes to the exception. Note that to accommodate this proposed change, the Bureau does not need to renumber existing comments 2(b)(2)-

    1 and -2 because those comments are currently misnumbered in the Official Interpretations to Regulation E.

    2(b)(3) Prepaid Account

    Overview

    In determining to propose revisions to Regulation E's definition of account to include prepaid accounts, the Bureau considered which types of prepaid products should be covered by its proposed definition. As discussed below, the Bureau proposes to add new Sec. 1005.2(b)(3) to set forth this proposed definition.

    2(b)(3)(i)

    Proposed Sec. 1005.2(b)(3)(i) would define the term prepaid account as a card, code, or other device, that is not otherwise an account under Sec. 1005.2(b)(1), that is established primarily for personal, family, or household purposes, and that satisfies three additional criteria as laid out in proposed Sec. 1005.2(b)(3)(i)(A) through (C), discussed below.

    The Bureau's proposed definition of prepaid account is based on the formulation for the definition of general-use prepaid card in the Gift Card Rule (Sec. 1005.20). As the Board noted when it adopted the Gift Card Rule, that definition of general-use prepaid card largely tracks the language of the Credit CARD Act as codified in EFTA Section 915(a)(2)(A).\199\ The Bureau examined other similar definitions, such as those used in FinCEN's Prepaid Access Rule or in the Board's Regulation II, but believes that its proposed approach aligns, as explained in detail below, best with the types of prepaid products the proposed definition is intended to cover and with the purposes of EFTA and Regulation E. The Bureau believes that its proposed definition closely calibrates to the products that it intends to cover as well as provides greater consistency within Regulation E.

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    \199\ See 75 FR 16580, 16588 (Apr. 1, 2010). Congress also used this definition of prepaid card in the Dodd-Frank Act provisions governing debit card interchange and routing requirements. Dodd-

    Frank Act section 1075, EFTA section 920(a)(7)(A)(ii), 15 U.S.C. 1693o-2(a)(7)(A)(ii).

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    Proposed comment 2(b)(3)(i)-1 would clarify that for purposes of subpart A to Regulation E, except for Sec. 1005.17 (requirements for overdraft services), the term ``debit card'' also includes a prepaid card.

    The first part of the proposed definition--an account established primarily for personal, family, or household purposes--mirrors a portion of the existing definition of account. See Sec. Sec. 1005.2(b)(1). Proposed comment 2(b)(3)(i)-2 would explain that proposed Sec. 1005.2(b)(3) applies only to cards, codes, or other devices that are acquired by or provided to a consumer primarily for personal, family, or household purposes. For further commentary interpreting this phrase, proposed comment 2(b)(3)(i)-2 would refer to existing comments 20(a)-4 and -5.

    2(b)(3)(i)(A)

    Proposed Sec. 1005.2(b)(3)(i)(A) would define a prepaid account as either issued on a prepaid basis to a consumer in a specified amount or not issued on a prepaid basis but capable of being loaded with funds thereafter.

    This portion of the proposed definition expands upon the phrase ``issued on a prepaid basis'' used in the Gift Card Rule's definition of general-use prepaid card in Sec. 1005.20(a)(3).\200\ However, the Bureau seeks to ensure that accounts that are not loaded at acquisition are nonetheless eligible to be prepaid accounts. Unlike gift cards, which are typically loaded with value at purchase, other types of prepaid products may be issued before a consumer or third party loads value onto it (e.g., payroll card accounts). The Bureau believes that the Gift Card Rule's limitation is unnecessary and inappropriate with respect to its definition for prepaid accounts. Thus, because the Bureau believes that prepaid products should be subject to the same protections regardless of the timing of loading, the proposed definition also includes a prepaid product that is ``not issued on a prepaid

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    basis but capable of being loaded with funds thereafter.''

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    \200\ Section 1005.20(a)(3) defines the term general use prepaid card as ``a card, code, or other device that is: (i) Issued on a prepaid basis primarily for personal, family, or household purposes to a consumer in a specified amount, whether or not that amount may be increased or reloaded, in exchange for payment; and (ii) Redeemable upon presentation at multiple, unaffiliated merchants for goods or services, or usable at automated teller machines.''

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    The Bureau is also proposing this approach in part because it is concerned that prepaid providers could restructure existing products to avoid coverage by the proposed rule if they were to separate account acquisition from initial funding. For example, a GPR card provider could create a card product that did not require an initial load at the time of purchase or a university could give a card to a student prior to the disbursement of financial aid and, without the proposed additional language, could be outside the proposed rule. The Bureau believes that by making the scope of the proposed definition broad it will limit attempts to evade the proposed consumer protections for prepaid accounts. In addition, the Bureau believes that this proposed provision would ensure that consumers who use prepaid accounts receive the protections in this proposed rule--particularly the pre-acquisition disclosures regarding fees and other key terms--prior to and upon establishment of the account.

    Proposed comment 2(b)(3)(i)-3 would clarify that to be ``issued on a prepaid basis,'' a prepaid account must be loaded with funds when it is first provided to the consumer for use. For example, if a consumer purchases a prepaid account and provides funds that are loaded onto a card at the time of purchase, the prepaid account is issued on a prepaid basis. A prepaid account offered for sale in a retail store is not issued on a prepaid basis until purchased by the consumer.

    Proposed comment 2(b)(3)(i)-4 would clarify what types of accounts would satisfy the portion of the proposed prepaid account definition regarding an account that is not issued on a prepaid basis but is capable of being loaded with funds thereafter. Specifically, proposed comment 2(b)(3)(i)-4 would explain that a prepaid account that is not issued on a prepaid basis but is capable of being loaded with funds thereafter includes a prepaid card issued to a consumer with a zero balance to which funds may be loaded by the consumer or a third party subsequent to issuance. This does not include a product that can never store funds, such as digital wallet that only holds payment credentials for other accounts.

    Proposed comment 2(b)(3)(i)-5 would clarify that to satisfy proposed Sec. 1005.2(b)(3)(i)(A), a prepaid account must either be issued on a prepaid basis or be capable of being loaded with funds. This means that the prepaid account must be capable of holding funds, rather than merely acting as a pass-through vehicle. For example, if a product is only capable of storing a consumer's payment credentials for other accounts but is incapable of having funds stored on it, such a product would not be a prepaid account. However, if a product allows a consumer to transfer funds, which can be stored before the consumer designates a destination for the funds, the product would satisfy proposed Sec. 1005.2(b)(3)(i)(A).

    With these examples, the Bureau seeks to make clear that it does not intend to extend the proposed definition of prepaid account to a product that can never store funds. To the extent that a digital wallet, for example, merely stores payment credentials (e.g., a consumer's bank account or payment card information), rather than storing the funds themselves, the digital wallet would not be considered a prepaid account under the proposed rule. If, however, a digital wallet allows a consumer to store funds in it directly, then the digital wallet would be a prepaid account if the other criteria of the proposed definition are also met.

    The Bureau proposes not to limit its definition to prepaid accounts that are reloadable, as explained in proposed comment 2(b)(3)(i)-6, which would provide that prepaid accounts need not be reloadable by the consumer or a third party. Some industry commenters to the Prepaid ANPR urged the Bureau to limit this proposed rule to those products that can be reloaded by a consumer. One of these commenters urged exclusion for cards issued pursuant to a special arrangement (such as insurance cards), arguing that such cards are quite different than GPR cards since they are not reloadable by the consumer. These commenters did not cite specific evidence to provide a basis for such a rationale. On the other hand, some industry commenters and several consumer group commenters suggested a more expansive rule based on how the consumer expects to use the card, rather than on how it may be loaded with funds.

    The Bureau believes that it would be inappropriate to exclude a product from the definition of prepaid account based on whether it can be reloaded or who can (or cannot) load funds into the account. First, products that may limit consumers from loading funds include payroll card accounts, which are already subject to Regulation E. Other products reloadable only by a third party also may hold funds which similarly represent a meaningful portion of a consumer's available income. This may be true, for example, for students receiving financial aid disbursements or a consumer receiving worker's compensation payments. The Bureau believes that, like consumers relying on payroll card accounts, which the Board previously acknowledged should be protected by Regulation E,\201\ consumers may use these products as transaction account substitutes even when consumers cannot reload the cards themselves, and thus such products should be similarly protected.

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    \201\ See 71 FR 51437, 51441 (Aug. 30, 2006).

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    Second, the Bureau does not believe that non-reloadable prepaid products should have fewer protections than reloadable products. While it is true that consumers may not generally use non-reloadable products as transaction account substitutes given that the funds will eventually be spent down in their entirety, the Bureau believes that extending protections to all broadly usable prepaid accounts is beneficial to consumers. As noted, consumers may not realize the differences between protections available for traditional debit cards and prepaid cards and even less so between different types of prepaid products. Providers' marketing strategies could exacerbate these concerns. To the extent prepaid accounts are marketed as being ``safer'' than other products, consumers are less likely to understand technical and legal differences in regulatory coverage.

    Third, if the Bureau excluded non-reloadable cards from the definition of prepaid account, a provider intent on evading Regulation E could issue non-reloadable cards repeatedly to the same consumer instead of reloading a covered reloadable card. Including non-

    reloadable products (that otherwise meet the relevant criteria) in the proposed definition of prepaid account would eliminate this possibility.

    Nevertheless, the Bureau seeks comment on the scope of this part of the proposed definition, including as to specific types of prepaid products that should be included or excluded from coverage, as well as the rationale for inclusion or exclusion. In particular, the Bureau seeks comment on whether the definition as proposed could have the unintended consequence of including products that do not warrant protection by the Bureau as well as any additional concerns regarding products covered by the proposed definition. The Bureau requests that commenters specifically identify the reasons why inclusion of particular products in the definition of prepaid account would be burdensome to providers or not beneficial to consumers, including relevant data to support claims where available and appropriate.

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    The Bureau's proposed definition does not focus on particular products based on how they are distributed--such as GPR cards sold at retail locations or payroll card accounts distributed by employers--but instead focuses on the characteristics of a product--such as whether it can store funds and how it can be used by a consumer. An alternative approach would have been to list specific types of products. The Bureau is not proposing such an approach because it believes that it is difficult to craft such a list that would remain accurate as products evolve and that such a list would create opportunities for evasion. Finally, the Bureau also requests comment on whether it should adopt specific exceptions to the proposed definition.

    2(b)(3)(i)(B)

    The next part of the proposed definition of prepaid account addresses how such products must be able to be used to be considered a prepaid account. As the Board noted in adopting the Gift Card Rule, a key difference between a general-use prepaid card and a store gift card is where the card can be used.\202\ While store gift cards and gift certificates can be used at only a single merchant or an affiliated group of merchants (see Sec. 1005.20(a)(1)(ii) and (2)(ii)), a general-use prepaid card is defined, in part, as redeemable upon presentation at multiple, unaffiliated merchants for goods or services, or usable at automated teller machines (Sec. 1005.20(a)(3)(ii)). In response to the Prepaid ANPR, commenters largely urged that the Bureau maintain this distinction. As noted above, some industry commenters also urged the Bureau to exclude from the proposed rule those products that are issued with restrictions on how or where they can be used, such as health savings account cards and certain transit cards.

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    \202\ See 75 FR 16580, 16588 (Apr. 1, 2010).

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    The Bureau is proposing to add Sec. 1005.2(b)(3)(i)(B), which would state that to qualify as a prepaid account, the card, code or other device must be redeemable upon presentation at multiple, unaffiliated merchants for goods or services, usable at automated teller machines, or usable for person-to-person transfers. Proposed comment 2(b)(3)(i)-7 would refer to existing comments 20(a)(3)-1 and -2 from the Gift Card Rule for guidance regarding the meaning of the phrase multiple, unaffiliated merchants.\203\

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    \203\ The Gift Card Rule explains that a card, code, or other device is redeemable upon presentation at multiple, unaffiliated merchants if, for example, such merchants agree to honor the card, code, or device if it bears the mark, logo, or brand of a payment network, pursuant to the rules of the payment network. See comment 20(a)(3)-1.

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    The Bureau believes it is appropriate to limit the definition of prepaid account to those products that consumers can use at multiple unaffiliated merchants for goods or services, at ATMs, or for P2P transfers. First, a core feature of a conventional debit card is that it is usable at multiple, unaffiliated merchants and at ATMs. Insofar as a purpose of this rulemaking is to provide comparable coverage for products with comparable functionality--in this case traditional debit cards and prepaid cards--it is appropriate to structure the proposed definition in a way that products with similar features have the protections afforded by Regulation E. Additionally, insofar as the Bureau understands that consumers expect to have equivalent protections on prepaid accounts that they do on accounts linked to debit cards, it is appropriate to include in the definition of prepaid account those products that have attributes similar to debit cards.

    In other words, a prepaid account would be one that is accepted widely at unaffiliated merchants, rather than only a single merchant or specific group of merchants, such as those located on a college campus or within a mall or defined shopping area. The Bureau believes that products usable at a single merchant (e.g., a merchant's gift card) do not warrant equivalent protections at this time. The Bureau believes it is appropriate to exclude closed loop gift cards from this rulemaking because of how they differ from other prepaid products and traditional debit cards. Not only can closed loop gift cards not be used in lieu of more traditional banking products, but they also cannot be used for P2P transfers or in any other way other than transacting with a merchant on the closed loop. As a result, consumers are less likely to load funds needed for day-to-day use or to load a substantial amount of funds onto such a card. Thus, the Bureau does not believe it appropriate to provide those products with the same protections at this time. While consumers may mistakenly assume that protections that apply to debit cards also apply to general-use prepaid cards, they are unlikely to be similarly confused with respect to closed loop gift cards. Indeed, consumers often do not register gift cards and are frequently instructed to treat them like cash.\204\ However, as merchants and others increasingly move to accepting card-based payments for their products and services, prepaid accounts have become more viable substitutes for more traditional financial products and services.

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    \204\ See, e.g., Dan Rutherford, Giving or receiving gift cards? Know the terms and avoid surprises, CFPB Blog Post (Dec. 21, 2012), http://www.consumerfinance.gov/blog/giving-or-receiving-gift-cards-know-the-terms-and-avoid-surprises/.

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    Prepaid products are also growing in popularity as a vehicle for consumers to transmit payments to each other or to businesses. The Bureau has identified an increasing number of products that allow consumers to make P2P or P2B payments without using a third-party branded payment network. These services may not always have wide merchant acceptance, but they do allow consumers to send money to other consumers and businesses. While some P2P transfer products may also be usable at an ATM or redeemable at multiple, unaffiliated merchants, some are not. However, unlike many limited-use prepaid products that have acceptance limited to a restricted location (such as on a college campus or in a mall), P2P products do not have such a limitation. Indeed, insofar as a P2P product may be accepted by anyone that contracts with the P2P provider, the model is not very different from a card association that contracts with unaffiliated merchants. Further, insofar as consumers may use these products to pay anyone with funds stored in the account, the Bureau believes that they should be included in the proposed definition of prepaid account.

    The Bureau recognizes, however, that a product that is solely usable for storing funds and P2P transfers is different from other types of prepaid accounts, such as GPR cards. The Bureau believes that there is benefit to consumers in harmonizing those protections with those currently offered (and, if the proposal is finalized, that will be offered) by other types of prepaid accounts. Thus, the Bureau proposes to add new comment 2(b)(3)(i)-8 to further explain when accounts capable of P2P transfers are prepaid accounts. Specifically, the comment would explain that a prepaid account capable of person-to-

    person transfers is an account that allows a consumer to send funds to another consumer or business. An account may qualify as a prepaid account if it permits person-to-person transfers even if it is neither redeemable upon presentation at multiple, unaffiliated merchants for goods or services, nor usable at ATMs. A transaction involving a store gift card would not be a person-to-person transfer if it could only be used to make payments to the merchant or affiliated group of merchants on whose behalf the card was issued.

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    The Bureau seeks comment on this portion of its proposed definition of prepaid account. In particular, the Bureau solicits comment on P2P payment products and whether they warrant inclusion in this rule. Note, of course, that a P2P payment product must satisfy the other requirements of the proposed rule to be a prepaid account, including that the product be capable of storing funds. The Bureau also seeks comment on whether there are specific types of products that offer P2P services that the Bureau should specifically exempt, such as those that are provided or established by an employer primarily for use at an affiliated group of merchants even if those products can be used to make occasional or incidental transfers to other employees, or for P2P products that are not available to the general public.

    2(b)(3)(i)(C)

    Regulation E's gift card provisions cover some prepaid products that also could fall within the proposed definition of prepaid account as described above. In particular, Sec. 1005.20 contains provisions applicable to gift certificates, store gift cards, and general-use prepaid cards.\205\ For those products marketed and sold as gift cards (and that meet certain other qualifications), the Gift Card Rule requires certain disclosures, limits the imposition of certain fees, and contains other restrictions. The Gift Card Rule is distinct from the rest of subpart A of Regulation E, however, and does not provide consumers who use gift cards with the other substantive protections of Regulation E, such as limited liability and error resolution protections, or periodic statements. The Gift Card Rule expressly excludes those general-use prepaid cards that are reloadable and not marketed or labeled as gift cards or gift certificates, while including general-use prepaid cards that are not reloadable as well as those that are marketed or labeled as gift cards or gift certificates. See Sec. 1005.20(b)(2).

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    \205\ The Gift Card Rule defines a general-use prepaid card as ``a card, code, or other device that is: (i) Issued on a prepaid basis primarily for personal, family, or household purposes to a consumer in a specified amount, whether or not that amount may be increased or reloaded, in exchange for payment; and (ii) Redeemable upon presentation at multiple, unaffiliated merchants for goods or services, or usable at automated teller machines.'' Sec. 1005.20(a)(3).

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    In response to the Prepaid ANPR, the Bureau received numerous industry comments urging it to exclude gift cards from this proposed rule. In their letters, these commenters argued that the protections for gift cards in the Gift Card Rule more appropriately match how such products are used. As one commenter noted, a consumer is unlikely to replace a traditional deposit account with a gift card that can only be used at a single merchant. Other commenters noted that many provisions of Regulation E would not be easily applied to most gift cards. For example, to the extent that this proposed rule might apply error resolution provisions to gift cards, such a rule might be difficult to apply because gift card holders often do not register the cards, thus potentially making it difficult for providers to determine when unauthorized transactions occur. Similarly, providing access to transactional account history to gift cardholders could also be difficult and impractical.

    Commenters were also concerned that it would be overly burdensome if prepaid products were subject both to the requirements of this proposed rule and the Gift Card Rule. To the extent they expressed an opinion, consumer group commenters largely agreed that existing protections for gift cards were sufficient, although one consumer group commenter urged the Bureau to include network branded open loop reloadable gift cards loaded with at least $500, because when a card is loaded with $500 the risk of harm from loss is higher.

    The Bureau is proposing to add Sec. 1005.2(b)(3)(i)(C), which would provide that a prepaid account is not a gift certificate as defined in Sec. 1005.20(a)(1) and (b); a store gift card as defined in Sec. 1005.20(a)(2) and (b); a loyalty, award, or promotional gift card as defined in Sec. 1005.20(a)(4) and (b); or a general-use prepaid card as defined in Sec. 1005.20(a)(3) and (b) that is both marketed and labeled as a gift card or gift certificate.

    The Bureau notes that the exemption in the Gift Card Rule for general-use prepaid cards applies to products that are reloadable and not marketed or labeled as gift cards or gift certificates. See Sec. 1005.20(b)(2). The Bureau is proposing to exclude from the definition of prepaid account only such general-use prepaid products that are both marketed and labeled as gift cards or gift certificates, as the Bureau is concerned that some products it intends to include may be inadvertently excluded due to occasional or incidental marketing activities. Comment 2(b)(3)(i)-9 would explain this distinction. For example, comment 20(b)(2)-2 describes, in part, a network-branded general purpose reloadable card that is principally advertised as a less-costly alternative to a bank account but is promoted in a television, radio, newspaper, or internet advertisement, or on signage as ``the perfect gift'' during the holiday season. For purposes of the Gift Card Rule, such a product would be considered marketed as a gift card or gift certificate because of this occasional holiday marketing activity. For purposes of proposed Sec. 1005.2(b)(3)(i)(C), however, such a product would not be considered to be both marketed and labeled as a gift card or gift certificate and thus would be covered by the definition of prepaid account.

    Generally speaking, the Bureau believes that having to apply both the existing gift card regulatory requirements and the proposed prepaid account requirements could adversely impact the gift card market, although the Bureau recognizes that some of the concerns it has regarding prepaid accounts can also be applied to gift cards. The Bureau acknowledges that if the requirements of this proposed rule were applied to gift cards at this time, it is possible that those requirements, in the context of the typical gift card, could confuse consumers and disrupt many gift cards' cost structures. For example, the Gift Card Rule already specifies disclosure with respect to key fees that are typically imposed in connection with gift cards. See Sec. 1005.20(c)(3). In addition and as noted previously, the Bureau believes that consumers may be more aware that gift cards have fewer protections than other products and thus treat gift cards accordingly.\206\ Because most gift cards are not reloadable, not usable at ATMs, and/or not open loop, consumers are less likely to use gift cards as transaction account substitutes. Were the Bureau to impose provisions for access to account information and error resolution, and create limits on liability for unauthorized EFTs, the Bureau is concerned that the cost structure of gift cards could change dramatically; unlike other types of prepaid products (which, as the Bureau's Study of Prepaid Account Agreements indicates, already are frequently in compliance with many existing provisions of Regulation E), gift cards do not typically offer these protections. In addition, while issuers of GPR cards typically encourage consumers to register their cards (so that the cards can become reloadable), the same motivations do not exist for open-loop gift cards. The Bureau nevertheless seeks comment on whether it would be

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    appropriate to impose the provisions in this proposal on some or all types of gift cards, the nature of consumer harm with respect to gift cards, and whether the Bureau's understanding of gift cards as discussed herein is accurate.

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    \206\ See, e.g., Fed. Trade Comm'n, Consumer Information: Gift Cards (Feb. 2011), https://www.consumer.ftc.gov//0182-gift-cards (Web page providing consumers with general information on buying and using gift cards).

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    The Bureau understands that there are certain non-reloadable products covered by the Gift Card Rule that providers do not market or sell as gift cards (and instead may be marketed more like prepaid accounts) and that may be used more broadly, and these cards would be covered by both the Gift Card Rule and this proposal. In addition, these products are typically network branded and thus appear similar to other types of covered prepaid accounts. For example, the Bureau understands providers are increasingly looking to market non-reloadable prepaid products to consumers as a means of conducting specific transactions (e.g., paying a single utility bill or making a purchase online). Despite the fact that these may be marketed as a single-use (as opposed to reloadable) prepaid card, the fact that these products are not marketed or labeled as gift cards, and are network branded and usable at any merchant that accepts the network brand may imply to consumers that these products are the same as the reloadable version of the product and thus warrant the same protections. The Bureau seeks comments on whether and, if so, how compliance with both this proposed rule and the Gift Card Rule would impose unique burdens on financial institutions offering such cards. The Bureau also seeks comment on whether the provisions of the Gift Card Rule alone are sufficient to protect those consumers that use non-reloadable general-use prepaid cards not marketed or sold as gift cards or gift certificates or whether consumers of such products would benefit from the proposed rule's protections. Finally, the Bureau seeks comment on whether there are any other types of products not discussed herein to which the Gift Card Rule applies and which might also be affected by this proposal.

    2(b)(3)(ii)

    As discussed above, Regulation E currently contains provisions specific to payroll card accounts and specifically defines such accounts. See Sec. 1005.2(b)(2). Insofar as the Bureau is generally proposing to adapt existing payroll card account rules to prepaid accounts in Sec. 1005.18, which currently addresses only payroll card accounts, the term payroll card account would be largely subsumed within the larger definition of prepaid account. Nevertheless, the Bureau believes that because there are certain provisions of Regulation E that would remain specific to payroll card accounts, it is appropriate to propose to maintain the term payroll card account as a standalone sub-definition of prepaid account. Specifically, the Bureau proposes that Sec. 1005.2(b)(3)(ii) provide that the term ``prepaid account'' includes a ``payroll card account'' and would otherwise restate the existing payroll card account definition. In addition, the Bureau proposes to renumber existing comment 2(b)-2, which concerns certain employment-related cards not covered as payroll card accounts, as comment new 2(b)(3)(ii)-1. In addition, the Bureau proposes to add to new comment 2(b)(3)(ii)-1 an explanation that the existing examples given of cards would not be payroll card accounts (i.e., cards used solely to disburse incentive-based payments, such as bonuses, disbursements unrelated to compensation, and cards used in isolated instances to which an employer typically does not make recurring payments, such as when providing final payments or in emergency situations where other payment methods are unavailable), such cards could constitute prepaid accounts generally, provided the other conditions of the proposed definition of that term in Sec. 1005.2(b)(3) are satisfied. Similar to existing comment 2(b)-2, proposed comment 2(b)(3)(ii)-1 would also state that, in addition, all transactions involving the transfer of funds to or from a payroll card account or prepaid account are covered by the regulation, even if a particular transaction involves payment of a bonus, other incentive-

    based payment, or reimbursement, or the transaction does not represent a transfer of wages, salary, or other employee compensation.

    The Bureau seeks comment on this portion of its proposed definition of prepaid account.

    2(b)(3)(iii)

    As discussed above, Regulation E currently contains provisions in Sec. 1005.15 that are specifically applicable to an account established by a government agency for distributing government benefits to a consumer electronically. While such accounts are currently defined only in existing Sec. 1005.15(a)(2), the Bureau believes that given the other modifications to Regulation E proposed herein, it is appropriate to explicitly add such accounts used for the distribution of government benefits as a stand-alone sub-definition of prepaid account as well. Specifically, the Bureau is proposing that Sec. 1005.2(b)(3)(iii) state that the term prepaid account includes a government benefit account, as defined in existing Sec. 1005.15(a)(2). The Bureau seeks comment on this portion of its proposed definition of prepaid account.

    2(b)(3)(iv)

    Proposed Sec. 1005.2(b)(3)(iv) would address prepaid products established in connection with certain health care and employee benefit programs. Specifically, the proposed provision would state that the term prepaid account does not include a health savings account, flexible spending account, medical savings accounts, or a health reimbursement arrangement. Proposed comment 2(b)(3)(iv)-1 would define these terms by referencing existing provisions in the Internal Revenue Code. Specifically, the Bureau is proposing that ``health savings account'' means a health savings account as defined in 26 U.S.C. 223(d); ``flexible spending account'' means a cafeteria plan which provides health benefits or a health flexible spending arrangement pursuant to 26 U.S.C. 125; ``medical savings account'' means an Archer MSA as defined in 26 U.S.C. 220(d); and ``health reimbursement arrangement'' means a health reimbursement arrangement which is treated as employer-provided coverage under an accident or health plan for purposes of 26 U.S.C. 106.

    The Bureau believes that while these health care and employee benefit accounts may, in some ways, be similar to other types of prepaid accounts, coverage under Regulation E is not necessary at this time. These products typically come with limits on the amount of funds that can be loaded on to them, the methods for loading, and numerous restrictions on where, when, and how those funds can be spent. These products can rarely be used to withdraw cash or to send money to another person or make payment to any merchant of the consumer's choosing (such as can be done with a P2P product or a GPR card). Instead, health insurers or employers (or their service providers) typically issue these products in connection with a consumer's healthcare or employee benefits plan and are governed by the terms of that plan and related regulations.\207\ For example, health savings accounts and medical savings accounts can typically only be used to pay for qualified medical expenses. Nevertheless, the

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    Bureau seeks comment on whether these or other types of health care and employee benefit accounts should be included within the definition of prepaid account in light of the important role they play for consumers.

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    \207\ See, e.g., Internal Revenue Serv., Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans (Jan. 22, 2014), available at http://www.irs.gov/pub/irs-pdf/p969.pdf.

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    Scope of Proposed Definition and Application to Virtual Wallets and Virtual Currency Products

    The Bureau seeks comment on the scope of its proposed definition for the term prepaid account. In particular and as noted above, the Bureau is aware of an increasing number of mobile financial products, each with different features, capabilities, and consumer protections. Determining how this proposed rule might apply to those products may be difficult in light of the quick evolution of these products and their features. Although the Bureau anticipates that this proposal, if effective today, would apply to relatively few mobile banking products (see, e.g., proposed comments 2(b)(3)(i)-4 and 2(b)(3)(i)-5), it seeks comment on whether it has appropriately predicted the scope of products this rule would apply to and whether there are products it excludes that should be included or vice versa.

    With respect to mobile financial products and services, the Bureau anticipates that this proposed rule would apply to certain mobile wallets. The Bureau also recognizes that the proposed rule may have potential application to virtual currency and related products and services. As a general matter, however, the Bureau's analysis of mobile financial products and services, as well as and virtual currencies and related products and services, including the applicability of existing regulations and this proposed regulation to such products and services, is ongoing. The proposed rule does not specifically resolve these issues.

    Section 1005.10 Preauthorized Transfers

    10(e) Compulsory Use

    10(e)(1) Credit

    In the discussion of the Bureau's proposed changes to Regulation Z, below, the Bureau explains in detail its approach to regulation of overdraft services and credit features on prepaid accounts. (That discussion provides an overall explanation of the Bureau's proposed approach to overdraft services and other credit features in connection with prepaid accounts in this rulemaking, including with respect to proposed changes to Regulation E, the details of which are set forth below.) As part of that approach, the Bureau is proposing to revise the compulsory use provision of Regulation E, Sec. 1005.10(e)(1), to make clear that it applies to credit features offered on prepaid accounts.

    EFTA's compulsory use provision, EFTA section 913(1), prohibits any person from conditioning the extension of credit to a consumer on the consumer's repayment by means of preauthorized electronic fund transfers. As implemented in Regulation E, Sec. 1005.10(e)(1) currently states that ``no financial institution or other person may condition an extension of credit to a consumer on the consumer's repayment by preauthorized electronic fund transfers, except for credit extended under an overdraft credit plan or extended to maintain a specified minimum balance in the consumer's account.'' The term ``credit'' is defined in Sec. 1005.2(f) to mean the right granted by a financial institution to a consumer to defer payment of debt, incur debt and defer its payment, or purchase property or services and defer payment therefor. The term ``preauthorized electronic fund transfer'' is defined in Sec. 1005.2(k) to mean an electronic fund transfer authorized in advance to recur at substantially regular intervals. See EFTA section 903(10).

    Congress enacted the compulsory use provision to prevent financial institutions that are creditors from mandating repayment of credit by future preauthorized electronic fund transfers. Were the compulsory use provision not to exist, creditors could access consumers' available funds at the same institution via direct transfers, or at other institutions via recurring ACH transfers, to repay the debt. By doing so, consumers could lose access to these funds and lose the ability to prioritize repayment of debits, as a creditor could compel the consumer to grant the creditor preauthorized transfer access to a consumer's asset account as a condition for agreeing to provide credit to that consumer.

    As is discussed below, the Bureau proposes certain modifications to the compulsory use provision. In particular, the Bureau proposes not to extend the provision's exception for overdraft credit plans to such plans offered on prepaid accounts. As discussed in more detail in the section-by-section analysis of Regulation Z proposed Sec. 1026.12(d), the Bureau believes that applying Sec. 1005.10(e)(1), with the proposed changes discussed below, along with proposed changes to the timing requirement for a periodic statement in Regulation Z Sec. 1026.5(b)(2)(ii), and the prohibition on offsets in Regulation Z Sec. 1026.12(d), would together allow consumers to retain control over the funds in their prepaid accounts even when a credit card feature becomes associated with that account.

    By not extending the exception for overdraft credit plans in the current Regulation E compulsory use provision--and consistent with the statutory compulsory use provision (EFTA section 913(1))--creditors would be required to offer prepaid account consumers a means to repay their outstanding credit balances other than by automatic repayment (such as by means of a transfer of funds from the asset account to the credit account that the consumer initiates on the prepaid account's online banking Web site). With the proposed changes to the Regulation Z periodic statement requirement--consistent with TILA section 163--

    creditors would be required to adopt reasonable procedures designed to ensure that periodic statements are mailed or delivered at least 21 days prior to the payment due date disclosed on the periodic statement and the due date disclosed must be the same day of the month for each billing cycle. And, with the proposed changes to the Regulation Z no-

    offset provision--consistent with TILA section 169--card issuers would be permitted to move funds automatically from the prepaid account held by the card issuer to the credit card account held by the card issuer to pay some or all of the credit card debt no more frequently than once per month, such as on the payment due date (pursuant to the consumer's signed, written agreement that the issuer may do so).

    Overdraft Credit Plans

    In adopting what is now Sec. 1005.10(e)(1) in 1981 to implement EFTA section 913(1), the Board used its EFTA exception authority to exclude overdraft credit plans from the general compulsory use rule of EFTA section 913(1).\208\ Comment 10(e)(1)-2 further explains that a financial institution may require the automatic repayment of an overdraft credit plan.

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    \208\ See 46 FR 2972, 2973 (Jan. 13, 1981) (``After careful consideration of the issues raised, the Board is adopting the amendment as proposed. The Board believes that it has the legal authority to adopt this exception for overdraft lines of credit under section 904(c) of the act, which expressly authorizes the Board to provide adjustments and exceptions for any class of electronic fund transfer that in the Board's judgment are necessary or proper to carry out the purposes of the act or to facilitate compliance.''). Further, the bases for Bureau's proposal not to extend this exception to prepaid accounts is discussed below in the Overview of the Bureau's Regulation Z proposal.

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    The Bureau proposes to provide that the compulsory use provision's general

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    prohibition against conditioning the extension of credit to a consumer on the consumer's repayment by means of preauthorized electronic fund transfers would apply to credit plans, including overdraft credit plans, that are credit card accounts under Regulation Z accessed by prepaid cards that are credit cards under proposed Regulation Z Sec. 1026.2(a)(15)(i) or accessed by an account number that is a credit card under Regulation Z where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor, discussed in further detail below. Regulation Z proposed comment 2(a)(15)-2.i.F would provide that the term ``credit card'' in Sec. 1026.2(a)(15)(i) includes a prepaid card (including a prepaid card that is solely an account number) that is a single device that may be used from time to time to access a credit plan, except if that prepaid card only accesses credit that is not subject to any finance charge as defined in Sec. 1026.4 or any fee described in Regulation Z Sec. 1026.4(c) such as an applicable fee to apply for credit or a late payment fee and is not payable by written agreement in more than four installments. Regulation Z proposed comment 2(a)(15)-2.i.G, discussed below, would provide that the term ``credit card'' in Sec. 1026.2(a)(15)(i) also includes an account number that is not a prepaid card that may be used from time to time to access a credit plan that allows deposits directly into particular prepaid accounts specified by the creditor but does not allow the consumer to deposit directly extensions of credit from the plan into asset accounts other than particular prepaid accounts specified by the creditor. (Such an account number is referred to in the proposal as an ``account number where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor.'') See also Regulation Z proposed Sec. 1026.2(a)(15)(vii).

    The proposal would revise Sec. 1005.10(e)(1) to provide that the exception for credit extended under an overdraft credit plan or extended to maintain a specified minimum balance in the consumer's account does not apply to credit extended under a credit plan that is a credit card account accessed by an access device for a prepaid account where the access device is a credit card under Regulation Z or accessed by an account number that is a credit card where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor.

    Proposed comment 10(e)(1)-3 would provide guidance on how the prohibition in Sec. 1005.10(e)(1) applies to credit extended under a credit plan that is a credit card account accessed by prepaid cards or account numbers that are credit cards under Regulation Z as discussed above. Proposed comment 10(e)(1)-3 would explain that under Sec. 1005.10(e)(1), creditors must not require by electronic means on a preauthorized, recurring basis repayment of credit extended under a credit plan that is a credit card account accessed by an access device for a prepaid account where the access device is a credit card under Regulation Z (Sec. 1026.2(a)(15)(i)). In addition, proposed comment 10(e)(1)-3 would provide that Sec. 1005.10(e)(1) also would prevent creditors from requiring by electronic means on a preauthorized, recurring basis repayment of credit extended under a credit plan that is a credit card account accessed by an account number that is a credit card under Regulation Z (Sec. 1026.2(a)(15)(i)) where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor. Proposed comment 10(e)(1)-3 would also provide that the prohibition in Sec. 1005.10(e)(1) would apply to any credit extended under a credit card plan as described above, including credit arising from transactions not using the credit card itself but taking place under plans that involve credit cards. For example, if the consumer writes a check that accesses a credit card plan as discussed above, the resulting credit would be subject to the prohibition in Sec. 1005.10(e)(1) since it is incurred through a credit card plan, even though the consumer did not use an associated credit card.

    Additionally, proposed comment 10(e)(1)-3 would cross-reference Regulation Z Sec. 1026.2(a)(15)(i), comment 2(a)(15)-2.i.F to explain that a prepaid card is not a credit card under Regulation Z if the access device only accesses credit that is not subject to any finance charge as defined in Regulation Z Sec. 1026.4 or any fee described in Regulation Z Sec. 1026.4(c) and is not payable by written agreement in more than four installments. Thus, the prohibition in Sec. 1005.10(e)(1) would not apply to credit extended under an overdraft credit plan that is not a credit card account. An overdraft credit plan would not be a credit card account if it is accessed only by a prepaid card that only accesses credit that is not subject to any finance charge as defined in Regulation Z Sec. 1026.4 or any fee described in Regulation Z Sec. 1026.4(c) and is not payable by written agreement in more than four installments.

    Proposed comment 10(e)(1)-3.i would explain the connection between the prohibition in proposed Sec. 1005.10(e)(1) on the compulsory use of preauthorized electronic fund transfers to repay credit extended under a credit plan accessed by prepaid cards that are credit cards and account numbers linked to prepaid accounts that are credit cards under Regulation Z Sec. 1026.2(a)(15)(i) and comment 2(a)(15)-2.i.F and .G, and the prohibition on offsets by credit card issuers in proposed Sec. 1026.12(d). Under Regulation Z Sec. 1026.12(d)(1), a card issuer may not take any action, either before or after termination of credit card privileges, to offset a cardholder's indebtedness arising from a consumer credit transaction under the relevant credit card plan against funds of the cardholder held on deposit with the card issuer. Under proposed Regulation Z Sec. 1026.12(d)(3), with respect to credit card accounts that are accessed by prepaid cards or by account numbers where extensions of credit are permitted to be deposited directly only in particular prepaid accounts specified by the creditor, a card issuer generally would not be prohibited under Sec. 1026.12(d) from periodically deducting all or part of the cardholder's credit card debt from a deposit account (such as a prepaid account) held with the card issuer (subject to the limitations of Regulation Z Sec. 1026.13(d)(1)) under a plan that is authorized in writing by the cardholder, so long as the creditor does not deduct all or part of the cardholder's credit card debt from the deposit account (such as a prepaid account) more frequently than once per calendar month, pursuant to such a plan. A card issuer for such credit card accounts would be prohibited under Sec. 1026.12(d) from automatically deducting all or part of the cardholder's credit card debt from a deposit account (such as a prepaid account) held with the card issuer more frequently than once per calendar month, such as on a daily or weekly basis, or whenever deposits are made to the deposit account. Under proposed Regulation Z Sec. 1026.12(d)(3), with respect to credit card accounts that are accessed by prepaid cards or by account numbers where extensions of credit are permitted to be deposited directly only in particular prepaid accounts specified by the creditor, electronic fund transfers pursuant to a plan described in Sec. 1026.12(d)(3) would be ``preauthorized electronic fund transfers'' under Sec. 1005.2(k) because such electronic fund transfers would be authorized in

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    advance to recur periodically (but could not recur more frequently than once per calendar month). Proposed comment 10(e)(1)-3.i thus would explain that Sec. 1005.10(e)(1) further restricts the card issuer from requiring payment from a deposit account (including a prepaid account) of credit card balances by electronic means on a preauthorized, recurring basis where the credit card account is accessed by an access device for a prepaid account, or is accessed by an account number that is a credit card under Regulation Z where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor.

    Consistent with the statutory text and purposes of EFTA, the Bureau proposes not to extend the exception for overdraft credit plans currently in Sec. 1005.10(e)(1) to credit plans that are credit card accounts under Regulation Z accessed by prepaid cards or accessed by an account number that is a credit card where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor. The purposes of EFTA are to establish the rights, liabilities, and responsibilities of consumers participating in EFT systems and to provide individual consumer rights. See EFTA section 902(b). Further, EFTA's legislative history states that EFTA compulsory use provision is ``designed to assure that EFT develops in an atmosphere of free choice for the consumer.'' \209\ The Bureau believes its proposal not to extend the Regulation's existing exception for overdraft credit plans to prepaid accounts should ensure that consumers have choice when deciding whether and how to link their prepaid accounts to credit accounts and have control over the funds in their prepaid accounts if and when such a link is established.

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    \209\ See Senate Report No. 95-915 at 16.

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    As is discussed in greater detail below in the discussion of Regulation Z, the Bureau also believes that not extending the exception for overdraft credit plans to prepaid accounts is consistent with the purposes of and provisions in TILA (TILA section 169) and Regulation Z (Sec. 1026.12(d)) that prohibit offsets by credit card issuers and will protect consumers' right to exercise control over the funds deposited into their prepaid accounts. In particular, the Bureau believes that the proposed revisions to Sec. 1005.10(e)(1) are necessary to prevent results that are contrary to these offset provisions. The Bureau is concerned that, with respect to credit card accounts that are accessed by prepaid cards or by account numbers where extensions of credit are permitted to be deposited directly only in particular prepaid accounts specified by the creditor, some card issuers may attempt to avoid the TILA offset prohibition by requiring that all or part of the cardholder's credit card debt be automatically deducted from the prepaid account to help ensure that the debt is repaid (similar to how overdraft services function today). For example, the Bureau believes that without the proposed changes to the compulsory use provision, financial institutions might require that prepaid account consumers set up automated payment plans to repay the overdraft credit advances and set the payment due date for each overdraft advance to align with the expected date of subsequent deposits to the prepaid account. The Bureau believes that this type of payment arrangement could undermine the purposes of the offset and periodic statement provisions in Regulation Z.

    To the extent that the Board justified its original treatment of overdraft credit plans as providing benefits to consumers from automatic payment, the Bureau notes that under the proposal consumers would still be allowed to choose automatic payment for credit card accounts linked to prepaid accounts (as discussed above) if they find it beneficial to do so. The Bureau also believes that certain credit card rules in Regulation Z that would apply under the proposal to credit card accounts linked to prepaid accounts (as discussed above) would help consumers avoid late payments and excessive late fees with respect to overdraft plans. For example, under the Regulation Z proposal, card issuers would be required, under proposed Sec. 1026.5(b)(2)(ii)(A)(1), to adopt reasonable procedures to ensure that Regulation Z periodic statements for credit card accounts linked to prepaid account (as discussed above) are mailed or delivered at least 21 days prior to the payment due date disclosed on the periodic statement and the due date disclosed must be the same day of the month for each billing cycle. The Bureau believes this will help ensure that consumers have sufficient time after receiving periodic statements for the credit card accounts linked to prepaid accounts (as discussed above) to make payment on their credit card accounts. Also, under the Regulation Z proposal, card issuers of credit card accounts linked to prepaid accounts (as discussed above) would be limited in the circumstances in which they could increase interest rates for late payments and would be limited in the amount of late fees they could charge to consumers who pay late. See Regulation Z Sec. Sec. 1026.52(b) and 1026.55.

    This proposal does not address overdraft plans accessed by access devices that do not access prepaid accounts and does not amend the compulsory use provision as it applies to those other products.

    Technical Revisions

    Consistent with proposed Sec. 1005.10(e)(1), comment 10(e)(1)-2 related to the exception for overdraft credit plans would be amended to explain that this exception does not apply to credit extended under a credit plan that is accessed by an access device for a prepaid account where the access device is a credit card under Regulation Z, Sec. 1026.2(a)(15)(i), or is accessed by an account number that is a credit card under Regulation Z where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor. In addition, the proposal would move existing guidance in comment 10(e)(1)-1 related to when financial institutions may provide incentives to consumers to agree to automatic repayment plans to a new comment 10(e)(1)-4; no substantive changes are intended.

    10(e)(2) Employment or Government Benefit

    EFTA section 913(2), as implemented by Sec. 1005.10(e)(2), provides that no financial institution or other person may require a consumer to establish an account for receipt of electronic fund transfers with a particular institution as a condition of employment or receipt of a government benefit. Existing comment 10(e)(2)-1 explains that an employer (including a financial institution) may not require its employees to receive their salary by direct deposit to any particular institution. These provisions regarding compulsory use precede the addition of the Payroll Card Rule to Regulation E.

    In September 2013, the Bureau reiterated the applicability of Regulation E's prohibition on compulsory use for payroll card accounts.\210\ The Bureau explained that, among other things, Regulation E's compulsory use provision prohibits employers from mandating that employees receive wages only on a payroll card of the employer's choosing.\211\

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    \210\ CFPB Bulletin 2013-10, Payroll Card Accounts (Regulation E) (Sept. 12, 2013), available at http://files.consumerfinance.gov/f/201309_cfpb_payroll-card-bulletin.pdf.

    \211\ Id. at 3.

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    The Bureau believes that the same standards should apply to government

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    benefit accounts. The Bureau is aware that many State and local governments use prepaid cards for distributing non-needs tested benefits and similar payments, such as unemployment insurance and child support payments.\212\ These products are subject to EFTA and Regulation E. The Bureau understands that most, though not all, State governments using prepaid cards to distribute unemployment insurance payments also offer recipients the option of receiving these payments via direct deposit and/or paper check.\213\

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    \212\ See, e.g., Bd. of Governors of the Fed. Reserve Sys., Report to the Congress on Government-Administered, General-Use Prepaid Cards (July 2014), available at http://www.federalreserve.gov/publications/files/2014_Prepaid_Cards_Final.pdf. Nearly every State offers a prepaid card to disburse child support and unemployment insurance payments. Id. at 3.

    \213\ See, e.g., Lauren K. Saunders & Jillian McLaughlin, 2013 Survey of Unemployment Prepaid Cards: States Save Workers Millions in Fees; Thumbs Down on Restricting Choice (Jan. 2013), available at http://www.nclc.org/images/pdf/pr-reports/report-prepaid-card-2013.pdf.

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    Based on discussions with interested stakeholders, the Bureau is aware that some may have perceived some ambiguity surrounding compulsory use of prepaid cards to distribute non-needs tested state and local government benefits. Specifically, some questions have arisen as to whether compulsory use of prepaid cards for non-needs tested benefits is permissible under Regulation E. EFTA and Regulation E clearly apply to the electronic distribution of non-needs tested government benefits generally, and EFTA section 913(2) prohibits ``requiring a consumer to establish an account for receipt of electronic fund transfers with a particular financial institution as a condition of . . . receipt of a government benefit.''

    Therefore, the Bureau believes it is appropriate to clarify the application of the compulsory use provision in Regulation E to accounts established to receive such benefits. Thus, the Bureau is proposing to add comment 10(e)(2)-2, which would make clear that a government agency may not require consumers to receive government benefits by direct deposit to any particular institution. A government agency may require direct deposit of benefits by electronic means if recipients are allowed to choose the institution that will receive the direct deposit. Alternatively, a government agency may give recipients the choice of having their benefits deposited at a particular institution (designated by the government agency) or receiving their benefits by another means. Relatedly, the Bureau seeks comment on whether a financial institution would comply with this provision if it provides the first payment to a benefit recipient on a government benefit card and, at that time, provides information on how to divert or otherwise direct future payments to an account of the consumer's choosing.

    The Bureau is also proposing to make consumers' options more clear, for both government benefit accounts and payroll card accounts, via a notice on the pre-acquisition short form disclosure for these types of prepaid accounts. See section-by-section analysis of Sec. Sec. 1005.15(c)(2) and 1005.18(b)(2)(i)(A).

    The Bureau requests comment on its proposed clarification of the prohibition on compulsory use of specific accounts for receipt of government benefits. The Bureau also seeks comment on whether a similar restriction should be extended to other types of prepaid accounts (other than payroll card accounts and government benefit accounts), such as cards used by post-secondary educational institutions for financial aid disbursements or insurance companies to pay out claims. In particular, the Bureau seeks comment on how consumers are enrolled in these other types of prepaid accounts, whether those enrollment methods involve concerns similar to those addressed above regarding prepaid cards for distribution of government benefits, and what the impact, if any, would be of expanding this provision to other types of prepaid accounts. Finally, the Bureau seeks comment on whether other interventions are appropriate with respect to prepaid products distributed by employers, government entities, educational institutions, and other third parties in connection with the payment of funds to particular groups.

    Section 1005.12 Relation to Other Laws

    12(a) Relation to the Truth in Lending Act

    Section 1005.12(a) provides guidance on whether the issuance provisions in Regulation E Sec. 1005.5 or the unsolicited issuance provisions in Regulations Z Sec. 1026.12(a) apply where access devices under Regulation E also are credit cards under Regulation Z. (For discussion of when this may occur, see the Regulation Z proposal, below.) In addition, Sec. 1005.12(a) also provides guidance on how the provisions on liability for unauthorized use and for resolving errors in Regulation E Sec. Sec. 1005.6 and 1005.11 and Regulation Z Sec. Sec. 1026.12(b) and 1026.13 interact where a credit transaction is incidental to an electronic fund transfer.

    Issuance Rules

    Consistent with EFTA section 911(a) (15 U.S.C. 1693i(a)), existing Sec. 1005.5(a) provides that a financial institution generally may issue an access device to a consumer only: (1) In response to an oral or written request for the device; or (2) As a renewal of, or in substitution for, an accepted access device whether issued by the institution or a successor. Nonetheless, consistent with EFTA section 911(b) (15 U.S.C. 1693i(b)), Sec. 1005.5(b) provides that a financial institution may distribute an access device to a consumer on an unsolicited basis if four enumerated situations are met.

    In contrast, the issuance rules for a credit card under Regulation Z are more restrictive. Consistent with TILA section 132, Regulation Z Sec. 1026.12(a), provides that regardless of the purpose for which a credit card is to be used, including business, commercial, or agricultural use, no credit card shall be issued to any person except: (1) In response to an oral or written request or application for the card; or (2) As a renewal of, or substitute for, an accepted credit card.

    Section 1005.12(a) provides guidance on whether the issuance provisions in Regulation E or the unsolicited issuance provisions in Regulations Z apply where access devices under Regulation E also are credit cards under Regulation Z. Specifically, Sec. 1005.12(a)(1) currently provides that EFTA and Regulation E subpart A govern: (1) The addition to an accepted credit card, as defined in Regulation Z (Sec. 1026.12, comment 12-2), of the capability to initiate electronic fund transfers; (2) The issuance of an access device that permits credit extensions pursuant to an overdraft line of credit (involving a preexisting agreement between a consumer and a financial institution to extend credit only when the consumer's account is overdrawn or to maintain a specified minimum balance in the consumer's account), or under an overdraft service (as defined in Regulation E Sec. 1005.17(a)); and (3) The addition of an overdraft service, as defined in Sec. 1005.17(a), to an accepted access device. On the other hand, Sec. 1005.12(a)(2) provides that TILA and Regulation Z apply to (1) the addition of a credit feature to an accepted access device; and (2) the issuance of a credit card that is also an access device, except the issuance of an access device that permits credit extensions pursuant to a preexisting overdraft line of credit or under an overdraft service. The application of these various provisions

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    to prepaid accounts and proposed revisions to the relevant prongs of Sec. 1005.12 are discussed below.

    Generally, the proposal would amend Sec. 1005.12(a) to provide that the unsolicited issuances rules in Regulation Z Sec. 1026.12(a) apply to the addition of a credit feature or plan to an access device for a prepaid account where the credit feature or plan would make the access device into a credit card under Regulation Z, even if the credit feature is structured as an overdraft line of credit.

    First, as noted, Sec. 1005.12(a)(1)(ii) provides that the issuance rules of EFTA and Regulation E subpart A govern the issuance of an access device that permits credit extensions (under a preexisting agreement between a consumer and a financial institution) only when the consumer's account is overdrawn or to maintain a specified minimum balance in the consumer's account, or under an overdraft service, as defined in Sec. 1005.17(a). Current comment 12(a)-2 then explains that for access devices that also constitute credit cards, the issuance rules of Regulation E apply if the only credit feature is a preexisting credit line attached to the asset account to cover overdrafts (or to maintain a specified minimum balance), known as an overdraft credit plan, or an overdraft service, as defined in Sec. 1005.17(a). For checking accounts, a consumer may have a preexisting agreement with the financial institution to cover checks that overdraft the account. This overdraft line of credit would be subject to Regulation Z. If a debit card is then added to access this overdraft line of credit under the preexisting agreement, Sec. 1005.12(a)(1)(ii) provides that the debit card (which would also be a credit card under Regulation Z) may be issued under the issuance rules in Regulation E, instead of the issuance rules in Regulation Z. Regulation Z's issuance rules apply if there is another type of credit feature being added to a debit card that would make the debit card into a credit card; for example, one permitting direct extensions of credit that do not involve the asset account.

    The proposal would amend Sec. 1005.12(a)(1)(ii) to provide that this provision does not apply to access devices for prepaid accounts. Thus, even if an access device for a prepaid account is issued to access a preexisting overdraft plan, the access device would be subject to the unsolicited issuance rules in TILA and Regulation Z Sec. 1026.12(a) when that overdraft plan would make the access device into a credit card under Regulation Z. See proposed Sec. 1005.12(a)(2)(ii). The proposal also would move comment 12(a)-2 related to preexisting overdraft credit plans to proposed comment 12(a)-1 and would revise the comment to explain that it does not apply to access devices for prepaid accounts.

    As discussed above, Sec. 1005.12(a)(1)(ii) contemplates the situation where there is a preexisting agreement between a financial institution and the consumer for an overdraft line of credit where the institution will cover checks that overdraft the account and the Regulation E access device is issued to access this plan. For the reasons set forth in the section-by-section analysis of Regulation Z, the Bureau believes that credit card rules in Regulation Z, including the unsolicited issuance rules in Sec. 1026.12(a), generally should apply to credit card accounts that are linked to prepaid accounts as discussed above. Consistent with the unsolicited issuance rules in Regulation Z Sec. 1026.12(a), the Bureau is proposing these changes because it is concerned that unsolicited issuance of a prepaid card that can access an overdraft credit plan would pose risks to consumers. The Bureau seeks to ensure that prepaid account consumers are fully aware of the addition, or potential addition, of a credit feature to a prepaid account.

    Similarly, the proposal would carve prepaid accounts out from Sec. 1005.12(a)(1)(iii), which provides that the issuance rules in EFTA and Regulation E govern the addition of an overdraft service, as defined in Sec. 1005.17(a), to an accepted access device. Current comment 12(a)-3 provides that the addition of an overdraft service, as that term is defined in Sec. 1005.17(a), to an accepted access device does not constitute the addition of a credit feature subject to Regulation Z. Comment 12(a)-3 also explains that the provisions of Regulation E apply, including the liability limitations (Sec. 1005.6) and the requirement to obtain consumer consent to the service before any fees or charges for paying an overdraft debit card or ATM transaction may be assessed on the account (Sec. 1005.17). The proposal would amend Sec. 1005.12(a)(1)(iii) to provide that this provision does not apply to access devices for prepaid accounts. The proposal also would move comment 12(a)-3 to proposed comment 12(a)-2 and revise the comment to indicate that this comment does not apply to access devices for prepaid accounts. As discussed in more detail in the section-by-section analysis of Sec. 1005.17, the proposal would revise the term ``overdraft service'' as defined in Sec. 1005.17(a) to exclude a credit plan that is accessed by an access device for a prepaid account where the access device is a credit card under Regulation Z, because these credit plans would be subject to the provisions in Regulation Z.

    Second, the proposal would also add references to prepaid accounts in portions of the regulation stating that certain activities are subject to TILA and Regulation Z issuance rules. For example, Sec. 1005.12(a)(2)(i) currently provides that the unsolicited issuance rules of TILA section 132 and Regulation Z Sec. 1026.12(a) apply to the addition of a credit feature to an accepted access device. The proposal would amend Sec. 1005.12(a)(2)(i) to provide that the unsolicited issuance rules in TILA and Regulation Z Sec. 1026.12(a) would apply to the addition of a credit feature or plan to an accepted access device, including an access device for a prepaid account, that would make the access device into a credit card under Regulation Z. Proposed comment 12(a)-4 would explain that Regulation Z governs the addition of any credit feature or plan to an access device for a prepaid account where the access device also would be a credit card under Regulation Z. Proposed comment 12(a)-4 would note that Regulation Z (Sec. 1026.2(a)(20), comment 2(a)(20)-2(ii)) provides guidance on whether a program constitutes a credit plan, and that Regulation Z (Sec. 1026.2(a)(15)(i), comment 2(a)(15)-2) defines the term credit card and provides examples of cards or devices that are and are not credit cards.

    Similarly, Sec. 1005.12(a)(2)(ii) currently provides that TILA and Regulation Z apply to the issuance of a credit card that is also an access device, except as provided in Sec. 1005.12(a)(1)(ii). Proposed comment 12(a)-3 would cross reference proposed Sec. 1005.18(g) and Regulation Z Sec. 1026.12(h), which would prevent prepaid cards from accessing credit card accounts when the prepaid cards are issued. For the reasons discussed in the section-by-section analysis of proposed Sec. 1005.18(g), proposed Sec. 1005.18(g)(1)(ii) would prohibit a financial institution from allowing a prepaid account access device to access a credit plan subject to Regulation Z that would make the access device into a credit card at any time prior to 30 calendar days after the prepaid account has been registered. In addition, proposed Sec. 1005.18(g)(1)(i) also would prohibit a financial institution from opening a credit card account subject to Regulation Z for the holder of a prepaid account, or providing a solicitation or application to open a credit card account subject to Regulation Z that would be accessed by the access device for a prepaid account

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    that is a credit card, prior to 30 calendar days after the prepaid account has been registered. For the reasons discussed in the section-

    by-section analysis of Regulation Z proposed Sec. 1026.12(h), proposed Sec. 1026.12(h) would require a credit card issuer to wait at least 30 calendar days from prepaid account registration before opening a credit card account for a holder of a prepaid account, or providing a solicitation or application to the holder of the prepaid account to open a credit card account, that would be accessed by the access device for a prepaid account that is a credit card.

    The Bureau believes that its proposed application of Regulations E and Z to the issuance of access devices strikes an appropriate balance between the regulations. The proposal recognizes that prepaid card issuers are not likely to have preexisting agreements with the customer to extend overdraft credit prior to issuing the prepaid card. The Bureau believes in particular that the addition of a credit feature to an accepted prepaid access device causes a significant transformation with respect to a prepaid account. The Bureau believes that applying the Regulation Z issuance rules to the addition of such a credit feature to a prepaid access device will help ensure that consumers are fully aware of the implications of their decision to effect such a transformation.

    Rules Applicable to Limits on Liability for Unauthorized Use and to Billing Errors Procedures

    Section 1005.6 generally sets forth provisions for when a consumer may be held liable, within the limitations described in Sec. 1005.6(b), for an unauthorized electronic fund transfer involving the consumer's account. Section 1005.11 generally sets forth the procedures for resolving errors relating to electronic fund transfers involving a consumer's account. Section 1005.18(e) sets forth a consumer's liability for unauthorized electronic fund transfers and the procedures for investigating errors related to electronic fund transfers involving prepaid accounts. See generally section-by-section analysis of proposed Sec. 1005.18(e).

    Relatedly, Regulation Z Sec. 1026.12(b) sets forth limits on the amount of liability that a credit card issuer may impose on a consumer for unauthorized use of a credit card. Regulation Z Sec. 1026.13 generally sets forth error resolution procedures for billing errors that relate to extensions of credit that are made in connection with open-end accounts or credit card accounts.

    Regulation E Sec. 1005.12(a)(1)(iv) currently provides guidance on how the provisions on limits on liability for unauthorized use and the provisions setting forth error resolution procedures under Regulation E and Regulation Z apply when credit is extended incident to an electronic fund transfer. Specifically, Sec. 1005.12(a)(1)(iv) provides that EFTA and Regulation E govern a consumer's liability for an unauthorized electronic fund transfer and the investigation of errors involving an extension of credit that occurs pursuant to an overdraft line of credit (under an agreement between the consumer and a financial institution to extend credit when the consumer's account is overdrawn or to maintain a specified minimum balance in the consumer's account), or under an overdraft service, as defined in Sec. 1005.17(a). Comment 12(a)-1 provides that for transactions involving access devices that also function as credit cards, whether Regulation E or Regulation Z applies depends on the nature of the transaction. For example, if the transaction solely involves an extension of credit, and does not include a debit to a checking account (or other consumer asset account), the liability limitations and error resolution requirements of Regulation Z apply. If the transaction debits a checking account only (with no credit extended), the provisions of Regulation E apply. If the transaction debits a checking account but also draws on an overdraft line of credit attached to the account, Regulation E's liability limitations apply, in addition to Regulation Z Sec. 1026.13(d) and (g) (which apply because of the extension of credit associated with the overdraft feature on the checking account).\214\ If a consumer's access device is also a credit card and the device is used to make unauthorized withdrawals from a checking account, but also is used to obtain unauthorized cash advances directly from a line of credit that is separate from the checking account, both Regulation E and Regulation Z apply. Comment 12(a)-1 also sets forth examples that illustrate these principles.

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    \214\ Section 1026.13(d) provides that a consumer need not pay (and the creditor may not try to collect) any portion of any required payment that the consumer believes is related to a disputed amount reflected on the consumer's credit card bill. It also provides that if the cardholder has enrolled in an automatic payment plan, the card issuer shall not deduct any part of the disputed amount or related finance or other charges from the consumer's asset account if the consumer provides to the card issuer a billing error notice that the card issuer receives any time up to 3 business days before the scheduled payment date. Section 1026.13(g) sets forth requirements governing what a creditor must do if it determines that a consumer owes all or part of the disputed amount and related finance or other charges.

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    With respect to limits on liability for unauthorized use, Sec. 1005.12(a) and comment 12(a)-1 are consistent with EFTA section 909(c), which applies EFTA's limits on liability for unauthorized use to transactions which involve both an unauthorized electronic fund transfer and an extension of credit pursuant to an agreement between the consumer and the financial institution to extend such credit to the consumer in the event the consumer's account is overdrawn. 15 U.S.C. 1693g(c). In adopting rules in 1980 to implement EFTA, the Board generally applied Regulation E's error resolution procedures to credit transactions that are incident to an electronic fund transfer involving an extension of credit that occurs under an agreement between the consumer and a financial institution to extend credit when the consumer's account is overdrawn or to maintain a specified minimum balance in the consumer's account.\215\ In proposing these rules, the Board stated that the proposed rule would simplify procedures for financial institutions where an electronic fund transfer results in both a debit to a consumer's account and a credit extension.\216\

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    \215\ 45 FR 8249, 8257 (Feb. 6, 1980).

    \216\ 44 FR 25850, 25857 (May 3, 1979).

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    For the reasons discussed in more detail in the section by section analysis of Regulation Z proposed Sec. 1026.13(i), the Bureau proposes to amend Sec. 1005.12(a)(1)(iv) by moving the current language to proposed Sec. 1005.12(a)(1)(iv)(A) and applying it to access devices that do not access prepaid accounts. The Bureau also proposes to add proposed Sec. 1005.12(a)(1)(iv)(B) to provide that with respect to a prepaid account, EFTA and Regulation E govern a consumer's liability for an unauthorized electronic fund transfer and the investigation of errors involving an extension of credit, under a credit plan subject to Regulation Z subpart B, that is incident to an electronic fund transfer when the consumer's prepaid account is overdrawn. Proposed Sec. 1005.12(a)(1)(iv)(B) that applies to credit in connection with a prepaid account is similar but not the same as proposed Sec. 1005.12(a)(1)(iv)(A) which applies to accounts other than prepaid accounts. Like proposed Sec. 1005.12(a)(1)(iv)(A), proposed Sec. 1005.12(a)(1)(iv)(B) generally would apply Regulation E's limits on liability for unauthorized use and error resolution procedures to transactions that are partially funded through an

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    electronic fund transfer using a prepaid card and partially funded through credit under a plan that is accessed by a prepaid card when the consumer's prepaid account is overdrawn.\217\

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    \217\ This treatment would not apply to plans accessed by an account number that is a credit card under Regulation Z, where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor. See the discussion of Regulation Z Sec. 1026.13(i) below.

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    However, unlike proposed Sec. 1005.12(a)(1)(iv)(A), proposed Sec. 1005.12(a)(1)(iv)(B) would not focus on whether there is an agreement between a consumer and a financial institution to extend credit when the consumer's prepaid account is overdrawn or to maintain a specified minimum balance in the consumer's prepaid account. Instead, proposed Sec. 1005.12(a)(1)(iv)(B) focuses on whether credit is extended under a ``plan'' when the consumer's prepaid account is overdrawn and the plan is subject to the provisions in Regulation Z subpart B. For example, a credit plan that is accessed by a prepaid card that is a credit card would be subject to the provisions of subpart B. Under the proposal, a prepaid card can be a credit card under Regulation Z even if the creditor retains discretion not to pay the credit transactions. As discussed in the section-by-section analysis of Regulation Z proposed Sec. 1026.2(a)(15)(i), proposed comment 2(a)(15)-2.i.F would provide that the term ``credit card'' for purposes of Regulation Z includes a prepaid card that is a single device that may be used from time to time to access a credit ``plan,'' except if the prepaid card only accesses credit that is not subject to any finance charge as defined in Regulation Z Sec. 1026.4 or any fee described in Regulation Z Sec. 1026.4(c) such as an application fee to apply for credit or a late payment fee and is not payable by written agreement in more than four installments. As discussed in the section-by-section analysis of proposed Regulation Z Sec. 1026.2(a)(20), with respect to credit that is accessed by a prepaid card, a ``plan'' includes a program where the consumer is obligated contractually to repay the credit. For example, such a plan includes a program under which a creditor routinely pays transactions when a consumer has insufficient or unavailable funds in a prepaid account and the consumer is obligated contractually to repay those transactions. Under the proposal, such a program would constitute a plan notwithstanding that the creditor retains discretion not to pay such transactions. Thus, proposed Sec. 1005.12(a)(1)(iv)(B) focuses on whether credit is extended under a ``plan'' that is subject to the provisions of subpart B, rather than whether there is an agreement between a consumer and a financial institution to extend credit when the consumer's account is overdrawn or to maintain a specified minimum balance in the consumer's account.

    Comment 12(a)-1 provides guidance on determining the applicable regulation related to liability and error resolution, primarily focusing on examples of when a debit card that also is a credit card under Regulation Z accesses a checking account. Under the proposal, comment 12(a)-1 would be moved to proposed comment 12(a)-5. The proposal also would amend proposed comment 12(a)-5 to provide guidance on determining the applicable regulation related to liability and error resolution for overdraft credit plans in connection with asset accounts, including prepaid accounts.

    Proposed comment 12(a)-5.i would also explain that for an account other than a prepaid account where credit is extended incident to an electronic fund transfer under an agreement to extend overdraft credit between the consumer and the financial institution, Regulation E's liability limitations and error resolution provisions apply, in addition to Regulation Z Sec. 1026.13(d) and (g) (which apply because of the extension of credit associated with the overdraft feature on the asset account). With respect to an account other than for a prepaid account, incidental credit that is not extended under an agreement between the consumer and the financial institution where the financial institution agrees to extend credit is governed solely by the error resolution procedures in Regulation E, and Regulation Z Sec. 1026.23(d) and (g) do not apply.

    Proposed comment 12(a)-5 would provide that with respect to a prepaid account where credit is extended under a credit plan that is subject to Regulation Z subpart B, Regulation E's liability limitations and error resolution provisions apply, in addition to Regulation Z Sec. 1026.13(d) and (g) (which apply because of the extension of credit associated with the overdraft feature on the asset account). Under the proposal, a credit plan is subject to Regulation Z subpart B if the credit plan is accessed by an access device that is a credit card under Regulation Z or the credit plan is open-end credit. An access device for a prepaid account would not be a credit card if the access device only accesses credit that is not subject to any finance charge as defined in Regulation Z Sec. 1026.4 or any fee described in Regulation Z Sec. 1026.4(c) and is not payable by written agreement in more than four installments. See Regulation Z comment 2(a)(15)-2.i.F. Proposed comment 12(a)-5 would explain that incidental credit under a credit plan that only can be accessed by an access device for a prepaid account that is not a credit card is not subject to Regulation Z subpart B and is governed solely by the error resolution procedures in Regulation E because the credit plan is not accessed by a credit card and the plan is not open-end credit. In this case, Regulation Z Sec. 1026.13(d) and (g) do not apply.

    Comment 12(a)-1.i and ii would be moved to proposed comment 12(a)-

    5-.ii and iii, respectively, and would be revised to indicate how the principles and examples apply generally to asset accounts, including checking accounts and prepaid accounts.

    The Bureau believes that it is appropriate to apply the limits on liability and the error resolution procedures in Regulation E generally to transactions that debit a prepaid account but also draw on an overdraft plan that is subject to Regulation Z subpart B. The Bureau believes that its proposed approach is consistent with EFTA section 909(c), which applies EFTA's limits on liability for unauthorized use to transactions which involve both an unauthorized electronic fund transfer and an extension of credit pursuant to an agreement between the consumer and the financial institution to extend such credit to the consumer in the event the consumer's account is overdrawn. 15 U.S.C. 1693g(c). An unauthorized electronic fund transfer on a prepaid account generally would be subject to the limits on liability in Sec. 1005.6 and proposed Sec. 1005.18(e); an unauthorized electronic fund transfer on a prepaid account also is an error for purposes of error resolution procedures set forth in Sec. 1005.11 and proposed Sec. 1005.18(e). See Sec. 1005.11(a)(1)(i). Although billing errors under Regulation Z Sec. 1026.13(a) include a broader category than only unauthorized use, the Bureau believes it is necessary and proper to apply Regulation E's error resolution provisions and limited Regulation Z error resolution provisions to these transactions, to facilitate compliance with EFTA section 908 and TILA section 161 on error resolution. The Bureau is concerned that conflicting provisions could apply to transactions that debit a prepaid account but also draws on an overdraft plan subject to Regulation Z subpart B if Regulation E's provisions applied to limits on liability

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    for unauthorized use, and Regulation Z's provisions generally apply to investigation of billing errors, including transactions involving unauthorized use. To avoid these potential conflicts and to facilitate compliance, under proposed Regulation Z Sec. 1026.12(a)(1)(v), if the transaction debits a prepaid account but also draws on an overdraft plan subject to Regulation Z subpart B, Regulation E's liability limitations and error resolution procedures apply to the entire transaction and Regulation Z's error resolution rules in Sec. 1026.13(d) and (g) apply to the credit portion of the transaction. This approach is also consistent with the existing provisions in Sec. 1005.11(a)(1)(iv) and Regulation Z Sec. 1026.13(i), which applies Regulation E's liability limitation and error resolution procedures to extensions of credit that is incident to an electronic fund transfer.

    The Bureau solicits comment on this approach. The Bureau also solicits comment on whether there are any other preferable approaches to determining how the liability limitations and error resolution procedures in Regulations E and Z should apply to transactions that debit prepaid accounts but also draw on overdraft plans that are subject to Regulation Z subpart B.

    12(b) Preemption of Inconsistent State Laws

    In 2013, the Bureau published a final determination as to whether certain laws of Maine and Tennessee relating to unclaimed gift cards are inconsistent with and preempted by EFTA and Regulation E.\218\ The Bureau concluded that it had no basis for concluding that the provisions at issue in Maine's unclaimed property law relating to gift cards are inconsistent with, or therefore preempted by, Federal law. The Bureau did determine, however, that one provision in Tennessee's unclaimed property law relating to gift cards is inconsistent with, and therefore preempted by, Federal law. The Bureau's notice of its preemption determination stated that the determination would also be reflected in the commentary accompanying Regulation E.

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    \218\ 78 FR 24386, 24391 (Apr. 25, 2013).

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    The Bureau proposes to add a summary of its preemption determination with respect to Tennessee's unclaimed property law as comment 12(b)-4. Proposed comment 12(b)-4 would state that the Bureau had determined that a provision in the State law of Tennessee is preempted by the Federal law, effective April 25, 2013. Specifically, section 66-29-116 of Tennessee's Uniform Disposition of Unclaimed (Personal) Property Act is preempted to the extent that it permits gift certificates, store gift cards, and stored-value cards, as defined in Sec. 1005.20(a), to be declined at the point-of-sale sooner than the gift certificates, store gift cards, or stored value cards and their underlying funds are permitted to expire under Sec. 1005.20(e).

    Existing comment 12(b)-2 states, in part, that the Bureau recognizes state law preemption determinations made by the Board prior to July 21, 2011, unless and until the Bureau makes and publishes any contrary determination. The Bureau proposes to make this statement into a standalone comment in proposed comment 12(b)-2 under the heading Preemption determinations generally. The Bureau proposes to renumber the remainder of existing comment 12(b)-2 as proposed comment 12(b)-3, to make the heading for that comment Preemption determination--Michigan for the sake of clarity, and to update proposed comment 12(b)-3.i through .iv to provide full citations to the preempted Michigan law at issue therein, which appear in chapter 488 of the Michigan Compiled Laws. Additionally, the Bureau proposes adding language in proposed comment 12(b)-3.iv to clarify that the preemption of sections 488.17 and 488.18 of Michigan law does not apply to transfers of $15 or less, which, pursuant to existing Sec. 1005.9(e), are not subject to Sec. 1005.9. Section 1005.9(e) (then Sec. 205.9(e)) was added by the Board in 2007 to eliminate the requirement to provide terminal receipts for transactions of $15 or less.\219\

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    \219\ See 72 FR 36589 (July 5, 2007).

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    The Bureau seeks comment on this portion of its proposal.

    Section 1005.15 Electronic Fund Transfer of Government Benefits

    Section 1005.15 of Regulation E currently contains provisions specific to certain accounts established by government agencies for distributing government benefits to consumers electronically, such as through ATMs or POS terminals. As discussed in more detail above, the Board amended Regulation E in 1994 to specifically address such accounts. In 1997, the Board modified Regulation E to exempt ``needs-

    tested'' EBT programs established or administered under State or local law in response to a 1996 change to EFTA made by the Personal Responsibility and Work Opportunity Reconciliation Act of 1996.\220\ All accounts used to distribute benefits for Federally administered programs (including needs-tested EBT programs) and non-needs tested State and local programs, such as those used to distribute unemployment insurance payments, pensions, and child support, are currently covered by Sec. 1005.15.\221\

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    \220\ Public Law 104-193, 110 Stat. 2105 (1996).

    \221\ See, e.g., 62 FR 43467 (Aug. 14, 1997).

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    Although the Bureau is proposing to include these accounts in the general definition of prepaid account in proposed Sec. 1005.2(b)(3), as discussed above, the Bureau is proposing for ease of administration to modify existing Sec. 1005.15 to address the proposed revisions for government benefit accounts, rather than subsuming the rules for such accounts into proposed Sec. 1005.18 as the Bureau proposes to do with respect to payroll card accounts. These proposed revisions and additions would generally align the requirements in Sec. 1005.15 with the proposed requirements for prepaid accounts generally in Sec. 1005.18, which are discussed in more detail in the section-by-section analysis of proposed Sec. 1005.18 below.

    15(a) Government Agency Subject to Regulation

    Existing Sec. 1005.15(a)(1) provides that a government agency is deemed to be a financial institution for purposes of EFTA and Regulation E if it directly or indirectly issues an access device to a consumer for use in initiating an electronic fund transfer of government benefits from an account, other than needs-tested benefits in a program established under State or local law or administered by a State or local agency. It also provides that the agency shall comply with all applicable requirements of EFTA and Regulation E, except as provided in Sec. 1005.15. The Bureau is proposing to adjust the final sentence of Sec. 1005.15(a)(1) to reflect that proposed Sec. 1005.15, as discussed in detail below, is no longer only providing an exception to a Regulation E requirement. The Bureau is otherwise not proposing to modify Sec. 1005.15(a)(1).

    Existing Sec. 1005.15(a)(2) defines, for purposes of Sec. 1005.15, the term ``account'' to mean an account established by a government agency for distributing government benefits to a consumer electronically, such as through ATMs or POS terminals, but does not include an account for distributing needs-tested benefits in a program established under State or local law or administered by a State or local agency. For ease of reference, the Bureau is proposing to define such an account as a ``government benefit

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    account;'' no substantive change is intended by the addition of this definition.

    The Bureau does not intend for the proposed revisions in Sec. 1005.15 to alter the programs or agencies to which Sec. 1005.15 is applicable. Thus, the Bureau also does not expect that its proposed revisions to Sec. 1005.15 would impose significant burden on government agencies distributing funds via government benefit accounts.

    The Bureau understands that government benefit account programs are typically administered by financial institutions pursuant to a contract between the institution and the agency.\222\ The Bureau is not aware of any covered programs run solely by an agency. Although the Bureau does not propose to substantively revise Sec. 1005.15(a), the Bureau requests comment as to whether these provisions in existing Sec. 1005.15(a) remain relevant in light of both current industry practices and the Bureau's proposed definition for ``prepaid account'' in Sec. 1005.2(b)(3). Specifically, the Bureau seeks comment on the effect on consumers and covered government benefit account programs were the Bureau to remove it.

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    \222\ See, e.g., Bd. of Governors of the Fed. Reserve Sys., Report to the Congress on Government-Administered, General-Use Prepaid Cards, at 3 (July 2014), available at http://www.federalreserve.gov/publications/es/2014_Prepaid_Cards_Final.pdf.

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    The Bureau notes that although it is proposing to maintain Sec. 1005.15 for government benefit accounts, there is some question as to whether separate provisions remain necessary or whether the requirements for such accounts could be subsumed into proposed Sec. 1005.18. The Bureau thus requests comment on whether, in light of the proposal herein to address all other types of covered prepaid accounts in Sec. 1005.18, the Bureau should subsume all requirements for government benefit accounts into Sec. 1005.18 as well.

    15(b) Issuance of Access Devices

    Existing Sec. 1005.15(b) explains that for purposes of Sec. 1005.15, a consumer is deemed to request an access device when the consumer applies for government benefits that the agency disburses or will disburse by means of an electronic fund transfer. The agency shall verify the identity of the consumer receiving the device by reasonable means before the device is activated. The Bureau is not proposing to modify Sec. 1005.15(b).

    15(c) Pre-Acquisition Disclosure Requirements

    The Bureau is proposing new disclosure requirements for government benefit accounts that would be provided before a consumer acquires a government benefit account. The requirements in proposed Sec. 1005.15(c) would be in addition to the initial disclosure requirements in existing Sec. 1005.7(b) and would correspond to the requirements in proposed Sec. 1005.18(b) for prepaid accounts generally.\223\

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    \223\ The Bureau is also proposing, for purposes of government benefit accounts, to expand the requirement in existing Sec. 1005.7(b)(5) to disclose fees related to EFTs to cover all fees related to the government benefit account, as discussed below in the section-by-section analysis of proposed Sec. 1005.15(f). See also proposed Sec. 1005.18(f) (proposing the same requirement for prepaid accounts).

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    EFTA section 905(a) sets forth disclosure requirements for accounts subject to the Act.\224\ In addition to these disclosures, the Bureau is proposing to use its authority under EFTA sections 904(a) and (c), 905(a), and section 1032(a) of the Dodd-Frank Act to require government agencies to provide disclosures prior to the time a consumer acquires a government benefit account. As discussed in more detail in the section-

    by-section analysis of proposed Sec. 1005.18(b)(1)(i) below for prepaid accounts, the Bureau believes that adjustment of the timing requirement is necessary and proper to effectuate the purposes of EFTA to provide a framework to establish the rights, liabilities, and responsibilities of government benefit account consumers, because the proposed revision will assist consumers' understanding of the terms and conditions of their government benefit accounts.

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    \224\ Specifically, EFTA section 905(a) states that ``the terms and conditions of electronic fund transfers involving a consumer's account shall be disclosed at the time the consumer contracts for an electronic fund transfer service, in accordance with regulations of the Bureau.'' 15 U.S.C. 1693c(a)

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    The Bureau is proposing in new Sec. 1005.15(c) to extend to government benefit accounts the same pre-acquisition disclosure requirements proposed for prepaid accounts, which are discussed in detail in the section-by-section analysis of proposed Sec. 1005.18(b) below. Specifically, proposed Sec. 1005.15(c)(1) would state that before a consumer acquires a government benefit account, a government agency shall comply with the pre-acquisition disclosure requirements applicable to prepaid accounts as set forth in proposed Sec. 1005.18(b), in accordance with the timing requirements of proposed Sec. 1005.18(h).

    To address issues of compulsory use (see existing Sec. 1005.10(e)(2) and proposed comment 10(e)(2)-2), the Bureau is proposing that a notice be provided at the top of the short form to highlight to consumers that they are not required to accept a government benefit account. Specifically, proposed Sec. 1005.15(c)(2) would state that before a consumer acquires a government benefit account, the agency must provide a statement pursuant to proposed Sec. 1005.18(b)(2)(i)(A) that the consumer does not have to accept the government benefit account and that the consumer can ask about other ways to get their benefit payments from the agency instead of receiving them through the account, in a form substantially similar to proposed Model Form A-

    10(a). As explained in the section-by-section analysis of Sec. 1005.10(e)(2) above, the Bureau is proposing to clarify that Regulation E does not permit a government agency to require individuals to receive government benefits by direct deposit to any particular institution. As noted, the Bureau believes it is important for consumers to realize they have the option of not accepting a government benefit account before they acquire the account, and that receiving such notice at the top of the short form will help to ensure consumers are aware of this right.

    Proposed comment 15(c)-1 would explain that Model Form A-10(a) contains a model form for the pre-acquisition short disclosure requirements for government benefit accounts pursuant to Sec. 1005.15(c). Government agencies may use Sample Form A-10(e) of Appendix A to this part to comply with the pre-acquisition long form disclosure requirements of Sec. 1005.15(c)(1).

    Proposed comment 15(c)-2 would reiterate that Sec. 1005.18(b)(1)(i) generally requires delivery of both the short form disclosure required by Sec. 1005.18(b)(2)(i) and the long form disclosure required by Sec. 1005.18(b)(2)(ii) before a consumer acquires a prepaid account. Proposed comment 15(c)-2.i would provide an example illustrating when a consumer receives disclosures before acquisition of an account for purposes of proposed Sec. 1005.15(c)(1). Specifically, the example would address a situation in which a government agency informs a consumer that she can receive distribution of benefits via a government benefit account in the form of a prepaid card. In the first example, the consumer receives the short form and long form disclosures to review at the time the consumer receives benefits eligibility information from the agency. After

    Page 77142

    receiving the disclosures, the consumer agrees to receive benefits via the government benefit account. The comment explains that these disclosures were provided to the consumer pre-acquisition, and the agency has complied with proposed Sec. 1005.15(c)(1). By contrast, if the consumer does not receive the short form and long form disclosures to review until the time at which the consumer receives the prepaid card, these disclosures were provided to the consumer post-acquisition and were not provided in compliance with proposed Sec. 1005.15(c)(1).

    Proposed comment 15(c)-3 would explain that the disclosures and notice required by Sec. 1005.15(c)(1) and (2) may be given in the same process or appointment during which the consumer acquires or agrees to acquire a government benefit account. When a consumer receives benefits eligibility information and signs up or enrolls to receive benefits during the same process or appointment, a government agency that gives the disclosures and notice required by proposed Sec. 1005.15(c)(1) and (2) before issuing a government benefit account complies with the timing requirements of proposed Sec. 1005.15(c).

    15(d) Access to Account Information

    15(d)(1) Periodic Statement Alternative

    EFTA section 906(c) requires that a financial institution provide each consumer with a periodic statement for each account of such consumer that may be accessed by means of an electronic fund transfer. Section 1005.9(b), which implements EFTA section 906(c), generally requires a periodic statement for each monthly cycle in which an electronic fund transfer occurred or, if there are no such transfers, a periodic statement at least quarterly.\225\ Financial institutions must deliver periodic statements in writing and in a form that the consumer can keep, unless consent is received for electronic delivery or unless Regulation E provides otherwise. See Sec. Sec. 1005.4(a)(1) and 1005.9(b).

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    \225\ The periodic statement must include transaction information for each EFT, the account number, the amount of any fees assessed, the beginning and ending account balance, the financial institution's address and telephone number for inquiries, and a telephone number for preauthorized transfers. See Sec. 1005.9(b).

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    In the 1994 EBT Rule, the Board adopted a final rule that modified the periodic statement requirement for government benefit accounts. Pursuant to that rule, existing Sec. 1005.15(c) explains that government agencies can provide periodic statements that comply with the general provisions in Regulation E, or alternatively, the agency must make available to the consumer: (1) The account balance, through a readily available telephone line and at a terminal (such as by providing balance information at a balance-inquiry terminal, or providing it, routinely or upon request, on a terminal receipt at the time of an electronic fund transfer); and (2) a written history of account transactions that is provided promptly in response to an oral or written request and that covers at least 60 days.

    The Bureau is proposing to revise existing Sec. 1005.15(c) as new Sec. 1005.15(d)(1), which would generally align the periodic statement alternative for government benefit accounts with the proposed alternative for prepaid accounts discussed below in the section-by-

    section analysis of proposed Sec. 1005.18(c). Specifically, the Bureau is proposing in Sec. 1005.15(d)(1) an alternative to the periodic statement requirement that would allow government agencies to instead provide access to account balance by telephone and at a terminal, 18 months of transaction history online, and 18 months written transaction history upon request. To further the purposes of EFTA to provide a framework to establish the rights, liabilities, and responsibilities of prepaid account consumers (including government benefit account consumers), the Bureau believes it is necessary and proper to exercise its authority under EFTA section 904(c) to continue the exception to the periodic statement requirements of EFTA section 906(c) for government benefit accounts and to modify that exception in Regulation E to more closely align it with the proposed requirements for prepaid accounts generally. See also the section-by-section analysis of proposed Sec. 1005.18(c)(1) below.

    Proposed Sec. 1005.15(d)(1) and (1)(i) retain the existing language in current Sec. 1005.15(c) and (c)(1), and would state that a government agency need not furnish periodic statements required by Sec. 1005.9(b) if the agency makes available to the consumer the consumer's account balance, through a readily available telephone line and at a terminal (such as by providing balance information at a balance-inquiry terminal or providing it, routinely or upon request, on a terminal receipt at the time of an electronic fund transfer). This language is unchanged from existing Sec. 1005.15(c)(1). Existing Sec. 1005.18(b)(1)(i) for payroll card accounts and proposed Sec. 1005.18(c)(1)(i) for prepaid accounts, however, do not include the requirement to provide balance information at a terminal. As discussed below in the section-by-section analysis of proposed Sec. 1005.18(c)(1)(i), the Bureau is seeking comment on whether a similar requirement to provide balance information at a terminal should be added to the requirements of proposed Sec. 1005.18(c) for prepaid accounts generally. The Bureau requests comment on whether, alternatively, the requirement to provide balance information for government benefit accounts at a terminal should be eliminated from Sec. 1005.15 given the other enhancements proposed herein and for parity with proposed Sec. 1005.18.

    The second piece of the proposed periodic statement alternative for government benefit accounts, proposed Sec. 1005.15(d)(1)(ii), would be an electronic history of the consumer's account transactions, such as through a Web site, that covers at least 18 months preceding the date the consumer electronically accesses the account. As noted above, the requirement to provide an electronic history of a consumer's account transactions would be new to government benefit accounts. This provision would mirror proposed Sec. 1005.18(c)(1)(ii) for prepaid accounts generally. The Bureau does not believe that this proposed requirement would impose significant burden on government agencies, as the Bureau believes that may government benefit account programs already provide electronic access to account information. For example, the Bureau found that all the government benefit card programs included in its Study of Prepaid Account Agreements already provide online access to account information \226\ and, in most cases, electronic periodic statements as well.\227\

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    \226\ See Study of Prepaid Account Agreements, at 18 tbl.5. All account agreements reviewed for cards used to distribute government benefits indicated that electronic access to account information is available. The Bureau acknowledges that this selection may have some bias as all account agreements, including those for government benefit programs, reviewed in the Study were obtained online; as such, those programs may be more likely than others to provide electronic access to account information.

    \227\ The Study of Prepaid Account Agreements found that 95.38 percent of account agreements for government benefit cards indicate that those programs provide electronic periodic statements (in addition to electronic access to account history information). See id., at 20 tbl.7.

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    The third piece of the proposed periodic statement alternative, proposed Sec. 1005.15(d)(1)(iii), would be a requirement to provide a written history of the consumer's account transactions promptly in response to an oral or written request and that covers at least

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    18 months preceding the date the agency receives the consumer's request. This provision is similar to existing Sec. 1005.15(c)(2), but has been modified to change the time period covered by the written history from 60 days to 18 months, and to otherwise mirror the language used in proposed Sec. 1005.18(c)(1)(iii) for prepaid accounts generally.

    15(d)(2) Additional Access to Account Information Requirements

    The Bureau is proposing new Sec. 1005.15(d)(2), which would require that a government agency comply with the account information requirements applicable to prepaid accounts as set forth in proposed Sec. 1005.18(c)(2), (3), and (4). As discussed in more detail below, proposed Sec. 1005.18(c)(2) requires that the electronic and written histories in the periodic statement alternative must include the information set forth in Sec. 1005.9(b). This provision currently exists for payroll card accounts in existing Sec. 1005.18(b)(2), but does not presently appear in Sec. 1005.15 for government benefit accounts. Proposed Sec. 1005.18(c)(3) would require disclosure of all fees assessed against the account, in both the history of account transactions provided as periodic statement alternatives, as well as in any periodic statement. Proposed Sec. 1005.18(c)(4) would require disclosure, in both the history of account transactions provided as periodic statement alternatives, as well as in any periodic statement, monthly and annual summary totals of fees imposed on and the total amount of deposits and debits made to a prepaid account. Proposed comment 15(d)-1 would refer to proposed comments 18(c)-1 through -5 for guidance on access to account information requirements.

    To further the purposes of EFTA to provide a framework to establish the rights, liabilities, and responsibilities of prepaid account consumers (including government benefit account consumers), the Bureau believes it is necessary and proper to exercise its authority under EFTA section 904(c) to modify the periodic statement requirements of EFTA section 906(c) to require inclusion of all fees charged and a summary total of both monthly and annual fees. See also the section-by-

    section analysis of proposed Sec. 1005.18(c)(3) and Sec. 1005.18(c)(4) below. These proposed revisions will assist consumers' understanding of the account activity on their government benefit accounts. In addition, the Bureau is also using its disclosure authority pursuant to the Dodd-Frank Act section 1032(a) because the Bureau believes that disclosure of all fees and account activity summaries ensure that the features of government benefit accounts, over the term of the account, are fully, accurately, and effectively disclosed to consumers in a manner that permits consumers to understand the costs, benefits, and risks associated with government benefit accounts.

    15(e) Modified Disclosure Requirements

    Existing Sec. 1005.15(d) provides that a government agency that follows the periodic statement alternative in existing Sec. 1005.15(c) must modify certain initial and ongoing disclosures given to consumers. Existing Sec. 1005.15(d)(1) requires modification of the initial disclosures given pursuant to Sec. 1005.7(b) to reflect the methods a consumer can employ to obtain account balance information and copies of written account history, and to address corresponding changes in the timing requirements for the error resolution notice required by Sec. 1005.7(b)(10). Existing Sec. 1005.15(d)(2) addresses modification of the annual error resolution notice required by Sec. 1005.8(b). Existing Sec. 1005.15(d)(3) and (4) adjust the triggering of the 60-

    day period for reporting unauthorized transfers pursuant to the limited liability provisions in Sec. 1005.6(b)(3) and the error resolution provisions of Sec. 1005.11. Because the Bureau is proposing to modify the periodic statement alternative for government benefit accounts in proposed Sec. 1005.15(d)(1), the Bureau is proposing to modify the requirements in existing Sec. 1005.15(d), renumbered as new Sec. 1005.15(e), to adjust the corresponding timing provisions therein and to align with the requirements of proposed Sec. 1005.18(d) for prepaid accounts generally, discussed below.

    15(e)(1) Initial Disclosures

    15(e)(1)(i) Account Information

    Proposed Sec. 1005.15(e)(1)(i) would require that a government agency modify the disclosures required under Sec. 1005.7(b) by disclosing a telephone number that the consumer may call to obtain the account balance, the means by which the consumer can obtain an electronic account history, such as the address of a Web site, and a summary of the consumer's right to receive a written account history upon request (in place of the a periodic statement required by Sec. 1005.7(b)(6)), including a telephone number to call to request a history. The disclosure required by proposed Sec. 1005.15(e)(1)(i) may be made by providing a notice substantially similar to the notice contained in proposed appendix A-5.

    15(e)(1)(ii) Error Resolution

    Mirroring existing Sec. 1005.15(d)(1)(iii), proposed Sec. 1005.15(e)(1)(ii) would require that a government agency modify the disclosures required under Sec. 1005.7(b) by providing a notice concerning error resolution that is substantially similar to the notice contained in proposed appendix A-5, in place of the notice required by Sec. 1005.7(b)(10). These proposed modifications are discussed below in the section-by-section analysis of appendix A-5.

    15(e)(2) Annual Error Resolution Notice

    Mirroring existing Sec. 1005.15(d)(2), proposed Sec. 1005.15(e)(2) would require that an agency provide an annual notice concerning error resolution that is substantially similar to the notice contained in proposed appendix A-5, in place of the notice required by Sec. 1005.8(b). The Bureau is proposing to add that, alternatively, the agency may include on or with each electronic or written history provided in accordance with proposed Sec. 1005.15(d)(1), a notice substantially similar to the abbreviated notice for periodic statements contained in paragraph (b) of appendix A-3, modified as necessary to reflect the error resolution provisions set forth in proposed Sec. 1005.15. The Bureau is proposing to allow each electronic and written history to include an abbreviated error resolution notice, in lieu of an annual notice, for parity with proposed Sec. 1005.18(d)(2) for prepaid accounts generally, which is based on existing Sec. 1005.18(c)(2) for payroll card accounts.

    The Bureau seeks comment, however, on whether it should continue to require annual error resolution notices for government benefit accounts in certain circumstances, such as those accounts for which a consumer has not accessed an electronic history or requested a written history in an entire calendar year and thus would not have received any error resolution notice during the course of the year.

    15(e)(3) Modified Limitations on Liability Requirements

    EFTA section 909 governs consumer liability for unauthorized electronic fund transfers. EFTA section 908 governs the timing and other requirements for consumers and financial institutions on error resolution, including provisional credit. EFTA section 909 on consumer liability is implemented by existing Sec. 1005.6. For accounts under Regulation E generally,

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    including payroll card accounts, Sec. 1005.6(a) provides that a consumer may be held liable for an unauthorized electronic fund transfer resulting from the loss or theft of an access device only if the financial institution has provided certain required disclosures and other conditions are met.\228\ If the consumer provides timely notice to the financial institution within two business days of learning of the loss or theft of the access device, the consumer's liability is the lesser of $50 or the amount of unauthorized transfers made before giving notice. Sec. 1005.6(b)(1). If timely notice is not given, the consumer's liability is the lesser of $500 or the sum of (1) the lesser of $50 or the amount of unauthorized transfers occurring within two business days of learning of the loss/theft and (2) the amount of unauthorized transfers that occur after two business days but before notice is given to the financial institution. Sec. 1005.6(b)(2). Section 1005.6(b)(3) provides, in part, that a consumer must report an unauthorized electronic fund transfer that appears on a periodic statement within 60 days of the financial institution's transmittal of the statement in order to avoid liability for subsequent transfers.

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    \228\ The required disclosures for this purpose include a summary of the consumer's liability under Sec. 1005.6, or under State law or other applicable law or agreement, for unauthorized electronic fund transfers; the telephone number and address of the person or office to be notified when the consumer believes an unauthorized transfer has been or may be made; and the financial institution's business days. Sec. Sec. 1005.6(a) and 1005.7(b)(1) through (3).

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    For government agencies that follow the periodic statement alternative in existing Sec. 1005.15(c), existing Sec. 1005.15(d)(3) provides that for purposes of Sec. 1005.6(b)(3), regarding a 60-day period for reporting any unauthorized transfer that appears on a periodic statement, the 60-day period shall being with the transmittal of a written account history or other account information provided to the consumer under existing Sec. 1005.15(c). The Bureau notes that this provision only modifies the 60-day period for consumers to report an unauthorized transfer and does not alter any other provision of Sec. 1005.6.

    Proposed Sec. 1005.15(e)(3) would modify existing Sec. 1005.15(d)(3) to adjust the timing requirements for reporting unauthorized transfers based on the proposed requirement to provide consumers with electronic account history under proposed Sec. 1005.15(d)(1)(ii), as well as written history upon request. Specifically, proposed Sec. 1005.15(e)(3)(i) would provide that for purposes of existing Sec. 1005.6(b)(3), the 60-day period for reporting any unauthorized transfer shall begin on the earlier of the date the consumer electronically accesses the consumer's account under proposed Sec. 1005.15(d)(1)(ii), provided that the electronic history made available to the consumer reflects the unauthorized transfer, or the date the agency sends a written history of the consumer's account transactions requested by the consumer under proposed Sec. 1005.15(d)(1)(iii) in which the unauthorized transfer is first reflected.

    Proposed Sec. 1005.15(e)(3)(ii), which mirrors existing Sec. 1005.18(c)(3)(ii) and proposed Sec. 1005.18(e)(1)(ii), would provide that an agency may comply with proposed Sec. 1005.15(e)(3)(i) by limiting the consumer's liability for an unauthorized transfer as provided under existing Sec. 1005.6(b)(3) for any transfer reported by the consumer within 120 days after the transfer was credited or debited to the consumer's account.

    The Bureau notes that nothing in this proposal modifies the requirement to comply with existing Sec. 1005.6(b)(4), regarding an extension of time limits if a consumer's delay in notifying the agency was due to extenuating circumstances, nor any other provisions of existing Sec. 1005.6.

    15(e)(4) Modified Error Resolution Requirements

    EFTA section 908 governs the timing and other requirements for consumers and financial institutions on error resolution, including provisional credit, and is implemented for accounts under Regulation E generally, including government benefit accounts, in Sec. 1005.11. Section 1005.11(c)(1) and (3)(i) requires that a financial institution, after receiving notice that a consumer believes an electronic fund transfer from the consumer's account was not authorized, must investigate promptly and determine whether an error occurred (i.e., whether the transfer was unauthorized), within ten business days (20 business days if the electronic fund transfer occurred within 30 days of the first deposit to the account). Upon completion of the investigation, the financial institution must report the investigation's results to the consumer within three business days. After determining that an error occurred, the financial institution must correct an error within one business day. See Sec. 1005.11(c)(1). Under EFTA section 909(b), the burden of proof is on the financial institution to show that an alleged error was in fact an authorized transaction; if the financial institution cannot establish proof of valid authorization, the financial institution must credit the consumer's account.

    Existing Sec. 1005.11(c)(2) provides that if the financial institution is unable to complete the investigation within ten business days, its investigation may take up to 45 days if it provisionally credits the amount of the alleged error back to the consumer's account within ten business days of receiving the error notice.\229\ Provisional credit is not required if the financial institution requires but does not receive written confirmation within 10 business days of an oral notice by the consumer. See Sec. 1005.11(c)(2)(i)(A). If the investigation establishes proof that the transaction was, in fact, authorized, the financial institution may reverse any provisional credit previously extended (assuming there are still available funds in the account). See Sec. 1005.11(d)(2).

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    \229\ The financial institution has 90 days (instead of 45) if the claimed unauthorized electronic fund transfer was not initiated in a state, resulted from a point-of-sale debit card transaction, or occurred within 30 days after the first deposit to the account was made. See Sec. 1005.11(c)(3)(ii).

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    For government agencies that follow the periodic statement alternative in existing Sec. 1005.15(c), existing Sec. 1005.15(d)(4) provides that an agency shall comply with the requirements of existing Sec. 1005.11 in response to an oral or written notice of an error from the consumer that is received no later than 60 days after the consumer obtains the written account history or other account information under existing Sec. 1005.15(c) in which the error is first reflected. The Bureau notes that this provision only modifies the 60-day period for consumers to report an error and does not alter any other provision of Sec. 1005.11.

    Proposed Sec. 1005.15(e)(4) would modify existing Sec. 1005.15(d)(3) to adjust the timing requirements for reporting errors based on the proposed requirement to provide consumers with electronic account history under proposed Sec. 1005.15(d)(1)(ii), as well as written history upon request. Specifically, proposed Sec. 1005.15(e)(4)(i) would provide that an agency shall comply with the requirements of existing Sec. 1005.11 in response to an oral or written notice of an error from the consumer that is received by the earlier of 60 days after the date the consumer electronically accesses the consumer's account under proposed Sec. 1005.15(d)(1)(ii), provided that the electronic history made available to the consumer reflects the alleged error, or 60 days after the date the agency sends a written history of the consumer's account transactions requested by the consumer under proposed

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    Sec. 1005.15(d)(1)(iii) in which the alleged error is first reflected.

    Proposed Sec. 1005.15(e)(4)(ii) would provide that in lieu of following the procedures in proposed Sec. 1005.15(e)(4)(i), an agency complies with the requirements for resolving errors in existing Sec. 1005.11 if it investigates any oral or written notice of an error from the consumer that is received by the agency within 120 days after the transfer allegedly in error was credited or debited to the consumer's account.

    Proposed comment 15(e)-1 would refer to proposed comments 18(d)-1 through -3, discussed below, for guidance on modified limited liability and error resolution requirements.

    The Bureau notes that proposed Sec. 1005.15 does not contain an exclusion that corresponds to proposed Sec. 1005.18(e)(3), which would exempt a financial institution from compliance with the liability limits and error resolution requirements under Sec. Sec. 1005.6 and 1005.11 for any prepaid account for which it has not completed its collection of consumer identifying information and identity verification, provided the institution has disclosed to the consumers the risks of not registering the prepaid account. The Bureau is not proposing a similar exclusion for government benefit accounts because existing Sec. 1005.15(b) requires that government agencies verify consumers' identities before an access device for an account governed by Sec. 1005.15 is activated.

    15(f) Initial Disclosure of Fees and Other Key Information

    The Bureau is proposing Sec. 1005.15(f) to provide that for government benefit accounts, a government agency shall comply with the requirements governing initial disclosure of fees and other key information applicable to prepaid accounts as set forth in proposed Sec. 1005.18(f), in accordance with the timing requirements of proposed Sec. 1005.18(h). This proposed requirement is in addition to the pre-acquisition disclosure requirements of proposed Sec. 1005.15(c), discussed above.

    As discussed in more detail in the section-by-section analysis of proposed Sec. 1005.18(f) below, the Bureau is proposing to modify the initial disclosure of fees requirement in Sec. 1005.7(b)(5) for prepaid accounts, including government benefit accounts. EFTA section 905(a)(4) requires financial institutions to disclose to consumers, as part of an account's terms and conditions, any charges for electronic fund transfers or for the right to make such transfers. Existing Sec. 1005.7(b)(5) implements this requirement by stating that, as part of the initial disclosures, any fees imposed by a financial institution for electronic fund transfers or for the right to make transfers must be disclosed. Existing comment 7(b)(5)-1 further clarifies that other fees (for example, minimum-balance fees, stop-payment fees, or account overdrafts) may, but need not, be disclosed. The Bureau believes that for prepaid accounts (including government benefit accounts), however, it is important that the initial account disclosures provided to consumers list all fees that may be imposed in connection with the account, not just those fees related to electronic fund transfers.

    Thus, to further the purposes of EFTA to provide a framework to establish the rights, liabilities, and responsibilities of prepaid account users, the Bureau believes it is necessary and proper to exercise its authority under EFTA section 904(c) to propose an adjustment of the requirement EFTA section 905(a)(4), which is implemented in existing Sec. 1005.7(b)(5), for government benefit accounts. Specifically, the Bureau is proposing Sec. 1005.15(f), which would cross-reference Sec. 1005.18(f) to require that, pursuant to proposed Sec. 1005.18(f)(1), in addition to disclosing any fees imposed by a government agency for electronic fund transfers or the right to make such transfers, the agency must also provide in its initial disclosures given pursuant to Sec. 1005.7(b)(5) all other fees imposed by the agency in connection with a government benefit account. For each fee, an agency must disclose the amount of the fee, the conditions, if any, under which the fee may be imposed, waived, or reduced, and, to the extent known, whether any third party fees may apply. The Bureau believes that most agencies are already disclosing all fees in the terms and conditions accompanying government benefit accounts. These disclosures pursuant to proposed Sec. Sec. 1005.15(f) and 1005.18(f) must include all of the information required to be disclosed pursuant to Sec. 1005.18(b)(2)(ii)(B) and must be provided in a form substantially similar to Sample Form A-10(e).

    The Bureau believes that for consistency purposes and to facilitate consumer understanding of a government benefit account's terms, it is useful for the fee disclosure provided pursuant to Sec. 1005.7(b)(5), as modified by proposed Sec. 1005.18(f), to be in the same format of the long form disclosure requirement of proposed Sec. 1005.18(b)(2)(ii)(A), as applied to government benefit accounts via proposed Sec. 1005.15(c).

    15(g) Credit Card Plans Linked to Government Benefit Accounts

    The Bureau is proposing Sec. 1005.18(g), which would require that for credit plans linked to government benefit accounts, a government agency must comply with prohibitions and requirements applicable to prepaid accounts as set forth in proposed Sec. 1005.18(g). See the section-by-section analysis of proposed Sec. 1005.18(g) below for additional information on this proposed requirement. The Bureau seeks comment on this portion of its proposal for government benefit accounts.

    Section 1005.17 Requirements for Overdraft Services

    17(a) Definitions

    Section 1005.17 sets forth requirements that financial institutions must follow in order to provide ``overdraft services'' to consumers related to consumers' accounts. Under Sec. 1005.17, financial institutions must provide consumers with notice of their right to opt in, or affirmatively consent, to the institution's overdraft service for ATM and one-time debit card transactions, and obtain the consumer's affirmative consent, before fees or charges may be assessed on the consumer's account for paying such overdrafts.

    Section 1005.17(a) currently defines ``overdraft service'' to mean a service under which a financial institution assesses a fee or charge on a consumer's account held by the institution for paying a transaction (including a check or other item) when the consumer has insufficient or unavailable funds in the account. Section 1005.17(a) also provides that the term ``overdraft service'' does not include any payment of overdrafts pursuant to: (1) A line of credit subject to Regulation Z, including transfers from a credit card account, home equity line of credit, or overdraft line of credit; (2) A service that transfers funds from another account held individually or jointly by a consumer, such as a savings account; or, (3) A line of credit or other transaction exempt from Regulation Z pursuant to Sec. 1026.3(d). In adopting the provisions in what is now Sec. 1005.17, the Board indicated that these methods of covering overdrafts were excluded because they require the express agreement of the consumer.\230\

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    \230\ 74 FR 59033, 59040 (Nov. 17, 2009).

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    As discussed in the Overview of Regulation Z Proposal section, the

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    Bureau is declining to extend the current regulatory scheme governing overdraft services on checking accounts to prepaid accounts, and is instead proposing to regulate these types of services generally under Regulation Z (as well as Regulation E's compulsory use provision). The proposal would amend Sec. 1005.17(a)(1) to explain that the term ``overdraft service'' does not include credit plans that are accessed by prepaid cards that are credit cards under Regulation Z. Specifically, the proposal would amend Sec. 1005.17(a)(1) to provide that the term ``overdraft services'' does not include any payments of overdrafts pursuant to a line of credit or credit plan subject to Regulation Z, including transfers from a credit card account, home equity line of credit, overdraft line of credit, or a credit plan that is accessed by an access device for a prepaid account where the access device is a credit card under Regulation Z. Similar to the other exemptions from the definition of ``overdraft service,'' credit card plans require the express agreement of consumers in that, under the proposal, such plans can be added to previously issued prepaid accounts only upon consumer request. See Regulation Z Sec. 1026.12(a)(1) and proposed comment 12(a)(1)-7. In addition, under the proposal, a credit card account may not be added to a previously issued prepaid account until 30 calendar days after the prepaid account has been registered. See proposed Sec. 1005.18(g)(1) and Regulation Z Sec. 1026.12(h). The Bureau believes that the provisions in Regulation Z Sec. 1026.12(a)(1) and (h) and Sec. 1005.18(g)(1) would provide sufficient protections to ensure that the addition of a credit card account to a previously issued prepaid account would occur only with the consumer's consent.

    The Bureau also notes that the opt-in provision in Sec. 1005.17 would not apply to credit accessed by a prepaid card that is not a credit card because the card only accesses credit that is not subject to any finance charge defined in Regulation Z Sec. 1026.4 or any fee described in Regulation Z Sec. 1026.4(c) and is not payable by written agreement in more than four installments. This is because Sec. 1005.17(a) applies only to overdraft services where a financial institution assessed a fee or charge for the overdraft. For prepaid accounts under the proposal, any fees or charges for ATM or one-time ``debit card'' transactions (as that term is used in Sec. 1005.17) that access an institution's overdraft service would be considered ``finance charges'' under the proposal.\231\ Thus, a prepaid card that is not a credit card could not be charging any fees or charges for ATM or one-time ``debit card'' transactions (as that term is used in Regulation E Sec. 1005.17) for accessing the overdraft service, such that the opt-in provision in Regulation E Sec. 1005.17 would apply. If a prepaid card was charging any fees or charges for ATM or one-time ``debit card'' transactions (as that term is used in Regulation E Sec. 1005.17) that accessed the overdraft service, the prepaid card would be a credit card under Regulation Z. In that case, the prepaid card would not be subject to the opt-in requirement in Sec. 1005.17, but would be subject to provisions of Regulation Z, as discussed above.

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    \231\ Under the proposal, the term ``debit card'' in subpart A of Regulation E generally includes prepaid cards, except for purposes of Sec. 1005.17. See proposed comment Sec. 1005.2(b)(3)(i)-8.

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    Section 1005.18 Requirements for Financial Institutions Offering Prepaid Accounts

    Regulation E currently applies to payroll card accounts (as well as government benefit accounts, as discussed above in the section-by-

    section analysis of Sec. 1005.15). Section 1005.18 contains provisions specific to payroll card accounts. Because payroll card accounts would be largely subsumed into the proposed definition of prepaid account, the Bureau proposes to revise Sec. 1005.18 by replacing it with provisions governing prepaid accounts, which the Bureau proposes to apply to payroll card accounts as well.

    The current provisions in Sec. 1005.18, as discussed below, provide an alternative to the periodic statement requirement of Sec. 1005.9(b) for payroll card accounts and make corresponding adjustments to certain other provisions in Regulation E for financial institutions following the periodic statement alternative. In addition to providing a periodic statement alternative (and corresponding adjustments) for prepaid accounts, proposed Sec. 1005.18 also contains other modifications and additions to certain requirements in Regulation E, including with respect to pre-acquisition and other disclosures, limited liability and error resolution, and credit card plans linked to prepaid accounts. The provisions of proposed Sec. 1005.18 are discussed below in turn.

    The Bureau notes that while proposed Sec. 1005.18 would set forth specific requirements for prepaid accounts, there are other provisions in Regulation E subparts A and B that would apply to prepaid accounts by virtue of their being deemed accounts in the Regulation. Thus, to the extent a provision in Regulation E applies to an ``account,'' unless otherwise modified by proposed Sec. 1005.18, that provision would apply to a prepaid account. For example, Sec. 1005.8(a) requires provision of a change in terms notice in certain circumstances. As the Bureau is not proposing to modify this requirement for prepaid accounts, it would apply to prepaid accounts in the same manner as it does to all other accounts under Regulation E.

    18(a) Coverage

    The Bureau is proposing to modify Sec. 1005.18(a) to state that a financial institution shall comply with all applicable requirements of EFTA and Regulation E with respect to prepaid accounts except as modified by proposed Sec. 1005.18. Proposed Sec. 1005.18(a) would also refer to proposed Sec. 1005.15 for rules governing government benefit accounts.

    Existing comment 18(a)-1 addresses issuance of access devices under Sec. 1005.5 and explains that a consumer is deemed to request an access device for a payroll card account when the consumer chooses to receive salary or other compensation through a payroll card account. The Bureau is proposing to add a cross-reference to Sec. 1005.5(b) (regarding unsolicited issuance of access devices) in comment 18(a)-1 and to add additional guidance that would explain that a consumer is deemed to request an access device for a prepaid account when, for example, the consumer acquires a prepaid account offered for sale at a retail store or acquires a prepaid account by making a request or submitting an application by telephone or online. The Bureau notes that while financial institutions may provide prepaid accounts to consumers on an unsolicited basis, they must comply with the provisions on unsolicited issuance in existing Sec. 1005.5(b) and compulsory use in Sec. 1005.10(e)(2).

    The Bureau is also proposing to revise existing comment 18(a)-2 regarding application of Regulation E to employers and services providers to refer to prepaid accounts in addition to payroll card accounts, but otherwise intends to leave comment 18(a)-2 unchanged.

    The Bureau seeks comment on this portion of its proposal.

    18(b) Disclosure Requirements for Prepaid Accounts

    Overview

    The Bureau is proposing to adopt new disclosures for prepaid accounts that would be provided before a consumer

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    acquires a prepaid account. These proposed disclosures, which the Bureau developed during a period of consumer testing and outreach, would be adopted in proposed Sec. 1005.18(b) and would be in addition to the initial disclosure requirements in existing Sec. 1005.7(b).\232\ The Bureau believes that providing disclosures before the consumer's acquisition of the prepaid account will ensure that all consumers, regardless of the type of prepaid account they are acquiring, receive the proposed disclosures at a relevant time in the acquisition sequence.

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    \232\ The Bureau is also proposing, for purposes of prepaid accounts, to expand the requirement in existing Sec. 1005.7(b)(5) to disclose fees related to EFTs to require the disclosure of all fees related to the prepaid account, as discussed below in the section-by-section analysis of proposed Sec. 1005.18(f).

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    The proposal would require that a financial institution provide to the consumer both a ``short form'' and a ``long form'' disclosure before the consumer acquires a prepaid account. The short form would set forth the prepaid account's most important fees to facilitate basic understanding of the account's key terms and, when feasible, comparison shopping with other prepaid account products. The Bureau believes that this form would quickly allow the consumer to assess key fees and terms of the prepaid account. Meanwhile, the long form disclosure would list all of the fees associated with the prepaid account and would include more detailed information on how those fees are assessed. The long form would give consumers an opportunity to review all fee information about the prepaid account before acquiring an account.

    The Bureau is also proposing exceptions to the general disclosure requirement for situations where a consumer acquires a prepaid account in certain retail stores or orally by telephone. In these situations, a financial institution would still always have to provide the short form disclosure to the consumer prior to acquisition, but it would have the option of providing the long form disclosure post-acquisition, as long as the financial institution provides methods for consumers to access the long form electronically and orally prior to acquisition. See proposed Sec. 1005.18(b)(1)(i) through (iii).

    Disclosure Requirements Generally

    EFTA section 905(a) sets forth disclosure requirements for accounts, stating that the terms and conditions of electronic fund transfers involving a consumer's account must be provided at the time the consumer contracts for an electronic fund transfer service, in accordance with the regulations of the Bureau. Section 905(a) further states that the disclosures must include, among other things and to the extent applicable, any charges for electronic fund transfers or for the right to make such transfers (section 905(a)(4)), that a fee may be imposed for use of certain ATMs (section 905(a)(10)), information regarding the type and nature of electronic fund transfers that the consumer can initiate (section 905(a)(3)), and details regarding the consumer's liability for unauthorized transactions and whom to contact in the event an unauthorized transaction has occurred (section 905(a)(1) and (2)).\233\

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    \233\ In addition, the Truth in Savings Act (TISA) (12 U.S.C. 44, et seq.) contains disclosure requirements for accounts issued by depository institutions. Specifically, Regulation DD (10 CFR part 1030), which implements TISA, requires disclosure of the amount of any fee that may be imposed in connection with the account (or an explanation of how the fee will be determined) and the conditions under which the fee may be imposed. 12 CFR 1030.4(b)(4).

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    In prior rulemakings, the Board implemented provisions in Regulation E consistent with these statutory requirements, primarily in existing Sec. 1005.7. Specifically, section 1005.7(a) states that the required disclosures must be provided to a consumer at the time a consumer contracts for an electronic fund transfer or before the first electronic fund transfer is made involving the consumer's account. Section 1005.7(b) also sets forth what a financial institution must include in its initial disclosures, including details regarding the types of transfers that the consumer may make and the limitations on the frequency and dollar amount of the transfers, any fees imposed by the financial institution for electronic fund transfers or for the right to make transfers, and a notice that a fee may be imposed by an ATM operator when the consumer initiates an electronic fund transfer or makes a balance inquiry, among other requirements.

    At various points, these general provisions in Sec. 1005.7 were modified for use with other types of accounts or in other contexts. See generally Sec. 1005.14(b)(1) (disclosures provided by certain service providers);\234\ current Sec. 1005.15(d) (disclosures related to the electronic fund transfer of government benefits);\235\ Sec. 1005.16 (disclosures at ATMs);\236\ Sec. 1005.17(d) (overdraft disclosures);\237\ current Sec. 1005.18(c)(1) (payroll card account disclosures); \238\ and Sec. 1005.31 (disclosures related to remittance transfers).\239\

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    \234\ 61 FR 19662, 19674 (May 2, 1996).

    \235\ 61 FR 19662, 19670 (May 2, 1996).

    \236\ 78 FR 18221, 18224 (Mar. 26, 2013).

    \237\ 74 FR 59033, 59053 (Nov. 17, 2009).

    \238\ 71 FR 51437, 51449 (Aug. 30, 2006).

    \239\ 77 FR 50244, 50285 (Aug. 20, 2012).

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    Comments Received and Stakeholder Outreach Regarding Disclosure

    In proposing new requirements and a modification of the existing disclosure requirements in Sec. 1005.7(b)(5) for prepaid accounts, the Bureau has considered comments received in response to the Prepaid ANPR, in addition to conducting further outreach. In the Prepaid ANPR, the Bureau noted that one of its goals was to allow consumers to easily compare financial products by ensuring transparent fee disclosure.\240\ The Bureau also asked three specific sets of questions related to disclosure: (1) What steps could the Bureau take to most effectively regulate prepaid products to provide the consumer with transparent, useful, and timely fee disclosures?; (2) How can the Bureau best enable a consumer to compare various GPR cards, or other payment products, that may have different fee structures or be offered through various distribution channels? Should market participants be required to provide disclosure pre-sale, post-sale, or both?; and (3) Should the existence, or lack thereof, of FDIC pass-through insurance associated with a GPR card be disclosed to the consumer? If so, how and when should the existence of FDIC pass-through insurance be disclosed? \241\

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    \240\ 77 FR 30923, 30925 (May 24, 2012).

    \241\ Id.

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    Comments received in connection with the first two sets of these questions are addressed below, and the comments received in connection with the set of questions regarding FDIC pass-through deposit insurance are addressed below in the section-by-section analysis of proposed Sec. 1005.18(b)(2)(i)(B)(13).

    As to the first set of questions, commenters focused primarily on disclosures that would appear on the external packaging material of a GPR card sold in a retail store. Many industry and consumer advocacy group commenters suggested that the Bureau develop specific disclosures, such as a uniform chart or fee box, that a financial institution would affix to a GPR card's packaging when the card is offered for sale in a retail store, instead of a more general rule that stated only that fees be disclosed clearly and conspicuously without providing specific instructions or model forms. Many of these industry commenters suggested that adopting a standardized form would be less confusing than complying with a clear and conspicuous standard. Apart from suggesting a standardized form, industry

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    commenters mostly agreed that on-package disclosures should include only the fees that a consumer would most commonly incur while using a prepaid account, in order to increase the likelihood that consumers would understand and use the disclosures.

    Many consumer advocacy group commenters, on the other hand, encouraged the Bureau to require full disclosure to the consumer of all fees associated with a GPR card before the consumer acquires an account, rather than only a subset of certain fees. These groups were concerned that consumers would not have a full understanding of a prepaid account's true costs without this information and that providers could subvert the disclosure's purpose by adjusting fee schedules to increase or add fees not required to be disclosed on a shorter disclosure.

    Separately, some consumer advocacy group commenters suggested that the Bureau propose an ``all-in'' cost disclosure. These commenters explained that an ``all-in'' disclosure would present a single number to the consumer that would estimate the approximate cost of a prepaid account product. These consumer advocacy group commenters also asserted that such a disclosure could estimate, for example, the average monthly cost of using the prepaid account product based on one or several different use cases. Some of the consumer advocacy group commenters also suggested that the Bureau could collect actual usage data from issuers of prepaid accounts and use that data to develop an algorithm or other equation to serve as the basis for this type of all-in disclosure.\242\

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    \242\ The ``all-in'' disclosure concept is discussed in more detail in the section-by-section analysis of proposed Sec. 1005.18(b).

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    As to the second set of questions regarding how to facilitate consumer comparison shopping and whether pre- or post-sale disclosures are necessary, many industry and consumer advocacy group commenters agreed that it was important for consumers to receive disclosures before they buy a prepaid account. Industry commenters further discouraged the Bureau from implementing any disclosure regulations that would mandate a specific method of delivery for disclosures provided after the consumer acquires a prepaid account, which they viewed as potentially imposing a large burden on industry without significantly benefiting the consumer. Industry and consumer advocacy group commenters also encouraged the Bureau to develop disclosures to accommodate the variety of distribution channels through which prepaid products are distributed and sold, while also considering how distribution may evolve in the future. Several consumer advocacy group commenters emphasized the need for the Bureau to ensure disclosures provided online through a Web site are easy to locate, while also considering that many consumers lack internet access and would have difficulty viewing disclosures online. Some commenters also suggested that providers implement mechanisms to ensure consumers purchasing prepaid accounts online have actually reviewed the disclosures.

    In addition to reviewing comments received in response to the Prepaid ANPR, the Bureau has also engaged in additional outreach with interested stakeholders and conducted consumer focus groups and one-on-

    one testing of prototype disclosures. As discussed in greater detail above and in the report published with this proposal, the Bureau engaged a contractor, ICF, to hold four focus group sessions to gain a general understanding of how and why consumers use prepaid accounts. The Bureau also worked with ICF to conduct one-on-one interviews with consumers to test various model form prototypes the Bureau developed, including variations of the model short form and sample long form disclosures proposed herein.

    Based on its review of the comments received in response to the Prepaid ANPR, outreach with stakeholders, insights gathered from consumer testing, and its general market analysis, the Bureau is proposing a new pre-acquisition disclosure regime that it believes will standardize industry disclosures, increase consumers' understanding of prepaid accounts' terms, and improve consumers' ability to compare prepaid account products prior to acquiring a prepaid account. The Bureau is also proposing model forms and sample forms.

    Proposed Disclosure Regime

    As noted above, EFTA section 905(a) sets forth disclosure requirements for accounts subject to the Act.\243\ Proposed section 1005.18(b) would implement EFTA section 905(a) for prepaid accounts. In addition, the Bureau is proposing to use its authority under EFTA sections 904(a) and (c), 905(a), and section 1032(a) of the Dodd-Frank Act to require financial institutions to provide disclosures prior to the time a consumer acquires a prepaid account and for disclosures to include all fees that may be charged for the prepaid account. The Bureau is also proposing, in certain circumstances that financial institutions provide disclosures in languages other than English. As discussed in the section-by-section analysis of proposed Sec. 1005.18(b)(1)(i), proposed Sec. 1005.18(b)(2)(ii)(A), and proposed Sec. 1005.18(b)(6), the Bureau believes that adjustment of the timing and fee requirement and the disclosure language is necessary and proper to effectuate the purposes of EFTA to provide a framework to establish the rights, liabilities and responsibilities of prepaid account users, because the proposed revision will assist consumers' understanding of the terms and conditions of their prepaid accounts. In addition, the Bureau believes that pre-acquisition disclosures of all fees for prepaid accounts as well as certain foreign language disclosures will, consistent with Dodd-Frank section 1032(a), ensure that the features of the prepaid accounts are fully, accurately, and effectively disclosed to consumers in a manner that permits consumers to understand the costs, benefits, and risks associated with the account.

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    \243\ The relevant portion of EFTA section 905 states that ``the terms and conditions of electronic fund transfers involving a consumer's account shall be disclosed at the time the consumer contracts for an electronic fund transfer service, in accordance with regulations of the Bureau . . .''

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    The Bureau believes that there are many ways a consumer could obtain a prepaid account and that the proposed disclosure regime should be adaptable to this variety. For example, a consumer might purchase a prepaid account in a retail store, online through a provider's Web site, or by calling a provider by telephone. A consumer could also receive a prepaid account from an employer in the form of a payroll card account or a student might receive a prepaid account from their university in connection with the disbursement of financial aid. The Bureau believes that framing the disclosure regime as one that would apply before the consumer's acquisition of the prepaid account will ensure that any consumer who obtains a prepaid account, regardless of the type of prepaid account or its method of acquisition, will receive the proposed disclosures.

    The proposed pre-acquisition disclosure regime would have two parts. First, the Bureau is proposing that a consumer would receive a ``short form'' disclosure before acquiring a prepaid account. The short form, as demonstrated in proposed Model Forms A-10(a) through (d) and as discussed below in the section-by-section analysis of proposed Sec. 1005.18(b)(3)(iii)(A), would consist of a ``static'' portion that would set forth fees that must be

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    disclosed for all prepaid account products, even if such fees are $0 or if they relate to features not offered for a particular prepaid account product.\244\ This static portion would have a ``top-line'' component highlighting four types of fees (the periodic fee, per-purchase fees, ATM withdrawal fees, and the cash reload fee) at the top of the form. The Bureau believes these fee types are the most important to consumers when shopping for a prepaid account.\245\ The top-line fees would be displayed in a more prominent and larger font size than the remainder of the disclosures on the form to draw consumers' attention to those fees quickly. Three additional fee types (ATM balance inquiry fees, a customer service fee, and an inactivity fee) and a statement regarding the availability of overdraft services and other credit features would also be required to appear in the static portion of the short form. Additionally, the short form would include an ``incidence-based'' portion that would list up to three additional fees that consumers most commonly incur for a particular prepaid account product. Short forms for payroll card accounts and government benefit accounts would also include a notice at the top of the form regarding compulsory use that consumers are not required to accept such cards as the only method of receiving funds).\246\ See Sec. 1005.10(e)(2)

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    \244\ The Bureau refers to a ``prepaid account product'' to mean a product that offers prepaid accounts with identical fee schedules to any consumer who opens an account.

    \245\ See section-by-section analysis of proposed Sec. 1005.18(b)(2)(i) for a complete discussion of the short form's contents.

    \246\ See section-by-section analysis of proposed Sec. 1005.18(b)(2)(i)(A) for a discussion of the notice requirement on the short form for payroll card accounts. See section-by-section analysis of proposed Sec. 1005.15(c)(2) for a discussion of the notice requirement on the short form for government benefit accounts.

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    The second part of the Bureau's proposed pre-acquisition disclosure regime would require that, before acquiring a prepaid account, consumers would always receive a stand-alone ``long form'' disclosure that would set forth all of a prepaid account product's fees and their qualifying conditions, except for accounts that consumers acquire in retail stores or orally by telephone. For prepaid accounts consumers acquire in retail stores, financial institutions could disclose a URL and telephone number on the short form that a consumer would use to access the content of the long form disclosure prior to acquisition, but they would not have to provide a stand-alone long form disclosure prior to the consumer's acquisition of the prepaid account. For prepaid accounts acquired orally by telephone, financial institutions could inform a consumer that they can access the long form by telephone or online, but would not have to provide the long form disclosure before acquisition unless a consumer requests it.\247\

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    \247\ In all acquisition scenarios, however, the financial institution would have to provide a version of the long form in the terms and conditions included inside a package in a retail setting or provided to the consumer through other methods, such as in the mail after acquisition. See comment to proposed Sec. 1005.18(f).

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    This proposal would mean that consumers would receive or have access to the short form and long form disclosures in all prepaid account acquisition scenarios. Thus, consumers acquiring prepaid accounts in the form of a payroll card account, a government benefit account, at a bank branch, at a retail store, or on a Web site, for example, would always have the opportunity to review the short form and long form disclosures before acquiring a prepaid account. The Bureau believes it is important for consumers to have access to both of these disclosures in all acquisition scenarios because they serve different but complementary goals. First, the Bureau believes that by prominently displaying important fees with limited explanatory text, the short form will increase the likelihood consumers notice the disclosure of these key fees and are able to use the disclosure to inform their acquisition choice. The short form would present the key fees of a prepaid account in a simplified format rather than requiring a consumer to navigate an exhaustive list of fees and their qualifications for each product in order to identify those that are most relevant. The Bureau also believes that the short form's design, and in particular the emphasized top-line portion of the disclosure, will prominently present key fees, and create a visual hierarchy of information that will more effectively draw consumer's attention to a prepaid account product's key terms. The Bureau also believes this visual hierarchy on the short form will increase the likelihood that consumers will engage with the disclosure. Research has shown that such engagement, or the formation of the intent to use the disclosure, is an important first step to ensure that consumers utilize and understand any disclosure.\248\ The Bureau believes that, in many cases, consumers spend little time reviewing fee disclosures when shopping for prepaid accounts, and it is therefore important that any disclosure quickly draw consumers' attention to the most important information regarding that particular account with minimal clutter on the form.

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    \248\ See, e.g., Ian Ayres & Alan Schwartz, The No-Reading Problem in Consumer Contract Law, 66 Stan. L. Rev. 545 (2014).

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    The Bureau also believes that by standardizing most components of the short form, consumers will receive consistent, key fee information about prepaid account products regardless of how or where they shop for or obtain prepaid accounts. For example, under this proposal, a consumer who takes a package containing a prepaid account access device off of a J-hook in a retail store would see a short form listing the same types of fees in the static portion of the short form included on the exterior of the packaging material as the fee types included in the static portion of the short form for an entirely different prepaid account product a consumer would see when shopping online. Similarly, consumers receiving payroll card accounts at their place of employment would receive a short form disclosure containing the same fees in the static portion of the short form before agreeing to receive wages via the payroll card account. The Bureau believes that standardizing pre-

    acquisition disclosures across all possible acquisition channels will make it easier for consumers to compare different types of prepaid account products.

    As discussed below in the section-by-section analysis of proposed Sec. 1005.18(b)(2)(i)(B)(8), however, the Bureau is also proposing to include an incidence-based portion on the short form disclosure to highlight the most commonly charged fees that are not otherwise captured in the form. In part, the Bureau has proposed to include this incidence-based portion on the short form to address concerns that providers could simply change their fee structures to make their products appear less expensive relative to other products. The Bureau acknowledges that this portion of the short form would not be standardized across different prepaid account products due to the different fees financial institutions would be required to disclose on the incidence-based portion of the short form. \249\ The Bureau believes, however, that having identical fee types listed in the static portion of the short form will be

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    sufficiently consistent so as to facilitate consumer comparison shopping, even if the incidence-based portion of the form introduces some variance. At the same time, the incidence-based portion of the short form disclosure will ensure that consumers are made aware of any other significant fees relating to a particular prepaid account product.

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    \249\ The Bureau also notes that the proposed updating requirements for the proposed incidence-based fee disclosure could result in these fees being different for the same prepaid account product due to differing proposed requirements for timing of revisions to in-store versus online forms. See the section-by-

    section analysis of proposed Sec. 1005.18(b)(2)(i)(B)(8)(I).

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    The Bureau also recognizes that providing only a subset of fee information about a prepaid account on the short form might not give all consumers the information they need to make their acquisition decisions. Thus, the Bureau is proposing also to require provision pre-

    acquisition of the long form disclosure, which would set forth all of a prepaid account's fees to a consumer and the conditions under which those fees could be imposed. The Bureau expects that consumers seeking to learn about more fees than those listed on the short form will utilize the long form. The proposed long form also would provide detailed explanations to consumers about conditions that may cause fees to vary, such as the impact of crossing a threshold number of transactions or receiving direct deposits into the prepaid account. Such explanations would not be permitted on the short form in order to preserve its simplicity, but may be relevant to some consumers' acquisition decisions. See proposed Sec. 1005.18(b)(2)(i)(C).\250\

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    \250\ As discussed in greater detail below, the Bureau is proposing Sec. 1005.18(b)(1)(ii) and (b)(iii) to require that for prepaid accounts consumers acquire in retail stores or orally by telephone, long form disclosures would only need to be made accessible, but not necessarily provided, pre-acquisition (although they must be provided after acquisition with the terms and conditions as part of the initial disclosures).

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    The Bureau does not believe consumers would necessarily benefit from receiving only this long form disclosure before acquiring a prepaid account. In the Bureau's testing, for example, many participants reported feeling overwhelmed by the amount of information included on a prototype long form and they struggled to compare two long form disclosures, even those that listed identical fee types. The Bureau believes that the potential size and complexity of the long form might overwhelm and lead consumers to disregard the disclosure and also not use it to comparison shop across products or even to evaluate a single product. As discussed above, the short form, on the other hand, will be in a simpler format and its static portion, the Bureau believes, will facilitate comprehension and comparison shopping. Insofar as the Bureau does recognize that the subset of fee information on the short form may be incomplete for some consumers, the Bureau believes that providing both the short form and long form disclosures would strike the right balance between giving consumers key information about a prepaid account to aid understanding and comparison shopping, while also providing them with the opportunity to review all of a prepaid account's fee information pre-acquisition.

    The Bureau also recognizes that in certain acquisition scenarios, it is less likely that a consumer would engage in comparison shopping. For example, when the consumer receives disclosures for a payroll card account, it may be more difficult for that consumer to comparison shop. Even in this situation, though, the Bureau believes that consumers would benefit from receiving the short form and long form disclosures prior to acquiring the payroll card account because the disclosures will facilitate the consumer's understanding of the account's terms and may allow for subsequent comparisons to be made.

    The Bureau understands that many prepaid account providers currently provide disclosures that include many (if not all) of their prepaid account's fees, and therefore the Bureau does not believe that this aspect of the proposal introduces a significant new burden, as discussed in greater detail below in the Section 1022 Analysis. As discussed below, however, the Bureau does recognize that there are different forms of disclosures that could apply to prepaid account pre-

    acquisition disclosures and that burden may vary.

    Alternative Approaches Considered by the Bureau

    The Bureau has considered a variety of approaches to pre-

    acquisition disclosures, including those suggested by commenters to the Prepaid ANPR and others who have opined to the Bureau and in other publications about prepaid account disclosures.

    ``All-in'' disclosure. Among the alternatives the Bureau has considered is disclosure of a single monthly cost for using a prepaid account. Proponents commented that such a disclosure is appealing because it would provide a quick and understandable reference point and, as compared to a disclosure listing several different numbers with line items for each fee type, could also allow for easier comparisons among prepaid account products. Proponents have suggested that this figure could be conceptually similar to the ``Energy Star'' cost disclosure regime the FTC has implemented for appliances,\251\ and would present the average amount paid by users of that particular prepaid account product over a designated time period (such as monthly) or the output of a formula intended to replicate typical consumers' use of prepaid accounts.

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    \251\ The FTC's Energy Labeling Rule shows consumers how much it might cost to run an appliance each year based on how much energy it uses, and makes it easier for shoppers to compare the energy use among similar models. See Fed. Trade Comm'n, EnergyGuide Labeling: FAQs for Appliance Manufacturers (May 2013), available at http://www.business.ftc.gov/documents/bus-82-energyguide-labels-faqs.

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    While the Bureau believes that this ``all-in'' disclosure could potentially have several benefits, it declines to propose such an approach at this time for several reasons. First, the Bureau is concerned that it may not be possible to develop a single formula to reflect accurately how most consumers typically use a prepaid account. A single formula might include several fee types, such as ATM withdrawal fees, any periodic maintenance fees, and cash reload fees, and weight them based on how often a consumer might incur those fees during a month to determine the approximate cost to all consumers of that prepaid account product. The Bureau's testing, along with other studies, has identified, however, that there is no single, typical use case for all prepaid accounts.\252\ Thus, it would be difficult to determine which fee types should be included in such a formula and how often such fees might be incurred.

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    \252\ See, e.g., 2014 Pew Study, at 13.

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    Second and relatedly, a prepaid account that might have a higher cost under a formula adopted by the Bureau may actually be less costly for certain consumers, depending on how they use the card. For example, a formula might factor in several ATM withdrawal fees each month, but for consumers not using the prepaid account for ATM withdrawals, the disclosure of that single number could be confusing or misleading, and potentially cause a consumer to acquire a prepaid account with a lower all-in cost according to the prescribed formula, but that will cost the particular consumer more. Although multiple usage formulas might rectify this to some degree, the Bureau believes that disclosing more than one such number on a single form could compound consumer confusion.

    The Bureau also is concerned that an all-in number that presents the average amount paid by users of that particular prepaid account product over a designated time period would also be

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    confusing because consumers would likely struggle to interpret how such a summary statistic would apply to their own prepaid account usage.\253\ In addition, historical data does not exist for new products and may be inaccurate for products that have changed fees or features. For these reasons, the Bureau has concluded, at this time, that an all-in disclosure would be of limited utility, and could perhaps even be misleading to consumers, but the Bureau might reconsider the utility of this approach in the future.

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    \253\ For example, when testing a concept that presented a fee amount next to a graphic representing the range of the maximum and minimum fees that other providers might charge for the same service, the Bureau found that the vast majority of testing participants did not understand this graphic or how it might apply to their own prepaid card usage.

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    Category headings. The Bureau also considered a short form disclosure that would include category headings based on the function for which a consumer would utilize the service associated with each fee, a format that many prepaid account providers have already adopted, in lieu of the top-line fee format on the short form that the Bureau is proposing.\254\ The Bureau declines to propose this ``categories'' approach for several reasons. First, the Bureau believes that category headers take up needed space on the form that may limit disclosure of other, more important information about the prepaid accounts, particularly given that some categories might include only one fee.\255\ Second, the Bureau believes it would be difficult on the same short form to include both its proposed top-line concept and to divide fees into categories. Though space constraints are only an issue for accounts sold in retail stores (due to packaging material size constraints), the Bureau is proposing that a short form with the same format and content would be disclosed in all acquisition scenarios, and thus, it is important that the short form's design can be implemented in all of these scenarios. Finally, during consumer testing, the Bureau did not find that participants' comprehension of fees and their purpose improved when a form included categories; indeed, most participants understood most fees without such a label. Although the Bureau is not proposing to include category headings in the proposed short form, it is proposing that the long form disclosure--which would have more space and detail--would include such headings to facilitate navigation of the larger amount of information that the Bureau anticipates will be included on that form. See proposed Sec. 1005.18(b)(4)(i)(B).

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    \254\ See ICF Report, at App. C, 2A. As listed in the prototype, an ``Add and withdraw money'' category, for example, would list the various ways the consumer could withdraw money from a prepaid account, such as through a withdrawal from an automated teller machine.

    \255\ For example, a ``Maintenance'' category might include only one periodic fee, such as a monthly fee.

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    The Bureau seeks comment on all of these alternatives and its proposed approach. In particular, the Bureau seeks comment on the utility of including category headings as part of the short form, in lieu of the top-line, and on incorporating an ``all-in'' summary fee concept into prepaid account disclosures. The Bureau also seeks comment on whether it should consider other disclosure alternatives and why such alternatives would be more appropriate than the Bureau's proposed pre-acquisition disclosure regime. Finally, the Bureau seeks comment on whether any pre-acquisition disclosure regime that requires consumers to receive forms disclosing fee information before acquiring a prepaid account is necessary.

    To implement its proposed pre-acquisition disclosure regime, the Bureau is proposing timing, content, form and other requirements for prepaid account disclosures. The following discussion sets forth these proposed requirements in detail.

    18(b)(1) Timing of Disclosures

    18(b)(1)(i) General

    As discussed above, Sec. 1005.7(b) of Regulation E currently requires financial institutions to provide certain initial disclosures when a consumer contracts for an electronic fund transfer service or before the first electronic fund transfer is made involving a consumer's account. The Bureau is proposing in revised Sec. 1005.18(b)(1)(i) that, in addition to these initial disclosures that are usually provided in an account's terms and conditions document, a financial institution must also provide a consumer with certain fee-

    related disclosures before a consumer acquires a prepaid account. Specifically, the Bureau is proposing that except when a consumer acquires a prepaid account in a retail store or orally by telephone, as described in proposed Sec. 1005.18(b)(1)(ii) or (iii), a financial institution must provide a short form and a long form disclosure required by proposed Sec. 1005.18(b)(2)(i) and (ii) before a consumer acquires a prepaid account. The Bureau believes consumers in all acquisition scenarios would benefit from receiving these additional, pre-acquisition disclosures prior to contracting for an electronic fund transfer service or before the first electronic fund transfer is made involving the account, at which point they would receive the initial disclosures that Regulation E already requires.

    The Bureau believes disclosures that provide fee information prior to a consumer's acquisition of a prepaid account (rather than at the time of contracting for an electronic fund transfer service, which may be later) are necessary and beneficial to consumers for several reasons. First, the Bureau believes a consumer should receive clear disclosures about prepaid accounts before acquiring them. Based on its outreach, the Bureau understands that some financial institutions may already provide limited disclosures to consumers prior to acquisition, and that some financial institutions may not disclose the fees that consumers may find relevant to their acquisition decision until the account is purchased (or otherwise acquired), the packaging material is opened, and a consumer reviews the enclosed terms and conditions document. For example, one prepaid product currently sold in retail stores imposes an inactivity fee after ninety days of no transactions, but this fee is not disclosed on an outward-facing external surface of the prepaid account access device's packaging material that is visible before purchase. Further, the Bureau believes that some employees acquiring payroll card accounts may receive information about the accounts in a manner that makes it difficult for an employee to comprehend the accounts' key fees. For example, employees might receive terms and conditions documents regarding payroll card accounts at the same time they receive other benefits-related paperwork, making the fees difficult for employees to comprehend while sorting through other important and time-sensitive paperwork. Similarly, certain providers of prepaid accounts online may present disclosures on their Web sites in a way that makes it difficult for consumers to have the chance to review them prior to acquisition.

    Additionally, the Bureau believes that pre-acquisition disclosures can also decrease the ability of financial institutions to obscure key fees. Many participants in the Bureau's consumer testing reported incurring fees that they did not become aware of until after they purchased their prepaid account. Several participants also admitted to having difficulty understanding the disclosures they received with their current prepaid accounts and were very unsure as to whether key fees had been

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    disclosed before they acquired the accounts.

    Second, as some commenters to the Prepaid ANPR emphasized, in order to comparison shop among products, it is helpful for consumers to be able to review disclosures setting forth key terms in like ways before choosing a product. As noted earlier, the Bureau recognizes that consumers offered prepaid products by third parties like employers or educational institutions may be unable to easily comparison shop. For example, at the time students are offered a student card from their university, such as when registering for school, they might be unable to compare that card with other products. The Bureau believes, however, that even in this scenario, students will benefit from receiving the short form and the long form disclosure so that they can better understand the product's terms before deciding to accept it. Additionally, the Bureau believes that both of these disclosures may inform the way in which these consumers decide to use the product once they have acquired it and enable them to, at a convenient time, compare it with any other products.

    Third, the Bureau believes that consumers could potentially use their prepaid account for an extended period of time and perhaps incur substantial fees over that time. For example, during the Bureau's consumer testing, participants indicated that they tend to use a given prepaid account product, even one they do not like, at least until they spend the entirety of the initial load amount, which could be as much as $500. Others reported reloading the account, using it for as long as one or two years after purchase, and often arranging to receive direct deposit of wages or benefits into the account. Thus, the Bureau believes that whatever disclosure information a consumer uses when selecting a prepaid account could have a significant, and potentially long-term, impact, especially if a consumer chooses to receive direct deposit into a prepaid account. Current research supports this belief. Specifically, one study indicates that prepaid accounts receiving direct deposit of government benefits might have life spans of as long as three years, and consumers who receive non-government direct deposit on their accounts use them on average for longer than one year.\256\ Though other, older research estimates the average life span of some prepaid accounts may be on average less than six months, the Bureau believes that even this period of time is significant if consumers load most or all of their funds into their prepaid accounts.\257\

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    \256\ Fumiko Hayashi & Emily Cuddy, Fed. Reserve Bank of Kansas City, General Purpose Reloadable Prepaid Cards: Penetration, Use, Fees and Fraud Risks at 33-35 (Working Paper No. RWP 14-01, 2014), available at https://www.kansascityfed.org/publicat/reswkpap/pdf/rwp14-01.pdf.enter/publications/discussion-papers/2012/D-2012-

    August-Prepaid.pdf.

    \257\ A 2012 study by the Federal Reserve Bank of Philadelphia indicates that the average life span of GPR cards tends to be between 3 and 6 months. See 2012 FRB Philadelphia Study, at 18.

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    Regulation E, however, currently only provides for initial disclosures to be delivered at the time a consumer contracts for an electronic fund transfer service or before the first electronic fund transfer is made involving a consumer's account. The Bureau believes that, in the prepaid account context, this might sometimes be too late. With prepaid accounts, consumers often contract for an electronic fund transfer when acquiring the prepaid account and completing an initial load. The Bureau therefore is concerned that consumers may receive the fee-related, initial disclosures required by Sec. 1005.7(b) (which proposed Sec. 1005.18(f) would modify for prepaid accounts) that are typically provided within the prepaid account's terms and conditions document too late to utilize them to decide on the right prepaid account product for their needs and to comparison shop among various prepaid account products.

    The Bureau is therefore proposing Sec. 1005.18(b)(1)(i), which would require a financial institution, in most cases, to provide the short and long form disclosures described in proposed Sec. 1005.18(b)(2)(i) and (ii) before a consumer acquires a prepaid account. As noted above, this aspect of the proposal is authorized under EFTA sections 904(a) and (c), 905(a), and Dodd-Frank sections 1032(a). The Bureau seeks comments on all aspects of its proposal to mandate pre-

    acquisition disclosures. In particular, the Bureau solicits feedback on whether pre-acquisition disclosures are necessary or if the fee information provided pursuant to existing Sec. 1005.7(b) (as modified by proposed Sec. 1005.18(f)) at the time a consumer contracts for the prepaid account is sufficient to inform consumers about the account's terms and conditions.

    The Bureau is also proposing to add comment 18(b)(1)(i)-1, which would provide examples of what would and would not qualify as having provided disclosures pre-acquisition. The first example would clarify how pre-acquisition disclosures work in a bank branch context. Specifically, proposed comment 18(b)(1)(i)-1.i would explain that when a consumer inquires about obtaining a prepaid account at a branch location of a bank, then receives the printed short form and long form disclosures related to the prepaid account product, and after receiving the disclosures, agrees to open a prepaid account with the bank, a consumer would have received the short form and long form disclosures pre-acquisition. Another proposed example would address payroll card accounts. Specifically, proposed comment 18(b)(1)(i)-1.ii would explain that if a consumer learns that he or she can receive wages via a payroll card account, at which time a consumer receives the short form and long form disclosure to review, and a consumer agrees to receive wages via a payroll card account, a consumer would have received the short form and long form disclosures pre-acquisition. Proposed comment 18(b)(1)(i)-1.ii would further clarify that if a consumer receives the payroll card or other device at the end of the first pay period, at which time a consumer also receives the short form and long form disclosure to review for the first time, these disclosures were provided to a consumer post-acquisition, and thus not provided in compliance with proposed Sec. 1005.18(b)(1)(i).

    Proposed comment 18(b)(1)(i)-2 would provide further explanation regarding circumstances when short form and long form disclosures would be considered to have been delivered after a consumer acquires a prepaid account, and thus in violation of the timing requirement in proposed Sec. 1005.18(b)(1)(i). Specifically, proposed comment 18(b)(1)(i)-2 would explain that when the short form and long form disclosures required under proposed Sec. 1005.18(b)(2)(i) and (ii) are presented after a consumer has initiated a purchase for a prepaid account on a financial institution's Web site, but before a consumer provides any personal identifying information and agrees to accept the prepaid account, such disclosures would be made pre-acquisition in accordance with proposed Sec. 1005.18(b)(1)(i). Proposed comment 18(b)(1)(i)-2 would also explain that the short form and long form disclosures that are provided electronically when a consumer acquires a prepaid account on a financial institution's Web site are considered to be given after a consumer acquires a prepaid account if a consumer can easily bypass the disclosures before acquiring a prepaid account. Proposed comment 18(b)(1)(i)-

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    2 would also clarify that a financial institution can present the short form and long form disclosures on the same Web page to fulfill the requirements of proposed Sec. 1005.18(b)(1)(i), and that a financial institution could also present the short form disclosure on a Web page and include a hyperlink directly to the long form disclosure on that same Web page, but, if it does so, a consumer must not have to review any unrelated pages before viewing the long form disclosure. The Bureau nevertheless seeks comment on whether additional guidance is necessary regarding how electronic disclosures can be provided in compliance with the pre-acquisition timing requirement in proposed Sec. 1005.18(b)(1)(i).

    Some consumer advocacy groups that responded to the Prepaid ANPR suggested that the Bureau also require that financial institutions confirm that consumers have read disclosures provided online. The Bureau believes that such a requirement is infeasible. Nevertheless, the Bureau seeks comment on whether technology exists that could be implemented by all potentially covered entities and that would permit them to confirm a consumer has read online disclosures, or if providing guidance that a consumer should not be able to easily bypass the pre-

    acquisition disclosures would ensure that consumers have sufficient opportunity to review disclosures provided electronically.

    18(b)(1)(ii) Disclosures for Prepaid Accounts Acquired in Retail Stores

    The Bureau is proposing an adjustment to its proposed general pre-

    acquisition timing requirement where consumers acquire prepaid accounts in retail stores. Proposed Sec. 1005.18(b)(1)(ii) would provide that financial institutions would have to provide a written version of the short form disclosure before a consumer acquires a prepaid account in person in a retail store. But it would permit financial institutions to delay providing the long form disclosure until after the consumer acquires a prepaid account as long as certain conditions are met. Those conditions are described in proposed Sec. 1005.18(b)(1)(ii)(A) through (C).

    The Bureau believes that in many cases it is not feasible for financial institutions that offer prepaid accounts in retail stores to provide printed long form disclosures prior to acquisition. For example, retail stores may require financial institutions to use packaging material with specific dimensions that accommodate standard J-hook display racks. The Bureau understands that the dimensions of a typical J-hook display used today for prepaid accounts may limit a prepaid account access device's packaging material to no larger than 4 inches by 5.25 inches. In addition, the length of the hooks on which a prepaid account's packaging material is displayed is finite and can accommodate only a limited number of packages depending on each package's thickness.

    Due to these apparent size and space limitations, the Bureau believes that many financial institutions would not be able to present both the short and long form disclosures required by Sec. 1005.18(b)(2)(i) and (ii) on the packaging before a consumer acquires a prepaid account in a retail store, without overhauling the packaging's design or otherwise adjusting the relevant retail space. For example, more disclosures could require longer, wider or thicker packaging material than that currently used. The Bureau believes that such packaging adjustments would impose a significant burden and likely decrease the number of prepaid account products that could be sold at one time in retail stores. In turn, this could increase the cost of prepaid account products and limit comparison shopping (if the retail store maintains the same overall space for the display and sale of all prepaid account products).

    Nevertheless, the Bureau believes it is important that consumers be provided an opportunity to review both the short form and long form disclosures before acquisition. Thus, proposed Sec. 1005.18(b)(1)(ii) would require that in retail stores, a financial institution could provide the long form disclosure after a consumer acquires a prepaid account in person in a retail store, as long as the three conditions discussed below are met. The Bureau believes these conditions will ensure a consumer receives a written, short form disclosure that includes methods for accessing the long form disclosure by telephone or via a Web site.

    Proposed Sec. 1005.18(b)(1)(ii)(A) would set forth the first condition: that the access device for the prepaid account available for sale in a retail store must be inside of a packaging material. This condition would apply even if the product, when sold, is only a temporary access device. As noted above, J-hooks place limitations on the size and volume of packaging material that can be used to market prepaid accounts. If a financial institution does not use such packaging material because, for example, a customer service representative is responsible for distributing prepaid accounts to consumers, then the Bureau does not believe that space constraints would prevent a financial institution from providing both the short and long form disclosure pre-acquisition. The Bureau considered requiring that in order to qualify for the retail store exemption, the packaging material should also be directly accessible to a consumer. Under such a requirement, a financial institution would not qualify for the retail store exemption if the prepaid account access devices were inside of packaging material, but such packaging material was stored behind glass or a counter, and a consumer would have to request to see a package from a customer service representative in order to review the disclosures. The Bureau decided against proposing this requirement. The Bureau believes that retailers that do not make packaging material directly accessible to consumers may have justifiable reasons for doing so, such as security concerns, yet still face space constraints that make pre-acquisition delivery of both proposed forms difficult. Nevertheless the Bureau seeks comment on whether retailers that use packaging material, but do not make it directly accessible to consumers, actually do face space constraints that justify allowing them to disclose the long form post-acquisition.

    Proposed Sec. 1005.18(b)(1)(ii)(B) would set forth the second condition: the short form disclosures required by proposed Sec. 1005.18(b)(2)(i) must be provided on or be visible through an outward-

    facing, external surface of a prepaid account access device's packaging material in the tabular format described in proposed Sec. 1005.18(b)(3)(iii). The Bureau recognizes that fulfilling this condition could mean that some financial institutions that offer prepaid accounts in retail stores and want to comply with proposed Sec. 1005.18(b)(1)(ii) may have to change their packaging. The Bureau, however, believes that the majority of current prepaid account products' packaging material would allow financial institutions to include the short form content requirements on an external surface that is visible to a consumer pre-acquisition without altering the structure of the existing packaging.

    The third condition, set forth in proposed Sec. 1005.18(b)(1)(ii)(C), would require that a financial institution include a telephone number and URL on the short form disclosure, as required by proposed Sec. 1005.18(b)(2)(i)(B)(11), that a consumer can use to access the long form disclosure while in a retail store. The Bureau believes that even if it is not feasible for a consumer to receive both the short and long form disclosures pre-acquisition in some

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    retail settings, the consumer should at least be able to access the long form disclosure by telephone or via a Web site, should they want to obtain comprehensive fee information. The Bureau understands that many consumers use mobile devices that can access the internet, and the Bureau notes that all of the participants in the Bureau's consumer testing reported having a smartphone with internet access. Indeed, recent polls indicate that as many as 65 percent of adults in the United States own a smartphone.\258\ The Bureau therefore believes that many consumers at least have the ability to access a Web site through the URL that would be listed on the short form pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(11) when shopping for a prepaid account. Several testing participants also mentioned, however, that even though they have a smartphone, they were concerned whether all consumers would be able to access a Web site when in a retail store or whether they would always have sufficient reception to access a Web site from their smartphone while indoors. The Bureau is therefore also proposing that when a financial institution is not disclosing the long form before a consumer acquires a prepaid account, the financial institution must also make the long form available to a consumer by telephone, a method that even consumers with mobile devices that are not smartphones could use to access the long form disclosure's contents.

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    \258\ The Nielsen Company, The Digital Consumer, at 5 (Feb. 2014), available at http://www.nielsen.com/content//corporate/us/en/reports-downloads/2014 Reports/the-digital-consumer-report-feb-2014.pdf. In 2012, the Board estimated that 35 percent of the U.S. population uses smartphones. See Bd. of Governors of the Fed. Reserve, Consumers and Mobile Financial Services, at 3 n1 (Mar. 2012), available at http://www.Federalreserve.gov//mobile-device-report-201203.pdf (internal citations omitted).

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    The Bureau recognizes that proposed Sec. 1005.18(b)(ii)(C) assumes that a consumer would have a mobile device capable of either accessing the internet or making calls when shopping in a retail store. But it believes that providing these two methods will increase the likelihood that most consumers would be able to access the long form disclosure in a retail store. The Bureau also acknowledges that it might be complicated for financial institutions to provide the long form disclosure by telephone, whether using an interactive voice response system or through a customer service agent. Further, as discussed in the section-by-section analysis of proposed Sec. 1005.18(b)(1)(iii), it may be harder for a consumer to understand the information in the long form when delivered orally. Nevertheless, the Bureau believes that if a consumer takes the affirmative step to request additional information about a prepaid account by telephone when shopping in a retail store, it could be more likely that the consumer is seeking out specific information that is not included on the short form, and will therefore be less likely to suffer from information overload.

    The Bureau further recognizes that permitting financial institutions to only provide a short form disclosure to a consumer pre-

    acquisition in retail stores means that consumers may not see full fee information before acquiring a prepaid account. It could be due to the technical reasons described above or due to the fact that consumers lack the time or motivation to seek it out. Indeed, in the Bureau's consumer testing, some participants had difficulty noticing and understanding language that listed the methods for accessing the long form disclosure on the short form. Some participants also reported that they would be unlikely to use their mobile device to seek out such information when shopping because, in the past, they spent limited time shopping for a prepaid account.

    The Bureau therefore considered whether, as some non-partisan research and advocacy organizations have suggested, it might be better for consumers to see all of a prepaid account's fees pre-acquisition for prepaid accounts sold in retail stores and all other acquisition scenarios to avoid putting the burden on consumers to seek out additional information. The Bureau declines to propose this approach for multiple reasons. First, the Bureau believes that recent research indicates that many consumers have difficulty comprehending and utilizing extensive amounts of information when making decisions about certain financial products.\259\ Second, when consumers use a disclosure, recent research indicates they might have trouble identifying which information is relevant to them, prioritizing and comprehending the information they encounter, or utilizing that information to make the best choice for their situation.\260\ The Bureau believes this comprehension difficulty could be exacerbated in a retail store where consumers often make acquisition decisions quickly. During its consumer testing, the Bureau also learned that only a few types of fees drive most consumers' decisions about prepaid accounts. The Bureau believes the proposed short form disclosure captures these fees. Third, when participants in the Bureau's consumer testing saw longer lists of fees during testing, they frequently cited one of the fees included on the short form disclosure as that which would most influence their decision about which prepaid product to acquire. In other words, testing participants were not relying on the additional information in the long form disclosure to make a decision. The results suggest that the participants would have reached the same decision reviewing a short form disclosure.

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    \259\ See James Lacko & Janis Pappalardo, The Failure and Promise of Mandated Consumer Mortgage Disclosures: Evidence from Qualitative Interviews and a Controlled Experiment with Mortgage Borrowers, 100 a.m. Econ. Rev. 516 (2010); Kleimann Commc'n Group, Know Before You Owe: Evolution of the Integrated TILA RESPA Disclosures (July 9, 2012). See generally, Eric Johnson et al. Can Consumers Make Affordable Care Affordable? The Value of Choice Architecture, PLOS One, Dec. 2013, at 1, 2.

    \260\ Id.

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    Testing participants also spent more time comparing two long form disclosures when engaging in a shopping comparison exercise Such time is additional time that the Bureau believes consumers are less likely to spend when shopping in a retail setting. Finally, consumers in testing also generally found it more difficult to perform side-by-side comparisons of two long form disclosures included on the inside of prototype packaging material versus comparing two short form disclosures provided on an outside surface of prototype packaging material. The Bureau also considered the significant cost to industry of providing the long form disclosure. As discussed above, the packaging adjustments including such a disclosure would likely require based on the space constraints in many retail locations.

    To summarize, the Bureau proposes that, in retail stores, financial institutions may provide the proposed long form disclosure after acquisition, if the three conditions in proposed Sec. 1005.18(b)(1)(ii)(A) through (C) are satisfied. The Bureau also notes that pursuant to proposed Sec. 1005.18(f), all consumers, including those shopping in retail stores, would get a long form disclosure in the terms and conditions document that they receive after they have acquired a prepaid account. In a retail setting, the terms and conditions document would likely be provided inside the packaging material and immediately accessible to a consumer post-acquisition.

    Nevertheless, the Bureau seeks comment on all aspects of this approach to fee disclosures for prepaid accounts

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    sold in retail locations. Specifically, the Bureau seeks comment on what information consumers should receive when shopping for a prepaid account in a retail store and how comprehensive this information could be, given the space constraints imposed by J-hooks. The Bureau also seeks comment on whether to require disclosure of the long form pre-

    acquisition in retail stores instead of permitting financial institutions to only make it accessible to a consumer. Finally, the Bureau solicits comment on whether the two methods (Web site or telephone number) that the Bureau has proposed to include on the short form in retail stores are reliable ways for consumers to access the long form disclosure when shopping in a retail store, and whether there are other methods that could be required instead of or in addition to those that are proposed. The Bureau also seeks comment on whether it should require that consumers must be able to access the telephone number listed after regular business hours.\261\

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    \261\ The Bureau also considered requiring that financial institutions list an SMS short code on the short form disclosure provided in retail stores. See section-by-section analysis of proposed Sec. 1005.18(b)(2)(i)(B)(11) for a discussion of this alternative.

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    Proposed comment 1005.18(b)(1)(ii)-1 would provide guidance on the definition of retail store. Specifically, proposed comment 1005.18(b)(1)(ii)-1 would explain that, for purposes of the proposed requirements of Sec. 1005.18(b)(1)(ii), a retail store is a location where a consumer can obtain a prepaid account in person and that is operated by an entity other than a financial institution or by an agent of the financial institution. Proposed comment 1005.18(b)(1)(ii)-1 would further clarify that a bank or credit union branch is not a retail store, but that drug stores and grocery stores at which a consumer can acquire a prepaid account may be retail stores. Proposed comment 1005.18(b)(1)(ii)-1 would also clarify that a retail store that offers one financial institution's prepaid account products exclusively would be considered an agent of the financial institution, and, thus, both the short form and the long form disclosure must be provided pre-

    acquisition pursuant to proposed Sec. 1005.18(b)(1)(i) in such settings.

    The Bureau believes that if a financial institution is the sole provider of prepaid account products in a given retail store, or is otherwise an agent of the financial institution, then it is easier for the financial institution to manage the distribution of disclosures to a consumer, and they might be less dependent on the J-hook infrastructure to market their products to consumers. Thus, the Bureau believes that financial institutions with such exclusive relationships should have fewer hurdles to providing both the short form and long form disclosures to a consumer before acquisition. Nevertheless, the Bureau seeks comment on whether agents of the financial institution face space constraints in retail stores that would make it difficult to provide the short form and long form disclosures pre-acquisition.

    Proposed comment 1005.18(b)(1)(ii)-2 would clarify that except when providing the long form disclosure post-acquisition in accordance with the retail store exception set forth in proposed Sec. 1005.18(b)(1)(ii), the short form and long form disclosures required by proposed Sec. 1005.18(b)(2)(i) and (ii) must be provided to a consumer pre-acquisition in compliance with proposed Sec. 1005.18(b)(1)(i). Proposed comment 1005.18(b)(1)(ii)-2 would further explain that disclosures are considered to have been provided post-acquisition if they are inside the packaging material accompanying a prepaid account access device that a consumer cannot see or access before acquiring the prepaid account, or if it is not readily apparent to a consumer that he or she has the ability to access the disclosures inside of the packaging material. Proposed comment 1005.18(b)(1)(ii)-2 would also provide the example that if the packaging material is presented in a way that consumers would assume they must purchase the prepaid account before they can open the packaging material, the financial institution would be deemed to have provided disclosures post-acquisition.

    Proposed comment 1005.18(b)(1)(ii)-3 would explain that a payroll card account offered to and accepted by consumers working in retail stores would not be considered a prepaid account acquired in a retail store for purposes of proposed Sec. 1005.18(b)(1)(ii), and thus, a consumer would have to receive the short form and long form disclosures pre-acquisition pursuant to the timing requirement set forth in proposed Sec. 1005.18(b)(1)(i). The Bureau does not believe that there are space constraints involved in offering payroll card accounts to retail store employees. Thus, the Bureau believes that retail store employees receiving payroll card accounts must receive both the short form and long form disclosures pre-acquisition in accordance with proposed Sec. 1005.18(b)(1)(i).

    Proposed comment 18(b)(1)(ii)-4 would clarify that pursuant to proposed Sec. 1005.18(b)(1)(ii)(C), a financial institution must make the long form accessible to a consumer by telephone and by a Web site when not providing a printed version of the long form disclosure to a consumer prior to acquisition of a prepaid account. Proposed comment 18(b)(1)(ii)-4 would clarify that a financial institution could, for example, provide the long form disclosure by telephone using an interactive voice response system or by using a customer service agent.

    18(b)(1)(iii) Disclosures for a Prepaid Account Acquired Orally by Telephone

    Similar to its proposed alternative for retail stores, the Bureau is also proposing, for several reasons, to modify the general pre-

    acquisition disclosure requirement in proposed Sec. 1005.18(b)(1)(i) when a consumer acquires a prepaid account orally by telephone. First, the Bureau believes prepaid accounts acquired by telephone introduce logistical challenges that make it difficult for financial institutions to provide both the short form and the long form disclosures to all consumers. The Bureau also believes that it may be more difficult for consumers to process information disclosed orally and that therefore, generally, less fee information should be provided when consumers acquire prepaid accounts by telephone. The Bureau acknowledges that consumers are probably less likely to comparison shop when acquiring prepaid accounts by telephone, but the Bureau believes that some consumers might want to compare the short form disclosure of prepaid account products they are considering acquiring orally by telephone to short form disclosures for other prepaid accounts that they might already possess or have available on their computer during the telephone call.

    The Bureau is therefore proposing that before a consumer acquires a prepaid account orally by telephone, a financial institution must disclose orally the short form information that would be required by proposed Sec. 1005.18(b)(2)(i). See proposed Sec. 1005.18(b)(1)(iii). The Bureau believes that disclosing only limited information by telephone will increase the likelihood that a consumer will understand any information about the prepaid account when acquiring it orally by telephone. Proposed Sec. 1005.18(b)(1)(iii) would further state that a financial institution may provide the disclosures required by Sec. 1005.18(b)(2)(ii) after a consumer acquires a prepaid account orally by telephone if the financial institution

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    communicates to a consumer orally, before a consumer acquires the prepaid account, that the information required to be disclosed by Sec. 1005.18(b)(2)(ii) is available orally by telephone and on a Web site.

    The Bureau believes that a financial institution should be able to disclose information contained in the long form orally, by, for example, allowing a consumer to ask a customer service agent about a fee or by using an automated system, but the Bureau questions the effectiveness of requiring that the full long form disclosure be provided orally to every consumer. Rather, the Bureau believes that as long as consumers are made aware of their ability to access the information contained in the long form disclosure, they will be able to get enough information to make an informed acquisition decision. Those who wish to learn more about the prepaid account can do so, and financial institutions would not be unduly burdened by having to provide the long form disclosure to all consumers who acquire prepaid accounts by telephone.

    The Bureau recognizes that proposed Sec. 1005.18(b)(1)(ii)(C) would require that a financial institution always disclose the telephone number and the URL that a consumer can use to access in the long form disclosure on all short forms when qualifying for the retail store exception. But, for prepaid accounts acquired orally by telephone pursuant to proposed Sec. 1005.18(b)(1)(iii), the Bureau believes it is sufficient to let a consumer know that the long form disclosure is available by telephone and through a Web site without having to actually dictate the telephone number and the URL of the Web site, unless a consumer requests them. A version of the long form, however, would still be required to be provided after acquisition in the prepaid account's initial disclosures. See proposed Sec. 1005.18(f).

    The Bureau seeks comment on all aspects of this part of the proposal. Specifically, the Bureau seeks comment on whether consumers will benefit from hearing the contents of only the short form disclosed orally. The Bureau also seeks comment on whether financial institutions should be required to disclose all fees associated with a prepaid account orally before acquisition instead of having the option not to disclose full fee information as long as they make consumers aware of the methods by which they can access the content of the long form disclosure.

    Proposed comment 18(b)(1)(iii)-1 would explain that, for purposes of proposed Sec. 1005.18(b)(1)(iii), a prepaid account is considered to have been acquired orally by telephone when a consumer speaks to a customer service agent or communicates with an automated system, such as an interactive voice response system, to provide personal identifying payment information to acquire a prepaid account, but would clarify that prepaid accounts acquired using a mobile device without speaking to a customer service agent or communicating with an automated system are not considered to have been acquired orally by telephone. The Bureau believes that the proposed general pre-acquisition disclosure requirement in proposed Sec. 1005.18(b)(1)(i) should be modified when a consumer acquires a prepaid account orally by telephone. By contrast, if a consumer is using a smartphone to access a mobile application to acquire a prepaid account, and is not receiving disclosures about the prepaid account orally, the Bureau proposes that disclosures could be provided electronically pursuant to proposed Sec. 1005.18(b)(3)(i)(B) and that a consumer still receive both the short form and long form disclosures pre-acquisition. Though a consumer may access a mobile application to acquire a prepaid account on a mobile phone device, the Bureau believes that once a consumer has entered the application, disclosures can be provided in a similar, if not identical, way to how they are offered on a Web site. Thus, the Bureau believes that in such a scenario the logistical challenges justifying an alternative requirement for accounts acquired orally using the telephone are not present.

    Proposed comment 18(b)(1)(iii)-2 would explain how disclosures provided orally can comply with the pre-acquisition timing requirement in proposed Sec. 1005.18(b)(2)(i). Specifically, proposed comment 18(b)(1)(iii)-2 would clarify that to comply with the pre-acquisition requirement set forth in proposed Sec. 1005.18(b)(1)(i) for prepaid accounts acquired orally by telephone, a financial institution may, for example, read the short form disclosure required under proposed Sec. 1005.18(b)(2)(i) over the telephone after a consumer has initiated the purchase of a prepaid account by calling the financial institution, but before a consumer agrees to acquire the prepaid account. Proposed comment 18(b)(1)(iii)-2 would also clarify that although the long form disclosure required by proposed Sec. 1005.18(b)(2)(ii) is not required to be given pre-acquisition when a consumer acquires a prepaid account orally by telephone, a financial institution must communicate to a consumer that the long form is available upon request either orally by telephone or on a Web site. Finally, the proposed comment would clarify that a financial institution must provide information on all fees in the terms and conditions as required by existing Sec. 1005.7(b)(5), as modified by proposed Sec. 1005.18(f), before the first electronic fund transfer is made from a consumer's prepaid account.

    18(b)(2) Content of Disclosures

    Proposed Sec. 1005.18(b)(2) would set forth substantive content requirements for the Bureau's proposed pre-acquisition disclosure regime. Specifically, proposed Sec. 1005.18(b)(2)(i) would set forth the information a financial institution would have to provide on the short form disclosure, and proposed Sec. 1005.18(b)(2)(ii) would set forth the information a financial institution would have to provide on the long form disclosure. The proposed content for each disclosure is discussed in detail below.

    18(b)(2)(i) Short Form Content Requirements

    Proposed Sec. 1005.18(b)(2) would set forth substantive content requirements for the Bureau's proposed pre-acquisition disclosure regime. Specifically, proposed Sec. 1005.18(b)(2)(i) would set forth the information a financial institution would have to provide on the short form disclosure, and proposed Sec. 1005.18(b)(2)(ii) would set forth the information a financial institution would have to provide on the long form disclosure. The proposed content for each disclosure is discussed in detail below.

    18(b)(2)(i) Short Form Content Requirements

    As explained above, the Bureau is proposing that financial institutions provide a short form disclosure before a consumer acquires a prepaid account. See proposed Sec. 1005.18(b)(1)(i). Proposed Sec. 1005.18(b)(2)(i) would require disclosure of specific information on the short form about a prepaid account, including certain notices, fees, and other information, as applicable. Specifically, for all prepaid accounts, financial institutions would be required to disclose, in the static portion of the short form, the fee types set forth in proposed Sec. 1005.18(b)(2)(i)(B)(1) through (7), even if such fees are not charged or if those features are not offered in connection with a particular prepaid account product. A disclosure regarding whether a prepaid account might offer an overdraft service or another type of credit feature to a consumer would also

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    be disclosed in the static portion of the short form pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(9). In addition, the short form would require, in proposed Sec. 1005.18(b)(2)(i)(B)(8), disclosure of up to three additional fees most commonly incurred by users of a given prepaid account product in the prior 12-month period. This portion of the disclosure would vary across prepaid account products. Pursuant to proposed Sec. 1005.18(b)(3)(iii)(A), the short form disclosure would be in a form substantially similar to the proposed Model Forms A-10(a) through (d).

    Depending on the structure of a particular prepaid account, however, the Bureau understands that the short form may not capture all of a particular prepaid account's fees or explain the conditions under which a financial institution might impose those fees. The Bureau's consumer testing, however, indicated that when participants were shown prototype short forms, most understood that they represented only a subset of fee information and that they could potentially be charged fees not shown on the form. Further, except in certain retail stores or with respect to accounts acquired orally by telephone, under the proposed pre-acquisition disclosure regime, a consumer would receive a long form disclosure simultaneously with the short form and therefore have the opportunity to see all fees associated with a prepaid account and any relevant conditions before acquiring a prepaid account.\262\ See proposed Sec. 1005.18(b)(1)(i). Further, most testing participants did not identify any additional fees that they would like to see listed in a short form. The Bureau therefore believes that the proposed short form would contain most fees that might be charged in connection with a prepaid account, and those fees that are most important for a consumer to know in advance of acquiring a prepaid account.

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    \262\ For prepaid accounts acquired in retail stores or orally by telephone, the long form would have to be made available to the consumer either electronically or by telephone. See section-by-

    section analysis of proposed Sec. 1005.18(b)(1)(ii) and (iii).

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    The Bureau also recognizes that disclosing even this proposed subset of fee information on the short form runs the same risk of information overload that the Bureau believes could occur if all fees were disclosed to a consumer instead of just a subset of fees. The Bureau believes, however, based on its consumer testing and other research, that incorporating elements of visual hierarchy will mitigate these risks. Most importantly, the fee types that would be disclosed pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(1) through (4) in the top-line of the short form would use font size and other elements to promote readability.\263\ The Bureau is proposing to add comment 18(b)(2)(i)-1 to explain what a provider should disclose on the short form when fees are inapplicable to a particular prepaid account product. Specifically, proposed comment 18(b)(2)(i)-1 would explain that the disclosures required by proposed Sec. 1005.18(b)(2)(i) must always be provided prior to prepaid account acquisition, even when a particular disclosure is inapplicable to a specific prepaid account. The proposed comment would also provide an example that if a financial institution does not charge a fee to a consumer for withdrawing money at an ATM in the financial institution's network or an affiliated network, which is a type of fee that would be required to be disclosed pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(3), the financial institution should list ``ATM withdrawal (in network)'' on the short form disclosure and list ``$0'' as the fee. Proposed comment 18(b)(2)(i)-1 would further clarify that if, however, the financial institution does not allow a consumer to withdraw money from ATMs that are in the financial institution's network or from those in an affiliated network, the financial institution would still have to list ``ATM withdrawal (in-network)'' and ``ATM withdrawal (out-of-network)'' on the short form disclosure but instead state ``not offered'' or ``N/

    A.'' The Bureau believes it important that the static portion of the short form disclosure would list identical account features and fee types across all prepaid account products, to enable consumers to quickly determine and compare the potential cost of certain offered features.

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    \263\ See the section-by-section analysis of proposed Sec. 1005.18(b)(4)(iii).

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    The Bureau is also proposing to adopt comment 18(b)(2)(i)-2, to further explain how to disclose fees and features on the short form disclosure. Specifically, the proposed comment would explain that no more than two fees could be listed for each fee type required to be listed by proposed Sec. 1005.18(b)(2)(i)(B)(2), (3) and (5) in the short form disclosure, and that only one fee could be disclosed for each fee type required to be listed by proposed Sec. 1005.18(b)(2)(i)(B)(1), (4), (6), (7) and (8). The proposed comment would clarify, however, that proposed Sec. 1005.18(b)(2)(i)(B)(8) would require the disclosure of up to three additional fees. Finally, the proposed comment would clarify that for example, if a financial institution offers more than one method for loading cash into a prepaid account, only the fee for the method that would charge the highest fee would be disclosed, and the financial institution could use an asterisk or other symbol next to the cash reload fee disclosed to indicate that the fee may be lower. See section-by-section analysis of proposed comment 18(b)(2)(i)(C)-1.

    As discussed in detail above, the Bureau believes that simplicity and clarity are important goals of the short form disclosure. Insofar as allowing complicated explanations and multiple different fees to be disclosed for a particular feature could disrupt those goals, the Bureau proposes that for most fees on the short form, a financial institution only be permitted to list one fee--the highest fee a consumer could incur for a particular activity, as discussed in more detail below in the section-by-section analysis of proposed Sec. 1005.18(b)(2)(i)(C). The Bureau notes that these limitations would only apply to the short form disclosure; the financial institution would have both the long form disclosure and any other portion of the packaging material or Web site to disclose other relevant fees.

    The Bureau also believes there is particular value in maintaining simplicity on the short form by limiting the top-line portion of the form in order to encourage consumer engagement with the disclosure. Thus, the Bureau is proposing to require only four fee types in the top-line. For two of those fee types--per purchase fees and ATM withdrawal fees--the Bureau is also proposing to require disclosure of two fee values. See proposed comment 18(b)(2)(i)-2. The Bureau believes that it is important to include two per purchase fees--a per purchase fee when a consumer uses a signature and a per purchase fee when a consumer uses a PIN--because consumers could potentially incur these fees every time they use their prepaid accounts, and the fee could vary depending on how a consumer completes the transaction. The Bureau believes including two per purchase fees will highlight for consumers that the fees for completing a transaction using a personal identification number versus the fee for using a signature could differ. Similarly, the Bureau believes that it is important to include two ATM withdrawal fees in order to highlight that fees for in-network and out-of-network transactions may differ and to signal to consumers that the product's ATM network may have an impact on the fee incurred, which could lead a consumer to seek out more information about the

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    relevant network. The Bureau notes that in its testing, some participants were confused about the meaning of an ATM network.

    By contrast, the Bureau is proposing to allow only one periodic fee and one cash reload fee to be listed in the top-line of the short form. The Bureau acknowledges that both of these fees might also vary based, for example, on how often a consumer uses a prepaid account or the method used to reload cash into a prepaid account. Despite this possibility for variation, however, the Bureau believes consumers will benefit more from immediately seeing the two ways the per purchase and ATM withdrawal fees may vary.

    The Bureau seeks comment on all aspects of this part of the proposal. Specifically, the Bureau solicits feedback on whether mandating disclosure of inapplicable features on the short form disclosure would be unnecessarily confusing to consumers, or whether financial institutions will find it difficult to explain elsewhere on a prepaid account access device's packaging material or on their Web sites that certain features may not be available. In addition, the Bureau seeks comment on whether only providing the highest fee on the short form disclosure for a given fee type will be misleading to consumers, even when financial institutions include a symbol, like an asterisk, to indicate the fee amount could vary. The Bureau also seeks comment on the proposed type of and number of fees included in the top-

    line portion of the form, as discussed further below in the section-by-

    section analysis of proposed Sec. 1005.18(b)(4)(iii). Finally, the Bureau also solicits comment on whether the cost of purchasing or activating a prepaid account should be included on the short form disclosure.

    18(b)(2)(i)(A) Payroll Card Account Notices

    Pursuant to existing Sec. 1005.10(e)(2), no financial institution or other person may require a consumer to establish an account for receipt of electronic fund transfers with a particular institution as a condition of employment or receipt of a government benefit. See also existing comment 10(e)(2)-1 and proposed comment 10(e)(2)-2. The Bureau believes it is important for consumers to realize they have the option of not receiving payment of wages via a payroll card account, and that receiving such notice at the top of the short form disclosure will help to ensure consumers are aware of this right. Thus, the Bureau is proposing that a notice be provided at the top of the short form for a payroll card account to highlight for consumers that they are not required to accept a particular payroll card account.

    Specifically, proposed Sec. 1005.18(b)(2)(i)(A) would require that, when offering a payroll card account, a financial institution must include a statement on the short form that a consumer does not have to accept the payroll card account, and that a consumer can ask about other methods to get wages or salary from the employer instead of receiving them via a payroll card account, in a form substantially similar to the language set forth in Model Form A-10(b). The Bureau is proposing a similar notice requirement for government benefit accounts. Proposed Sec. 1005.18(b)(2)(i)(A) would state that for requirements regarding what notice to give a consumer when offering a government benefit account, see proposed Sec. 1005.15(c)(2).

    18(b)(2)(i)(B) Fees and Other Information

    18(b)(2)(i)(B)(1) Periodic Fee

    Proposed Sec. 1005.18(b)(2)(i)(B)(1) would require disclosure of a periodic fee charged for holding a prepaid account, assessed on a monthly or other periodic basis, using the term ``Monthly fee,'' ``Annual fee,'' or a substantially similar term. This proposed provision is intended to capture regular maintenance fees that a financial institution levies on a consumer solely for having a prepaid account for a period of time, whether the fee is charged monthly, annually, or for some other period of time. A financial institution could choose a label for this fee that accurately reflects the relevant periodic interval. Pursuant to the formatting requirements in proposed Sec. 1005.18(b)(4), a financial institution would be required to disclose this fee in the top-line of the short form disclosure.

    The Bureau believes that all prepaid accounts should disclose such a periodic fee, or the absence thereof, for several reasons. First, the Bureau's analysis of fee data indicates that many prepaid accounts charge a recurring fee, typically on a monthly basis. Second, the Bureau believes a periodic fee is one that consumers will likely pay no matter what other fees they incur because it is imposed for maintaining the prepaid account, unless a financial institution offers a way for a consumer to avoid that fee (e.g., through the receipt of a regular direct deposit or maintaining a certain average daily account balance). Those prepaid accounts that do not assess a periodic fee often charge other fees instead, typically per purchase fees.\264\ The Bureau therefore believes that the lack of a periodic fee is also an important feature of a prepaid account that should be included in the top-line to allow consumers to more easily identify this trade-off between periodic fees and per purchase fees. Third, the Bureau believes that the existence of a monthly fee (or lack thereof) is typically a key factor in a consumer's decision about whether to acquire a particular prepaid account. Additionally, in the Bureau's testing, participants frequently cited periodic fees as one of the most important factors influencing their decision about which prepaid account product to acquire.

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    \264\ Per purchase fees are also proposed to be on the top-line of the short form. See proposed Sec. 1005.18(b)(2)(i)(B)(2).

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    18(b)(2)(i)(B)(2) Per Purchase Fee

    Proposed Sec. 1005.18(b)(2)(i)(B)(2) would require disclosure of two fees for making a purchase using a prepaid account, both for which when a consumer uses a personal identification number and when a consumer provides a signature, including at point-of-sale terminals, by telephone, on a Web site, or by any other means, using the term ``Per purchase fee'' or a substantially similar term, and ``with PIN'' or ``with sig.,'' or substantially similar terms.

    Although the Bureau understands that most prepaid accounts do not charge per transaction fees for purchases of goods or services from a merchant, some do. When charged, the impact of these fees could be substantial for consumers who make multiple purchases. Often these fees are charged when periodic fees are not (see proposed Sec. 1005.18(b)(2)(i)(B)(1)), and thus a consumer may be choosing between a prepaid account that has no monthly fee but charges for each purchase and a prepaid account that has a monthly fee but no per purchase charge. Therefore, the Bureau believes it appropriate for all prepaid accounts to disclose on the short form both whether there is a per purchase fee and, if so, the fee for making those purchases. The Bureau's model forms (see proposed Model Forms A-10(a) through (d)) would disclose this amount on the top-line portion of the short form.

    The Bureau further recognizes that a handful of prepaid accounts charge a different per purchase fee depending on whether the purchase is processed as a signature or PIN transaction. While PIN debit transactions require input of the accountholder's PIN code at the time of authorization of the transaction, for a signature transaction, the accountholder

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    may sign for the transaction but does not need to enter his or her PIN code. The Bureau is therefore proposing model forms for prepaid accounts that disclose both fees for these two authorization methods. See proposed Model Forms A-10(a) through (d). Nevertheless, the Bureau seeks comment on whether two per purchase fees should be disclosed on the short form disclosure. The Bureau also solicits comment on whether there are additional per purchase fees beyond using a PIN or a signature that the Bureau should consider including in the short form disclosure.

    18(b)(2)(i)(B)(3) ATM Withdrawal Fees

    Proposed Sec. 1005.18(b)(2)(i)(B)(3) addresses disclosure on the short form of ATM fees for withdrawing cash. Specifically, proposed Sec. 1005.18(b)(2)(i)(B)(3) would require disclosure of two fees for using an ATM to initiate a withdrawal of cash in the United States from a prepaid account, both within and outside of the financial institution's network or a network affiliated with the financial institution, using the term ``ATM withdrawal fee'' or a substantially similar term, and ``in-network'' or ``out-of-network,'' or substantially similar terms. The Bureau's model forms (see proposed Model Forms A-10(a) through (d)) would disclose these ATM withdrawal fees on the top-line portion of the short form.

    The Bureau understands that most prepaid accounts have ATM fees that differ depending on whether the ATM is in a network of which the financial institution that issued the card is a member or an affiliate. Typically, prepaid account cards can also be used on other ATM networks of which the issuing financial institution is not a member or an affiliate. Insofar as accessing these networks often costs the financial institution more, they typically charge a higher fee to a consumer for using that out-of-network ATM. For example, one current prepaid account product charges $0 for in-network ATM withdrawals and $2 for ATM withdrawals that occur out-of-network. Given that such potential variances are common, the Bureau believes that disclosure of fees for both in- and out-of-network ATMs withdrawals is important. Although the Bureau notes that many participants during its consumer testing were unfamiliar with the difference between ``in-network'' and ``out-of-network,'' the Bureau believes the inclusion of these two fees on the top-line of the proposed short form would highlight for consumers that such fee variations can occur and the importance of understanding the ATM network associated with a particular prepaid account product.

    Nevertheless, the Bureau seeks comment on whether disclosure of additional information regarding ATM withdrawal fees and ATM networks is necessary on the short form. Specifically, the Bureau solicits comment on whether the in- versus out-of network distinction makes sense for prepaid accounts. The Bureau also solicits comment on whether there are additional types of ATM withdrawal fees (other than foreign ATM withdrawal fees, which are discussed below) that should be included in the short form. For example, the Bureau is aware that some financial institutions impose different ATM withdrawal fees on ATMs that are ``bank-owned.''

    Proposed comment 18(b)(2)(i)(B)(3)-1 would clarify that if the fee imposed on the consumer for using an ATM in a foreign country to initiate a withdrawal of cash is different from the fee charged for using an ATM in the United States within or outside the financial institution's network or a network affiliated with the financial institution, a financial institution would not disclose the foreign ATM fee pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(3), but may be required to do so pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(8), as part of the incidence-based fee disclosure.

    18(b)(2)(i)(B)(4) Cash Reload Fee

    Proposed Sec. 1005.18(b)(2)(i)(B)(4) would require disclosure of a fee for loading cash into a prepaid account using the term ``Cash reload'' or a substantially similar term. Cash reloads are one of the primary ways for a consumer to add funds to a prepaid account. As such, the Bureau believes that the existence of a cash reload service and the amount of any fee for using such a service, if any, is important for consumers to know insofar this is a key feature of many prepaid accounts. Further, the Bureau's model forms (see proposed Model Forms A-10(a) through (d)) would disclose the cash reload fee on the top-line of the short form disclosure as described in the section-by-section analysis of proposed Sec. 1005.18(b)(4)(i).

    The Bureau also proposes to adopt new comment Sec. 1005.18(b)(2)(i)(B)(4)-1, which would provide guidance on what would be considered a cash reload fee. Specifically, the proposed comment would explain that the cash reload fee, for example, would include the cost of adding cash at a point-of-sale terminal, or the cost of purchasing an additional card or other device on which cash is loaded and then transferred into a prepaid account, or any other method a consumer may use to load cash into a prepaid account. This proposed comment would also clarify that if a financial institution offers more than one method for a consumer to load cash into the prepaid account, proposed Sec. 1005.18(b)(2)(i)(C) would require that it only disclose the highest fee on the short form. The Bureau notes that consumers may incur additional third party fees when loading cash onto a card or other access device; these expenses are typically not controlled by the financial institution or program manager and instead are charged by the entity selling the cash reload product. Such fees would not be incorporated into the proposed short form disclosure. See proposed comment Sec. 1005.18(b)(2)(i)(C)-2. The Bureau notes, however, that, pursuant to proposed comment 18(b)(2)(ii)(A)-3, fees imposed by third parties acting as an agent of the financial institution would always have to be disclosed in the long form.

    The Bureau considered requiring financial institutions to list on the short form disclosure both cash reload methods discussed in proposed comment 18(b)(2)(i)(B)(4)-1: Loads via a point-of-sale terminal and loads via an additional card or other device. The Bureau recognizes that many prepaid accounts make both methods available to consumers and only allowing providers to list the fee for the method that imposes the highest fee could confuse consumers about which methods are available, and inhibit their ability to accurately estimate the fees they will incur based on the method they most commonly utilize. The Bureau, however, believes it is important to limit the amount of information on the short form disclosure to maintain its simplicity in order to facilitate consumer understanding of the information that is included. Further, in testing, the Bureau found that participants consistently understood a disclosure containing a single cash reload fee, and therefore the Bureau does not believe it is as important to include two fees for this fee type. Although the Bureau is proposing to allow only the highest cash reload fee to be disclosed in the short form, however, financial institutions would be able to use an asterisk or other symbol pursuant to proposed Sec. 1005.18(b)(2)(i)(C) discussed below (in addition to any other part of the packaging material or Web site) to indicate when more than one method exists for reloading cash into a prepaid account.

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    18(b)(2)(i)(B)(5) ATM Balance Inquiry Fees

    Directly below the proposed top-line disclosure in the short form disclosure, the Bureau proposes to include balance inquiry fees charged by the financial institution for inquiring into the prepaid account's balance at an ATM. Specifically, proposed Sec. 1005.18(b)(2)(i)(B)(5) would require disclosure of two fees for using an ATM to check the balance of a consumer's prepaid account, both within and outside of the financial institution's network or a network affiliated with the financial institution, using the term ``ATM balance inquiry'' or a substantially similar term, and ``in-network'' or ``out-of-network,'' or substantially similar terms.

    As discussed above regarding disclosure of ATM withdrawal fees the Bureau believes it is important for consumers to know that different fees could be imposed when requesting balance inquiries at an ATM in a financial institution's network or outside of the network. The Bureau, however, does believe it is less common for consumers to initiate ATM balance inquiries transactions compared to withdrawals at ATMs, and thus, the Bureau is not proposing to include the two balance-inquiry fees in the top-line of the short form disclosure. Nevertheless, the Bureau seeks comment on whether consumers incur ATM balance inquiry fees frequently enough to justify including these fees in the top-line of the short form disclosure.

    Proposed comment 18(b)(2)(i)(B)(5)-1 would clarify that if the fee imposed on a consumer for using an ATM in a foreign country to check the balance of a consumer's prepaid account is different from the fee charged for using an ATM within or outside the financial institution's network or a network affiliated with the financial institution in the United States, a financial institution would not disclose the foreign ATM balance inquiry fee pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(5), but could be required to do so by proposed Sec. 1005.18(b)(2)(i)(B)(8), discussed below.

    18(b)(2)(i)(B)(6) Customer Service Fee

    Proposed Sec. 1005.18(b)(2)(i)(B)(6) would require disclosure on the short form of any fee for calling the financial institution or its service provider, including an interactive voice response system, about a consumer's prepaid accounts using the term ``Customer service fee'' or a substantially similar term. The Bureau believes that many consumers regularly have issues with their prepaid accounts that require talking to a customer service agent by telephone. The Bureau also believes that some providers impose fees for making such a call. Additionally, several participants in testing reported having incurred such customer service fees. For these reasons, the Bureau believes that the short form disclosure should include this fee. This disclosure would be required even if the financial institution did not charge such a fee. See proposed comment 18(b)(2)(i)-1.

    18(b)(2)(i)(B)(7) Inactivity Fee

    Proposed Sec. 1005.18(b)(2)(i)(B)(7) would require disclosure of a fee for non-use, dormancy, or inactivity on a prepaid account, using the term ``Inactivity fee'' or a substantially similar term, as well as the duration of inactivity that triggers a financial institution to impose such an inactivity fee.\265\ The Bureau believes that many financial institutions charge consumers fees when they do not use their prepaid account for a specified period of time. The Bureau believes disclosure of these fees is important insofar as consumers sometimes acquire a prepaid account for occasional use; such consumers may want to know that a particular prepaid account product charges fees for inactivity.\266\ Thus, the Bureau is proposing that financial institutions disclose the existence, duration, and amount of inactivity fees, or that no such fee will be charged, as part of the static portion of the short form disclosure. The Bureau notes, however, that, as with all the disclosures in the short form, the requirement to disclose a particular fee type is not an endorsement of the practice of imposing such a fee.

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    \265\ The Bureau understands that some States bar or limit inactivity fees, and nothing in this portion of the proposal is meant to preempt any applicable State laws.

    \266\ In testing, several participants mentioned only using their prepaid cards occasionally.

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    The Bureau, however, also believes that a lower inactivity fee may correlate with a prepaid account product imposing a higher monthly periodic fee on a consumer. Thus, a consumer who uses a prepaid account only sporadically, but often enough to not reach the dormancy period that would trigger the inactivity fee, might actually incur higher fees if they shop based on the inactivity fee instead of the monthly periodic fee. The Bureau considered whether the risk of potential confusion to a consumer outweighs the benefit of including the inactivity fee on the short form disclosure, but believes that providing consumers with the inactivity fee amount and the relevant duration of dormancy will allow consumers to make an informed choice about which prepaid account product is best for their usage patterns.

    Proposed comment 18(b)(2)(i)(B)(7)-1 would clarify that when a financial institution is disclosing the inactivity fee in the long form disclosure pursuant to proposed Sec. 1005.18(b)(2)(ii)(A), a financial institution should specify whether this inactivity fee is imposed in lieu of or in addition to the periodic fee disclosed pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(1).

    The Bureau seeks comment on all aspects of this part of the proposal. Specifically, the Bureau seeks comment on including the inactivity fee as part of the static portion of the short form disclosure could confuse consumers, and whether it is important to communicate the potential relationship between inactivity fees and monthly periodic fees more clearly on the short form disclosure.

    18(b)(2)(i)(B)(8) Incidence-Based Fee Disclosures

    In addition to the fee types that all financial institutions would have to disclose in the static portion of the short form pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(1) through (7), the Bureau is proposing that financial institutions would also disclose up to three additional ``incidence-based'' fees not already disclosed elsewhere on the short form that are incurred most frequently for that particular prepaid account product. If a financial institution offers several prepaid account products, the incidence-based fees analysis would be conducted separately for each product, based on usage patterns in the prior 12-month period. Thus, the incidence-based fees provided to a consumer on the short form disclosure could vary from one product to the next depending on which fees consumers incurred most frequently for a particular prepaid account product.

    The Bureau is proposing this disclosure because it is concerned that, while the fee types disclosed in the static portion of the short form under the proposed rule should generally include the key fees on most prepaid accounts, that list is not comprehensive and there could be other fees that consumers might incur with some frequency. The Bureau is also concerned that absent this incidence-based disclosure, there is a risk of evasion. For example, a financial institution could restructure its fee schedule for a prepaid account product to make the fees disclosed in the static portion of the

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    short form pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(1) through (7) cheaper, knowing they would not be the fees that consumers would most frequently pay. The Bureau believes that requiring financial institutions to disclose other fees that are frequently paid by consumers will limit the ability of financial institutions to evade disclosing relevant fee information upfront on the short form disclosure. Additionally, the Bureau believes that the incidence-based portion of the short form, though it does mandate a specific metric to determine which additional fees may be listed, would also provide some flexibility to industry participants to disclose three more fee types that might be particular to their prepaid account product and are imposed for features that could be appealing to consumers.

    Accordingly, the Bureau is proposing Sec. 1005.18(b)(2)(i)(B)(8), which would establish a three-part provision to determine which incidence-based fees a financial institution must include on its short form disclosures. First, proposed Sec. 1005.18(b)(2)(i)(B)(8)(I) would require, except as provided in proposed Sec. 1005.18(b)(2)(i)(B)(8)(II) or (III), disclosure of up to three fees, other than any of those disclosed pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(1) through (7), that were incurred most frequently in the prior 12-month period by consumers of that particular prepaid account product.

    Thus, for existing prepaid account products, proposed Sec. 1005.18(b)(2)(i)(B)(8)(I) would require that at the same time each year, a financial institution assess whether the incidence-based fees disclosed pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(8)(I) were the most frequently incurred fees in the prior 12-month period, in accordance with the timing requirements of proposed Sec. 1005.18(h). Proposed Sec. 1005.18(b)(2)(i)(B)(8)(I) would further require that the financial institution would then have to, if necessary and within 90 days, revise the incidence-based fees on disclosures provided in written or electronic form pursuant to proposed Sec. 1005.18(b)(1)(i). Disclosures provided on the packaging material of prepaid account access devices, for example, in retail stores pursuant to proposed Sec. 1005.18(b)(1)(ii), or in other locations, must be revised when the financial institution is printing new packaging material for its prepaid account access devices, in accordance with the timing requirements in proposed Sec. 1005.18(h). Proposed Sec. 1005.18(b)(2)(i)(B)(8)(I) would also require that all disclosures provided pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(8)(I) and created after a financial institution makes an incidence-based fee assessment and determines changes are necessary, would have to include such changes in accordance with the timing requirements in proposed Sec. 1005.18(h). This final requirement in proposed Sec. 1005.18(b)(2)(i)(B)(8)(I) would apply to all disclosures, whether in written or electronic form, or on the packaging material of a prepaid account product sold in a retail store.

    The Bureau believes that it is important for the incidence-based fee disclosure to list a prepaid account product's most commonly incurred fees. The Bureau, however, recognizes that financial institutions would need time to update disclosures upon assessing whether any changes to the incidence-based fee disclosure are needed, although it expects such changes to be infrequent. The Bureau believes such updates will be easier for disclosures provided in electronic form or in written form outside of a retail setting. Thus, the Bureau is proposing that financial institutions would have to make written and electronic updates within 90 days to ensure that consumers receive up-

    to-date incidence-based fee disclosures. The Bureau, however, recognizes that it could be more complicated and time-consuming for financial institutions to make updates to packages used to market prepaid accounts in retail stores, and is therefore proposing that financial institutions would be able to implement updates on packaging material whenever they are printing new stock during normal inventory cycles. The Bureau acknowledges that this proposal could result in some disclosures for the same prepaid account product (i.e., electronic disclosures provided online or printed disclosures provided in person without the use of packaging) having different incidence-based fee disclosures on the short forms provided on retail store packaging material. The Bureau, however, does not believe that this discrepancy will significantly impact a consumer's decision regarding which prepaid account product to acquire since consumers will most likely compare the disclosures for two distinct products, and not consider disclosures for the same prepaid account product found in different acquisition channels.

    The Bureau also recognizes that allowing financial institutions to continue to use packaging with out-of-date incidence-based fee disclosure in retail stores could reduce the effectiveness of this disclosure. The Bureau, however, believes that imposing a cut-off date after which sale or distribution of out-of-date retail packages would be prohibited could be overly burdensome. Nevertheless, the Bureau seeks comment about whether not including such a cut-off date would negatively impact consumers in a significant way.

    Though the Bureau is not proposing specific package update requirements for the incidence-based fee disclosure, the Bureau notes, however, that financial institutions generally must ensure all other fee types and amounts disclosed pre-acquisition, whether on retail packaging, online, or through other means, are accurate at the time such disclosures are provided. The Bureau, therefore, does not believe that a general disclosure update requirement is necessary for non-

    incidence-based fee disclosures provided before a consumer acquires a prepaid account, as a financial institution must continue to honor whatever fee schedule it provides a consumer.

    The Bureau is also proposing to adopt several comments to provide additional guidance on incidence-based fee disclosures. First, proposed comment 18(b)(2)(i)(B)(8)-1 would clarify how many additional fees a financial institution must disclose pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(8)(I) and when disclosure of fewer than three incidence-based fees would be permitted. Specifically, the proposed comment would explain that if a prepaid account product only has one, two or three fees not already disclosed pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(1) through (7), proposed Sec. 1005.18(b)(2)(i)(B)(8) would require disclosure of these fees assuming it was incurred by a consumer at least once during the prior 12-month period. Proposed comment 18(b)(2)(i)(B)(8)-1 would also clarify that, conversely, if a prepaid account has four fees not already disclosed pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(1) through (7), proposed Sec. 1005.18(b)(2)(i)(B)(8)(I) would require disclosure of the three fees most frequently incurred. Finally, the proposed comment would clarify that if the disclosures made pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(1) through (7) capture a prepaid account product's entire fee schedule, a financial institution has no obligation to disclose additional information on the short form pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(8)(I).

    The Bureau also proposes to add comment 18(b)(2)(i)(B)(8)-2, which would clarify how to determine which fees were incurred most frequently in the prior 12-month period. Specifically, the proposed comment would explain

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    that incidence should be considered on a total basis across all consumers using a particular prepaid account product. The proposed comment would further clarify that, for example, if a given consumer incurred one fee type ten times during the prior 12-month period, all ten instances of that individual consumer's paying such a fee would be factored into the total incidence calculation for that fee type. The proposed comment would also clarify that if a financial institution offers more than one prepaid account product, it would have to consider a consumers' fee incidence for each product separately and not consolidate the fee incidence across all of its prepaid account products. Finally, the proposed comment would clarify that the price for purchasing or activating a prepaid account could be an incidence-

    based fee for purposes of proposed Sec. 1005.18(b)(2)(i)(B)(8).

    Proposed comment 18(b)(2)(i)(B)(8)(I)-3 would provide guidance on the relationship between proposed Sec. 1005.18(b)(2)(i)(B)(8)(I) and the proposed effective date regime in proposed Sec. 1005.18(h). Specifically, the proposed comment would explain that Sec. 1005.18(h)(2) further requires a financial institution to make its first incidence-based fee assessment in time to ensure that all prepaid accounts and related packaging material, access devices, and physical other materials, that are offered, sold, or otherwise made available to consumers in connection with a prepaid account include the incidence-

    based disclosure within 12 months. The proposed comment would also clarify that if a financial institution creates new disclosures within nine months of the effective date, those disclosures would need to include the appropriate incidence-based fee disclosure in accordance with proposed Sec. 1005.18(h)(1). Proposed comment 18(b)(2)(i)(B)(8)(I)-4 would explain how to disclose incidence-based fees for those prepaid account products that give consumers the opportunity to choose among multiple service plans with different fee schedules.\267\ Specifically, the proposed comment would explain that when disclosing multiple service plans on a short form disclosure as permitted by proposed Sec. 1005.18(b)(3)(iii)(B) (discussed below), a financial institution must consider the frequency with which fees are incurred from all of those plans as a whole to determine which three additional fees to disclose pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(8)(I). The Bureau recognizes that it is possible the most commonly incurred fees among all of the multiple service plans could also be one of the fees that varies in amount depending on the service plan selected by a consumer. But the Bureau believes it is unlikely because the short form will capture most fees charged by most prepaid account providers, and the multiple service plans, when available, will only have those plans fee schedules vary based on a couple of fee types--typically, the periodic fee and the per purchase fees, both of which are already required to be disclosed for each service plan. Thus, the Bureau believes it is unlikely that one of the remaining fees that could qualify for the incidence-based fee requirement would vary across service plans. The Bureau, however, seeks comment on whether it is actually the case that most prepaid account products offering multiple service plans only vary based on a couple of fee types. If, however, the financial institution is disclosing the fee schedule for only the service plan in which a consumer is enrolled by default upon acquiring the prepaid account, the proposed comment would further clarify that it would consider only the fee incidence for that service plan . The proposed comment would also reference that proposed comment 18(b)(3)(iii)(B)-1 provides guidance on what would constitute multiple service plans. Proposed comment 18(b)(2)(i)(B)(8)(I)-5 would explain that proposed Sec. 1005.18(b)(2)(i)(B)(8)(I) would not require that financial institutions immediately destroy existing inventory in retail stores or elsewhere in the distribution channel, to the extent the disclosures on such packaging materials are otherwise accurate, to comply with proposed Sec. 1005.18(b)(2)(i)(B)(8)(I). The proposed comment would further clarify that for example, if a financial institution determines that an incidence-based fee listed on a short form disclosure in a retail store is no longer one of the most commonly incurred fees and makes the appropriate change when printing new disclosures, any packages in retail stores that contain the previous incidence-based fee disclosure could still be sold and the financial institution would comply with proposed Sec. 1005.18(b)(2)(i)(B)(8)(I).

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    \267\ See section-by-section analysis of Sec. 1005.18(b)(3)(iii)(B) and comment 18(b)(3)(iii)(B)-1 for a more detailed discussion of how the Bureau defines multiple service plans for prepaid account products under the proposed pre-acquisition disclosure regime.

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    18(b)(2)(i)(B)(8)(II). Recognizing that new prepaid products have no prior fee data history, the Bureau is also proposing additional requirements to address such circumstances. Thus, proposed Sec. 1005.18(b)(2)(i)(B)(8)(II) would require that, if a particular prepaid account product was not offered by the financial institution during the prior 12-month period, the financial institution would have to disclose up to three fees other than any of those fees disclosed pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(1) through (7) that it reasonably anticipates will be incurred by consumers most frequently during the next 12-month period. Proposed Sec. 1005.18(b)(2)(i)(B)(8)(II) would also provide that the incidence-based fee disclosures for newly-created prepaid account products would have to be included on all disclosures created for the prepaid account product, whether the disclosure is written, electronic, or on the packaging material of a prepaid account product sold in a retail store, in accordance with the timing requirements in proposed Sec. 1005.18(h). Although financial institutions do not have actual fee data for new prepaid account products, the Bureau believes that they nonetheless would have a reasonable expectation as to which fees will be incurred most frequently. Thus, proposed Sec. 1005.18(b)(2)(i)(B)(8)(II) would require institutions, for those prepaid account products without prior fee data, to estimate in advance the fees that should be disclosed in the incidence-based portion of the short form disclosure.

    The Bureau proposes to add commentary and provide examples explaining how to apply proposed Sec. 1005.18(b)(2)(i)(B)(8)(II) in situations where a financial institution has inadequate data regarding a prepaid account's fee history. Specifically, proposed comment 18(b)(2)(i)(B)(8)(II)-1 would explain that the provider should use available data to reasonably anticipate what fees should be disclosed. The proposed comment would also provide guidance about what is considered a new prepaid account product. Specifically, the proposed comment would clarify that, for example, if a financial institution changes the name of its prepaid account product and develops a new marketing and distribution plan but does not alter the prepaid account's fee schedule, this would be considered a new prepaid account product for purposes of proposed Sec. 1005.18(b)(2)(i)(B)(8)(II); however, insofar as the fee schedule remains unchanged, and the financial institution reasonably anticipates that the fees it previously disclosed pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(8)(I) would remain unchanged, the financial institution should continue to disclose those fees for an additional 12-month period.

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    1005.18(b)(2)(i)(B)(8)(III). The Bureau is also proposing to add additional requirements for when a particular prepaid account product's fee schedule changes. Specifically, proposed Sec. 1005.18(b)(2)(i)(B)(8)(III) would require that if a financial institution changes an existing prepaid account product's fee schedule at any point after assessing its incidence-based fee disclosure pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(8)(I), it would have to determine whether, after making such changes, it reasonably anticipates that the existing incidence-based fee disclosure would represent the most commonly incurred fees for the remainder of the current 12-month period. If the financial institution reasonably anticipates that the current incidence-based fee disclosure would not represent the most commonly incurred fees for the remainder of the current 12-month period, it would have to update the incidence-based fee disclosure within 90 days for disclosures provided in written or electronic form, in accordance with the timing requirements in proposed Sec. 1005.18(h).

    Proposed Sec. 1005.18(b)(2)(i)(B)(8)(III) would also state that disclosures provided on a prepaid account product's packaging material, for example, in retail stores pursuant to proposed Sec. 1005.18(b)(1)(ii), or in other locations, must be revised when the financial institutions is printing new packaging material, in accordance with the timing requirements of proposed Sec. 1005.18(h). Finally, proposed Sec. 1005.18(b)(2)(i)(B)(8)(III) would also state that all disclosures provided pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(8)(III) and created after a financial institution makes an incidence-based fee assessment and determines changes are necessary must include such changes, in accordance with the timing requirements of proposed Sec. 1005.18(h). Proposed comment 18(b)(2)(i)(B)(8)(III)-1 would also provide several examples of demonstrate how different changes to an existing prepaid account product could impact the incidence-based fee disclosure. Specifically, the proposed comment would explain that, for example, if a financial institution changes its card replacement fee from $3.00 to $4.00 in May after already assessing in January whether the incidence-based fees need to be updated for the current 12-month period, this change in the fee schedule would subject the prepaid account product to proposed Sec. 1005.18(b)(2)(i)(B)(8)(III). The proposed comment would further explain that, in this example, the financial institution would assess whether it reasonably anticipates that the existing incidence-based fee disclosure still lists what will be the most commonly incurred fees from May until the following January when the financial institution would conduct its next, annual incidence-based fees assessment.

    The Bureau notes that its proposed model forms do not isolate or identify these incidence-based fees in a way that distinguishes them from the other fees disclosed under proposed Sec. 1005.18(b)(2)(i)(B)(5)-(7) that are not required to be in the top-line. Thus, a consumer comparing two different prepaid account products may see some types of fees that are the same (the seven standardized fees disclosed pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(1)-(7)) and may see some that differ (the three incidence-based fees disclosed pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(8)). During its consumer testing, the Bureau tested language identifying the incidence-based fees as such, but this language was often ignored or misunderstood by participants. Nevertheless, the Bureau recognizes that some variation on the short form fee disclosure could lead to confusion, and thus the Bureau seeks comment on whether the model forms should more clearly indicate to a consumer the meaning of the incidence-based fees.

    The Bureau also recognizes that the proposed procedure for determining and disclosing incidence-based fees could be complicated in some instances, particularly for new prepaid accounts or those with revised fee schedules. Further, the Bureau acknowledges that basing the incidence-based fees determination on fee incidence might not make sense for all prepaid products. Thus, the Bureau seeks comment on all aspects of this incidence-based fees proposal. Specifically, the Bureau solicits feedback on whether other measures, such as fee revenue, would be better measures of the most important remaining fees to disclose to consumers considering a prepaid account. Relatedly, the Bureau seeks comment on whether there should be a de minimis threshold below which changes to the incidence ranking would not require form revisions, and if so, what that threshold should be. Such comments would be most useful if aided by data supporting the suggested threshold. The Bureau also seeks comment on how often financial institutions should be required to update the incidence-based fees disclosures, whether financial institutions should have to all conduct their incidence-based fee assessment at the same time in the 12-month period, and whether the timing requirements for updates to electronic and written disclosures versus those provided on retail packaging should be different. Additionally, under the current proposal, a financial institution would have to consider the cost of purchasing or activating the prepaid account as a fee when determining its incidence-based fee disclosure, but the Bureau is not otherwise mandating its disclosure in the short form disclosure.\268\ The Bureau also seeks comment on whether the cost to purchase the account, as a one-time fee, should be excluded from the incidence-based fee disclosure or whether it should be mandated as part of the static portion of the short form. The Bureau also solicits comment on whether there are alternate approaches for disclosing key fees not captured by the standardized portion of the short form that recognize how products may vary and that would prevent evasion of the short form's requirements.

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    \268\ The Bureau notes, however, that this fee, when applicable, would be listed in the long form disclosure pursuant to proposed Sec. 1005.18(b)(2)(ii)(A).

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    18(b)(2)(i)(B)(9) Overdraft Services and Other Credit Features

    The Bureau is proposing that the short form disclosure would also have to include a statement indicating whether the prepaid account product could offer a credit feature to a consumer. Specifically, proposed Sec. 1005.18(b)(2)(i)(B)(9) would require a statement on the short form that credit-related fees may apply, in a form substantially similar to proposed Model Form A-10(c), if, at any point, a credit plan that would be a credit card account under Regulation Z, 12 CFR part 1026 may be offered in connection with the prepaid account. Proposed Sec. 1005.18(b)(2)(i)(B)(9) would also state that such a credit plan could be accessed by a credit card under Regulation Z, 12 CFR 1026.2(a)(15)(i), that also is an access device that accesses the prepaid account, or the credit plan could be accessed by an account number that is a credit card under Regulation Z, where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor offering the plan. Finally, proposed Sec. 1005.18(b)(2)(i)(B)(9) would state that if neither of these two types of credit plans would be offered in connection with the prepaid account at any point, a financial institution would have to disclose on the short form a statement that no overdraft or credit-

    related fees

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    would be charged, in a form substantially similar to proposed Model Form A-10(d) in Appendix A.

    In the Bureau's consumer testing, many participants expressed a desire to avoid using any financial products that offer overdraft. Further, the 2014 Pew Survey indicates that many consumers turn to prepaid cards specifically to avoid incurring any overdraft charges.\269\ The Bureau therefore believes that if a financial institution may offer a credit feature, then a consumer should be on notice of this possibility before acquiring the prepaid account. The Bureau believes that placing such notice on the short form would allow a consumer to decide whether they want to acquire a product that may offer credit, or whether they would prefer a product that would not offer credit, which, when applicable would also be disclosed in a statement on the short form disclosure. Without such a notice, the Bureau believes that consumers may not have adequate information to decide which prepaid product is best for them. The Bureau recognizes, however, that receiving notice about credit features on the short form disclosure might be confusing to consumers, since the Bureau is proposing to prohibit financial institutions from offering credit features to prepaid account holders until they have held an account for at least thirty days, and not all account holders would qualify for such credit features.\270\ See proposed Sec. Sec. 1005.18(g) and 1026.12(h). The Bureau, however, believes that the importance of alerting all consumers as to whether a prepaid account product could offer credit features outweighs any risk of confusion. The Bureau nevertheless seeks comment on all aspects of this part of the proposal, and, in particular, whether including notice of credit features on the short form disclosure is the proper approach.

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    \269\ 2014 Pew Study, at 1.

    \270\ For a more detailed discussion of the Bureau's approach to credit features offered on prepaid accounts, see the introduction to the TILA discussion.

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    Proposed comment (b)(2)(i)(B)(9)-1 would explain that the statement indicating whether a prepaid account product offers credit plans to a consumer would have to be provided on all short form disclosures, regardless of whether some consumers would be solicited to enroll in such a plan, if such a plan could be offered.

    The Bureau solicits comment on all aspects of the requirement to include a statement on the availability of credit features, including whether such statements should be required to be disclosed on the short form, and what statements would be most helpful for consumers in deciding between products that offer credit features and those that do not.

    18(b)(2)(i)(B)(10) Statement Regarding Other Fees

    In addition to disclosure of specific fee types and a credit feature, the short form would also require, in proposed Sec. 1005.18(b)(2)(i)(B)(10) disclosure of certain information regarding additional fees that a financial institution could impose on a prepaid account that are not captured in the short form. Specifically, proposed Sec. 1005.18(b)(2)(i)(B)(10) would require financial institutions to include on the short form a statement regarding the number of fees other than those listed in the short form pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(1) through (8) that are listed on the long form disclosure pursuant to proposed Sec. 1005.18(b)(2)(ii)(A), in a form substantially similar to the clause set forth in appendix A-10(a) through (d). The Bureau believes that because the short form may only include a subset of a prepaid account's fees, it would be important for consumers to understand when more fees might apply. As noted earlier, many participants in the Bureau's consumer testing reported finding out about fees only after they incur them. The Bureau believes that including a statement on the short form disclosure indicating exactly how many additional fees could apply to encourage consumers to seek out more information about a prepaid account before acquisition.

    The Bureau recognizes, however, that this statement might suggest any other fees that apply are punitive when in fact such fees might be charged for services a consumer could find beneficial, and that might not be offered on competing cards. Nevertheless, the Bureau solicits comment on whether including this type of statement on the short form would be useful to consumers or if, instead, it might interfere with their ability to make an informed choice among prepaid accounts.

    Unlike the incidence-based fees, the Bureau does not believe it is necessary to propose provisions about updating the statement regarding other fees. Pursuant to proposed Sec. 1005.18(f), a financial institution would have to include the long form disclosure in the terms and conditions provided as part of a prepaid account's terms and conditions. Thus, any updates that are made to the fees disclosed in the long form would require an overhaul of all of the disclosures for a given prepaid account product, which the Bureau believes is unlikely to occur. The Bureau also seeks comment, however, on whether guidance around updating this statement is necessary.

    Proposed comment 18(b)(2)(i)(B)(10)-1 would provide examples of how to comply with proposed Sec. 1005.18(b)(2)(i)(B)(10). Specifically, the proposed comment would clarify that if a financial institution charges a fee for issuing a consumer a replacement card, but this fee is not among the top three fees its consumers incurred most frequently during the prior 12-month period and therefore would not be disclosed pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(8), and if this would be the only fee the financial institution would not be required to disclose elsewhere on the short form, then the financial institution would include a statement on the short form disclosure that it may charge one other fee not otherwise listed, in a form substantially similar to the language set forth in the Model Forms in proposed appendix A-10(a) through (d) of this part. The proposed comment would also provide an example that if a financial institution does not charge any fees other than those required to be disclosed pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(1) through (8), the financial institution may, but is not required to, include a statement on the short form disclosure that it does not charge any other fees not listed on the short form disclosure.

    Proposed comment 18(b)(2)(i)(B)(10)-2 would provide guidance about how to count the total number of fees to disclose pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(10). Specifically, the proposed comment would clarify that if the fee a financial institution imposes might vary, even if the variation is based on a consumer's choice of how to utilize a particular service, the financial institution must count each variation of the fee that might be imposed as a separate fee. The proposed comment would further explain that for example, if a financial institution imposes one fee to issue a replacement card to the consumer using standard mail service, but charges a different (and perhaps higher) fee if the consumer requests expedited delivery of the replacement card, and neither of these fees are incurred frequently enough to be disclosed as an incidence-based fee pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(8), then the financial institution would still count each of these fees separately when determining the total number of fees to disclose pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(10). Even if a fee

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    could be waived under certain conditions, the proposed comment clarifies that it would still be counted to comply with proposed Sec. 1005.18(b)(2)(i)(B)(10).

    Nevertheless the Bureau seeks comment on whether this guidance is sufficient to enable compliance with Sec. 1005.18(b)(2)(i)(B)(10). The Bureau also solicits comment on whether its proposed approach to addressing fee amount variations when counting the number of other fees could actually be misleading to the consumer.

    18(b)(2)(i)(B)(11) Telephone Number and Web site

    Proposed Sec. 1005.18(b)(2)(i)(B)(11) would require disclosure, in a form substantially similar to the language set forth in the Model Forms in proposed appendix A-10(c) and (d), of a telephone number and the unique URL of a Web site that a consumer may enter to access the long form disclosure required under proposed Sec. 1005.18(b)(2)(ii). Proposed Sec. 1005.18(b)(2)(i)(B)(11) would also state that this disclosure would be required only when a financial institution chooses not to provide a written form of the disclosures required by proposed Sec. 1005.18(b)(2)(ii) before a consumer acquires a prepaid account at a retail store as described in proposed Sec. 1005.18(b)(1)(ii). The Bureau believes that using either of these methods, a consumer should be able to access information about the fees listed in the long form disclosure, and any conditions on the applicability of those fees, as described in the section-by-section analysis of proposed Sec. 1005.18(b)(2)(ii)(A). As discussed above, the Bureau believes that if a consumer is not receiving the long form disclosure before acquisition in a retail store, it is important that they are still able to access the information. The Bureau also believes it is important that the URL of the Web site be unique to ensure that a consumer can directly access the same type of stand-alone long form that could be required to be provided pursuant to proposed Sec. 1005.18(b)(1)(i) in written or electronic form before a consumer acquires a prepaid account.

    Proposed comment 18(b)(2)(i)(B)(11)-1 would provide further details about the telephone number that would have to be included on the short form when a financial institution does not provide the long form disclosure before a consumer acquires a prepaid account. Specifically, proposed comment 18(b)(2)(i)(B)(11)-1 would state that a financial institution must make the long form disclosure described in proposed Sec. 1005.18(b)(2)(ii) accessible to a consumer orally via a telephone number disclosed pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(11) when a financial institution chooses not to provide a written form of these disclosures before a consumer acquires a prepaid account, as described in proposed Sec. 1005.18(b)(2)(i)(B)(11). The proposed comment would further clarify that for example, a financial institution could use a customer service agent or an interactive voice response system, to provide this disclosure. Proposed comment 18(b)(2)(i)(B)(11)-1 would also explain that a consumer must not incur a fee to call this telephone number before acquiring a prepaid account. The proposed comment would further clarify that the telephone number disclosed pursuant to Sec. 1005.18(b)(2)(i)(B)(11) could be the same as the customer service number for which a financial institution impose a fee on a consumer to use for other purposes, but a consumer could not incur any customer service or other transaction fees when calling this number to access the information set forth in proposed Sec. 1005.18(b)(2)(ii) before acquiring a prepaid account in retail store.

    The Bureau considered requiring that this number be toll-free, but ultimately decided that having a toll-free number is less important to consumers, most of whom use mobile phones and do not incur additional fees for making long distance calls, and such a requirement could impose a burden on smaller prepaid account providers because they would perhaps have to maintain a separate toll-free line just for their prepaid account products. The Bureau notes that some card networks may require financial institutions to maintain toll-free lines, and therefore numbers disclosed in such cases will likely be toll-free.

    Proposed comment 18(b)(2)(i)(B)(11)-2 would clarify that Sec. 1005.18(b)(2)(i)(B)(11) requires disclosure of a unique URL that must take consumers to the Web page where disclosures described in Sec. 1005.18(b)(2)(ii) may be viewed when a financial institution chooses not to provide a written form of those disclosures before a consumer acquires a prepaid account, as described in proposed Sec. 1005.18(b)(1)(ii). The proposed comment would further clarify that an entered URL that requires a consumer to navigate various other Web pages before viewing the long form disclosure would not comply with proposed Sec. 1005.18(b)(2)(i)(B)(11). The Bureau believes that consumers make acquisition decisions in retail stores relatively quickly--often while standing--and should not have to navigate different links to access the Web page that contains the long form disclosure. The Bureau has also considered requiring financial institutions to use shortened URLs on the short form disclosure provided in retail stores to decrease the amount of time required to access the long form disclosure. The Bureau seeks comment on whether such a requirement regarding the URL is necessary.

    The Bureau also considered whether to propose to require financial institutions to disclose an SMS short code, which might be easier to type than a URL, that consumers could text to receive the URL that links directly to the long form disclosure.\271\ The Bureau, however, decided against including this method for several reasons. First, sending a text message using an SMS short code would still require that consumers have a mobile phone that is capable of sending text messages and that a consumer receives adequate internet reception when in a retail store. Thus, the Bureau does not believe that an SMS short code would broaden the spectrum of consumers who could access the long form disclosure when in a retail store, and it could impose an additional cost on consumers who incur fees from their mobile carriers for receiving text messages. Further, the Bureau did not believe that an SMS short code would save a consumer who wants to access the long form disclosure an appreciable amount of time. The Bureau also believed that there could be security concerns involved with offering disclosures via SMS. The Bureau has also considered, but is not requiring, that a quick response (QR) code be included in the short form. Some Prepaid ANPR commenters suggested QR codes as another method for accessing information. Although potentially useful, a QR code would require a substantial amount of space on the small short form and, the Bureau believes, QR code adoption remains low.

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    \271\ An SMS short code is a group of numbers one can send as a text message using a mobile phone and receive a text message in response.

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    The Bureau seeks comment on its proposal to disclose a telephone number and the unique URL of a Web site on the short form disclosure when the long form disclosure is not provided pre-acquisition in retail stores, and whether there are other methods the Bureau should consider disclosing on the short form. The Bureau also seeks comment on whether providing a SMS code or QR code on the short form would increase

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    the number of consumers who would be willing or able to access the long form disclosure pre-acquisition in a retail store.

    18(b)(2)(i)(B)(12) Statement Regarding Registration

    The Bureau is also proposing that a statement regarding the importance of registering the prepaid account with the financial institution be included on the short form disclosure. Specifically, proposed Sec. 1005.18(b)(2)(i)(B)(12) would require a statement that communicates to a consumer that a prepaid account must be registered with a financial institution or service provider in order for the funds loaded onto the account to be protected, in a form substantially similar to the clause included on proposed Model Forms A-10(a) through (d).

    As discussed in the section-by-section analysis of proposed Sec. 1005.18(e)(3), registration typically means that a consumer provides identifying information such as name, address, date of birth, and Social Security Number or other government-issued identification number so that the financial institution can identify the cardholder and verify the cardholder's identity. The Bureau is proposing to add this statement because many consumer protections set forth in this proposal would not take effect until a consumer registers an account. For example, under proposed Sec. 1005.18(e)(3), a consumer would not be entitled to error resolution rights or protection from unauthorized transactions until after registering the prepaid account. The Bureau believes that this is an important protection insofar as unregistered prepaid accounts are like cash--once lost, funds may be difficult or impossible to protect or replace because the financial institution may not know who is the rightful cardholder.

    The Bureau, however, recognizes that in some acquisition scenarios, for example, government benefit accounts, payroll card accounts, or cards used to disburse financial aid to students, this type of statement might be less useful because consumers must register with the government agency, employer, or institution of higher education, in order to acquire the account. The Bureau therefore solicits comment on whether the short form disclosure provided to consumers pre-acquisition should always include this statement.

    18(b)(2)(i)(B)(13) Statement Regarding FDIC (or NCUSIF) Insurance

    The Bureau is proposing to address pass-through deposit (and share) insurance in proposed Sec. 1005.18(b)(2)(i)(B)(13). As discussed above, the FDIC, among other things, protects funds placed by depositors in insured banks and savings associations; the NCUA provides a similar role for funds places in credit unions. As explained in the FDIC's 2008 General Counsel Opinion No. 8, the FDIC's deposit insurance coverage will ``pass through'' the custodian to the actual underlying owners of the deposits in the event of failure of an insured institution, provided certain specific criteria are met.\272\

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    \272\ 73 FR 67155, 67157 (Nov. 13, 2008).

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    In response to the Prepaid ANPR, many consumer advocacy group commenters suggested that the Bureau require that pass-through deposit (or share) insurance cover all funds loaded into prepaid accounts, while many industry group commenters suggested that the Bureau propose clear disclosure of whether a prepaid product carries FDIC insurance or not.

    The Bureau believes it is not always easy to determine or explain whether FDIC or NCUSIF pass-through deposit or share insurance would apply to a particular prepaid account. Thus, as is discussed below, the Bureau is proposing disclosure be made regarding FDIC or NCUSIF insurance in only limited situations. In the Bureau's Study of Prepaid Account Agreements, the Bureau found that 65.85 percent of all account agreements reviewed stated that cardholder funds were protected by FDIC deposit (or NCUSIF share) insurance (this includes agreements that explained insurance coverage depends on card registration and/or that it only applies to funds held by a bank or credit union in a pooled account associated with the program). Of the remaining agreements, 17.23 percent implied that the program was FDIC or NCUSIF insured by stating that the issuer is an FDIC or NCUSIF-insured institution, but that did not address FDIC or NCUSIF insurance coverage for the program. A small number of agreements, 6.15 percent of those reviewed, did not address FDIC or NCUSIF insurance coverage for the program. For the latter two categories of programs, it is possible that such programs are in fact set up to be eligible for pass-through deposit (or share) insurance, but it was not possible to tell from reviewing the program's account agreement. Finally, 10.77 percent of agreements explicitly stated that the program was not insured.\273\

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    \273\ See Study of Prepaid Account Agreements, at 27-28 and tbl. 13. In addition, the Bureau has observed that some GPR card providers disclose the existence of pass-through deposit insurance coverage or that the issuing bank is an FDIC-insured institution on their retail packaging, often quite prominently. The Bureau's Study of Prepaid Account Agreements, however, did not examine pass-through insurance statements made on GPR cards' retail packaging. Likewise, the Study did not examine pass-through insurance statements made on prepaid programs' other marketing materials or on their Web sites. See id.

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    In its consumer testing, the Bureau observed that some participants misunderstood the scope of the protections FDIC pass-through deposit insurance actually provides for prepaid accounts. During the consumer focus groups, for example, participants were asked if they had heard of FDIC deposit insurance and how it related to their GPR cards. Nearly all participants said they had heard of FDIC deposit insurance, and many consumers believed the funds on their GPR cards were FDIC-

    insured.\274\ When consumers were asked to explain what it meant that their GPR card had FDIC deposit insurance, most made vague references to their funds being ``protected.'' Upon further probing, however, the majority of participants incorrectly thought FDIC deposit insurance would protect their funds in the event of fraudulent charges or a stolen card.\275\ A few believed a problem of that nature would be resolved faster if the prepaid card had FDIC deposit insurance than if it did not. Some participants stated that FDIC insured money in banks; they reasoned that because their card was most likely connected to a bank, the money on their cards was therefore protected from fraud by the FDIC, although others disagreed. Very few participants understood FDIC insurance correctly in that it applies to the insolvency of the bank that holds the underlying funds and not to the funds on a prepaid card itself in the case of an unauthorized transaction on the account.

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    \274\ See ICF Report, at 10.

    \275\ The Bureau notes, however, that despite believing that FDIC insurance could ``protect'' funds held in a prepaid account, no testing participants mentioned FDIC insurance when asked to interpret the statement ``Register your card to protect your money,'' which would be disclosed pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(12). See ICF Report, at 5.

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    In light of the results of the Bureau's Study of Prepaid Account Agreements indicating that many products meeting the proposed definition of prepaid account already provide pass-through deposit insurance coverage and consumers' misunderstandings about what protections pass-through deposit insurance actually affords, the Bureau has decided not to propose any requirements related to the affirmative existence of pass-through deposit insurance. The Bureau is proposing, however, that financial institutions would have to disclose a statement on the short form if a prepaid account is

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    not set up to be eligible for FDIC (or NCUSIF) pass-through deposit (or share) insurance. Specifically, proposed Sec. 1005.18(b)(2)(i)(B)(13) would require that if a prepaid account product is not set up to be eligible for FDIC deposit or NCUSIF share insurance, a financial institution would have to include a statement on the short form disclosure that FDIC deposit insurance or NCUSIF share insurance, as appropriate, does not protect funds loaded into the prepaid account, in a form substantially similar to the clause set forth in Model Forms A-

    10(c) and (d).

    The Bureau seeks comment on all aspects of this part of the proposal. Specifically, the Bureau solicits comment on whether the existence--or lack thereof--of pass-through deposit (or share) insurance should be disclosed on retail packaging, online disclosures, or in any other medium, as many consumer advocacy group comments to the Prepaid ANPR suggested. The Bureau has also observed that financial institutions currently use varied language to describe FDIC (or NCUSIF) insurance. The Bureau therefore solicits comment on whether specific language should be used to describe pass-through deposit (or share) insurance, and if so, what that language should be. The Bureau also solicits comment on whether there is a simple way that this, and other conditions on the applicability FDIC pass-through insurance described above, can be disclosed, particularly in retail stores given the limited space available on card packaging material. Finally, the Bureau solicits comment on whether non-banks that issue prepaid accounts could apply the proposed statement regarding FDIC or NCUSIF insurance to their products, or whether the Bureau should propose an alternative requirement regarding the disclosure of the availability of FDIC or NCUSIF insurance for non-banks that issue prepaid accounts.

    18(b)(2)(i)(B)(14) CFPB Web Site

    Proposed Sec. 1005.18(b)(2)(i)(B)(14) would require disclosure of the URL of the Web site of the Consumer Financial Protection Bureau in a form that is substantially similar to the clauses set forth in appendix A-10(a) of this part. The Bureau intends to develop resources on its Web site that would, among other things, provide basic information to consumers about prepaid accounts, the benefits and risks of using them, how to use the proposed disclosures, and a URL to the Bureau's complaint portal for prepaid products.

    18(b)(2)(i)(C) Disclosing Variable Fees

    Proposed Sec. 1005.18(b)(2)(i)(C) would set forth how, within the confines of the proposed short form disclosure, financial institutions could disclose fees that may vary. As noted above, in many instances, prepaid accounts may have certain fees that vary depending on how a consumer uses the account. For example, monthly periodic fees are, for some prepaid account products, waived when a consumer receives direct deposit or when the monthly balance exceeds a certain amount. In some instances, these conditional situations could become complicated and difficult to explain on a short form disclosure, particularly for multiple fees. The Bureau believes that allowing multiple, complex disclaimers on a single form would be complicated and make comprehension and comparisons more difficult.

    Thus, the Bureau is proposing Sec. 1005.18(b)(2)(i)(C), which would provide that if the amount of the fee that a financial institution imposes for each of the fee types disclosed pursuant to proposed Sec. 1005.18(b)(2)(i)(B) could vary, a financial institution would have to disclose the highest fee it could impose on a consumer for utilizing the service associated with the fee, along with a symbol, such as an asterisk, to indicate that a lower fee might apply, and include text explaining that the fee could be lower, in a form substantially similar to the clause set forth in the Model Forms A-

    10(a) through (d) in appendix A. Proposed Sec. 1005.18(b)(2)(i)(C) would also state that a financial institution would have to use the same symbol and text for all fees that could be lower, but could use any other part of the prepaid account product's packaging material or Web site to provide more detail about how a specific fee type may be lower. Proposed Sec. 1005.18(b)(2)(i)(C) would further state that a financial institution must not disclose any third party fees imposed in connection with any of the fees disclosed pursuant to Sec. 1005.18(b)(2)(i)(B)(1) through (8). To the extent third party fees apply or fees could be lower, the Bureau is not proposing to allow that information to be conveyed on the short form beyond allowing the financial institution to use a symbol to indicate when this is the case.

    Proposed comment 18(b)(2)(i)(C)-1 would provide examples of how to disclose variable fees on the short form in compliance with proposed Sec. 1005.18(b)(2)(i)(C). Specifically, the proposed comment would explain that, for example, if a financial institution charges a monthly fee of $4.95, but the financial institution waives this fee if a consumer receives direct deposit payments into the prepaid account, the financial institution would list a monthly fee of $4.95 on the short form disclosure with an asterisk (or other symbol) next to the dollar amount that refers to a statement that explains the fee may be lower. The proposed comment would also clarify that another example might be if a financial institution charges a cash reload fee of $3.95 at reload networks that are not agents of the financial institution but would waive this fee if a consumer loads money at a point-of-sale terminal operated by a retailer that is an agent of the financial institution. In this example, the financial institution would disclose a cash reload fee of $3.95 on the short form disclosure pursuant to proposed Sec. 1005.18(b)(2)(i)(C) with an asterisk (or other symbol) next to the dollar amount that refers to the same statement that the fee may be lower. The proposed comment would further clarify that proposed Sec. 1005.18(b)(2)(i)(C) does not permit a financial institution explain the conditions under which a fee may be lower, but a financial institution could use any other part of the prepaid account product's packaging material or may use its Web site to disclose that information, and that information would also be required to be disclosed pursuant to proposed Sec. 1005.18(b)(2)(ii)(A). Proposed comment 18(b)(2)(i)(C)-2 would explain that third parties could include service providers and other entities, regardless of whether the entity is an agent of the financial institution. The Bureau believes that regardless of whether a third party has a relationship with the financial institution, no additional fees should be disclosed on the short form.

    The Bureau recognizes that its proposed approach to the disclosure of variable fees on the short form could potentially obscure some complexity in a prepaid account's fee structure. The Bureau, however, proposes to require that this information be disclosed on the long form (see proposed Sec. 1005.18(b)(2)(ii)(A)) and to permit its disclosure outside the confines of the short form to mitigate any risk of confusion. See comment 18(b)(2)(i)(C)-1. Thus, the Bureau believes that its proposed short form disclosure--and the requirement to disclose the highest fee with an indication that the fee may be lower in certain circumstances--would allow consumers to know the maximum they will pay for that fee type while indicating to consumers when

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    they could qualify for a lower fee. The Bureau, however, recognizes the compromises it has made, and it seeks comment on whether there are other ways that variability should be addressed. The Bureau also solicits feedback on whether it should mandate or permit the disclosure of third party fees on the short form. Also, the Bureau seeks comment on whether financial institutions should be allowed to use more than one type of symbol to explain variability of fees listed in the short form. Additionally, the Bureau also seeks comment on whether a de minimis exception should be allowed that would permit financial institutions to disclose a different fee if it is close in value to the highest fee.

    18(b)(2)(ii) Long Form Content Requirements

    In addition to the short form, the proposed rule would require financial institutions to provide a long form disclosure pre-

    acquisition. Pursuant to proposed Sec. 1005.18(b)(3)(iii)(A), in most cases, the contents of the long form disclosure discussed below would have to be in a form substantially similar to proposed Sample Form A-

    10(e).

    18(b)(2)(ii)(A) Fees

    Proposed Sec. 1005.18(b)(2)(ii)(A) would require the disclosure in the long form of all fees that may be imposed by the financial institution in connection with a prepaid account. For each fee type, the financial institution would have to disclose the amount of the fee, the conditions, if any, under which the fee may be imposed, waived, or reduced, including, to the extent known, any third party fee amounts that may apply. Proposed Sec. 1005.18(b)(2)(ii)(A) would also require that if such third party fees may apply but the amount of those fees are not known, a financial institution would have to instead include a statement indicating that third party fees may apply without specifying the fee amount, and that a fee imposed by a third party who acts as an agent of the financial institution for purposes of the prepaid account would always be disclosed.

    As noted above, this part of the proposal is authorized under EFTA sections 904(a) and (c), 905(a), and Dodd-Frank Act sections 1032(a). The Bureau believes that pre-acquisition disclosures of all fees for prepaid accounts will, consistent with EFTA section 902 and Dodd-Frank section 1032(a), assist consumers' understanding of the terms and conditions of their prepaid accounts, and ensure that the features of the prepaid accounts are fully, accurately, and effectively disclosed to consumers in a manner that permits consumers to understand the costs, benefits, and risks associated with the account. The Bureau believes that this disclosure would, in many ways, be similar to what many financial institutions disclose today regarding prepaid accounts' fee structures in the terms and condition documents, but the content of the long form in proposed Sec. 1005.18(b)(2)(ii)(A) would be provided to a consumer as a stand-alone document before a consumer acquires a prepaid account.\276\

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    \276\ Pursuant to existing Sec. 1005.7(b)(5), as modified by proposed Sec. 1005.18(f), a version of the long form must also be provided in the terms and conditions for prepaid accounts at the time the consumer contracts for an electronic funds transfer or before the first electronic funds transfer is made involving the consumer's account. See section-by-section analysis of proposed Sec. 1005.18(f).

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    Proposed Sec. 1005.18(b)(2)(ii)(A) would also state that a financial institution could not utilize any symbols, such as asterisks, to explain the conditions under which any fee may be imposed. The Bureau believes it is important that consumers can easily follow the information in the long form, and that, when financial institutions do not face space constraints like on the short form, text should be used to explain any information about fees, instead of relying on a consumer first to notice symbols and then associate them with text in a footnote, for example. See proposed comment 18(b)(2)(ii)(A)-2.

    The Bureau also proposes to add commentary to explain the format of the long form disclosure. Specifically, proposed comment 18(b)(2)(ii)(A)-1 would explain that for example, if a financial institution charges a cash reload fee, the financial institution must list the amount of the cash reload fee and also specify any circumstances under which a consumer could qualify for a lower fee. The proposed comment would further explain that relevant conditions to disclose in the long form disclosure could also include, for example, if there is a limit on the amount of cash a consumer may load into the prepaid account in a transaction or during a particular time period. Proposed comment 18(b)(2)(ii)(A)-2, would explain that a financial institution may, at its option, choose to disclose pursuant to proposed Sec. 1005.18(b)(2)(ii)(A), any service or feature it provides or offers even if it does not charge a fee for that service or feature.

    The proposed comment would clarify that, for example, a financial institution may choose to list ``online bill pay service'' and indicate that the fee is ``$0'' or ``free'' when the financial institution does not charge consumers a fee for that service or feature. Proposed comment 18(b)(2)(ii)(A)-2 would further clarify that by contrast, where a service or feature is available without a fee for an introductory period, but where a fee may be imposed at the conclusion of the introductory period for that service or feature, the financial institution could not indicate that the fee is ``$0.'' The proposed comment would clarify that the financial institution would instead have to list the main fee and explain in the separate explanatory column how the fee could be lower during the introductory period, what that alternative fee would be, and when it will be imposed. The proposed comment would provide further guidance that similarly, if a consumer would have to enroll in an additional service to avoid incurring a fee for another service, neither of those services would disclose a charge of, ``$0,'' but, instead, would list each fee amount imposed if the consumer does not enroll. The proposed comment would also provide an example that if the monthly fee is waived once a consumer receives direct deposit payments into the prepaid account, the monthly fee imposed upon a consumer if they do not receive direct deposit would be disclosed in the long form, and an explanation regarding how receiving direct deposit might lower the fee would have to be included in the explanatory column in the long form. A financial institution's ability to disclose any fees of its choosing in the long form disclosure (as long as the fee amounts disclosed are accurate) is different from the disclosures required on the short form (see proposed Sec. 1005.18(b)(2)(i)(B)(1) through (7) and proposed comment 18(b)(2)(i)-1), which must always be included, even when inapplicable to a particular prepaid account product, and a financial institution cannot choose to disclose more fee information than what is required.

    Proposed comment 18(b)(2)(ii)(A)-3 would provide guidance on the disclosure of third party fees in the long form disclosure. Specifically, the proposed comment would explain that proposed Sec. 1005.18(b)(2)(ii)(A) generally requires the disclosure, to the extent known, of any third party fee amounts that may apply. Proposed comment 18(b)(2)(ii)(A)-3 would further explain that, for example, a financial institution that offers balance updates to a consumer via text message would disclose that mobile phone carrier data charges could apply for each text message a consumer receives. The

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    proposed comment would also clarify that proposed Sec. 1005.18(b)(2)(ii)(A) requires that a financial institution must always disclose in the long form any fees imposed by a third party who is acting as an agent of the financial institution for purposes of the prepaid account product. The proposed comment would also provide an example that any fees that the provider of a cash reload service who has a relationship with the financial institution may impose would be disclosed in the long form.

    18(b)(2)(ii)(B) Overdraft Services and Other Credit Features

    Proposed Sec. 1005.18(b)(2)(ii)(B) would require the financial institution to include in the long form the disclosures described in Sec. 1026.60(a), (b) and (c) of Regulation Z (12 CFR part 1026) if at any point, a credit plan that would be a credit card account under Regulation Z, 12 CFR part 1026 may be offered in connection with the prepaid account. Proposed Sec. 1005.18(b)(2)(ii)(B) would further state that such a credit plan could be accessed by a credit card under Regulation Z, 12 CFR 1026.2(a)(15)(i), that also is an access device that accesses the prepaid account, or a credit plan could be accessed by an account number that is a credit card under Regulation Z where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor offering the plan.

    The Bureau recognizes that Regulation Z does not require these disclosures to be provided until a consumer is actually solicited for the credit plan. The Bureau, however, believes it is important for consumers who are considering whether to acquire a prepaid account to know not only if a credit plan could be offered at any point, as required to be disclosed pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(9), but also what the possible cost of such a plan might be. Because of the space constraints on the short form, as discussed above, the Bureau believes it is appropriate for a consumer to receive as part of the long form disclosure more complete information about any credit plan that could be offered to them, even if they would not be solicited for such a plan until at least thirty days after registering a particular prepaid account. See proposed Sec. 1005.18(g) and 1026.12(h).

    Proposed comment 18(b)(2)(ii)(B)-1 would clarify that the disclosures described in Sec. 1026.60(a), (b) and (c) of Regulation Z (12 CFR part 1026) would have to appear in the form required under 12 CFR 1026.60(a), (b) and (c), and, to the extent possible, on the same printed page or Web page as the rest of the information required to be listed pursuant to proposed Sec. 1005.18(b)(2)(ii). The Bureau recognizes that depending on the number of fees included in the long form disclosure, it might not be possible to include both disclosures on the same printed page. The Bureau believes, however, that to the extent it would be possible to include these disclosures on the same printed page or Web page, doing so would make it easier for the consumer to review the disclosures.

    18(b)(2)(ii)(C) Telephone Number, Web Site and Mailing Address

    Proposed Sec. 1005.18(b)(2)(ii)(C) would require disclosure of the name, telephone number, Web site, and mailing address of the person or office that a consumer could contact to learn about the terms and conditions of the prepaid account, to obtain prepaid account balance information, to request a written copy of transaction history pursuant to proposed Sec. 1005.18(c)(1)(iii) if the financial institution does not provide a periodic statement pursuant to existing Sec. 1005.9(b) or to notify the person or office when a consumer believes that an unauthorized electronic fund transfer has occurred as required by existing Sec. 1005.7(b)(2) or proposed Sec. 1005.18(d)(1)(ii).

    18(b)(2)(ii)(D) Statement Regarding FDIC (or NCUSIF) Insurance

    Proposed Sec. 1005.18(b)(2)(ii)(D) would require that the long form also include the disclosure required under proposed Sec. 1005.18(b)(2)(i)(B)(13) regarding FDIC (or NCUSIF), pass-through deposit (or share) insurance, when appropriate. This statement would be the same as the statement included on the short form pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(13). For more details, see section-

    by-section analysis of proposed Sec. 1005.18(b)(2)(i)(B)(13).

    18(b)(2)(ii)(E) CFPB Web Site and Telephone Number

    Proposed Sec. 1005.18(b)(2)(ii)(D) would require disclosure of the URL of the Web site of the Consumer Financial Protection Bureau, and a telephone number a consumer could contact and the URL a consumer could visit to submit a complaint related to a prepaid account. As discussed in the section-by-section analysis of proposed Sec. 1005.18(b)(2)(i)(B)(14), the Bureau intends to develop resources on its Web site that would, among other things, provide basic information to consumers about prepaid accounts, the benefits and risks of using them, and how to use the proposed disclosures. The Bureau also believes that consumers would benefit from seeing the Consumer Financial Protection Bureau's Web site and telephone number that they can use to submit a complaint about a prepaid account.

    The Bureau seeks comment on all aspects of the proposed contents of the long form disclosure. In particular, the Bureau seeks comment on whether it should propose more specific content requirements for the long form disclosure, or whether some of the information the Bureau proposes to include on the long form is unnecessary.

    18(b)(3) Form of Pre-Acquisition Disclosures

    Proposed Sec. 1005.18(b)(3) would set forth the requirements for how the short form and long form disclosures must be presented. Specifically, proposed Sec. 1005.18(b)(3)(i) sets forth general requirements for written, electronic, and oral disclosures. Proposed Sec. 1005.18(b)(3)(ii) would provide requirements regarding whether these disclosures would have to be in a retainable form. Proposed Sec. 1005.18(b)(3)(iii) would set forth parameters for the tabular form in which the disclosures would have to be presented, including specific requirements for short forms presenting multiple service plans.

    18(b)(3)(i) General

    Except when such disclosures are provided electronically or orally, as described in proposed Sec. 1005.18(b)(3)(iii)(B) and (C), proposed Sec. 1005.18(b)(3)(i)(A) would provide that short form and long form disclosures required by proposed Sec. 1005.18(b)(2)(i) and (ii) generally must be disclosed in writing. The Bureau believes that consumers can best review the terms of a prepaid account before acquisition when seeing these disclosures in written form. As is discussed above, however, the Bureau recognizes that in certain situations it is not practicable to provide written disclosures. For example, when a consumer acquires a prepaid account on the internet, the Bureau believes that a financial institution cannot easily provide written (non-electronic) disclosures to a consumer pre-acquisition.

    Currently, Regulation E permits disclosures to be provided in electronic form, subject to compliance with consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C 7001, et seq.). Sec. 1005.4(a)(1). The E-Sign Act generally allows the use of electronic records to

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    satisfy any statute, regulation, or rule of law requiring that such information be provided in writing, if a consumer has affirmatively consented to such use and has not withdrawn such consent, and if certain format of delivery requirements are met. Before receiving such consent, the E-Sign Act requires that financial institutions make clear to a consumer that they have the option of receiving records in paper form, to specify whether a consumer's consent applies to a specific transaction or throughout the duration of their relationship with the financial institution, and to inform a consumer of how he or she might withdraw consent and update information needed to contact them electronically, among other requirements. The E-Sign Act also requires financial institutions to retain record of any disclosures that have been provided to a consumer electronically so that a consumer can access them later.

    When the Bureau issued regulations on remittance transfers, the Bureau altered Regulation E's general requirement for remittance that provides electronic disclosures are permissible as long as they comply with the E-Sign Act. The Bureau mandated that certain disclosures could be provided electronically, in retainable form, without having to comply with the E-Sign Act if the sender electronically requests the remittance transfer provider to send the remittance transfer. See Sec. 1005.31(a)(2).

    The Bureau is proposing to modify the general Regulation E electronic disclosure requirement for prepaid accounts in proposed Sec. 1005.18(b)(3)(i)(B), which would require that a financial institution would have to provide the short form and long form disclosure required by proposed Sec. 1005.18(b)(2)(i) and (ii) in electronic form when a consumer acquires a prepaid account through the Internet, including via a mobile application. Proposed Sec. 1005.18(b)(3)(i)(B) would also state that disclosures required by proposed Sec. 1005.18(b)(2)(i) and (ii) would have to be provided electronically in a manner which is reasonably expected to be accessible in light of how a consumer is acquiring the prepaid account. In addition, proposed Sec. 1005.18(b)(3)(i)(B) would provide that the electronic disclosures required by Sec. 1005.18(b)(2)(i) and (ii) would not need to meet the consumer consent and other applicable provisions of the E-Sign Act.

    As in the remittances pre-purchase disclosure context, the Bureau believes altering the general Regulation E requirement for prepaid accounts is necessary to ensure consumers that receive relevant disclosure information at the appropriate time. The Bureau believes that during the pre-acquisition time period for prepaid accounts it is important for consumers who decide to go online to acquire a prepaid account to see the relevant disclosures for that prepaid account product in electronic form. The Bureau believes that consumers will often decide whether to acquire a particular prepaid account after doing significant research online, and that if they are not able to see disclosures on the products' Web sites, they cannot make an informed acquisition decision. As discussed above, Regulation E's current general E-Sign provision allows financial institutions to provide disclosures electronically at their discretion; \277\ however, the Bureau believes that, for Internet acquisitions of prepaid products, a mandate of electronic disclosures on Web sites is more appropriate.

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    \277\ See Sec. 1005.4(a)(1).

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    The general Regulation E E-Sign provision also requires that financial institutions comply with E-Sign consent provisions when providing disclosures electronically. The Bureau is not proposing to require such compliance for prepaid accounts that are acquired through the Internet. Instead, the Bureau is proposing Sec. 1005.18(b)(3)(i)(B), which would state that electronic disclosures of the short form and long forms for prepaid accounts acquired through the Internet would only have to be provided electronically in a manner which is reasonably expected to be accessible in light of how a consumer acquired the prepaid account. For example, if a consumer has acquired a prepaid account through a Web site, it is reasonable to expect that a consumer would be able to view electronic disclosures on a Web site and no E-Sign consent would be necessary. The Bureau notes, however, that this alternative E-Sign requirement applies only to the pre-acquisition disclosure of the short form and long form disclosures for prepaid accounts acquired over the Internet and does not alter the application of the general E-Sign provision in Regulation E to prepaid account after acquisition, or for any other type of account.

    The Bureau also proposes to add comment 18(b)(3)(i)(B)-1 which would explain how to disclose the short and long forms electronically. Specifically, the proposed comment would explain that a financial institution may, at its option, provide the short and long form disclosures on the same Web page or two different Web pages as long as the disclosures are provided in accordance with the pre-acquisition disclosure requirements in proposed Sec. 1005.18(b)(1)(i). The Bureau recognizes, as several consumer advocacy group commenters to the Prepaid ANPR stated, that disclosures provided electronically on Web sites may be difficult for consumers to find because they are sometimes buried several pages deep or require some form of registration or logging on to access. To mitigate the risk of consumers having trouble locating electronic disclosures on a Web site, the Bureau generally believes that disclosures provided on a Web site should be easy to locate, whether they are provided on the same Web page, or on two separate pages. See proposed comment 18(b)(1)-2.

    Proposed comment 18(b)(3)(i)(B)-2 would provide guidance around the lack of an E-sign requirement for prepaid account pre-acquisition disclosures. Specifically, the proposed comment would clarify that if, for example, a consumer is acquiring a prepaid account using a financial institution's Web site, it would be reasonable to expect that a consumer would be able to access pre-acquisition disclosures provided on a similar Web site.

    Proposed Sec. 1005.18(b)(3)(i)(B) would also require that disclosures provided to a consumer through a Web site as described in proposed Sec. 1005.18 (b)(2)(i)(B)(11) would have to be made in an electronic form using machine-readable text that is accessible via both Web browsers and screen readers. Proposed comment 18(b)(3)(i)(B)-3 would clarify that a disclosure would not comply with this requirement if it was not provided in a textual format that can be read automatically by an Internet search engines or other computer systems. This textual format could include, for example, JSON, XML, or a similar format.

    18(b)(3)(i)(C) Oral Disclosures

    The Bureau is also proposing Sec. 1005.18(b)(3)(i)(C), which would state that disclosures required by proposed Sec. 1005.18(b)(2)(i) would have to be provided orally when a consumer acquires a prepaid account orally by telephone as described in proposed Sec. 1005.18(b)(3)(iii). Proposed Sec. 1005.18(b)(3)(i)(C) would also state that disclosures provided to a consumer through the telephone number described in proposed Sec. 1005.18(b)(2)(i)(B)(11) also would have to be made orally. The Bureau believes that when a consumer acquires a

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    prepaid account orally by telephone or when a consumer requests to hear the long form disclosure in a retail store by calling the telephone number disclosed on the short form pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(11), it is not practicable for a financial institution to provide these disclosures in written form and therefore oral disclosures could be provided.

    18(b)(3)(ii) Retainable Form

    Proposed Sec. 1005.18(b)(3)(ii) would require that disclosures required by proposed Sec. 1005.18(b)(2)(i) and (ii) be provided in a retainable form except for disclosures provided to a consumer through the telephone number described in proposed Sec. 1005.18(b)(2)(i)(B)(11) or disclosure provided orally pursuant to proposed Sec. 1005.18(b)(1)(iii). The Bureau notes, however, that Regulation E does have general recordkeeping requirements. See Sec. 1005.13(b). After having acquired a prepaid account orally, a consumer would receive the long form disclosure in the full terms and conditions accompanying the prepaid account inside its packaging. See proposed Sec. 1005.18(f). Further, the long form disclosure would also presumably be available on the financial institution's Web site as part of the full prepaid account agreement that would be required to be posted pursuant to proposed Sec. 1005.19, discussed below, should a consumer want to review it post-acquisition. Thus, the Bureau does not believe it is necessary for the disclosures provided to a consumer for a prepaid account acquired orally by telephone or the long form disclosure that a consumer may access by telephone pre-acquisition in a retail store to be retainable, and the Bureau does not believe it is practicable to provide retainable forms of oral disclosures. The Bureau does, however, believe that providing a retainable format of written and electronic disclosures is feasible in all other contexts. Proposed comment 18(b)(3)(ii)-1 would explain that a financial institution may satisfy the requirement to provide electronic disclosures in a retainable form if it provides disclosures on its Web site in a format that would be capable of being printed, saved or emailed to a consumer.

    18(b)(3)(iii) Tabular Format

    18(b)(3)(iii)(A) General

    The Bureau is also proposing, in proposed Sec. 1005.18(b)(3)(iii)(A), tabular form requirements that would be used to present the short and long form disclosures. Currently, the Bureau believes that most financial institutions use some sort of table format to disclose prepaid account fees in their terms and conditions documents, although each institution selects different fees to highlight and presents them in different orders. Financial institutions also implement a variety of formats to present fee information on packaging material in retail stores. Thus, the burden is on consumers to identify the fees that are most important to them in the various tabular formats to determine the best product for their needs.

    During consumer testing, however, the Bureau found that few participants researched prepaid accounts before acquisition, particularly in retail stores. The Bureau believes that at least part of the reason that consumers do not do much comparison shopping is that doing so is not straightforward. In a retail store, prepaid accounts are often displayed behind counters, close to check-out lanes at ends of aisles and in other areas that can often be crowded or difficult to access, which can limit careful review of a product's terms. The Bureau believes that financial institutions are more likely to present fee information in a clearer and more complete format for prepaid account products offered online, but, as mentioned above, the format used to display this information varies, making comparisons harder. Although some variation is inevitable because each financial institution offers different services in connection with its prepaid accounts, the Bureau nevertheless believes that requiring use of a standardized form to disclose fee information can minimize some variation by maintaining a consistent format and, in the case of the short form, also keeping many of the fee types that are listed constant.

    The Bureau therefore is proposing that, except as provided in proposed Sec. 1005.18(b)(3)(iii)(B), short form disclosures required by proposed Sec. 1005.18(b)(2)(i) that are provided in writing or electronically shall be in the form of a table substantially similar to proposed Model Forms A-10(a) through (d), as applicable. Long form disclosures required by proposed Sec. 1005.18(b)(2)(ii)(A) through (E) that are provided in writing or electronically would have to be in a form of a table substantially similar to proposed Sample Form A-

    10(e).\278\ The Bureau is proposing a sample form for the long form disclosure instead of a model form, as is proposed for the short form disclosure, because the Bureau believes the long form disclosures could vary depending on the number of fees included in the form and the extent of relevant conditions that would have to be disclosed in connection with each fee. Nevertheless the Bureau solicits comment on whether it should provide a model form for the long form disclosure.

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    \278\ The Bureau notes that the explanatory text used in the model long form disclosure is meant only to serve as an example, as the Bureau is proposing only formatting requirements for the long form disclosure, and not specific language.

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    18(b)(3)(iii)(B) Disclosures for Prepaid Account Products Offering Multiple Service Plans

    As an exception to proposed Sec. 1005.18(b)(3)(iii)(A) (which applies to products with a single fee schedule), proposed Sec. 1005.18(b)(3)(iii)(B) would set forth tabular form requirements for prepaid products offering multiple service plans. Specifically, proposed Sec. 1005.18(b)(3)(iii)(B)(1) would state that when a financial institution offers multiple service plans for a particular prepaid account product and each plan has a different fee schedule, the information required by proposed Sec. 1005.18(b)(2)(i)(B)(1) through (7) could be provided for each service plan in the form of a table substantially similar to the proposed Model Form A-10(f), and must include descriptions of each service plan included in the table using the terms, ``Pay-as-you-go plan,'' ``Monthly plan,'' ``Annual plan,'' or substantially similar terms. Proposed Sec. 1005.18(b)(3)(iii)(B)(1) would further state when disclosing multiple service plans on one short form, the information required by proposed Sec. 1005.18(b)(2)(i)(B)(8) must only be disclosed once in the table. Alternatively, proposed Sec. 1005.18(b)(3)(iii)(B)(1) would permit a financial institution to disclose just the information required by proposed Sec. 1005.18(b)(2)(i) for only the service plan in which a consumer is enrolled automatically by default upon acquiring the prepaid account, in the form of a table substantially similar to proposed Model Form A-

    10(c) or (d). Finally, proposed Sec. 1005.18(b)(3)(iii)(B)(1) would state that regardless of whether a financial institution discloses all service plans on one form or chooses only to disclose the service plan in which a consumer is automatically enrolled by default, the disclosures required by proposed Sec. 1005.18(b)(2)(i)(B)(9) through (14) would only have to be disclosed once.

    As discussed above, the Bureau believes that it is important for short and long form disclosures to have a standardized format in order to facilitate consumers' comparison of multiple

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    products and their ability to understand key fee and service information about a prepaid product. The Bureau also recognizes, however, that financial institutions offering multiple service plans on one prepaid account need flexibility to disclose information about multiple plans to a consumer. The Bureau therefore is proposing that financial institutions may use one short form table that discloses the information required by proposed Sec. 1005.18(b)(2)(i) for each of the service plans to highlight for a consumer that such plans exist. At its option, a financial institution could also choose to only disclose the service plan in which a consumer is enrolled upon acquiring the prepaid account using the tabular format described in proposed Sec. 1005.18(b)(3)(iii)(A) and note elsewhere on the packaging material or on its Web site the other service plans it offers. The Bureau believes that these options will give financial institutions the flexibility to accommodate disclosure of multiple service plans, while also maintaining the simplicity of the short and long form table designs to facilitate consumers' comparison shopping. In consumer testing, some participants were confused by short forms that included multiple service plans similar to the one proposed in Model Form A-10(f). The Bureau therefore also considered proposing that financial institutions must disclose each service plan in a separate short form table instead of allowing financial institutions to disclose all of the plans on one short form. Some testing participants also were unsure of which service plan applied upon purchase when seeing multiple service plans on one short form, an issue that the Bureau believes may be resolved if a financial institution only discloses the fee schedule for the plan that applies upon a consumer's acquisition of the account. The Bureau thus seeks comment on the best way to accommodate prepaid accounts products offering multiple service plans on the short form disclosure while providing accurate and sufficient information to consumers.

    The Bureau also acknowledges that only disclosing the service plan in which a consumer is automatically enrolled by default upon acquiring the prepaid account could potentially conflict with the Bureau's proposed requirement in proposed Sec. 1005.18(b)(2)(i)(C) that financial institutions would have to disclose the most expensive fee for each fee type required to be disclosed in the short form. For example, a ``pay-as-you-go'' plan in which a consumer is enrolled upon acquisition might not impose a periodic fee, and thus, could disclose ``$0'' in the top-line of the short form where the periodic fee disclosure would be required. Under such a plan, if a consumer were to opt into a monthly plan, however, they could be charged a periodic fee higher than $0. The Bureau therefore also seeks comment on whether the disclosure of only the default plan on the short form would be clear or if the Bureau should require that financial institutions always disclose multiple service plans on the short form.

    Proposed Sec. 1005.18(b)(3)(iii)(B)(2) would state that the information required to be disclosed in the long form by proposed Sec. 1005.18(b)(2)(ii) must be presented for all service plans in the form of a table substantially similar to proposed Sample Form A-10(g). The Bureau believes the long form disclosure should include all fee information about a prepaid account product, and therefore it should contain the fee schedule for every possible service plan.

    Additionally, the Bureau proposes to add comment 18(b)(3)(iii)(B)-1 which would provide additional guidance on its proposed definition of multiple service plans. Specifically, proposed comment 18(b)(3)(iii)(B) would state that the multiple service plan disclosure provisions in proposed Sec. 1005.18(b)(3)(iii)(B) apply when a financial institution offers more than one service plan for a particular prepaid account product, and each plan has a different fee schedule. For example, a financial institution might offer a prepaid account product with one service plan where a consumer pays no periodic fee but instead pays a fee for each transaction, and another plan that includes a monthly fee but no per transaction fee. The proposed comment would also state that a financial institution could also offer a prepaid account product with one service plan for consumers who utilize another one of a financial institution's non-prepaid services (e.g., a mobile phone service) and a different plan for consumers who only utilize a financial institution's prepaid account products. Each of these plans would be considered a ``service plan'' for purposes of proposed Sec. 1005.18(b)(3)(iii).

    18(b)(4) Specific Formatting Requirements

    18(b)(4)(i) Grouping

    18(b)(4)(i)(A) Short Form Disclosures

    Proposed Sec. 1005.18(b)(4)(i)(A) would contain several formatting requirements for the short form disclosure. First, proposed Sec. 1005.18(b)(4)(i)(A) would state that the information required by proposed Sec. 1005.18(b)(2)(i)(A) or proposed Sec. 1005.15(c)(2), when applicable, would have to be grouped together. Proposed Sec. 1005.18(b)(4)(i)(A) would further state that the information required by proposed Sec. 1005.18(b)(2)(i)(B)(1) through (4) would have to be generally grouped together and appear in the order of the Model Forms in appendix A-10(a) through (d) of this part. As discussed above, the Bureau believes that grouping the fees required to be disclosed by proposed Sec. 1005.18(b)(2)(i)(B)(1) through (4) in the top-line will more effectively direct consumers' attention to these fees, which the Bureau believes are the most important fees. The Bureau also believes that, when it is applicable, the payroll card account or government benefit account notice banner should appear at the top of the short form to ensure consumers understand that they do not have to accept such an account. Finally, proposed Sec. 1005.18(b)(4)(i)(A) would further state that the information required by proposed Sec. 1005.18(b)(2)(i)(B)(5) through (9) would have to be generally grouped together and appear in the order of the Model Forms in appendix A-10(a) through (d). The Bureau also proposes, in proposed Sec. 1005.18(b)(4)(i)(A), that the textual information required by proposed Sec. 1005.18(b)(2)(i)(B)(10) through (14) must be grouped together on the short form disclosure and in the order they appear in proposed Model Forms A-10(c) and (d). The Bureau recognizes that some consumers may focus only on fee information and not review textual information. Indeed, in testing, many consumers did not notice some of the textual information included on model forms until the facilitator pointed it out to them. The Bureau therefore seeks comment on whether there is a better way to group the textual information on the short form disclosure to increase the likelihood that consumers will read it.

    The Bureau further proposes in Sec. 1005.18(b)(4)(i)(A) that the URL of the Web site disclosed pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(11) would not be permitted to exceed twenty-two characters, and that it must be meaningfully named. By meaningfully named, the Bureau means a URL that uses real words or phrases, particularly those related to the actual prepaid account product. The Bureau believes twenty-two characters is the maximum length of a URL that can fit legibly on a short form disclosure that would fit on most existing retail packaging material.

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    The Bureau believes these parameters will ensure that a consumer can easily enter the URL of the Web site listed on the short form into a mobile device when shopping in a retail store in order to access the long form. Using a meaningfully named URL will also ensure that it is easy for a consumer to understand, which the Bureau believes will increase the likelihood that a consumer would utilize the URL to seek out more information about a prepaid account product.

    Nevertheless the Bureau seeks comment on all aspects of this part of the proposal. Specifically, the Bureau solicits comment on whether a requirement that the URL be meaningfully named could make it more challenging for financial institutions to use shortened URLs or other mechanisms on the short form to facilitate accessibility of the long form in retail locations.

    18(b)(4)(i)(B) Long Form Disclosures

    The Bureau proposes in Sec. 1005.18(b)(4)(i)(B) that all fees that may be imposed by the financial institution in connection with a prepaid account that proposed Sec. 1005.18(b)(2)(ii)(A) would require to be disclosed in the long form must be generally grouped together and organized by categories of function for which a consumer would utilize the service associated with each fee. The Bureau believes that disclosing fees in categories will aid consumers' navigation of the long form disclosure, which would include all of a prepaid account's fees and could be much longer than the short form disclosure. Proposed Sec. 1005.18(b)(4)(i)(B) would also require that text describing the conditions under which a fee could be imposed would have to appear in the table directly to the right of the numeric fee amount disclosed. The Bureau also proposes, in Sec. 1005.18(b)(4)(i)(B), that the telephone number, Web site and mailing address, the statement regarding FDIC insurance, if applicable, and the CFPB Web site and telephone number, as required to be disclosed by proposed Sec. 1005.18(b)(2)(ii)(C) through (E) must be generally grouped together. Proposed Sec. 1005.18(b)(4)(i)(B) would also require that the information required by Sec. 1005.18(b)(2)(ii)(B) would have to be generally grouped together.

    18(b)(4)(i)(C) Multiple Service Plan Disclosures

    The Bureau proposes in Sec. 1005.18(b)(4)(i)(C) that when a financial institution provides disclosures in compliance with proposed Sec. 1005.18(b)(3)(iii)(B)(1) and discloses the fee schedules of multiple service plans together on one short form, the fees required to be listed pursuant proposed Sec. 1005.18 (b)(2)(i)(B)(1) through (7) that vary among service plans must be generally grouped together, the fees that are the same across all service plans must be grouped together, as set forth in proposed appendix A-10(f). Proposed Sec. 1005.18(b)(4)(i)(C) would further state that if the periodic fee varies between service plans, the financial institution must use the term ``plan fee,'' or a substantially similar term when disclosing the periodic fee for each service plan. The Bureau believes that, when a financial institution chooses to disclose multiple service plans together on one short form, it is most useful for a consumer to see all the fees that vary among plans grouped together to more easily compare the different plans. The Bureau seeks comment on whether this grouping distinction for short forms that include multiple service plans makes sense.

    Proposed Sec. 1005.18(b)(4)(i)(C) would also state that the incidence-based fees disclosed pursuant to proposed Sec. 1005.18 (b)(2)(i)(B)(8) must be grouped with the fees that are the same across all service plans as set forth in proposed Model Form A-10(f). The Bureau believes that since a financial institution would have to consider total incidence across all plans when determining its incidence-based fee disclosure to comply with proposed Sec. 1005.18(b)(2)(i)(B)(8), it makes sense that these fees would be grouped with the fees that are the same across all service plans. See proposed comment 18(b)(2)(i)(B)(8)-1.

    18(b)(4)(ii) Prominence and Size

    Proposed Sec. 1005.18(b)(4)(iii) would set forth the prominence and size requirements for the short form and long form disclosures. Generally, the Bureau believes that the information provided to consumers in the short and long form disclosure should appear in a large enough font size to ensure that consumers can easily read the information. Further, in its testing, the Bureau found that some participants had to use reading glasses or otherwise struggled to read existing prepaid account disclosures. Also, many participants reported a preference for larger font sizes to facilitate their ability both to read and to understand disclosures. Thus, as discussed below, the Bureau has proposed minimum font size requirements for both the short form and long form disclosures in order to ensure that consumers can easily read the disclosures. In addition, the Bureau believes that the relative font sizes of the disclosures made on the short form should ensure that consumers' attention is quickly drawn to the most important information about a prepaid account. As described in more detail below, the Bureau is therefore also proposing certain minimum font sizes for the short form disclosure requirements described in proposed Sec. 1005.18(b)(2)(i) in addition to the requirement that the top-line fees (i.e., periodic fee, per purchase fees, ATM withdrawal fees, and cash reload fee) appear more prominently than all of the other information included on the short form to create a visual hierarchy of information.

    Proposed Sec. 1005.18(b)(4)(ii)(A) would require that all text used to disclose the information pursuant to proposed Sec. 1005.18(b)(2) must be in a single, easy-to-read type face. Proposed Sec. 1005.18(b)(4)(ii)(A) would also state that all text included in the tables that would be required to be disclosed by proposed Sec. 1005.18(b)(3)(iii) would have to be all black or one color type and printed on a white or other neutral contrasting background whenever practical. The Bureau believes that contrasting colors for the text and the background of the short form and long form disclosures will make it easier for consumers to read the disclosure. The Bureau believes that using a black color for the text and a white color for the background of the form is the most clear presentation, but the Bureau also recognizes that other similarly dark colors for text with a neutral background color could just as clearly present the information. For example, when including the payroll card account notice banner at the top of the short form, a financial institution could use a grey background if the background of the rest of the short form is white. The Bureau believes this type of distinction would make it easier for a consumer to see that banner.

    Proposed Sec. 1005.18(b)(4)(ii)(B)(1) would require that the information required to be disclosed by proposed Sec. 1005.18(b)(2)(i)(A) and proposed Sec. 1005.15(c)(2) for the payroll card account or government benefit account notices banners would have to appear in a minimum eight-point font or the corresponding pixel size and appear in no larger a font than what is used for the information required to be disclosed by proposed Sec. 1005.18(b)(2)(i)(B)(1) through (4) in the top-line portion of the short form. Proposed Sec. 1005.18(b)(4)(ii)(B)(2) would require that the top-line fees required to be disclosed by proposed Sec. 1005.18(b)(2)(i)(B)(1) through (4) be more prominent than the other parts of

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    the disclosure required by proposed Sec. 1005.18(b)(2)(i) and appear in a minimum 11 point font or the corresponding pixel size.

    As discussed above, the Bureau believes that consumers commonly incur these top-line fees when a financial institution imposes charges for these services. In the Bureau's consumer testing, participants reported that these fee disclosures were the most important to them. As discussed in the section-by-section analysis of proposed Sec. 1005.18(b)(2)(i)(B)(1) through (4), the Bureau recognizes that a financial institution may not charge a fee for all of these services. For example, a financial institution might not charge any per purchase fees when it imposes a monthly fee. The Bureau, however, still believes that such fees should be disclosed in a more prominent and larger font size than other information on the short form disclosure in order to draw consumers' attention to this information before acquiring a prepaid account. In proposed Model Form A-10(f), the amounts of these fees appear in bold to make them more prominent than the other information on the short form. The Bureau is also proposing pixel sizes because it acknowledges that font sizes could vary when applied in electronic contexts. Though the font sizes may differ, the relative sizes of the components of the short form would have to remain consistent to maintain the visual hierarchy of information included in the form.

    Additionally, the Bureau proposes in Sec. 1005.18(b)(4)(ii)(B)(2) that the fee disclosures required by proposed Sec. 1005.18(b)(2)(i)(B)(5) through (9), namely, the ATM balance inquiry fees, inactivity fee, and incidence-based fees, must appear in a minimum eight-point font or the corresponding pixel size and appear in no larger a font than what is used to disclose the information required by proposed Sec. 1005.18(b)(2)(i)(B)(1) through (4). As discussed earlier, while the Bureau believes that these fees are important for a consumer to know pre-acquisition, the Bureau believes that these fees are less likely to drive most consumers' acquisition decisions when shopping among prepaid accounts and thus should be disclosed using a smaller font size.

    Proposed Sec. 1005.18(b)(4)(ii)(B)(2) would also require that the textual information disclosed on the short form pursuant to proposed Sec. 1005.18(b)(2)(ii)(10) through (14) must appear in a minimum seven-point font or corresponding pixel size and must appear in no larger a font than what is used to disclose the ATM balance inquiry fees, inactivity fee, and incidence-based fees that would have to be disclosed by proposed Sec. 1005.18(b)(2)(i)(B)(5) through (9).

    The Bureau notes that the proposed minimum font sizes are likely also the maximum sizes that could be used on the short form to ensure that it will still fit on most packaging material currently used in retail locations. In other acquisition scenarios, however, when space constraints are not as much of an issue, the Bureau expects that financial institutions would use larger versions of the short form. For example, when distributing disclosures for payroll card accounts in printed form, financial institutions could use 8.5 by 11 inch pieces of paper to present a larger version of the short form, as long as the form maintains the visual hierarchy of having the information on the short form gradually decrease in size from top to bottom. The Bureau further proposes in Sec. 1005.18(b)(4)(ii)(B)(2) that the statement disclosed pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(10), and the telephone number and URL disclosed pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(11) must be more prominent than the information disclosed pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(12) through (14) and proposed Sec. 1005.18(b)(2)(i)(C). The Bureau believes that it is particularly important for a consumer to see this information on the short form, and that making it more prominent than the other textual language on the short form could help to draw consumers' attention to these disclosures.

    Proposed Sec. 1005.18(b)(4)(ii)(B)(2) would also state that text used to distinguish each of the two fees that are required to be disclosed by proposed Sec. 1005.18(b)(2)(i)(B)(2), (3) and (5), or to explain the duration of inactivity that triggers a financial institution to impose an inactivity fee pursuant to proposed Sec. 1005.18(b)(2)(i)(B)(7) would have to appear in at least six-point font or corresponding pixel size and appear in no larger a font than what is used for information required to be disclosed by Sec. 1005.18(b)(2)(i)(B)(9) through (12). The Bureau believes that this descriptive information is less important than the actual fee information and therefore should be in a smaller font or pixel size.

    Finally, proposed Sec. 1005.18(b)(4)(ii)(B)(3) would require that the explanatory text disclosed pursuant to proposed Sec. 1005.18(b)(2)(i)(C) when any of the fees included on the short form could vary would have to be in a minimum seven-point font and appear in no larger the font than what is used to disclose the fees not in the top-line as required by proposed Sec. 1005.18(b)(2)(i)(B)(5) through (8). The Bureau believes that this explanatory text should be in the same font size as the rest of the textual information included on the short form.

    The Bureau is proposing Sec. 1005.18(b)(4)(ii)(C) to require that the fees and other information required to be disclosed in the long form by proposed Sec. 1005.18(b)(2)(ii) would have to appear in at least eight-point font or the corresponding pixel size. The Bureau believes that the long form, which will list all of a prepaid account's fees, need only appear in a font that is clear enough for consumers to read. The Bureau does not believe any part of the long form should be more prominent than another part. Thus, the Bureau is not proposing any rules regarding the relative font size of information disclosed in the long form.

    The Bureau is proposing in Sec. 1005.18(b)(4)(ii)(D) that when providing disclosures in compliance with proposed Sec. 1005.18(b)(3)(iii)(B)(1) and disclosing the fee schedules of multiple service plans together on one form, disclosures required by proposed Sec. 1005.18(b)(2)(i)(B)(1) through (9) must appear in a minimum seven-point font or the corresponding pixel size. Proposed Sec. 1005.18(b)(4)(ii)(D) would also require the disclosures required by proposed Sec. 1005.18(b)(2)(i)(B)(10) through (14) to appear in the font sizes set forth in proposed Sec. 1005.18(b)(4)(ii)(B)(2).

    18(b)(5) Segregation

    Proposed Sec. 1005.18(b)(5) would explain that disclosures required under this section that are provided in writing or electronically would have to be segregated from everything else and could contain only information that is directly related to the disclosures required under this section. The Bureau believes it is important that only the information it would require to be disclosed be included on the short form and long form disclosures. As noted, financial institutions (or whatever entity is responsible for marketing the prepaid account) could use the remainder of a prepaid account's packaging material or Web site to disclose other information to a consumer, but the Bureau believes it is important to limit the amount of information permitted in its required disclosures to protect the integrity of forms' design.

    18(b)(6) Prepaid Accounts Acquired in Foreign Languages

    Regulation E generally permits, but does not require, that disclosures be made in a language other than English, provided that where foreign language

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    disclosures are provided the disclosures are made available in English upon a consumer's request. See Sec. 1005.4(a)(2). When it issued regulations on remittance transfers, the Bureau altered Regulation E's general requirement for foreign language disclosures to require disclosures be made in English in addition to a foreign language if that foreign language is used principally by the remittance transfer provider to advertise, solicit, or market remittance transfer services at the office in which the sender conducts a transaction or asserts an error. (Sec. 1005.31(g)(1)(i)). The Bureau amended Regulation E in this way pursuant to a statutory mandate in Section 1073 of the Dodd-

    Frank Act.

    The Bureau proposes also to modify the general Regulation E foreign language requirement for prepaid accounts such that proposed Sec. 1005.18(b)(6) would require that if a financial institution principally uses a foreign language on prepaid account packaging material, by telephone, in person, or on the Web site a consumer utilizes to acquire a prepaid account, the short form and long form disclosures made pursuant to proposed Sec. 1005.18(b)(2)(i) and (ii) would have to be provided in that same foreign language. A financial institution would also have to provide the long form required to be disclosed by proposed Sec. 1005.18(b)(2)(ii) in English upon a consumer's request and on any part of the Web site where it provides the long form disclosure in a foreign language.

    As noted above, this proposal is made pursuant to the Bureau's authority under EFTA sections 904(a) and (c), 905(a), and Dodd-Frank Act section 1032(a). The Bureau notes that this proposed approach to foreign language disclosures applies only to prepaid accounts and would not alter the application of the general Regulation E provision for any other type of account. The Bureau believes that if a financial institution is primarily using a foreign language on the interface that a consumer sees or uses to initiate the process of acquiring a prepaid account, consumers should receive pre-acquisition disclosures in that foreign language to ensure that they are able to understand them. The Bureau also believes that such a consumer might benefit from receiving the long form disclosure in both the foreign language and English in case a consumer is comfortable speaking the language, but may only read English, or if a family member who speaks English assists a consumer with managing their prepaid account.

    The Bureau recognizes, however, that requiring financial institutions to provide short form disclosures in two languages could be burdensome. The Bureau therefore seeks comment on whether it is feasible for financial institutions in all acquisition scenarios to provide the long form disclosure in English in addition to in the foreign language in which the account is marketed, and whether financial institutions typically already provide disclosures in both languages. The Bureau also solicits comment on whether financial institutions should also provide the short form disclosure in English in all cases. Proposed comment 18(b)(6)-1 would provide several examples as to when financial institutions would have to provide the short form and long form disclosures in a foreign language. Specifically, the proposed comment would clarify that if, for example, a financial institution uses mostly Spanish on the packaging material of a prepaid account sold in a retail store, even though a few words appear in English, then the short form and, if accessed by the consumer, long form disclosure provided to a consumer must also be in Spanish. Proposed comment 18(b)(6)-1 would also clarify that if the homepage of the Web site a consumer visits to acquire a prepaid account is mostly in Spanish, the short form and long form disclosure a consumer receives pre-acquisition must also be in Spanish. Additionally, the proposed comment would clarify that a consumer who calls a telephone number to acquire a prepaid account and either speaks to a customer service agent in Spanish or interacts with an IVR system in Spanish must also receive the short form and long form information in Spanish in accordance with proposed Sec. 1005.18(b)(2)(ii). Finally, the proposed comment would clarify that if a consumer speaks with a customer service agent in a foreign language in a bank or credit union branch location, this would be considered ``in person,'' and a consumer would have to receive the short form and long form disclosures in that foreign language to comply with proposed Sec. 1005.18(b)(6).

    18(b)(7) Disclosures on Prepaid Account Access Devices

    Proposed Sec. 1005.18(b)(7) would require that certain disclosures be made on the actual prepaid account access device itself. Specifically, the Bureau proposes that financial institutions must disclose the name of the financial institution, the URL of a Web site, and a telephone number that a consumer can use to access information about a prepaid account. Proposed Sec. 1005.18(b)(7) would also state that if a financial institution does not provide a physical access device in connection with a prepaid account, the Bureau is proposing that the disclosure must appear at the URL or other entry point a consumer must visit to access the prepaid account electronically. The Bureau further proposes that disclosure made on an accompanying document, such as a terms and conditions document, on packaging material surrounding an access device, or on a sticker or other label affixed to an access device would not constitute a disclosure on the access device. Proposed comment 18(b)(7)-1 would clarify that a consumer might use this information disclosed on the access device to contact a financial institution with a question about a prepaid account's terms and conditions, or to report when an unauthorized transaction has occurred involving a prepaid account.

    The Bureau believes it is important for a consumer to be able to access fee information, as well as check an account's balance, and have a means for reporting unauthorized transactions, even after a consumer has acquired a prepaid account. Disclosing telephone numbers on an access device will allow consumers to access this information if they are not in the location where they have retained the disclosures or are not able to access disclosures via the internet.

    18(c) Access to Prepaid Account Information

    EFTA section 906(c) requires that a financial institution provide each consumer with a periodic statement for each account of such consumer that may be accessed by means of an electronic fund transfer. Section 1005.9(b), which implements EFTA section 906(c), generally requires a periodic statement for each monthly cycle in which an electronic fund transfer occurred or, if there are no such transfers, a periodic statement at least quarterly.\279\ Financial institutions must deliver periodic statements in writing and in a form that the consumer can keep, unless consent is received for electronic delivery or unless Regulation E provides otherwise. See Sec. Sec. 1005.4(a)(1) and 1005.9(b).

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    \279\ The periodic statement must include transaction information for each EFT, the account number, the amount of any fees assessed, the beginning and ending account balance, the financial institution's address and telephone number for inquiries, and a telephone number for preauthorized transfers. Sec. 1005.9(b).

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    In the Payroll Card Rule, the Board modified the periodic statement requirement for payroll card accounts similar to what it had done previously for government benefit accounts under Sec. 1005.15. Pursuant to existing

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    Sec. 1005.18(b), financial institutions can provide periodic statements that comply with the general provisions in Regulation E, or alternatively, the institution must make available to the consumer: (1) The account balance, through a readily available telephone line; (2) an electronic history of account transactions that covers at least 60 days (including all the information required in periodic statements by Sec. 1005.9(b)); and (3) a written history of account transactions that is provided promptly in response to an oral or written request and that covers at least 60 days (including all the information required in periodic statements by Sec. 1005.9(b)).

    The Bureau is proposing new Sec. 1005.18(c)(1) and (2) to apply Regulation E's periodic statement requirement to prepaid accounts, and an alternative that would allow financial institutions to instead provide access to account balance by telephone, at least 18 months of transaction history online, and at least 18 months written transaction history upon request. Proposed Sec. 1005.18(c)(3) would require financial institutions to disclose all fees assessed against the account, in any electronic or written account histories and periodic statements. In addition, the Bureau proposes in Sec. 1005.18(c)(4) to require financial institutions to disclose, in any electronic or written account histories and periodic statements, monthly and annual summary total of the amount of all fees imposed on a prepaid account, and the total amounts of deposits to and debits from a prepaid account.

    As discussed below in the section-by-section analysis of proposed Sec. 1005.18(c)(1), (3), and (4), to further the purposes of EFTA to provide a framework to establish the rights, liabilities, and responsibilities of prepaid account consumers, the Bureau believes it is necessary and proper to exercise its authority under EFTA section 904(c) to propose an exception to the periodic statement requirements of EFTA section 906(c) and to modify the periodic statement requirements of EFTA section 906(c) to require inclusion of all fees charged and a summary total of both monthly and annual fees. These proposed revisions will assist consumers' understanding of their prepaid account activity. In addition, the Bureau is also using its disclosure authority pursuant to the Dodd-Frank Act section 1032(a) because the Bureau believes that disclosure of fee and account activity summaries ensures that the features of prepaid accounts, over the term of the product or service, are fully, accurately, and effectively disclosed to consumers in a manner that permits consumers to understand the costs, benefits, and risks associated with prepaid accounts.

    18(c)(1) Periodic Statement Alternative

    As discussed above, financial institutions that issue payroll cards can provide periodic statements that comply with the general provisions in Regulation E, or alternatively, the institution must make available to the consumer: (1) The account balance, through a readily available telephone line; (2) an electronic history of account transactions that covers at least 60 days (including all the information required in periodic statements by Sec. 1005.9(b)); and (3) a written history of account transactions that is provided promptly in response to an oral or written request and that covers at least 60 days (including all the information required in periodic statements by Sec. 1005.9(b)). See existing Sec. 1005.18(b).

    Relatedly, the FMS Rule requires a prepaid card receiving a Federal payment (such as Social Security benefits, Federal tax refunds, or Federal government wages) to satisfy several conditions, including that the card issuer must comply with all of the requirements of, and provide the cardholder with all of the consumer protections that apply to, a payroll card account under Regulation E. See 31 CFR 210.5(b)(5). By virtue of the FMS Rule, the Bureau believes that a majority of prepaid account programs are presently complying with Regulation E's periodic statement alternative for payroll card accounts. Indeed, in its Study of Prepaid Account Agreements, the Bureau found that almost all prepaid account agreements reviewed (including 99.03 percent of agreements reviewed for GPR card programs) provide electronic access to account information; \280\ a majority of programs reviewed (including 73.91 percent of agreements for GPR card programs) explicitly provide that transactional history is available for at least 60 days (which is consistent with the payroll card account alternative in existing Sec. 1005.18(b)); \281\ and most programs reviewed (including 88.41 percent of agreements for GPR card programs) make clear that paper statements or paper account histories are available upon request.\282\

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    \280\ See Study of Prepaid Account Agreements, at 18 tbl. 5.

    \281\ See id. at 19 tbl. 6.

    \282\ See id. at 21 tbl. 8.

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    This is consistent with what other studies of the prepaid industry have found. For example, the Center for Financial Services Innovation (CFSI) found in its review of 18 GPR card programs,\283\ representing an estimated 90 percent of the GPR card marketplace, that all card programs reviewed allowed cardholders to obtain balance information online, by calling customer service, by text message, or via mobile app or mobile-enabled Web site. CFSI found that eleven out of fifteen cards for which information was available (representing about 60 percent of the market sampled) provided at least two years of transactional data online, three provided one year of data, and one card provided six months of data.\284\ CFSI also found that fifteen cards (representing approximately 75 percent of the market sampled) allowed cardholders to make one-time requests for paper statements, and nine cards (about 40 percent of the market sampled) allowed cardholders to receive ongoing monthly statements, typically for a fee ranging between $1 and $3.\285\ In a recent review of 66 GPR card programs, the Pew Charitable Trusts found that 45 cards (68 percent) disclosed a paper statement fee ranging from 99 cents to $10, with a median fee of $2.95; seven cards (11 percent) disclosed that paper statements were free, and 14 cards (21 percent) did not disclose any fee (or lack thereof) for paper statements. Pew also found that 65 cards (98 percent) disclosed that transaction information is provided online for free.\286\

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    \283\ Programs reviewed by CFSI included ``cards issued by the largest program managers in the marketplace, as well as a selection of smaller program managers that have particularly innovative cards.'' Ctr. for Fin. Services Innovation, Prepaid Industry Scorecard, Assessing Quality in the Prepaid Industry with CFSI's Compass Principles, at 6 (Mar. 2014), available at http://cfsinnovation.s3.amazonaws.com/CFSI_Prepaid_Industry_Scorecard_2014.pdf.

    \284\ Id. at 12. The CFSI study did not note, however, whether any prepaid programs might charge fees for these methods of accessing account information.

    \285\ Id. at 13.

    \286\ 2014 Pew Study, at 19-20.

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    In its Prepaid ANPR, the Bureau sought comment on whether it was appropriate to modify Regulation E's general requirements for prepaid cards and, as an example, asked whether it was necessary to extend the requirement to provide periodic paper statements to prepaid cards. In response, most industry and trade association commenters recommended that the Bureau extend to prepaid cards the Payroll Card Rule's alternative method of complying with Regulation E's periodic statement requirement. Many of these commenters argued that paper statements are not a viable alternative for prepaid cards and that electronic access to account information--as

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    provided under the Payroll Card Rule--is more consistent with current consumer needs and expectations. They explained that consumers have shown little interest in receiving paper statements for prepaid accounts and that consumers prefer to have access to current and historical account information online. In addition, information contained on a monthly paper statement may be considered by consumers to be ``stale'' by the time it arrives. These commenters also cited the fact that prepaid card users are often transient which results in paper statements often being returned as undeliverable. Finally, industry commenters expressed concern that a paper statement requirement would be cost prohibitive and would ultimately result in fee increases.

    Consumer groups' comments regarding whether the Bureau should require written periodic statements were mixed. Some groups urged that paper statements be provided by default for all prepaid accounts unless the consumer explicitly opts out. One group argued this was necessary because, based on its research, many cards do not provide account history information sufficient to determine whether an unauthorized transaction occurred. Several groups argued that prepaid accounts should be exempt from the paper statement requirement only if they offer no credit or overdraft features and the underlying funds are held in an account with deposit insurance. Other groups suggested that it is appropriate to forego paper statements for prepaid accounts so long as consumers are able to receive ad hoc paper statements upon request.

    The Bureau conducted additional outreach to industry regarding the usage of written statements by consumers and the cost to financial institutions of providing such statements. Based on this outreach, the Bureau believes that there may be significant costs in providing monthly paper statements for all prepaid accounts. Beyond the costs of printing and mailing statements, the Bureau also understands, based on industry outreach, that there could be a high incidence of returned mail due to the transient nature of some prepaid account users if paper periodic statements were required for all prepaid accounts. Further, in its focus groups and consumer testing, the Bureau asked participants if they were satisfied with the information they have about their account and whether they would value a monthly electronic or paper statement. The Bureau notes that almost no participants said that they would want to receive a monthly paper statement that they had not requested. Instead, almost all participants stated that free access to account information online and by telephone provided by prepaid issuers and program managers largely met their needs.

    Based on its analysis, the Bureau is proposing to extend to prepaid accounts the Payroll Card Rule's alternative to providing periodic statements (existing Sec. 1005.18(c)(1)), with certain modifications that would be applicable to payroll card accounts as well as to prepaid accounts, as described below. The Bureau believes that the methods of access to account information in the Payroll Card Rule generally strike the appropriate balance between providing consumers the transactional history they need without unnecessarily burdening financial institutions. The Bureau believes that requiring written monthly statements to all prepaid card consumers could increase cost and burden. Thus, the Bureau is proposing to extend the Payroll Card Rule's provisions regarding access to account information to prepaid accounts, with certain modifications as described below. As noted above, this proposed revision is authorized under EFTA section 904(c) and section 1032(a) of the Dodd-Frank Act. As with the Payroll Card Rule, financial institutions would generally be able to provide traditional periodic statements for prepaid accounts, whether in paper form or electronically with E-Sign consent,\287\ in lieu of the alternative in Sec. 1005.18(c)(1) discussed below, but consistent with proposed Sec. 1005.18(c)(3) and (4) below.

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    \287\ As explained above in the section-by-section analysis of proposed Sec. 1005.18(b)(3)(i), the E-Sign Act generally allows the use of electronic records to satisfy any statute, regulation, or rule of law requiring that such information be provided in writing, if a consumer has affirmatively consented to such use and has not withdrawn such consent, and certain format of delivery requirements are met.

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    18(c)(1)(i)

    As discussed above, a financial institution need not furnish periodic statements pursuant to Sec. 1005.9(b) if it instead follows the periodic statement alternative for payroll card accounts. See existing Sec. 1005.18(b)(1). The first part of that alternative, Sec. 1005.18(b)(1)(i), currently requires a financial institution to provide access to the consumer's account balance through a readily available telephone line. The Bureau is proposing to extend this requirement in Sec. 1005.18(b)(1)(i), renumbered as Sec. 1005.18(c)(1)(i), to all prepaid accounts. The Bureau reminds financial institutions that, when providing balance information by telephone as part of the alternative to the Sec. 1005.9(b) periodic statement requirement, neither they nor their service providers would be permitted to charge consumers for accessing this information required to be provided pursuant to proposed Sec. 1005.18(c)(1)(i).

    As the Board explained in the supplementary information to the Payroll Card Rule, a readily available telephone line for providing balance information must be a local or toll-free telephone line that, at a minimum, is available during standard business hours. The Board noted that it expected that, in most cases, institutions would provide 24-hour access to balance information through an automated line, which would ensure that consumers could access balance information at their convenience. Because the Board believed that it might be operationally difficult for some institutions to provide information about 60 days' worth of transactions through a telephone system, the Payroll Card Rule did not require institutions to provide information about specific transactions by telephone.\288\ For substantially similar reasons, the Bureau believes it is appropriate to propose extending existing Sec. 1005.18(b)(1)(i), renumbered as new Sec. 1005.18(c)(1)(i), to all prepaid accounts.

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    \288\ See 71 FR 51437, 51443 (Aug. 30, 2006).

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    As discussed above in the section-by-section analysis of proposed Sec. 1005.15(d)(1)(i), the periodic statement alternative for government benefit accounts (both currently and as proposed) requires access to balance information through a readily available telephone line as well as at a terminal (such as by providing balance information at a balance-inquiry terminal or providing it, routinely or upon request, on a terminal receipt at the time of an electronic fund transfer). The Bureau seeks comment on whether a similar requirement to provide balance information at a terminal should be added to the requirements of proposed Sec. 1005.18(c)(1)(i) for prepaid accounts generally. As noted above, the Bureau is also requesting comment on whether, alternatively, the requirement to provide balance information for government benefit accounts at a terminal should be eliminated from Sec. 1005.15 given the other enhancements proposed therein and for parity with proposed Sec. 1005.18.

    18(c)(1)(ii)

    The second part of the periodic statement alternative for payroll card accounts, Sec. 1005.18(b)(1)(ii), currently requires financial institutions to provide an electronic history of the consumer's account transactions, such as through a Web site, that covers at least 60 days

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    preceding the date the consumer electronically accesses the account. Based on the Bureau's Study of Prepaid Account Agreements, other public studies, and outreach, the Bureau believes that virtually all prepaid account providers make available some form of free electronic access to balance and transaction history information \289\ and that at least 60 days of account history is typically provided.\290\ Further, the Bureau believes that, based on its outreach to industry stakeholders and recent public studies, many prepaid programs provide more extensive online account history information than is currently required by the Payroll Card Rule (60 days).\291\ Some prepaid account providers also offer periodic (e.g., monthly) electronic statements at no charge in addition to account history.\292\

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    \289\ As noted above, in its Study of Prepaid Account Agreements, the Bureau found that 97.85 percent of all prepaid account agreements reviewed indicated that electronic access to account information was available; the remaining 2.15 percent of agreements were unclear as to whether such access was available. See Study of Prepaid Account Agreements, at 18 tbl. 5.

    \290\ The majority of account agreements reviewed in the Study of Prepaid Account Agreements that addressed access to account information with any specificity simply stated that account information would be available for at least the past 60 days (66.15 percent of all agreements reviewed), a small portion explicitly provided for a longer period (7.40 percent), and the remainder were unclear as to the time period (26.46 percent). See id. at 19 tbl. 6.

    \291\ See, e.g., Ctr. for Fin. Services Innovation, Prepaid Industry Scorecard, Assessing Quality in the Prepaid Industry with CFSI's Compass Principles, at 12 (Mar. 2014), available at http://cfsinnovation.s3.amazonaws.com/CFSI_Prepaid_Industry_Scorecard_2014.pdf (finding that about 60 percent of the market sampled, which is estimated to represent approximately 90 percent of the GPR card marketplace, allowed cardholders to access at least two years of transactional data online; the remaining products provided six months or one year of data).

    \292\ The Study of Prepaid Accounts found that 57.54 percent of agreements reviewed specifically stated that electronic periodic statements (rather than just electronic access to account history) are available. See Study of Prepaid Account Agreements, at 20 tbl. 7.

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    The Bureau is proposing to extend this requirement in existing Sec. 1005.18(b)(1)(ii) to prepaid accounts, renumbered as new Sec. 1005.18(c)(1)(ii), and to expand the length of time that online access must cover from 60 days to 18 months. The Bureau is proposing to extend this time period because it believes that based on how consumers are currently using prepaid accounts, more than 60 days of account history may be, in many cases, beneficial for consumers. While recent account history is important for consumers tracking balances or monitoring for unauthorized transactions, a longer available account history serves a variety of potential purposes. For example, some consumers might need to demonstrate on-time bill payment or to compile year-end data for tax preparation purposes. The Bureau also believes that a consumer may realize during any given year that he needs financial records from the prior calendar year and that access to 18 months of prepaid account history will give the consumer six months into the next calendar year to make such a request. In addition, based on outreach to prepaid account providers and recent publicly available studies, as discussed above, the Bureau believes that many prepaid accounts provide at least 12 months of account history and that, even if they do not, the cost of extending existing online histories to 18 months should be minimal. The Bureau reminds financial institutions that, when providing electronic access to account information as part of the alternative to the Sec. 1005.9(b) periodic statement requirement, neither they nor their service providers would be permitted to charge consumers for providing access to account information required pursuant to proposed Sec. 1005.18(c)(1)(ii).

    Alternative Approaches Considered by the Bureau

    The Bureau considered other alternatives to the Payroll Card Rule's approach regarding access to account information. Among them, the Bureau considered proposing to require electronic periodic statements for all prepaid accounts, in addition to ongoing electronic access to account information. An electronic periodic statement requirement would require providers to deliver electronic periodic statements to consumers, even if the provider did not have the consumer's E-Sign consent. The Bureau viewed this as a potential, less-costly alternative to written statements. However, the Bureau questions whether the benefit of providing electronic periodic statements would justify the cost given that the existing Payroll Card Rule and this proposal require that electronic and written histories of account transactions provided as an alternative to Sec. 1005.9(b) contain the information set forth in Sec. 1005.9(b) for periodic statements generally. See section-by-section analysis of proposed Sec. 1005.18(c)(2).

    The Bureau additionally considered proposing to require financial institutions that do not provide periodic statements pursuant to Sec. 1005.9(b) to periodically send an informational email or text message notification to consumers, for example, noting the prepaid account's remaining balance. The Bureau similarly considered requiring financial institutions to contact consumers by email or text message each time an inactivity, dormancy, or similar fee is assessed on the consumer's prepaid account. Such requirements would help remind consumers of the existence of prepaid accounts that they may have forgotten or have otherwise left dormant with unused balances. The Bureau considered that such requirements likely would be limited to those prepaid accounts for which consumers provided email addresses or mobile phone numbers and consented to receive such communications from the financial institution. The Bureau ultimately concluded, however, not to include such a requirement in this Proposed Rule because such a requirement may be overly burdensome given that consumers would have other access to account balance and transactional history under the proposal. The Bureau solicits comments on periodic statement alternatives on prepaid accounts.

    In the context of overdraft and other credit features on prepaid accounts, discussed in more detail below, the Bureau has considered the possibility of requiring additional real-time notifications of transactions triggering an overdraft or the accessing of a linked credit feature, or requiring real-time opt-in by consumers in order to approve each overdraft or other credit transaction in addition to what it proposes herein (and not in lieu of what Sec. 1005.17 requires for deposit accounts). The Bureau understands that there may be technological, operational, and procedural challenges to the timing and delivery of such a notice or compliance with such an opt-in requirement, particularly in the point of sale retail environment. The Bureau is unsure at this time whether such a procedure could be implemented given that notifications and/or consent might require multiple communications among financial institutions, card networks, and merchants. To the extent such real-time notification and consent could be provided or obtained by mobile device or other means, the Bureau continues to monitor developments with respect to real-time opt-

    in. Accordingly, the Bureau is not proposing any requirements related to real-time notification or opt-in, but solicits comment on possible options and suggestions for what it might require in this regard for prepaid accounts.

    18(c)(1)(iii)

    The third part of the periodic statement alternative for payroll card accounts, Sec. 1005.18(b)(1)(iii), currently requires financial institutions to provide

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    a written history of the consumer's account transactions promptly in response to an oral or written request, which covers at least 60 days preceding the date the financial institution receives the consumer's request. Similar to electronic account access above, the Bureau is proposing to extend this requirement in current Sec. 1005.18(b)(1)(iii) to all prepaid accounts, renumbered as proposed Sec. 1005.18(c)(1)(iii), and to expand the length of time for which written history must be provided from 60 days to 18 months.

    In its Study of Prepaid Account Agreements, the Bureau found that most of the agreements reviewed indicate that paper account histories or paper statements are made available upon request.\293\ For those agreements that indicate fees are charged for providing paper account histories or statements,\294\ the amount of the fee varied widely (ranging from $0.75 to $10).\295\ As discussed previously, CFSI found 15 out of 18 GPR cards it reviewed (representing approximately 75 percent of the market sampled) allowed cardholders to make one-time requests for paper statements, and nine cards (about 40 percent of the market sampled) allowed cardholders to receive ongoing monthly statements, typically for a fee ranging between $1 and $3.\296\

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    \293\ The Study of Prepaid Account Agreements found that, across all agreements reviewed, 89.23 percent stated that paper statements or account histories are available. For payroll card programs, 96 percent of agreements reviewed stated that paper statements or account histories were available, and 100 percent for government benefit cards. For GPR cards, 88.41 percent of agreements, and 64.29 percent of agreements for all other types of programs stated that paper statements or account histories were available. See Study of Prepaid Account Agreements, at 21 tbl. 8.

    \294\ The Study of Prepaid Account Agreements found that, across all agreements reviewed that indicated a paper statement or account history is available, 32.41 percent do not charge a fee; 46.90 percent specifically state a fee; 8.62 percent indicated that a fee would be charged but did not list the amount; and for 12.07 percent of agreements the Bureau was unable to find fee information for the programs generally. See id. at 22 tbl. 9.

    \295\ The Study of Prepaid Account Agreements found that, across all agreement reviewed, the average fee charged in the 136 agreements that specified a non-zero fee amount was $3.54 and the median fee was $2.98. See id. at 23 tbl. 10.

    \296\ See Ctr. for Fin. Services Innovation, Prepaid Industry Scorecard, Assessing Quality in the Prepaid Industry with CFSI's Compass Principles, at 13 (Mar. 2014), available at http://cfsinnovation.s3.amazonaws.com/_Prepaid_Industry_Scorecard_2014.pdf.

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    As discussed above, the Bureau understands from outreach to industry and its own consumer research that consumer utilization of written account histories is very low, regardless of whether a fee is charged to obtain such information. Of those prepaid account providers that shared specific statistics with the Bureau, none had greater than one percent of active customers requesting written histories for GPR cards on a regular basis, regardless of whether the entity made electronic statements available as well. The Bureau also observed during its consumer focus groups that participant receipt of or desire for written account histories was very low.

    The Bureau is proposing to extend existing comment 18(b)-1, which requires that the history of transactions provided under existing Sec. 1005.18(b)(1)(ii) and (iii) reflect transactions once they have been posted to the account, and comment 18(b)-2 regarding retainability of electronic account history, to all prepaid accounts as new comments 18(c)-1 and -2, and revise the internal paragraph references to conform with other numbering changes the Bureau is proposing, but otherwise leave these two comments unchanged.

    As the Board explained in the Payroll Card Rule, it anticipated that, in general, written account histories would be sent the next business day or soon after an institution receives the consumer's oral or written request. The Board explained that institutions also may designate a specific telephone number for consumers to call and a specific address for consumers to write to request a written copy of account transactions. The Board also noted that, although Sec. 1005.18 does not address the issue, it believed that charging fees to consumers who make occasional requests for written histories could have a chilling effect on consumers' ability to obtain information about transactions and, thus, to exercise their error resolution rights.\297\ The Bureau shares these concerns.

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    \297\ See 71 FR 51437, 51444 (Aug. 30, 2006).

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    The Bureau reminds financial institutions that, when providing written account histories upon request as part of the alternative to the Sec. 1005.9(b) periodic statement requirement, generally, neither they nor their service providers would be permitted charge consumers for providing this required information pursuant to proposed Sec. 1005.18(c)(1)(iii). During the Bureau's outreach, many industry participants indicated that consumers very rarely make these types of requests, so the Bureau does not anticipate that this requirement would pose a significant burden.

    The Bureau recognizes, however, that in certain situations consumers' requests for written account information may exceed what would be required under the proposal; therefore, the Bureau is proposing to clarify in new comment 18(c)-3 those instances where a financial institution would be permitted to charge a fee for providing such information. Proposed comment 18(c)-3 would include several examples of requests that exceed the requirements of proposed Sec. 1005.18(c)(1) for providing account information and for which a financial institution would be permitted to charge a fee. A financial institution may assess a fee or charge to a consumer for responding to subsequent requests for written account information made in a single calendar month. For example, if a consumer makes a request for 18 months of written account transaction history on June 1 and makes a request for 18 months of written history on August 5, the financial institution may not assess a fee or charge to the consumer for responding to either request. However, if the consumer requests 18 months of written history on June 1 and then makes the same request on June 15, the financial institution may assess a fee or charge to the consumer for responding to the request made on June 15, as this is the second request in the same month. If a financial institution maintains more than 18 months of account transaction history, it may assess a fee or charge to the consumer for providing a written history of the consumer's account information for transactions occurring more than 18 months prior to the date the institution receives the consumer's request, provided the consumer specifically requests the account transaction history for that time period. If a financial institution offers a consumer the ability to request automatic mailings of written history on a monthly or other periodic basis, it may, at its option, assess a fee or charge for such automatic mailings but not for account history requested pursuant to proposed Sec. 1005.18(c)(1)(iii).

    Proposed comment 18(c)-4 would explain that a financial institution may provide fewer than 18 months of written account transaction history if the consumer requests a shorter period of time. If a prepaid account has been open for fewer than 18 months, the financial institution need only provide account information pursuant to proposed Sec. 1005.18(c)(1)(ii) and (iii) since the time of account opening. If a prepaid account is closed or becomes inactive, as defined by the financial institution, the financial institution must continue to provide at least 18 months of account transaction information from the date

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    the request is received. When a prepaid account has been closed or inactive for 18 months, the financial institution is no longer required to make available any account or transaction information available. The proposed comment references existing comment 9(b)-3, which provides that, with respect to written periodic statements, a financial institution need not send statements to consumers whose accounts are inactive as defined by the institution. The Bureau expects that for purposes of proposed comment 18(c)-4, a financial institution would similarly define for itself the threshold for when it considers a prepaid account inactive, consistent with existing comment 9(b)-3.

    The Bureau requests comment on all aspects of proposed Sec. 1005.18(c)(1) regarding access to prepaid account information and commentary related thereto. In particular, the Bureau seeks comment on the methods of access consumers need to their account information, and the time period needed for such access. Additionally, the Bureau requests comment on other alternatives for providing access to account information, as well as potential changes to what is proposed herein.

    18(c)(2) Information Included on Electronic or Written Histories

    Section 1005.18(b)(2) currently states that the history of account transactions provided under Sec. 1005.18(b)(1)(ii) and (iii) must include the information set forth in Sec. 1005.9(b). Section 1005.9(b) lists the various items that must be included in periodic statements, including, but not limited to, detailed transaction information and fees assessed. The Bureau proposes to renumber existing Sec. 1005.18(b)(2) as new Sec. 1005.18(c)(2) and revise the cross-

    references to correspond with proposed Sec. 1005.18(c)(1)(ii) and (iii), but otherwise leave this requirement unchanged. The Bureau solicits comment on this proposed approach.

    18(c)(3) Inclusion of All Fees Charged

    The Bureau is proposing to require in new Sec. 1005.18(c)(3) that a periodic statement furnished pursuant to Sec. 1005.9(b) for a prepaid account, an electronic history of account transactions whether provided under proposed Sec. 1005.18(c)(1)(ii) or otherwise, and a written history of account transactions provided under proposed Sec. 1005.18(c)(1)(iii) must disclose the amount of any fees assessed against a prepaid account, whether for electronic fund transfers or otherwise.

    EFTA section 906(c), generally implemented in Sec. 1005.9(b), provides that, among other things, a periodic statement must include the amount of any fees assessed against an account for electronic fund transfers or account maintenance. The Bureau notes that Regulation DD requires that periodic statements disclose all fees debited to accounts covered by that regulation. Sec. 1030.6(a)(3). Regulation DD defines ``account'' to mean ``a deposit account at a depository institution that is held by or offered to a consumer. It includes time, demand, savings, and negotiable order of withdrawal accounts.'' Sec. 1030.2(a). Because some prepaid accounts, as proposed herein to be defined under Regulation E, may not also constitute accounts as defined under Regulation DD, the Bureau is proposing new Sec. 1005.18(c)(3) to ensure that periodic statements and histories of account transactions for all prepaid accounts include all fees, not just those related to electronic fund transfers and account maintenance. As noted above, this proposed revision is authorized under EFTA section 904(c) and section 1032(a) of the Dodd-Frank Act.

    The Bureau solicits comment on this portion of the proposal. In addition, the Bureau seeks comment on whether any other specific protections of Regulation DD, which may not apply to prepaid accounts provided by financial institutions (as defined in Regulation E) that are not depository institutions (as defined in Regulation DD), could be addressed for all prepaid accounts to ensure consistent protections for prepaid accounts regardless of who is providing the account.

    18(c)(4) Summary Totals of Fees, Deposits, and Debits

    The Bureau is proposing new Sec. 1005.18(c)(4) to require that financial institutions provide a summary total of the amount of all fees assessed against the consumer's prepaid account, the total amount of all deposits to the account, and the total amount of all debits from the account, for the prior calendar month and for the calendar year to date. This information would be disclosed on any periodic statement provided pursuant to Sec. 1005.9(b), in any electronic history of account transactions whether provided pursuant to proposed Sec. 1005.18(c)(ii)or otherwise, and on any written history of account transactions provided pursuant to proposed Sec. 1005.18(c)(iii). As discussed above, the Bureau is concerned that disclosure of a single ``all-in'' estimation of fees on a prepaid product's packaging or elsewhere in pre-acquisition disclosures would not be feasible and ultimately would not provide useful information to consumers. The Bureau believes, however, that providing summary information about actual account usage (including fees incurred) would be useful to consumers in understanding their actual costs in using a particular prepaid account. As noted above, this proposed revision is authorized under EFTA section 904(c) and Dodd-Frank Act 1032(a). This summary total of fees proposal is similar to the requirement to disclose fees and interest in open end credit plans under Regulation Z. See 12 CFR 1026.7(b)(6).

    The summary total of fees would include all fees assessed against the prepaid account in each calendar month, as well as a total for the year-to-date. The summary totals of both monthly and annual fees paid, and the totals of deposits to and debits from the account on a monthly and annual basis, would be updated on an ongoing basis for each month and each year in the prepaid account's online transaction history, and would be disclosed in any ad hoc written transaction history provided in response to a consumer's request or in a periodic statement.

    Proposed comment 18(c)-5 would explain that if a financial institution provides periodic statements pursuant to Sec. 1005.9(b), total fees, deposits, and debits may be disclosed for each statement period rather than each calendar month, if different. Proposed comment 18(c)-5 would also explain that the fees that must be included in the summary total include those that are required to be disclosed pursuant to Sec. 1005.18(b)(2)(ii)(A). For example, an institution must include the fee it charges a consumer for using an out-of-network ATM in the summary total of fees, but it need not include any fee charged by an ATM operator with whom the institution has no relationship for the consumer's use of that operator's ATM.

    In addition, proposed comment 18(c)-5 would explain that the summary total of fees should be net of any fee reversals. The total amount of all debits from the account should be exclusive of fees assessed against the account. Finally, proposed comment 18(c)-5 would explain that the total deposits and total debits must include all deposits to and debits from the prepaid account, not just those deposits and debits that are the result of electronic fund transfers.

    The Bureau solicits comment on this portion of its proposal. In particular, the Bureau seeks comment on whether financial institutions are able to discern the amount of third party fees charged to a consumer's prepaid account (such as fees imposed by an ATM operator where the financial institution has no

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    relationship with the operator) and whether it would therefore be feasible for financial institutions to include such third party fees in this summary total of fees. The Bureau also seeks comment on whether and how credit accessed by a prepaid account, and the fees and finance charges related thereto, should be reflected in these proposed summary totals of fees, deposits and debits for the prepaid account.

    18(d) Modified Disclosure Requirements

    The Bureau is proposing to extend the requirements in existing Sec. 1005.18(c)(1) related to initial disclosures regarding access to account information and error resolution, and in existing Sec. 1005.18(c)(2) regarding annual error resolution notices, to all prepaid accounts. The Bureau proposes to renumber existing Sec. 1005.18(c)(1) and (2) as new Sec. 1005.18(d)(1) and (2) for organizational purposes and to separate the modified requirements related to disclosures in existing Sec. 1005.18(c)(1) and (2) from the modifications for limitations on liability and error resolution requirements in existing Sec. 1005.18(c)(3) and (4). See section-by-section analysis of proposed Sec. 1005.18(e). The Bureau proposes to adjust the internal cross-references in new Sec. 1005.18(d) in light of the various paragraph numbering changes and other revisions proposed throughout Sec. 1005.18.

    EFTA section 905(a)(7) requires financial institutions to provide consumers with an annual error resolution notice. The annual error resolution notice provision for payroll card accounts in existing Sec. 1005.18(c)(2) permits a financial institution, in lieu of providing an annual notice concerning error resolution, to include an abbreviated error resolution notice on or with each electronic and written history provided in accordance with existing Sec. 1005.18(b)(1). Financial institutions providing periodic statements are similarly permitted to provide an abbreviated error resolution notice on or with each periodic statement pursuant to Sec. 1005.8(b). The Bureau considered limiting the requirement to provide annual error resolution notices to only active and registered prepaid accounts, but given this existing alternative for providing an abbreviated notice with electronic and written history, the Bureau does not believe such a modification is necessary. To further the purposes of EFTA to provide a framework to establish the rights, liabilities, and responsibilities of prepaid account users, the Bureau believes it is necessary and proper to exercise its authority under EFTA section 904(c) to propose an adjustment to the error resolution notice requirement of EFTA section 905(a)(7), to permit notices for prepaid accounts as described in proposed Sec. 1005.18(d)(2), in order to facilitate compliance with error resolution requirements.

    The Bureau requests comment on the application of these provisions for initial disclosures regarding access to account information and error resolution, and annual error resolution notices, to all prepaid accounts. Specifically, the Bureau seeks comment on whether financial institutions would face particular challenges in providing annual error resolution notices to all consumers using prepaid accounts, as well as whether it should require that annual error resolution notices be sent for prepaid accounts in certain circumstances, such as those accounts for which a consumer has not accessed an electronic history or requested in written history in an entire calendar year and thus would not have received any error resolution notice during the course of the year.

    18(e) Modified Limitations on Liability and Error Resolution Requirements

    EFTA section 908 governs the timing and other requirements for consumers and financial institutions pertaining to error resolution, including provisional credit. EFTA section 909 governs consumer liability for unauthorized electronic fund transfers. The Bureau is proposing to extend the Payroll Card Rule's limited liability provisions and error resolution provisions, including provisional credit, to all prepaid accounts. The Bureau also proposes to reorganize existing Sec. 1005.18(c)(3) and (4) into proposed Sec. 1005.18(e)(1) and (2) and to revise the paragraph headings for proposed Sec. 1005.18(e), (e)(1) and (e)(2). Similar to the reorganization of existing Sec. 1005.18(c)(1) and (2) above, these changes are proposed to simplify the organization of proposed Sec. 1005.18 generally and to separate the modified requirements related to limited liability and error resolution from other modifications made for prepaid accounts.

    As discussed below in the section-by-section analysis of proposed Sec. 1005.18(e)(1), (2), and (3), the Bureau proposes to modify Regulation E's limited liability and error resolution timing requirements for prepaid accounts to accommodate how account information would be delivered by financial institutions choosing to follow the periodic statement alternative in proposed Sec. 1005.18(c)(1) discussed above, and to exempt unverified prepaid accounts from the limited liability and error resolution requirements. To further the purposes of EFTA to provide a framework to establish the rights, liabilities, and responsibilities of prepaid account users and to facilitate compliance with its provisions, the Bureau believes it is necessary and proper to exercise its authority pursuant to EFTA section 904(c) to modify the timing requirements of EFTA section 909(a) and to except unverified prepaid accounts from the error resolution and limited liability requirements of EFTA sections 908 and 909 to the extent such accounts remain unverified.

    18(e)(1) Modified Limitations on Liability Requirements

    EFTA section 909 addresses consumer liability and is implemented in Sec. 1005.6. For accounts under Regulation E generally, including payroll card accounts, Sec. 1005.6(a) provides that a consumer may be held liable for an unauthorized electronic fund transfer resulting from the loss or theft of an access device only if the financial institution has provided certain required disclosures and other conditions are met.\298\ If the consumer provides timely notice to the financial institution within two business days of learning of the loss or theft of the access device, the consumer's liability is the lesser of $50 or the amount of unauthorized transfers made before giving notice. Sec. 1005.6(b)(1). If timely notice is not given, the consumer's liability is the lesser of $500 or the sum of (1) the lesser of $50 or the amount of unauthorized transfers occurring within two business days of learning of the loss/theft and (2) the amount of unauthorized transfers that occur after two business days but before notice is given to the financial institution. Sec. 1005.6(b)(2). Section 1005.6(b)(3) provides, in part, that a consumer must report an unauthorized electronic fund transfer that appears on a periodic statement within 60 days of the financial institution's transmittal of the statement in order to avoid liability for subsequent transfers.

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    \298\ The required disclosures for this purpose include a summary of the consumer's liability under Sec. 1005.6, or under State law or other applicable law or agreement, for unauthorized electronic fund transfers; the telephone number and address of the person or office to be notified when the consumer believes an unauthorized transfer has been or may be made; and the financial institution's business days. See Sec. Sec. 1005.6(a) and 1005.7(b)(1) through (3).

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    Existing Sec. 1005.18(c)(3)(i) provides that, for payroll card accounts following the periodic statement alternative in existing Sec. 1005.18(b), the 60-day period in Sec. 1005.6(b)(3) for reporting

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    unauthorized transfers begins on the earlier of (1) the date the consumer electronically accesses his account under Sec. 1005.18(b)(1)(ii), provided that the electronic history reflects the transfer, or (2) the date the financial institution sends a written history of the consumer's account transactions requested by the consumer under Sec. 1005.18(b)(1)(iii) in which the unauthorized transfer is first reflected. Alternatively, existing Sec. 1005.18(c)(3)(ii) provides that a financial institution may comply with the requirements of Sec. 1005.18(c)(3)(i) by limiting a consumer's liability for an unauthorized transfer as provided under Sec. 1005.6(b)(3) for any transfer reported by the consumer within 120 days after the transfer was credited or debited to the consumer's account. The Bureau notes that this provision only modifies the 60-day period for consumers to report an unauthorized transfer and does not alter any other provision of Sec. 1005.6.

    In response to the Prepaid ANPR, the Bureau received few comments specifically regarding limited liability requirements. Most industry, trade association, and consumer advocacy group commenters suggested that GPR cards should generally be treated the same as payroll card accounts under Regulation E (except with respect to access to account information, discussed above, and provisional credit, discussed below). A few commenters, however, urged against extending protections for lost or stolen cards, arguing that there is a potential for abuse by some consumers, or suggested that modified liability provisions are needed to account for the increased risks they claimed are associated with prepaid products.

    The Bureau's Study of Prepaid Account Agreements found that the vast majority of programs reviewed limit consumer liability in accordance with existing Regulation E provisions.\299\ Similarly, CFSI found that all 18 programs in its review (representing an estimated 90 percent of the GPR card marketplace) had adopted the Payroll Card Rule's version of Regulation E error resolution and limited liability protections.\300\

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    \299\ The Study of Prepaid Account Agreements found that across all prepaid account agreements reviewed, 88.92 percent provided full limited liability; 8.31 percent partially limited consumers' liability; and 2.77 percent did not appear to provide consumers with any limited liability protections. Excluding agreements for payroll card and government benefit card programs (100 percent of each provided full limited liability protections), 88.02 percent of agreements for GPR card programs and 64.28 percent of all other programs' agreements provide full limited liability protections to consumers. See Study of Prepaid Account Agreements, at 16 tbl. 4.

    \300\ Ctr. for Fin. Services Innovation, Prepaid Industry Scorecard, Assessing Quality in the Prepaid Industry with CFSI's Compass Principles, at 12 (Mar. 2014), available at http://cfsinnovation.s3.amazonaws.com/CFSI_Prepaid_Industry_Scorecard_2014.pdf.

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    The Bureau is proposing to extend to all prepaid accounts the existing limited liability provisions of Regulation E with modifications to the Sec. 1005.6(b)(3) timing requirements in proposed Sec. 1005.18(e)(1) for financial institutions following the periodic statement alternative in proposed Sec. 1005.18(c)(1).\301\ The text of proposed Sec. 1005.18(e)(1) would update internal paragraph citations to reflect other numbering changes made in this proposal and add the word ``unauthorized'' to refer to the transfer discussed in proposed Sec. 1005.18(e)(1)(i)(A) for consistency with usage elsewhere in proposed Sec. 1005.18(e)(1), but otherwise would remain unchanged from existing Sec. 1005.18(c)(3). Related commentary is discussed below in the section-by-section analysis of proposed Sec. 1005.18(e)(2). The Bureau notes that this proposal does not modify the requirement to comply with existing Sec. 1005.6(b)(4), regarding an extension of time limits if a consumer's delay in notifying the financial institution was due to extenuating circumstances, nor any other provisions of Sec. 1005.6. As discussed above, this proposed revision is authorized under EFTA section 904(c). The Bureau seeks comments on all aspects of this part of the proposal.

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    \301\ The Bureau is proposing an additional modification in proposed Sec. 1005.18(e)(3), discussed below, to provide an exception to the requirement to provide limited liability protection when a financial institution has not completed collection of consumer identifying information and identity verification for a prepaid account, assuming notice of the risk of not registering the prepaid account has been provided to the consumer.

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    18(e)(2) Modified Error Resolution Requirements

    Overview of Existing Requirements

    EFTA section 908 governs the timing and other requirements for consumers and financial institutions on error resolution, including provisional credit, and is implemented for accounts under Regulation E generally, including payroll card accounts, in Sec. 1005.11. Section 1005.11(c)(1) and (3)(i) requires that a financial institution, after receiving notice that a consumer believes an electronic fund transfer from the consumer's account was not authorized, must investigate promptly and determine whether an error occurred (i.e., whether the transfer was unauthorized), within ten business days (20 business days if the electronic fund transfer occurred within 30 days of the first deposit to the account). Upon completion of the investigation, the financial institution must report the investigation's results to the consumer within three business days. After determining that an error occurred, the financial institution must correct an error within one business day. See Sec. 1005.11(c)(1). Under EFTA section 909(b), the burden of proof is on the financial institution to show that an alleged error was in fact an authorized transaction; if the financial institution cannot establish proof of valid authorization, the financial institution must credit the consumer's account.

    Existing Sec. 1005.11(c)(2) provides that if the financial institution is unable to complete the investigation within ten business days, its investigation may take up to 45 days if it provisionally credits the amount of the alleged error back to the consumer's account within ten business days of receiving the error notice.\302\ Provisional credit is not required if the financial institution requires but does not receive written confirmation within 10 business days of an oral notice by the consumer. Sec. 1005.11(c)(2)(i)(A). If the investigation establishes proof that the transaction was, in fact, authorized, the financial institution may reverse any provisional credit previously extended (assuming there are still available funds in the account). Sec. 1005.11(d)(2).

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    \302\ The financial institution has 90 days (instead of 45) if the claimed unauthorized electronic fund transfer was not initiated in a state, resulted from a point-of-sale debit card transaction, or occurred within 30 days after the first deposit to the account was made. Sec. 1005.11(c)(3)(ii).

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    Existing Sec. 1005.18(c)(4) provides that, for payroll card accounts following the periodic statement alternative in existing Sec. 1005.18(b), the period for reporting an unauthorized transaction is tied, in part, to the date the consumer electronically accesses the consumer's account pursuant to existing Sec. 1005.18(b)(1)(ii), provided that the electronic account history reflects the transfer at that time, or the date the financial institution sends a written history of the consumer's account transactions requested by the consumer pursuant to existing Sec. 1005.18(b)(1)(iii) in which the unauthorized transfer is first reflected. The Bureau notes that this provision only modifies the 60-day period for consumers to report an error and does not alter any other provision of Sec. 1005.11.

    As discussed above, the FMS Rule requires that the issuer of a prepaid card that receives a Federal payment must

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    comply with the error resolution and provisional credit requirements for payroll cards accounts in Regulation E. See 31 CFR 210.5(b)(5). The Bureau understands that prepaid cards that receive Federal payments and, as discussed previously, by extension many other prepaid cards that are eligible to receive Federal payments if the consumer so chooses, already comply with these provisions.

    Comments Received and Other Industry Outreach

    In response to the Prepaid ANPR, industry, trade associations, and consumer groups were nearly unanimous in their support for extending Regulation E error resolution requirements to prepaid cards. Those industry commenters that disagreed suggested, however, that the Bureau should not extend Regulation E limited liability and error resolution provisions to prepaid products, arguing that consumers should assume some liability for fraud or stolen PINs in certain situations where the consumer acted negligently. One credit union argued that increasing protections for prepaid cards decreases the incentive for consumers to establish checking and savings accounts. Other commenters suggested that, if prepaid cards were covered under Regulation E at all, the Regulation should be modified to generally match existing industry practices rather than requiring financial institutions to change products in ways that commenters said could cause fees to increase, thus making these products more expensive for consumers.

    Several industry and trade association commenters requested that the Bureau shorten any time frame for consumers to report unauthorized transactions to 60 days from the date the transaction is posted to the consumer's account, arguing that a longer period is not necessary given consumers' readily available access to online account information. These parties also pointed out that, when consumers significantly delay reporting unauthorized transactions to their financial institution, it can be costly and difficult for the institution to investigate. Others argued that ten business days is too short a period in which to investigate errors before extending provisional credit and that time period should be extended to at least 20 business days or longer.

    Commenters were varied in their suggested approaches with respect to provisional credit. Some program managers, in comment letters responding to the Bureau's Prepaid ANPR as well as in other outreach conducted by the Bureau, have expressed concern about extending provisional credit to all prepaid card accounts, asserting that the potential fraud losses would be unsustainable. Specifically, they contend that cardholders intending to take advantage of the rules can make a purchase or withdraw cash at an ATM, assert that an error has occurred, obtain provisional credit (because many claims take most providers more than ten or even 20 business days to resolve), spend down those funds, and abandon the card before the provider is able to complete its investigation. Industry commenters argued that prepaid cards may have higher incidences of fraudulently-asserted errors than other types of accounts for a number of reasons, including that prepaid cards are often purchased anonymously; prepaid cards are easier to abandon and are more often abandoned (by quickly spending down the balance and discarding the card); consumers may not have any other ongoing relationship with the issuing bank or program manager; and fraud is less likely when a consumer's paycheck or employer is implicated (e.g., in accounts receiving direct deposit), whether those funds are being sent to a prepaid account, payroll card account, or other consumer asset account under Regulation E. As noted above, EFTA places the burden of proof on the financial institution to show that an alleged error was, in fact, an authorized transaction.

    Nevertheless, consumer advocates and some industry commenters argued that many prepaid accounts are used in substantially similar ways as traditional consumer asset accounts and thus consumers using prepaid accounts should receive protections for funds lost due to unauthorized use in the same timeframe as holders of other accounts covered by Regulation E. Consumer advocates repeatedly emphasized how important provisional credit can be for consumers, noting that many consumers who use prepaid cards have limited liquid assets and may put a substantial portion of those assets on their prepaid cards. Without provisional credit, if those funds are lost due to an unauthorized transfer, a consumer could be without those funds--most of their assets--for the duration of the financial institution's investigation (up to 45 days, or 90 days in certain circumstances). Consumer advocates contended that provisional credit may be particularly important to prepaid account users because they may be less likely to have access to other funds.

    Study of Prepaid Account Agreements Regarding Error Resolution and Provisional Credit

    As discussed previously, the Bureau conducted its Study of Prepaid Account Agreements to better understand how providers of prepaid accounts would be affected by a requirement they offer error resolution with provisional credit. In this Study, the Bureau analyzed prepaid account terms and conditions to determine current industry practices in a number of areas, including with respect to error resolution and provisional credit. The Bureau found that across all agreements reviewed, 77.85 percent provided full error resolution with provisional credit protections, 12.31 percent provided error resolution with limitations on provisional credit; 9.23 percent provided error resolution without provisional credit; and 0.62 provided no error resolution protections.\303\ Because these statistics weight all agreements equally, and thus do not reflect individual programs' or providers' market shares, the Bureau also specifically analyzed the 22 agreements for GPR card programs in the Study that belong to five of the largest program managers in the GPR card market (which together constituted 81 percent of the market by load volume and 72.2 percent market share based on number of active cards as of late 2012 \304\). The Bureau found that 17 of these agreements provide full error resolution protections with provisional credit, three provide error resolution with limitations on provisional credit, and two provide error resolution without provisional credit.\305\

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    \303\ See The Study of Prepaid Account Agreements, at 13 tbl. 3.

    \304\ Aite Group LLC, The Contenders: Prepaid Debit and Payroll Cards Reach Ubiquity, at 17, 23 (Nov. 2012).

    \305\ See The Study of Prepaid Account Agreements, at 13 tbl. 3.

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    Similarly, as noted above, CFSI found that all cards reviewed, representing an estimated 90 percent of the GPR card marketplace, had adopted the Payroll Card Rule's version of Regulation E's error resolution and limited liability protections.\306\

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    \306\ Ctr. for Fin. Services Innovation, Prepaid Industry Scorecard, Assessing Quality in the Prepaid Industry with CFSI's Compass Principles, at 12 (Mar. 2014), available at http://cfsinnovation.s3.amazonaws.com/CFSI_Prepaid_Industry_Scorecard_2014.pdf.

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    Apart from the relevant provisions in Regulation E, the Bureau notes that the four major payment card networks' rules all impose some form of zero liability protections for cardholders in certain circumstances. At least one network, for

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    example, requires provisional credit to be given after five days (rather than ten) for unauthorized transactions occurring over its network, unless certain exceptions apply.

    Proposal

    The Bureau is proposing to extend to all prepaid accounts the error resolution provisions of Regulation E, including provisional credit, with modifications to the Sec. 1005.11 timing requirements in proposed Sec. 1005.18(e)(2) for financial institutions following the periodic statement alternative in proposed Sec. 1005.18(c)(1).\307\ The text of proposed Sec. 1005.18(e)(2) updates internal paragraph citations to reflect other numbering changes made in this proposal, but otherwise remains unchanged from existing Sec. 1005.18(c)(4). As discussed above, EFTA section 904(c) authorizes this proposed revision.

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    \307\ The Bureau is proposing an additional modification in proposed Sec. 1005.18(e)(3), discussed below, to provide an exception to the requirement to provide error resolution when a financial institution has not completed collection of consumer identifying information and identity verification for a prepaid account, assuming appropriate notice of the risk of not registering the prepaid account has been provided to the consumer.

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    The Bureau is proposing to extend to all prepaid accounts existing comment 18(c)-1 regarding the error resolution safe harbor provision, renumbered as new comment 18(e)-1 and with references to payroll card accounts changed to prepaid accounts. The Bureau is also proposing to extend existing comment 18(c)-2 to all prepaid accounts, with one substantive modification, renumbered as new comment 18(e)-2, and with the reference to payroll card account changed to prepaid account. This comment currently provides, in part, that a consumer is deemed to have accessed a payroll card account electronically when the consumer enters a user identification code or password or otherwise complies with a security procedure used by an institution to verify the consumer's identity. The Bureau proposes to add language to the comment to make clear that access to account information via a mobile application, as well as through a web browser, would constitute electronic access to an account for purposes of the timing provisions in proposed Sec. 1005.18(e)(1) and (2). The existing comment also explains that an institution is not required to determine whether a consumer has in fact accessed information about specific transactions to trigger the beginning of the 60-day periods for liability limits and error resolution under Sec. Sec. 1005.6 and 1005.11. To further clarify this, the Bureau proposes to add an additional sentence to the end of proposed comment 18(e)-2 to explain that a consumer is not deemed to have accessed a prepaid account electronically when the consumer receives an automated text message or other automated account alert, or checks the account balance by telephone.

    The Bureau is proposing to extend existing comment 18(c)-3, regarding untimely notice of error by a consumer, to all prepaid accounts, renumbered as new comment 18(e)-3 and with internal paragraph citations updated to reflect other numbering changes made in this proposal. The last sentence of the comment currently provides that where the consumer's assertion of error involves an unauthorized EFT, the institution must comply with Sec. 1005.6 before it may impose any liability on the consumer. The Bureau is proposing to specifically note that compliance with Sec. 1005.6 includes compliance with the extension of time limits provided in Sec. 1005.6(b)(4).

    The Bureau seeks comments on all aspects of its proposal for new Sec. 1005.18(e)(2) and related commentary. In particular, the Bureau requests comment on whether there is an alternative approach to error resolution that the Bureau should adopt for prepaid accounts. The Bureau also seeks comment on whether error resolution with provisional credit is appropriate for all, or only certain, prepaid accounts, and whether there are any indicators that financial institutions use that might adequately predict the validity of a particular error claim, which might inform the Bureau's application of error resolution requirements to all prepaid accounts.

    The Bureau also seeks comment on whether there might be any other consequences to extending the requirement for error resolution with provisional credit to all prepaid accounts. In particular, the Bureau seeks comment on what impact the concern for increased fraud losses (or the potential therefor) might have on financial institutions' eligibility requirements and initial screening processes for new prepaid accountholders. The Bureau also seeks comment on whether institutions might become more apt to close accounts that have asserted error claims, and whether and how these factors might result in decreased access to financial products for consumers.

    Alternative Approaches Considered by the Bureau

    In light of the various concerns raised in comment letters received in response to the Prepaid ANPR and during the Bureau's outreach to industry and consumer groups, the Bureau recognizes that provisional credit can be important to consumers, but also that there could be an increased risk of fraud by cardholders who might be unscrupulous and might be able to take advantage of a comprehensive provisional credit rule. Thus, the Bureau considered a number of alternatives to extending full provisional credit to all prepaid accounts. For example, the Bureau considered whether provisional credit should be limited only to prepaid accounts receiving payroll or government payments, those that have received some form of direct deposit within a certain period, such as 30 days, those that have been opened for a certain amount of time, or those that maintained a balance over a certain threshold prior to the alleged error, among other things.

    Any of these factors could potentially limit provisional credit fraud, although each has drawbacks. For example, even though providers indicated that a claim for an unauthorized transaction in the first few days after account opening is more likely to be fraudulent than claims on older accounts, consumers seeking to commit fraud could simply wait the designated period of time before asserting an error claim and seeking provisional credit if the Bureau were to require provisional credit only for prepaid accounts of a certain age. At the same time, honest consumers would be without key protections during that time period. Another approach would be to limit provisional credit to prepaid accounts that receive some form of direct deposit because consumers who receive wage or benefit payments on a card may be less likely to risk that payment to commit fraud. Ultimately, however, the Bureau believes the protection offered by this approach would potentially be too narrow because many consumers using prepaid accounts receive wages in forms other than direct deposit (such as those that receive their wages or tips in cash) and would not be able to receive provisional credit under such a standard. It would similarly leave consumers who do not receive any wage or benefit payments into their prepaid accounts unprotected.

    The Bureau seeks comment on whether there are any other alternatives to or potential limits on provisional credit that might contain fraud losses for

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    institutions while adequately protecting consumers from harm.

    18(e)(3) Limitations on Liability and Error Resolution for Unverified Accounts

    To further the purposes of EFTA, the Bureau believes it is necessary and proper to propose to use its exceptions authority under EFTA section 904(c) to add new section Sec. 1005.18(e)(3). This proposed provision would provide that for prepaid accounts that are not payroll card accounts or government benefit accounts, if a financial institution discloses to the consumer the risks of not registering a prepaid account using a notice that is substantially similar to the proposed notice contained in paragraph (c) of appendix A-7, a financial institution is not required to comply with the liability limits and error resolution requirements under Sec. Sec. 1005.6 and 1005.11 for any prepaid account for which it has not completed it collection of consumer identifying information and identity verification.\308\ However, once the consumer's identity has been verified, a financial institution must limit the consumer's liability for unauthorized EFTs and resolve any errors that occurred prior to verification subject to the timing requirements of existing Sec. Sec. 1005.6 or 1005.11, or the modified timing requirements in proposed Sec. 1005.18(e), as applicable.

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    \308\ Relatedly, the Bureau is proposing to require that financial institutions include on the short form disclosure for all prepaid accounts a statement emphasizing the importance of registering the prepaid account. See section-by-section analysis of proposed Sec. 1005.18(b)(2)(i)(B)(12).

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    Proposed comment 18(e)-4 would explain that for the purpose of compliance with proposed Sec. 1005.18(e)(3), consumer identifying information may include the consumer's full name, address, date of birth, and Social Security number or other government-issued identification number. Comment 18(e)-4 would also explain that for an unauthorized transfer or an error asserted on a previously unverified prepaid account, whether a consumer has timely reported the unauthorized transfer or alleged error is based on the date the consumer contacts the financial institution to report the unauthorized transfer or alleged error, not the date the financial institution completes its customer identification and verification process. Comment 18(e)-4 would further explain that for an error asserted on a previously unverified prepaid account, the time limits for a financial institution's investigation of errors pursuant to Sec. 1005.11(c) begin on the day following the date the financial institution completed its customer identification and verification process. A financial institution may not delay completing its customer identification and verification process, or refuse to verify a consumer's identity, based on the consumer's assertion of an error.

    The Bureau understands that financial institutions often conduct customer identification and verification at the onset of a relationship with a consumer, such as at the time a consumer signs up to receive wages via a payroll card account or when a consumer requests a GPR card online. For GPR cards purchased at retail stores, the financial institution may--but does not always--obtain customer-identifying information and perform verification at the time the consumer calls or goes online to activate the card. Because of restrictions imposed by FinCEN's Prepaid Access Rule (31 CFR 1022.210(d)(1)(v)) and the payment card networks' operating rules, among other things, the Bureau understands that customer identification and verification is almost always performed before a card can be reloaded, used to make cash withdrawals, or used to receive cash back at the point of sale. The Bureau believes that providers thus have an incentive to encourage consumers to register their cards to increase the functionality and thus the longevity of the consumer's use of the account.

    Collection of consumer identifying information and verification of identity under proposed Sec. 1005.18(e)(3) would include information collected, and identities verified, by a financial institution directly as well as by a service provider or agent of the institution. Thus, the Bureau expects that financial institutions providing prepaid accounts for purposes such as student financial aid disbursements or property or casualty insurance payments would likely not be able to avail themselves of the exclusion in Sec. 1005.18(e)(3) because consumer identifying information is collected and consumers' identities verified by the financial institution, or a service provider or agent of the institution, prior to distribution of such prepaid accounts. The Bureau solicits comment on the proposed exclusion and on what other types of prepaid account products might be eligible for it, and whether the exclusion should be applied more broadly or limited only to certain types of prepaid account products such as those sold anonymously at retail locations.

    The Bureau is proposing to adopt this exemption because it understands that financial institutions may face difficulties in determining whether an unauthorized transaction occurred if it does not know a prepaid accountholder's identity. For example, a financial institution might have a video recording provided by a merchant or ATM operator showing the card user, but without having identified the accountholder, it would have no way of knowing if the individual conducting the transaction is authorized to do so.

    The Bureau believes that financial institutions would follow the customer identification and verification requirements set forth in FinCEN's customer identification program requirements for banks in 31 CFR 1020.220 or for providers and sellers of prepaid access in 31 CFR 1022.210(d)(1)(iv).

    The Bureau anticipates that when a consumer calls to assert an error on an unverified account, the financial institution would inform the consumer of its policy regarding error resolution on unverified accounts and would begin the customer identification and verification process at that time. As noted previously, the Bureau believes that providers have an incentive to encourage consumers to register their cards to increase the functionality and thus the longevity of the consumer's use of the account.

    The Bureau seeks comment on all aspects of this part of its proposal, including whether FinCEN's regulations, as discussed above, are the appropriate standard to use for identification and verification of prepaid accountholders, or whether some other standard should be used. The Bureau also seeks comment on whether error resolution should be required even for unidentified or unverified accounts or whether, for such accounts, the Bureau should exercise its exceptions authority under EFTA to change the burden of proof from the financial institution to the accountholder in such circumstances rather than eliminate error resolution rights altogether. Such a change might add protections for consumers in particular circumstances, such as if their initial cash load amount does not match the amount actually credited to their prepaid account. (For example, if the consumer were to load $100 cash, but their online account balance shows only $10.) The Bureau seeks comment on the proportion of prepaid accounts for which customer identification and verification is either never performed or is attempted but cannot be completed. The Bureau also seeks comment on whether such accounts should receive error resolution protections but without requiring financial institutions to grant provisional credit.

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    The Bureau believes that it is unlikely that a financial institution would seek to avoid completion of the identification and verification process in order to refuse to address an error asserted by a consumer given the potential benefits to the institution associated with having a consumer complete the identification and verification process. However, the Bureau seeks comment on whether such evasion is likely to occur and whether the Bureau should impose a time limit for completion of the customer identification and verification process.

    18(f) Initial Disclosure of Fees and Other Key Information

    The Bureau is proposing Sec. 1005.18(f), which would modify the initial disclosure of fees requirement in Sec. 1005.7(b)(5) for prepaid accounts. EFTA section 905(a)(4) requires financial institutions to disclose to consumers, as part of the account's terms and conditions, any charges for electronic fund transfers or for the right to make such transfers. Existing Sec. 1005.7(b)(5) implements this requirement by stating that, as part of the initial disclosures, any fees imposed by a financial institution for electronic fund transfers or for the right to make transfers must be disclosed. Existing comment 7(b)(5)-1 further clarifies that other fees (for example, minimum-balance fees, stop-payment fees, or account overdrafts) may, but need not, be disclosed. The Bureau believes that for prepaid accounts, however, it is important that the initial account disclosures provided to consumers list all fees that may be imposed in connection with the prepaid account. The Bureau believes that because these disclosures are what consumers will likely reference throughout their ongoing use of their prepaid accounts, it is important that these disclosures include all relevant fee information, not just those fees related to electronic fund transfers.

    Thus, to further the purposes of EFTA to provide a framework to establish the rights, liabilities, and responsibilities of prepaid account users, the Bureau believes it is necessary and proper to exercise its authority under EFTA section 904(c) to propose an adjustment of the requirement in EFTA section 905(a)(4), which is implemented in existing Sec. 1005.7(b)(5), for prepaid accounts. In addition, the Bureau believes that disclosure of all fees for prepaid accounts will, consistent with Dodd-Frank Act section 1032(a), ensure that the features of prepaid accounts are fully, accurately, and effectively disclosed to consumers in a manner that permits consumers to understand the costs, benefits, and risks associated with a prepaid account. Specifically, the Bureau is proposing Sec. 1005.18(f), which would require that in addition to disclosing any fees imposed by a financial institution for electronic fund transfers or the right to make such transfers, the financial institution must also include in its initial disclosures given pursuant to Sec. 1005.7(b)(5) all other fees imposed by the financial institution in connection with a prepaid account. For each fee, a financial institution must disclose the amount of the fee, the conditions, if any, under which the fee may be imposed, waived, or reduced, and, to the extent known, whether any third party fees may apply.

    The Bureau believes that most providers are already disclosing all fees in the terms and conditions accompanying prepaid accounts. Further, the Bureau notes that Regulation DD, which implements TISA, requires that initial disclosures for deposit accounts include the amount of any fee that may be imposed in connection with the account (or an explanation of how the fee will be determined) and the conditions under which the fee may be imposed. Sec. 1030.4(b)(4).

    The Bureau is further proposing that these disclosures pursuant to proposed Sec. 1005.18(f) include all of the information required to be disclosed pursuant to Sec. 1005.18(b)(2)(ii)(B) and must be provided in a form substantially similar to Sample Form A-10(e). The Bureau believes that for consistency purposes and to facilitate consumer understanding of a prepaid account's terms, it is useful for the fee disclosure provided pursuant to Sec. 1005.7(b)(5), as modified by proposed Sec. 1005.18(f), to be in the same format of the long form disclosure requirement of proposed Sec. 1005.18(b)(2)(ii)(A).

    The Bureau seeks comment on this portion of the proposal.

    18(g) Credit Card Plans Linked to Prepaid Accounts

    Proposed Sec. 1005.18(g)(1) would set forth timing rules related to when a credit card plan under Regulation Z could be linked to a prepaid account. Proposed Sec. 1005.18(g)(2) would set forth rules related to the terms applicable to the prepaid account when a credit card plan is linked to a prepaid account.

    18(g)(1) Prohibitions

    Proposed Sec. 1005.18(g)(1) generally would restrict financial institutions that establish or hold prepaid accounts from linking a credit card plan under Regulation Z to a prepaid account, or allowing the prepaid account to be linked to such a credit card plan, until 30 calendar days after the prepaid account has been registered. Proposed Sec. 1005.18(g)(1)(i) would restrict financial institutions that establish or hold prepaid accounts from providing solicitations or applications to holders of prepaid accounts to open credit card accounts subject to Regulation Z, prior to 30 calendar days after the prepaid accounts have been registered. For purposes of proposed Sec. 1005.18(g)(1), the term solicitation would mean an offer by the person to open a credit or charge card account subject to Regulation Z that does not require the consumer to complete an application. A ``firm offer of credit'' as defined in section 603(l) of the Fair Credit Reporting Act (15 U.S.C. 1681a(l)) for a credit or charge card would be a solicitation for purposes of proposed Sec. 1005.18(g)(1).

    Proposed Sec. 1005.18(g)(1)(ii) would restrict financial institutions that establish or hold prepaid accounts of consumers from allowing prepaid access devices to access credit card plans subject to Regulation Z that would make the prepaid access devices into credit cards at any time prior to 30 calendar days after the prepaid accounts have been registered. Proposed Sec. 1005.18(g)(1)(iii) would restrict financial institutions that establish or hold prepaid accounts of consumers from allowing credit extensions from credit card plans subject to Regulation Z to be deposited in prepaid accounts, where the credit plans are accessed by account numbers that are credit cards under Regulation Z where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor, prior to 30 calendar days after the prepaid account has been registered. Proposed Sec. 1005.18(g)(1)(iii) is intended to address situations where (1) a separate line of credit is linked to a prepaid account where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor, (2) the consumer requests an advance on the open-end account using an account number only, and (3) the advance is deposited into the prepaid account. Proposed comment 18(g)-1 would cross reference provisions in Regulation Z that would provide guidance on when a program constitutes a credit plan (see proposed Sec. 1026.2(a)(20) and comment 2(a)(20)-2.ii) and would provide guidance on when an access device for a prepaid account is a credit card and when an account number is a credit card where extensions of credit are

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    permitted to be deposited directly only into particular prepaid accounts specified by the creditor (see Sec. 1026.2(a)(15)(i), proposed Sec. 1026.2(a)(15)(vii), and proposed comment 2(a)(15)-2.i.F and .G).

    Proposed Sec. 1005.18(g)(1) would complement a similar proposed provision in Regulation Z, proposed Sec. 1026.12(h), which would require credit card issuers to wait at least 30 calendar days after the prepaid account has been registered before the card issuer may provide a solicitation or an application to the holder of the prepaid account to open a credit or charge card account that will be accessed by the prepaid card that is a credit card under Regulation Z, or by an account number that is a credit card under Regulation Z where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor.

    The Bureau is proposing Sec. 1005.18(g)(1) pursuant to its authority under sections 904(a), 904(c), and 905(a) of EFTA (15 U.S.C. 1693b) and Dodd-Frank Act section 1032(a). The Bureau believes that proposed Sec. 1005.18(g)(1) is necessary and proper to effectuate the express purposes of EFTA to provide a framework to establish the rights, liabilities and responsibilities of prepaid account users by helping consumers understand the terms of their prepaid accounts and that credit card plans linked to the prepaid accounts are optional. Under the Bureau's proposal and as discussed above, a consumer's registration of a prepaid account would be a critical step for obtaining Regulation E's consumer rights and protections with respect to the account, and the Bureau's proposal to restrict financial institutions from offering credit features to holders of prepaid accounts until 30 days after the accounts have been registered seeks, in part, to ensure that consumers understand that they are not required to request any credit feature in order to register and use a prepaid account.

    The Bureau is also proposing to adopt this provision because a consumer's decision of which prepaid account to purchase, register, and use is itself a complex decision involving several variables, including the consumer's finances and purchasing habits. If the consumer makes a choice that does not ultimately prove to be a good fit, it is relatively easy for that consumer to acquire a different prepaid account (to the extent that account does not have a credit feature). The Bureau believes that this dynamic has fostered a competitive market, and it is concerned that combining decisions on prepaid accounts and credit features would tend to undermine that in at least two ways. First, it makes the acquisition of the prepaid account even more complex by adding more variables to consider; as noted previously, consumers may spend little time shopping for a prepaid card. Second, the presence of a credit feature may make it harder for consumers to terminate their account relationships if consumers can incur significant debts before having a chance to determine how the prepaid account itself is performing.

    The Bureau's proposal seeks to keep that decision separate from a consumer's decision whether to add a credit feature to the prepaid account, which involves numerous additional variables that the consumer should consider. The two decisions in combination could cause consumers to make incorrect or suboptimal decisions. The Bureau is particularly concerned that the events of purchasing, registering, and adding a credit feature to a prepaid account could become conflated for prepaid accounts that consumers obtain on the Internet, because in that context the events could occur close together in time. In particular, the Bureau believes that the proposed 30-day waiting period would, consistent with Dodd-Frank section 1032(a), ensure that the features of the prepaid account and any credit card feature that might become connected to it are fully, accurately, and effectively disclosed to consumers in a manner that permits consumers to understand the costs, benefits, and risks associated with the account. The Bureau believes that a consumer should have the opportunity to assess the features of a prepaid account by means of actually using it before being offered a credit feature that might make it more difficult for the consumer to terminate the prepaid account relationship due to outstanding credit balances.

    As discussed in the section-by-section analysis of Regulation Z Sec. 1026.12(a)(1), under the proposal, a credit card feature may be added to a previously issued prepaid card only upon the consumer's specific request and only in compliance with proposed Sec. 1026.12(h). Proposed Sec. 1026.12(h) would require credit card issuers to wait at least 30 calendar days after the prepaid account has been registered before the card issuer may open a credit card account for the holder of a prepaid account, or may provide a solicitation or an application to the holder of the prepaid account to open a credit or charge card account, that will be accessed by the prepaid card that is a credit card under Regulation Z or by an account number that is a credit card under Regulation Z where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor.

    The Bureau believes that Regulation E proposed Sec. 1005.18(g)(1) and Regulation Z proposed Sec. 1026.12(h), taken together, would promote the informed use of the prepaid account and the credit card account by separating the decision to purchase and register a prepaid account from the decision to accept an offer to link a credit card account to that prepaid account. By separating these decisions, Sec. 1005.18(g)(1) would better allow consumers to focus on the terms and conditions that apply to the prepaid account at the time of purchase and registration which may enable the consumer to better understand those terms and conditions, consistent with EFTA section 905(a) which requires financial institutions to disclose the terms and conditions of electronic fund transfers involving a consumer's account. The Bureau also believes that requiring at least 30 calendar days to elapse between the registration of a prepaid account and any offer of a linked credit or charge card account would enhance consumer understanding of the terms of the prepaid account and would help consumers to make more informed decisions regarding linking a credit or charge card account the prepaid account. Otherwise, the Bureau fears that consumers could believe that they are required to request that the credit or charge card account be linked to the prepaid account in order to register or access the prepaid account.

    The Bureau recognizes that this provision would be unique to prepaid accounts. Compare existing 1005.17(c). Nevertheless and for the reasons discussed above, the Bureau believes that it is particularly important to separate these two decisions for prepaid accounts and related overdraft services and credit features. The Bureau solicits comment on this provision. The Bureau also solicits comment on the 30 day time frame, and whether a shorter or longer time frame would better accomplish the goals of the provision.

    The Bureau notes that proposed Sec. 1005.18(g)(1) and Regulation Z Sec. 1026.12(h) would overlap in cases where the credit card plan is accessed by a prepaid card or the credit card plan is being offered by a financial institution that holds the prepaid account and is accessed by an account number where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor. In those cases, the financial

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    institution would be a ``card issuer'' under Regulation Z Sec. 1026.2(a)(7) \309\ and the Bureau is proposing that both the requirements of proposed Regulation Z Sec. 1026.12(h) and proposed Regulation E Sec. 1005.18(g)(1) would apply to the financial institution who also is a card issuer. Nonetheless, the Bureau intends proposed Regulation E Sec. 1005.18(g)(1) and Regulation Z Sec. 1026.12(h) to impose the same restrictions in those situations. In cases where the credit card account is being offered by a person other than the person who holds the prepaid account and is being accessed by an account number as described above, the person issuing the account number that is a credit card (i.e., card issuer) must comply with proposed Regulation Z Sec. 1026.12(h). In addition, the financial institution that holds the prepaid account must comply with Regulation E Sec. 1026.18(g)(1). The Bureau believes that imposing complementary restrictions on both the card issuer that is offering the credit card account and the financial institution that holds the prepaid account would prevent circumvention of the prohibition, and help ensure that consumers' decisions whether to open a credit card account linked to the prepaid account are separate from when the prepaid account is purchased or registered, in order to enable consumers to understand better the terms and conditions that apply to the prepaid account, consistent with EFTA section 905(a) which requires financial institutions to disclose the terms and conditions of electronic fund transfers involving a consumer's account.

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    \309\ Under the proposal, with respect to a prepaid card that is a credit card where the card accesses a credit plan that is offered by a third party, a person offering the credit plan that is accessed by the prepaid card would be an agent of the person issuing the prepaid card and thus, would be a card issuer with respect to the prepaid card that is a credit card. See Regulation Z proposed comment 2(a)(7)-1.ii. In this case, both the person offering the credit plan and the financial institution issuing the prepaid card would be card issuers under Regulation Z Sec. 1026.2(a)(7).

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    18(g)(2) Requirements

    Proposed Sec. 1005.18(g)(2) would set forth rules related to the terms applicable to the prepaid account when a credit card plan is linked to a prepaid account. Specifically, proposed Sec. 1005.18(g)(2) would provide that where a credit card plan subject to Regulation Z may be offered at any point to the consumer with respect to a prepaid account that is accessed by an access device for the prepaid account where the access device is a credit card under Regulation Z or is accessed by an account number that is a credit card under Regulation Z where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor, a financial institution that establishes or holds such a prepaid account may not apply different terms and conditions to a consumer's account that do not relate to an extension of credit, carrying a credit balance, or credit availability, depending on whether the consumer elects to link such a credit card plan to the prepaid account.

    Proposed comment 18(g)-2.i would provide guidance on the applicability of the restriction in proposed Sec. 1005.18(g)(2). Specifically, proposed comment 18(g)-2.i would explain that a financial institution may offer different terms on different prepaid account products, where the terms may differ between a prepaid account product where a credit card plan subject to Regulation Z cannot be linked to the prepaid account, and a prepaid account product where a credit card plan subject to Regulation Z can be linked to the prepaid account. Nonetheless, on the prepaid account product where a credit card plan subject to Regulation Z may be offered at any point to the consumer that is accessed by an access device for the prepaid account that is a credit card under Regulation Z or is accessed by an account number that is a credit card under Regulation Z where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor, a financial institution that establishes or holds such a prepaid account may not apply different terms and conditions to a consumer's account that do not relate to an extension of credit, carrying a credit balance, or credit availability, depending on whether the consumer elects to link such a credit card plan to the prepaid account. Proposed comment 18(g)-2.ii explains that Sec. 1005.18(g)(2) prevents a financial institution from waiving fees or reducing the amount of fees that do not relate to an extension of credit, carrying a credit balance, or credit availability if the consumer elects to link the prepaid account to a credit card plan.

    Proposed comment 18(g)-2.ii would provide examples of account terms and conditions that would be subject to the restrictions in proposed Sec. 1005.18(g)(2). The proposed examples in comment 18(g)-2.ii include fees assessed on the prepaid account that do not relate to an extension of credit, carrying a credit balance, or credit availability, including any transaction fees for transactions that are completely funded by the prepaid account and any one-time or periodic fees imposed for opening or holding a prepaid account. The proposed comment also would cross reference Regulation Z proposed Sec. 1026.4(b)(2) and comment 4(b)(2)-1.iii and .iv, which provide additional guidance on fees that relate to an extension of credit, carrying a credit balance or credit availability. Proposed comment 18(g)-2.iii also would provide examples of account terms and conditions that are not subject to the restrictions in proposed Sec. 1005.18(g)(2) because these terms and conditions would relate to an extension of credit, carrying a credit balance, or credit availability. The proposed examples would include (1) fees or charges assessed on the prepaid account applicable to transactions that access the credit card plan subject to Regulation Z, including transaction fees for transactions that either access just the credit card plan, or access both the prepaid account and the credit card plan; and (2) any one-time or periodic fees imposed for the issuance or availability of the credit card plan subject to Regulation Z. Proposed comment 18(g)-2.iv provides examples that illustrate the prohibition in proposed Sec. 1005.18(g)(2).

    The Bureau is proposing Sec. 1005.18(g)(2) pursuant to its authority under EFTA sections 904(a) and (c). In implementing its overdraft opt-in rule under Sec. 1005.17, the Board required that ``a financial institution shall provide to consumers who do not affirmatively consent to the institution's overdraft service for ATM and one-time debit card transactions the same account terms, conditions, and features that it provides to consumers who affirmatively consent, except for the overdraft service for ATM and one-time debit card transactions.'' Sec. 1005.17(b)(3). The Board recognized that without this requirement, ``some institutions could otherwise effectively compel the consumer to provide affirmative consent to the institution's payment of overdrafts for ATM and onetime debit card transactions by providing consumers who do not opt in with less favorable terms, conditions, or features than consumers who do opt in.'' \310\ The Bureau believes that the same requirement should be extended here for the same reasons. As discussed in the section-by-

    section analysis of Regulation Z Sec. 1026.12(a)(1), under the proposal, a credit card feature may be added to a previously issued prepaid card only upon the consumer's specific request and only in compliance with proposed Sec. 1026.12(h), which would require credit card issuers to wait at least 30 calendar days after the prepaid account has been registered before the

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    card issuer may open a credit or charge card account, or provide a solicitation or an application to the holder of the prepaid account to open a credit or charge card account, that will be accessed by the prepaid card that is a credit card under Regulation Z or an account number that is a credit card under Regulation Z where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor.

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    \310\ 74 FR 59033, 59044 (Nov. 17, 2009).

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    The Bureau believes some institutions could otherwise effectively compel the consumer to request a credit card plan be linked to the prepaid account as described above by providing consumers who do not make such a request with less favorable terms, conditions, or features than consumers who do make such requests. For example, an institution could waive the monthly fee for holding a prepaid account for consumers who request that the credit card plan be linked to the prepaid account, but not waive the monthly fee for consumers who do not make such a request.

    18(h) Compliance Dates

    The Bureau is proposing that all prepaid accounts comply with the requirements of EFTA and Regulation E, as modified by proposed Sec. 1005.18, within nine months of publication of the Bureau's final rule in the Federal Register. This nine month effective date would apply to disclosures for newly-manufactured prepaid account materials and disclosures or other information delivered to consumers online or by telephone. The Bureau is proposing a delayed effective date for prepaid account packaging, access devices, and other printed materials that were created prior to the nine-month effective date, so that immediate removal or destruction of unsold or undistributed prepaid account packaging, access devices, or other physical materials created prior to the nine month effective date would not be mandated. However, within 12 months of publication of the Bureau's final rule in the Federal Register, all prepaid accounts would have to comply fully with the requirements of the rule including its disclosure requirements, regardless of when the physical packaging, access devices, or other physical materials on which such disclosures appear were created.

    The Bureau addresses its proposed effective date in two places. The effective date for proposed Sec. 1005.18 is discussed in this section (a cross-reference to the proposed Sec. 1005.18(h) effective date appears in proposed Sec. 1005.15(c) for pre-acquisition disclosure requirements for government benefit accounts) while the effective date for the rest of this proposal is discussed in the Effective Date section at the conclusion of the section-by-section analysis.

    Comments Received and Stakeholder Outreach Regarding Effective Date

    In determining the appropriate effective date to propose for this rule, the Bureau considered comments submitted in response to the Prepaid ANPR and also conducted further outreach and research. In the Prepaid ANPR, the Bureau stated that one of its goals was to be mindful of avoiding any unnecessary burden on industry. The Bureau also asked a series of specific questions related to how market participants manage their prepaid product inventory: (1) Through what methods, and under what circumstances, do market participants communicate a change of contract terms, or other information, to cardholders?; (2) Are there inventory replacement cycles that drive the printing of cards to stock distribution outlets?; (3) Do market participants conduct periodic maintenance of systems during which updating compliance systems would impose less of a burden? If so, how often does this maintenance occur?; and (4) Are there other issues with respect to the cost of regulatory compliance about which the Bureau should be aware? \311\

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    \311\ See 77 FR 30923, 30925 (May 24, 2012).

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    In response, a number of industry commenters noted that mandating too short an implementation transition period to comply with new disclosure requirements would result in financial institutions having to remove, replace, and destroy existing inventory. These commenters contended that such logistical procedures would be quite burdensome and costly. Some commenters also noted the potential adverse environmental impact that could stem from a short implementation period resulting in the destruction of large quantities of unused products rendered unsaleable or undistributable by virtue of new rules.

    Industry commenters instead urged the Bureau to provide for an implementation period long enough to allow for the exhaustion of existing card inventories through ordinary sales, a process most commenters generally estimated would span 12 to 18 months, although a few suggested even longer. Under such an approach, industry commenters argued, financial institutions would be able to introduce newly-printed and compliant prepaid account product packages gradually so that they could avoid excessive expenses without needing to destroy a large number of non-compliant packages. Consumer advocacy groups and other commenters generally did not address this issue.

    Few industry commenters addressed the potential time needed for the implementation of changes related to other potential issues to be addressed by the proposed rule, such as error resolution procedures, access to account information, or other provisions in Regulation E. Commenters who did address these changes requested that financial institutions be given between 12 and 24 months of time to implement any systems-related updates. One commenter noted that such regulatory changes generally require making changes to systems, sales processes and training tools; conducting tests to ensure that changes are properly implemented without disruption to cardholders; and communicating changes to cardholders. These commenters further noted that systems-related updates are typically undertaken at predetermined biannual intervals and that regulatory deadlines resulting in systems-

    related updates at previously unscheduled times would be particularly costly and disruptive.

    Proposal

    The Bureau is proposing, in general, a nine month effective date for the requirements of new Sec. 1005.18. Proposed Sec. 1005.18(h)(1) would state that, except as provided in proposed Sec. 1005.18(h)(2), the requirements of EFTA and Regulation E, as modified by proposed Sec. 1005.18, apply to prepaid accounts nine months following the publication of the Bureau's final rule in the Federal Register. The disclosure requirements in proposed Sec. 1005.18(b) and (f)(2) would apply to prepaid account packaging, access devices, and other physical materials that are manufactured, printed, or otherwise prepared in connection with a prepaid account on or after nine months. Thus, proposed Sec. 1005.18(h)(1) would generally make applicable to all prepaid accounts the requirements of EFTA and Regulation E, as modified by proposed Sec. 1005.18's proposed provisions including those governing disclosures, access to prepaid account information, limited liability and error resolution, among others, after nine months. However, this first proposed effective date would not require destruction of previously-printed materials because it would only require packages, cards and other materials printed on or after the nine month date to comply with the rule's disclosure requirements in

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    proposed Sec. 1005.18(b) and (f)(2). These disclosure requirements would apply after nine months, however, for prepaid account disclosures and other information made available to consumers online or by telephone.

    For prepaid account packaging, access devices, and other printed materials created prior to this first effective date, the Bureau believes that nothing proposed herein would mandate a change-in-terms notice insofar as the proposal would not require increased fees, liability, or fewer types of available electronic fund transfers for consumers. See Sec. 1005.8(a) and 12 CFR 1030.5(a)(1). If, however, financial institutions wish to avail themselves of the more limited error resolution or limited liability requirements for existing unregistered prepaid accounts and their existing terms provide greater protections, then a change-in-terms notice may be required.

    Of course, if financial institutions wish to make substantive changes to prepaid account fees or terms, they would, as always, be required to remove from retail stores and other distribution channels prepaid account packaging, access devices, and other printed materials that their changes render inaccurate, and to provide notice of those changes to consumers with existing prepaid accounts. The Bureau believes that such legal requirements exist independent of the proposed rule under operative state consumer protection and contract laws.

    The Bureau understands that it may take some financial institutions longer than nine months to fully redesign prepaid account packaging, access devices, and other printed materials, and to begin printing new products. The Bureau is not proposing to mandate that financial institutions start manufacturing new materials exactly at the nine month mark. Rather, the Bureau is proposing to require that at whatever point after the nine month date a financial institution does decide to print new materials, those materials be in compliance with the requirements of proposed Sec. 1005.18.

    Other than disclosure-related issues discussed in proposed Sec. 1005.18(h)(2), the Bureau believes nine months is an appropriate implementation period for the provisions proposed herein. The Bureau seeks to ensure that consumers receive the benefit of the protections proposed herein as soon as possible. As noted in the previous discussions of the Bureau's Study of Prepaid Account Agreements, a majority of providers are already complying with a majority of the proposed requirements. To the extent entities do need to make changes, the Bureau believes that they can be accomplished within a nine month period. Nevertheless, the Bureau seeks comment on whether nine months is appropriate or whether a longer or shorter period should be adopted for these parts of the proposal.

    The Bureau is also proposing a delayed effective date for certain packaging-related changes, which would be 12 months following the publication of the final rule in the Federal Register. This second date, in proposed Sec. 1005.18(h)(2), would require full compliance with the rule's disclosure requirements and prohibit the offering, sale or otherwise making available of prepaid accounts and related packaging, access devices, or other printed materials without such disclosures. As a result, by 12 months, financial institutions and their third party distribution agents would have to remove from retail store shelves and other distribution channels any prepaid accounts with disclosures not fully in compliance with the rule. As noted above, the Bureau believes that 12 months is an appropriate period after which products with old disclosures should not be sold. As noted, industry representatives have indicated to the Bureau that typically, prepaid product restocking cycles occur at least every 12 to 18 months, if not more frequently, although it could take as long as 24 months to sell out all existing product on retail shelves. By allowing financial institutions time to prepare, the Bureau expects its proposal to minimize, even if it may not entirely eliminate, destruction of prepaid product packaging. The Bureau notes that not all existing inventories will be exhausted after 12 months as part of normal restocking cycles. However, the Bureau believes that after 12 months, such inventories will be sufficiently exhausted such that to permit the sale of non-

    compliant packages should no longer be permitted. Further, the Bureau notes so long as it proposed a fixed end-date for the sale of non-

    compliant packages, prepaid providers will always have to incur certain fixed costs involved in confirming that non-compliant product is removed from retail stock. Thus, even if the Bureau adopted the longest period suggested by Prepaid ANPR commenters, providers still would need to incur costs in confirming that they and their retail partners are no longer offering non-compliant products for sale.

    The Bureau seeks comment on its proposed implementation timeframes for this proposed rule as set forth in proposed Sec. 1005.18(h), as well as possible alternative approaches. In particular, the Bureau seeks comment and supporting data on the costs to industry and benefits to consumers that might be expected from the Bureau's proposed effective dates and from any alternative approaches. Of particular interest to the Bureau is whether and to what extent the proposed timeframes would require financial institutions to remove, replace, and destroy portions of their product inventories and, if so, what the costs of doing so would be at various time intervals, including those proposed herein. The Bureau solicits comment both on the potential costs of alternate implementation timelines and on possible logistical constraints, such as the expected amount of time needed for third parties to print and deliver new prepaid account packages and other materials to financial institutions or those institutions' distribution networks or other service providers, and the expected amount of time needed for financial institutions to update their systems to comply with the proposed disclosure requirements and other requirements of Regulation E generally.

    In addition, the Bureau specifically requests comment on whether an effective date longer than 9 months would be needed for financial institutions to comply with the access to account information requirements proposed in Sec. 1005.18(c) and, if so, what an appropriate effective date for this portion of the proposal might be. The Bureau understands that many financial institutions currently provide prepaid account consumers with access to more than 60 days of account history and, additionally, that financial institutions generally have obligations to retain prepaid account transactional records outside the context of Regulation E for far longer than 60 days. The Bureau specifically seeks comment on the amount of prepaid account transactional records financial institutions currently retain now and any difficulties financial institutions would face in using such transactional records to comply with proposed Sec. 1005.18(c).

    The Bureau is not proposing a longer effective date for implementation of the disclosures on prepaid access devices in proposed Sec. 1005.18(b)(7) for access devices that were sold or delivered to consumers prior to the effective date of the final rule. The Bureau understands that prepaid cards generally already list the financial institution's name, telephone number and URL of a Web site on the back of the card, and thus no changes to consumers' access devices would need to be made as a result of this proposal. The Bureau requests comment, however, on whether there may be prepaid cards that currently do

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    not list this information and, if so, whether the Bureau should allow financial institutions longer than nine months to replace those cards.

    The Bureau also seeks comments on whether it should adopt an alternative approach to the effective date of this proposal or whether it should adopt a single effective date for all proposed provisions.

    Section 1005.19 Internet Posting of Prepaid Account Agreements

    The Bureau is proposing new Sec. 1005.19 to require prepaid card issuers to submit agreements for prepaid accounts to the Bureau for posting on a publicly-available Web site established and maintained by the Bureau. The Bureau is also proposing to require issuers to make prepaid account agreements available to the public on the issuers' own Web sites or, in certain limited circumstances, provide agreements directly to consumers holding prepaid accounts via a restricted Web site or in writing upon request. These new provisions in proposed Sec. 1005.19 would be similar to existing requirements in Regulation Z 12 CFR 1026.58 for open-end consumer credit card plans.

    The Bureau is proposing Sec. 1005.19 pursuant to its disclosure authority in EFTA section 905(a), its adjustment authority in EFTA section 904(c), and its authority in section 1032(a) of the Dodd-Frank Act. The Bureau believes collection and disclosure of the agreements allows for clear and accessible disclosure of the terms and conditions of prepaid accounts, and is necessary and proper to effectuate the purposes of EFTA to provide a framework to establish the rights, liabilities, and responsibilities of prepaid account consumers, because the proposed rule will assist consumers' understanding of and shopping for prepaid accounts based on the terms and conditions of those accounts. In addition, collection and disclosure of the agreements would, consistent with Dodd-Frank Act section 1032(a), permit the Bureau to prescribe rules to ensure that the features of any consumer financial product or service, both initially and over the term of the product or service, are fully, accurately, and effectively disclosed to consumers in a manner that permits consumers to understand the costs, benefits, and risks associated with the product or service, in light of the facts and circumstances. The Bureau is also proposing Sec. 1005.19 pursuant to its authority in section 1022(c)(4) of the Dodd-Frank Act, which permits it to gather information from time to time regarding the organization, business conduct, markets, and activities of covered persons and service providers. Specifically, the Bureau is proposing to receive prepaid account agreements submitted by issuers on a quarterly basis, subject to certain exceptions, and to post those agreements on its Web site in order to aid the Bureau's monitoring for risks to consumers in the offering or provision of consumer financial products or services under section 1022(c)(1) and (4) of the Dodd-Frank Act.

    In 2009, section 204 of the Credit CARD Act added new TILA section 122(d) to require creditors to post agreements for open-end consumer credit card plans on the creditor's Web sites and to submit those agreements to the Board for posting on a publicly-available Web site established and maintained by the Board. 15 U.S.C. 1632(d). The Board implemented these provisions in what is now 12 CFR 1026.58. The Bureau's receipt of credit card agreements pursuant to Sec. 1026.58 has aided the Bureau in its market monitoring functions, and the Bureau's posting of those credit card agreements on its Web site may, among other things, enable consumers to more effectively compare credit cards.

    The Bureau is proposing Sec. 1005.19 for substantially the same reasons with respect to prepaid accounts. The Bureau expects to use the prepaid account agreements it receives from issuers pursuant to proposed Sec. 1005.19 to assist in its market monitoring efforts. In addition, the Bureau's posting of prepaid account agreements on its Web site would allow consumers to more easily compare terms of prepaid accounts currently in the marketplace as well as facilitate third parties' analysis of prepaid accounts and the development of online shopping tools. Consumers would also benefit from having access to their prepaid account agreements available through the issuers' Web sites (or available upon request in limited instances).

    The specific requirements in proposed Sec. 1005.19 largely mirror existing provisions in Sec. 1026.58 and the Bureau expects these rules to generally function in the same manner, albeit with certain modifications made in proposed Sec. 1005.19 to address differences between the credit card and prepaid account markets.

    19(a) Definitions

    The Bureau is proposing in Sec. 1005.19(a) certain definitions specific to proposed Sec. 1005.19.

    19(a)(1) Agreement

    The Bureau is proposing Sec. 1005.19(a)(1) to define ``agreement'' or ``prepaid account agreement'' for purposes of proposed Sec. 1005.19 as the written document or documents evidencing the terms of the legal obligation, or prospective legal obligation, between a prepaid account issuer and a consumer for a prepaid account. An agreement or prepaid account agreement also includes fee information, as defined in proposed Sec. 1005.19(a)(3), which is discussed below. Proposed Sec. 1005.19(a)(1) mirrors the definition of ``agreement'' or ``credit card agreement'' in Sec. 1026.58(b)(1) in Regulation Z.

    Proposed comment 19(a)(1)-1 would explain that an agreement may consist of several documents that, taken together, define the legal obligation between the issuer and the consumer. The Bureau has not included the second part of Regulation Z comment 58(b)(1)-2, which gives the example of provisions that mandate arbitration or allow an issuer to unilaterally alter the terms of the card issuer's or consumer's obligation are part of the agreement even if they are provided to the consumer in a document separate from the basic credit contract. The Bureau does not believe that prepaid account agreements contain arbitration clauses or provisions allowing the issuer to unilaterally alter contract terms in documents separate from the main agreement, and therefore does not believe such examples are necessary to include in proposed comment 19(a)(1)-1. The Bureau also has not included a comment similar to Regulation Z comment 58(b)(1)-1, which addresses inclusion of certain pricing information in a credit card agreement, as the Bureau does not believe such a comment is relevant to prepaid accounts.

    19(a)(2) Amends

    The Bureau is proposing Sec. 1005.19(a)(2) to provide that for purposes of proposed Sec. 1005.19, an issuer ``amends'' an agreement if it makes a substantive change (an ``amendment'') to the agreement. A change is substantive if it alters the rights or obligations of the issuer or the consumer under the agreement. Any change in the fee information, as defined in proposed Sec. 1005.19(a)(3), discussed below, is deemed to be substantive. Proposed Sec. 1005.19(a)(2) mirrors the definition of the term amends in Sec. 1026.58(b)(2).

    With respect to Sec. 1026.58, the Board determined that requiring resubmission

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    of credit card agreements following minor, technical changes would impose a significant administrative burden with no corresponding benefit of increased transparency.\312\ The Bureau believes the same would be true for prepaid account issuers and therefore proposes a similar definition here.

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    \312\ 75 FR 7658, 7760 (Feb. 22, 2010).

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    Proposed comment 19(a)(2)-1, which mirrors Regulation Z comment 58(b)(2)-1, would give examples of changes, other than changes to fee information, that generally would be considered substantive, including: (i) Addition or deletion of a provision giving the issuer or consumer a right under the agreement, such as a clause that allows an issuer to unilaterally change the terms of an agreement; (ii) addition or deletion of a provision giving the issuer or consumer an obligation under the agreement, such as a clause requiring the consumer to pay an additional fee; (iii) changes that may affect the cost of the prepaid account to the consumer, such as changes in a provision describing how the prepaid account's monthly fee will be calculated; (iv) changes that may affect how the terms of the agreement are construed or applied, such as changes in a choice-of-law provision; and (v) changes that may affect the parties to whom the agreement may apply, such as provisions regarding authorized users or assignment of the agreement.

    Proposed comment 19(a)(2)-2, which mirrors Regulation Z comment 58(b)(2)-2, would give examples of changes that generally would not be considered substantive, such as: (i) Correction of typographical errors that do not affect the meaning of any terms of the agreement; (ii) changes to the issuer's corporate name, logo, or tagline; (iii) changes to the format of the agreement, such as conversion to a booklet from a full-sheet format, changes in font, or changes in margins; (iv) changes to the name of the prepaid account to which the program applies; (v) reordering sections of the agreement without affecting the meaning of any terms of the agreement; (vi) adding, removing, or modifying a table of contents or index; and (vii) changes to titles, headings, section numbers, or captions.

    The Bureau requests comment, however, on whether certain changes, such as to an issuer's corporate name or to the name of the prepaid account to which the program applies, should be considered substantive for purposes of proposed Sec. 1005.19. The Bureau questions whether such changes, if not reflected in agreements posted to the Bureau's or the issuer's Web site, might inhibit a consumer's ability to locate an agreement for an existing prepaid account or to effectively comparison shop for a new prepaid account.

    19(a)(3) Fee Information

    The Bureau is proposing Sec. 1005.19(a)(3) to define ``fee information'' for purposes of proposed Sec. 1005.19 as the information listed for the long form fee disclosure in proposed Sec. 1005.18(b)(2)(ii). The Bureau believes that to enable consumers to shop for prepaid accounts and to compare information about various prepaid accounts in an effective manner, it is necessary that the agreements posted on the Bureau's Web site include fees and other pricing information. The Bureau expects that most issuers will include the long form disclosure required by proposed Sec. 1005.18(b)(2)(ii) directly in their prepaid account agreements. Others may perhaps maintain the long form disclosure as an addendum or other supplement to their prepaid account agreements.

    Proposed Sec. 1005.19(a)(3) is similar to the definition of pricing information in Sec. 1026.58(b)(7), but omits the exclusion for temporary or promotional rates and terms or rates and terms that apply only to protected balances, as the Bureau does not believe there is currently an equivalent to such rates and terms for prepaid accounts.

    The Bureau requests comment on whether it should also require that the short form disclosure that would be required by proposed Sec. 1005.18(b)(2)(i) also be included in the definition of fee information for purposes of proposed Sec. 1005.19 and thus generally required to be submitted to the Bureau and posted on the issuer's Web site, as discussed below. The Bureau also solicits comment on whether, in light of the revisions proposed herein regarding credit accessed by prepaid accounts, an exclusion is needed for temporary rates and terms or rates and terms that apply only to protected balances similar to the exclusion in Sec. 1026.58(b)(7).

    19(a)(4) Issuer

    The Bureau is proposing Sec. 1005.19(a)(4) to define ``issuer'' or ``prepaid account issuer'' for purposes of proposed Sec. 1005.19 as the entity to which a consumer is legally obligated, or would be legally obligated, under the terms of a prepaid account agreement. Proposed Sec. 1005.19(a)(4) mirrors the definition of card issuer in Sec. 1026.58(b)(4).

    As discussed in more detail above, the Bureau understands that, in some cases, more than one financial institution is involved in the administration of a prepaid program. For example, a smaller bank may partner with a larger bank to market prepaid accounts to the smaller bank's customers, or a bank may partner with a program manager to offer prepaid accounts. The Bureau also understands that the terms of the arrangements can vary, for example with respect to which party uses its name and brand in marketing materials, sets fees and terms, conducts customer identification and verification, provides access to account information, holds the pooled account, and absorbs the risk of default or fraud.

    The Board believed that with respect to the definition of card issuer in what is now Sec. 1026.58(b)(4), without a bright-line rule defining which institution is the issuer, institutions might find it difficult to determine their obligations under Sec. 1026.58.\313\ Similarly, absent clarification from the Bureau, it may be difficult to determine which entity would be responsible for compliance with proposed Sec. 1005.19 for a particular prepaid account. For example, if two financial institutions are involved in issuing a prepaid program, one may have fewer than 3,000 open accounts while the other has more than 3,000 open accounts. It may be difficult to determine whether, for example, the de minimis exception (see proposed Sec. 1005.19(b)(4)) applies in such cases. In addition, it may be unclear which institution is obligated to post and maintain the agreements on its Web site pursuant to proposed Sec. 1005.19(c) or (d)(1)(i) or respond to telephone requests for copies of agreements pursuant to proposed Sec. 1005.19(d)(1)(ii), discussed below. The Bureau therefore believes it would be beneficial to clarify which institution would be the prepaid account issuer for purposes of proposed Sec. 1005.19.

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    \313\ See 76 FR 22948, 22987 (Apr. 25, 2011).

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    The Bureau is thus proposing to define issuer, in proposed Sec. 1005.19(a)(4), with respect to a particular agreement as the entity to which a consumer is legally obligated, or would be legally obligated, under the terms of that agreement. The Bureau is proposing this approach for several reasons.

    First, the proposed definition would create a bright-line rule that would enable institutions involved in issuing prepaid accounts to determine their obligations under proposed Sec. 1005.19. Second, the proposed definition would be consistent with the actual legal relationship into which a consumer enters under a prepaid account agreement. Third, the Bureau believes that the institution to which the consumer is legally obligated under the

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    agreement may be in the best position to provide accurate, up-to-date agreements to both the Bureau and consumers.

    Fourth, the Bureau understands that an institution that partners with multiple other entities to issue prepaid accounts, such as in the payroll card account context, will in many cases use the same agreement for all the prepaid accounts issued in connection with those arrangements. Therefore, while the number of prepaid accounts issued with a given partner may be small, the total number of consumers subject to the corresponding agreement may be quite large. The Bureau believes it would be beneficial to have such agreements submitted to the Bureau for posting on the Bureau's Web site.

    The Bureau believes that in some cases consumers may be unsure about which institution issues their prepaid account. For example, a consumer may apply for a prepaid account through a link on the Web site of a bank with which the consumer has a pre-existing relationship, and the face of the prepaid card may prominently display that bank's logo. In some such cases, the consumer may assume that the card is issued by that bank, even though Web site disclaimers, the prepaid account agreement, the back of the prepaid card, and other materials explain that the card is issued by another institution. The Bureau believes, however, that institutions can take steps to alleviate this confusion, for example by disclosing the identity of the other institution and providing contact information for the other institution or a link to the other institution's Web site. The Bureau also believes that consumers would benefit from having a clearer understanding of to which institution they are legally obligated under a prepaid account agreement.

    Proposed comment 19(a)(4)-1, which mirrors Regulation Z comment 58(b)(4)-1, would provide the following example of how the definition of issuer would apply. Bank X and Bank Y work together to issue prepaid accounts. A consumer that obtains a prepaid account issued pursuant to this arrangement between Bank X and Bank Y is subject to an agreement that states ``This is an agreement between you, the consumer, and Bank X that governs the terms of your Bank Y Prepaid Account.'' The prepaid account issuer in this example is Bank X, because the agreement creates a legally enforceable obligation between the consumer and Bank X. Bank X is the issuer even if the consumer applied for the prepaid account through a link on Bank Y's Web site and the cards prominently feature the Bank Y logo on the front of the card.

    Proposed comment 19(a)(4)-2, which mirrors Regulation Z comment 58(b)(4)-2, would explain that while an issuer has a legal obligation to comply with the requirements of proposed Sec. 1005.19, it generally may use a third-party service provider to satisfy its obligations under proposed Sec. 1005.19, provided that the issuer acts in accordance with regulatory guidance regarding use of third-party service providers and other applicable regulatory guidance. In some cases, an issuer may wish to arrange for the entity with which it partners to issue prepaid accounts to fulfill the requirements of proposed Sec. 1005.19 on the issuer's behalf. For example, Program Manager and Bank work together to issue prepaid accounts. Under the proposed Sec. 1005.19(a)(4) definition, Bank is the prepaid account issuer for purposes of proposed Sec. 1005.19. However, Program Manager services the prepaid accounts, including mailing account opening materials and periodic statements to consumers. While Bank is responsible for ensuring compliance with proposed Sec. 1005.19, Bank may arrange for Program Manager (or another appropriate third-party service provider) to submit prepaid account agreements to the Bureau under proposed Sec. 1005.19 on Bank's behalf. Bank must comply with regulatory guidance regarding use of third-party service providers and other applicable regulatory guidance.

    Proposed comment 19(a)(4)-3, which mirrors Regulation Z comment 58(b)(4)-3.i, would note that, as explained in proposed comment 19(c)-

    2, if an issuer provides consumers with access to specific information about their individual accounts, such as providing electronic history of consumers' account transactions pursuant to Sec. 1005.18(c)(1)(ii), through a third-party Web site, the issuer is deemed to maintain that Web site for purposes of proposed Sec. 1005.19. Such a Web site is deemed to be maintained by the issuer for purposes of proposed Sec. 1005.19 even where, for example, an unaffiliated entity designs the Web site and owns and maintains the information technology infrastructure that supports the Web site, consumers with prepaid accounts from multiple issuers can access individual account information through the same Web site, and the Web site is not labeled, branded, or otherwise held out to the public as belonging to the issuer. A partner institution's Web site is an example of a third-party Web site that may be deemed to be maintained by the issuer for purposes of proposed Sec. 1005.19. For example, Program Manager and Bank work together to issue prepaid accounts. Under the proposed Sec. 1005.19(a)(4) definition, Bank is the issuer that issues these prepaid accounts for purposes of proposed Sec. 1005.19. Bank does not maintain a Web site specifically related to its prepaid accounts. However, consumers can access information about their individual accounts, such as an electronic history of their account transactions, through a Web site maintained by Program Manager. Program Manager designs the Web site and owns and maintains the information technology infrastructure that supports the Web site. The Web site is branded and held out to the public as belonging to Program Manager. Because consumers can access information about their individual accounts through this Web site, the Web site is deemed to be maintained by Bank for purposes of proposed Sec. 1005.19. Bank therefore may comply with proposed Sec. 1005.19(c) or (d)(1)(i) by ensuring that agreements offered to the public are posted on Program Manager's Web site in accordance with proposed Sec. 1005.19(c) or (d)(1)(i), respectively. Bank need not create and maintain a Web site branded and held out to the public as belonging to Bank in order to comply with proposed Sec. 1005.19(c) and (d)(1)(i) as long as Bank ensures that Program Manager's Web site complies with these sections.

    The Bureau is not proposing a comment similar to that of Regulation Z comment 58(b)(4)-3.ii which addresses Web site posting of private label credit card plans, as the Bureau does not believe such a comment is relevant for prepaid accounts, as discussed below.

    The Bureau solicits comment on its proposed definition of issuer, whether additional guidance would be helpful, and on whether there are preferable alternative approaches to defining issuer for purposes of proposed Sec. 1005.19. Additionally, the Bureau is aware that some program managers offer prepaid accounts in conjunction with multiple issuers, where the terms of the prepaid account agreements are largely similar. The Bureau also solicits comment on whether submission of a separate agreement for each issuer is the best approach in this situation or whether such agreements should be submitted in some other manner.

    19(a)(5) Offers

    The Bureau is proposing Sec. 1005.19(a)(5) to provide that for purposes of proposed Sec. 1005.19, an issuer ``offers,'' or ``offers to the public,'' a prepaid account agreement if the issuer solicits applications for or

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    otherwise makes available prepaid accounts that would be subject to that agreement.

    Proposed comment 19(a)(5)-1 would explain that an issuer is deemed to offer a prepaid account agreement to the public even if the issuer solicits applications for or otherwise makes available prepaid accounts only to a limited group of persons. For example, an issuer may market affinity cards to students and alumni of a particular institution of higher education, or may solicit only residents of a specific geographic location for a particular prepaid account; in these cases, the agreement would be considered to be offered to the public. Similarly, agreements for prepaid accounts issued by a credit union are considered to be offered to the public even though such prepaid accounts are available only to credit union members. Agreements for payroll card accounts, government benefit accounts, or for prepaid accounts used to distribute student financial aid disbursements, or property and casualty insurance payouts, and other similar programs are also considered to be offered to the public.

    Proposed Sec. 1005.19(a)(5) is similar to the definition of the term ``offers'' in Sec. 1026.58(b)(5). Section 1026.58(b)(5) provides that an issuer ``offers'' or ``offers to the public'' an agreement if the issuer is soliciting or accepting applications for accounts that would be subject to that agreement. The Bureau does not believe that prepaid account issuers solicit or accept applications for prepaid accounts in the same manner as credit card issuers do for credit card accounts, and thus has modified this language for purposes of proposed Sec. 1005.19(a)(5). Proposed comment 19(a)(5)-1 is similar to Regulation Z comment 58(b)(5)-1, but includes several additional examples of prepaid accounts offered to the public. The Bureau is not proposing an equivalent comment to Regulation Z's comment 58(b)(5)-2, which provides that a card issuer is deemed to offer a credit card agreement to the public even if the terms of that agreement are changed immediately upon opening to terms not offered to the public, as the Bureau does not believe that prepaid account terms are modified in this manner.

    19(a)(6) Open Account

    The Bureau is proposing Sec. 1005.19(a)(6) to provide that for purposes of proposed Sec. 1005.19, a prepaid account is an ``open account,'' or ``open prepaid account,'' if (i) there is an outstanding balance in the prepaid account; (ii) if the consumer can load funds to the account even if the account does not currently hold a balance; or (iii) the consumer can access credit through a credit plan that would be a credit card account under Regulation Z, 12 CFR part 1026 that is offered in connection with a prepaid account. A prepaid account that has been suspended temporarily (for example, due to a report by the consumer of unauthorized use of the card) is considered an open account or open prepaid account.

    Proposed comment 19(a)(5)-1 would explain that a prepaid account that meets any of the criteria set forth in proposed Sec. 1005.19(a)(5) is considered open even if the issuer considers the account inactive. The term open account is used in the provisions regarding the de minimis and product testing exceptions in proposed Sec. 1005.19(b)(4) and (5) and the requirements in proposed Sec. 1005.19(d) for agreements not submitted to the Bureau, discussed below.

    Proposed Sec. 1005.19(a)(6) is similar to the definition of open account or open credit card account in Sec. 1026.58(b)(6). While Sec. 1026.58(b)(6) defines an open credit card account as one in which the cardholder can obtain extensions of credit on the account, or there is an outstanding balance on the account that has not been charged off, the Bureau has modified the definition to better reflect what it believes constitutes an open account in the prepaid context. Proposed Sec. 1005.19(a)(6) includes the explanation used in Sec. 1026.58(b)(6), which provides that an account that has been suspended temporarily (for example, due to a report by the consumer of unauthorized use of the card) is nonetheless considered an open account. Proposed comment 19(a)(6)-1 is similar to Regulation Z comment 58(b)(6)-1, with modifications to reflect the terms of proposed Sec. 1005.19(a)(6).

    19(a)(7) Prepaid Account

    The Bureau is proposing Sec. 1005.19(a)(7) to provide that for purposes of proposed Sec. 1005.19, ``prepaid account'' means a prepaid account as defined in proposed Sec. 1005.2(b)(3). Proposed comment 19(a)(7)-1 would explain that for purposes of proposed Sec. 1005.19, a prepaid account includes, among other things, a payroll card account as defined in proposed Sec. 1005.2(b)(3)(iii) and a government benefit account as defined proposed Sec. Sec. 1005.2(b)(3)(iv) and 1005.15(a)(2).

    The Bureau solicits comment on whether there are any types of prepaid accounts as defined in proposed Sec. 1005.2(b)(3) that should be excluded from the definition of prepaid account for purposes of this section or that should be excluded from certain of the requirements of this section.

    The Bureau expects that issuers offering prepaid accounts with overdraft services or other credit features proposed to be governed as credit cards under Regulation Z, as discussed below, would submit to the Bureau pursuant to proposed Sec. 1005.19 both the initial prepaid account agreement (including the disclosures required by proposed Sec. 1005.18(b)(2)(ii)(B) as part of the fee information pursuant to proposed Sec. 1005.19(a)(3)) and the subsequent prepaid account agreement disclosing overdraft or credit terms, and also submit the latter agreement to the Bureau as a credit card agreement pursuant to Sec. 1026.58. The Bureau does not believe this approach would impose significant burden on prepaid account issuers, but nonetheless solicits comment on this approach.

    Private Label Credit Cards

    The Board defined the term ``private label credit card account'' in what is now Sec. 1026.58(b)(8)(i) as a credit card account under an open-end (not home secured) consumer credit plan with a credit card that can be used to make purchases only at a single merchant or an affiliated group of merchants. The term ``private label credit card plan'' in Sec. 1026.58(b)(8)(ii) is similarly defined as all of the private label credit card accounts issued by a particular issuer with credit cards usable at the same single merchant or affiliated group of merchants. Regulation Z contains an exception and other specific provisions tailored specifically to private label credit card accounts and plans. See, e.g., Sec. 1026.58(b)(8), (c)(6); comments 58(b)(8)-1 through -4; comments 58(c)(6)-1 through -6; and comment 58(d)-3.

    The Bureau does not believe that equivalent provisions are necessary or appropriate for proposed Sec. 1005.19, as the equivalent of a private label credit card in the prepaid context would be a closed-loop gift card. Such gift cards are outside the scope of the term prepaid account, as defined in proposed Sec. Sec. 1005.2(b)(3) and 1005.19(a)(7).

    19(b) Submission of Agreements to the Bureau

    Proposed Sec. 1005.19(b) would require each issuer to electronically submit to the Bureau prepaid account agreements offered by the issuer on a quarterly basis. The Bureau will post the prepaid account agreements it receives on its Web site pursuant to proposed Sec. 1005.19(b)(7), discussed below.

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    19(b)(1) Quarterly Submissions

    The Bureau is proposing Sec. 1005.19(b)(1) to require issuers to make quarterly submissions of prepaid account agreements to the Bureau, in the form and manner specified by the Bureau. Such quarterly submissions would be required to be sent to the Bureau no later than the first business day on or after January 31, April 30, July 31, and October 31 of each year. Proposed comment 19(b)(1)-1 would refer to Regulation Z comment 58(c)(1)-1 for additional guidance as to the quarterly submission timing requirement.

    Regulation Z's Sec. 1026.58(b)(3) defines the term ``business day,'' for purposes of Sec. 1026.58, to mean a day on which the creditor's offices are open to the public for carrying on substantially all of its business functions. Section 1005.2(d) contains a similar definition of the term business day (any day on which the offices of the consumer's financial institution are open to the public for carrying on substantially all business functions). Insofar as that definition applies generally in subpart A and the Bureau believes it is appropriate for use in proposed Sec. 1005.19, the Bureau believes it is unnecessary to define the term again within proposed Sec. 1005.19.

    Proposed Sec. 1005.19(b)(1) would require that each quarterly submission contain the following four items. First, a quarterly submission must contain identifying information about the issuer and the agreements submitted, including the issuer's name, address, and identifying number (such as an RSSD ID number or tax identification number), and the name of the program manager, if any, for each agreement.

    Second, the quarterly submission must contain the prepaid account agreements that the issuer offered to the public as of the last business day of the preceding calendar quarter that the issuer has not previously submitted to the Bureau.

    Third, the quarterly submission must contain any prepaid account agreement previously submitted to the Bureau that was amended during the previous calendar quarter and that the issuer offered to the public as of the last business day of the preceding calendar quarter, as described in proposed Sec. 1005.19(b)(2) discussed below.

    Finally, the quarterly submission must contain notification regarding any prepaid account agreement previously submitted to the Bureau that the issuer is withdrawing, as described in proposed Sec. 1005.19(b)(3), (4)(iii), and (5)(iii) discussed below.

    Proposed comment 19(b)(1)-2.i would explain that an issuer is not required to make any submission to the Bureau at a particular quarterly submission deadline if, during the previous calendar quarter, the issuer did not take any of the following actions: (A) Offering a new prepaid account agreement that was not submitted to the Bureau previously; (B) amending an agreement previously submitted to the Bureau; and (C) ceasing to offer an agreement previously submitted to the Bureau. Proposed comment 19(b)(1)-2.ii would refer to Regulation Z comment 58(c)(1)-2.ii for additional guidance as to when a quarterly submission is not required.

    Proposed comment 19(b)(1)-3 would explain that proposed Sec. 1005.19(b)(1) permits an issuer to submit to the Bureau on a quarterly basis a complete, updated set of the prepaid account agreements the issuer offers to the public. Proposed comment 19(b)(1)-3 would also refer to Regulation Z comment 58(c)(1)-3 for additional guidance regarding quarterly submission of a complete set of updated agreements.

    Proposed Sec. 1005.19(b)(1) generally mirrors Sec. 1026.58(c)(1), except for the addition of the program manager's name into proposed Sec. 1005.19(b)(1)(i). Proposed comments 19(b)(1)-1, -2, and -3 are similar to Regulation Z comments 58(c)(1)-1, -2, and -3 except that proposed comments 19(b)(1)-1, -2.ii and -3 have been shortened to cross-reference the parallel comments in Regulation Z for specific examples regarding quarterly submission of agreements as the Bureau intends that these provisions would function the same for prepaid accounts as they do for credit card accounts.

    Proposed Sec. 1005.19(b) would require submission to the Bureau of agreements for all prepaid accounts offered to the public, unless one or more of the exceptions discussed below are met for withdrawn agreements (proposed Sec. 1005.19(b)(3)), issuers that qualify for the de minimis exception (proposed Sec. 1005.19(b)(4)), or agreements offered as part of a product test (proposed Sec. 1005.19(b)(5)). The Bureau solicits comment, however, on whether it should instead require submission of agreements for all open prepaid accounts (rather than only for agreements that are currently offered to the public), unless the de minimis or product testing exceptions are met. The Bureau believes that, in many instances, when a prepaid account issuer decides to cease offering a specific prepaid account program to the public, it also closes all existing accounts under that program after a period of time. The Bureau requests comment on whether this practice is widespread, or whether prepaid account issuers may have large numbers of open prepaid accounts under programs that are no longer offered to the public. If there are such programs, the Bureau believes there may be benefits to consumers in being able to locate agreements for such programs via the Bureau's Web site even if those programs are no longer being offered to the public.

    In addition, the Bureau solicits comment on whether submission of agreements on a quarterly basis is appropriate, or whether a shorter period, or a longer period such as semi-annually or annually, should be used. The Bureau also solicits comment on whether, alternatively, it should require issuers to submit revised agreements whenever agreements are revised, and whether such a requirement would impose a lower burden on issuers than would a set submission schedule.

    As discussed above, proposed Sec. 1005.19(b)(1) would require quarterly submission of agreements for all prepaid accounts offered to the public, unless one or more exceptions are met and proposed comment 19(b)(1)-3 would explain an issuer is permitted to submit a complete, updated set of the prepaid account agreements each quarter. The Bureau solicits comment on whether, alternatively, it should instead require issuers to resubmit all agreements on a quarterly (or other) basis.

    19(b)(2) Amended Agreements

    The Bureau is proposing Sec. 1005.19(b)(2) to provide that if a prepaid account agreement has been submitted to the Bureau, the agreement has not been amended, and the issuer continues to offer the agreement to the public, no additional submission regarding that agreement is required. Proposed comment 19(b)(2)-1 would refer to Regulation Z comment 58(c)(3)-1 for additional guidance regarding no requirement to resubmit agreements that have not been amended.

    Proposed Sec. 1005.19(b)(2) would also require that if a prepaid account agreement that previously has been submitted to the Bureau is amended, and the issuer offered the amended agreement to the public as of the last business day of the calendar quarter in which the change became effective, the issuer must submit the entire amended agreement to the Bureau, in the form and manner specified by the Bureau, by the first quarterly submission deadline after the last day of the calendar quarter in which the change became effective. Proposed comment 19(b)(2)-2 would

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    further explain that the issuer is required to submit the amended agreement to the Bureau only if the issuer offered the amended agreement to the public as of the last business day of the calendar quarter in which the change became effective and would refer to Regulation Z comment 58(c)(3)-2 for additional guidance regarding the submission of amended agreements. Proposed comment 19(b)(2)-3 would reiterate that agreements that are not offered to the public as of the last day of the calendar quarter should not be submitted to the Bureau and would refer to Regulation Z comment 58(c)(3)-3 for additional guidance on agreements that have been amended but are no longer offered to the public.

    Finally, proposed comment 19(b)(2)-4 would explain that an issuer may not fulfill the requirement in proposed Sec. 1005.19(b)(2) to submit the entire amended agreement to the Bureau by submitting a change-in-terms or similar notice covering only the terms that have changed. In addition, amendments must be integrated into the text of the agreement (or the optional addendum described in proposed Sec. 1005.19(b)(6)), not provided as separate riders. Proposed comment 19(b)(2)-4 would also refer to Regulation Z comment 58(c)(3)-4 for additional guidance as to the submission of revised agreements.

    The Bureau believes that permitting issuers to submit change-in-

    terms notices or riders containing amendments or revisions would make it difficult to determine a prepaid account's current fees and terms. Consumers could be required to sift through change-in-terms notices and riders in an attempt to assemble a coherent picture of the terms currently offered. The Bureau believes that issuers are better placed than consumers to assemble this information and that prepaid issuers customarily incorporate revised terms into their prepaid account agreements on a regular basis rather than only issue separate riders or notices.

    The Bureau solicits comment on whether it should require that other specific information be submitted regarding the prepaid account program or programs to which a specific agreement applies. For example, for payroll card accounts, the Bureau could require submission of the name of each employer that offers a payroll card account under a specific agreement, to assist consumers in identifying on the Bureau's or the issuer's Web site the agreement to which their payroll card account is subject.

    The Bureau also seeks comment on the possible format or formats in which it might require issuers to submit prepaid account agreements. For example, proposed Sec. 1005.19(c)(4), discussed below, would require issuers to post agreements on their Web sites in any electronic format that is readily usable by the general public. The Bureau requests comment on whether it should adopt a similar standard for agreements that are provided to it pursuant to proposed Sec. 1005.19(b), or whether it should instead (or additionally) require issuers to provide agreements (or a portion of the agreement, such as the long form disclosure) using, for example, a machine-readable text format such as JSON, XML, or similar format that could be used by the Bureau or third parties to more easily create comparison shopping tools. See proposed comment 18(b)(3)(i)(B)-3 (discussing machine-

    readable text).

    The Bureau expects to provide additional details regarding the electronic submission process in connection with the release of its final rule on this subject. Issuers will have no submission obligations until the Bureau has issued technical specifications addressing the form and manner for submission of agreements. The Bureau intends for the streamlined electronic submission process to be operational before proposed Sec. 1005.19(b) becomes effective.

    Proposed Sec. 1005.19(b)(2) mirrors the Regulation Z provisions regarding submission of amended agreements in Sec. 1026.58(c)(3). Proposed comments 19(b)(2)-1 through -4 mirror Regulation Z comments 58(c)(3)-1 through -4, although the proposed 19(b)(2) comments have been shortened to cross-reference the parallel comments in Regulation Z for specific examples of submission of amended agreements as the Bureau intends that these provisions would function the same for prepaid accounts as they do for credit card accounts.

    19(b)(3) Withdrawal of Agreements

    The Bureau is proposing Sec. 1005.19(b)(3) to provide that if an issuer no longer offers to the public a prepaid account agreement that previously has been submitted to the Bureau, the issuer must notify the Bureau, in the form and manner specified by the Bureau, by the first quarterly submission deadline after the last day of the calendar quarter in which the issuer ceased to offer the agreement. Proposed Sec. 1005.19(b)(3) mirrors the Regulation Z provisions regarding withdrawal of agreements previously submitted to the Bureau in Sec. 1026.58(c)(4). Proposed comment 19(b)(3)-1 cross-references Regulation Z comment 58(c)(4)-1 for a specific example regarding withdrawal of submitted agreements as the Bureau intends that this provision would function the same for prepaid accounts as it does for credit card accounts.

    With respect to credit cards, the Board found that the number of credit card agreements currently in effect but no longer offered to the public was extremely large, and thus providing such agreements to the Board would have posed a significant burden on industry as well as diluted the active agreements posted on the Board's Web site to such an extent that they might no longer be useful to consumers.\314\ The Bureau does not believe that prepaid issuers have open prepaid accounts subject to agreements no longer offered to the public the same way that credit card issuers do. However, the Bureau believes that the primary benefit of making prepaid account agreements available on the Bureau's Web site would be to assist consumers in comparing prepaid account agreements offered by various issuers when shopping for a new prepaid account. Including agreements that are no longer offered to the public would not facilitate comparison shopping by consumers because consumers could not obtain the accounts subject to these agreements. Thus, the Bureau is proposing that an issuer only submit to the Bureau under proposed Sec. 1005.19(b) those agreements that the issuer currently offers to the public.

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    \314\ 74 FR 54124, 54189 (Oct. 21, 2009).

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    19(b)(4) De Minimis Exception

    The Bureau is proposing Sec. 1005.19(b)(4) to provide a de minimis exception for the requirement to submit prepaid account agreements to the Bureau. Proposed Sec. 1005.19(b)(4)(i) would state that an issuer is not required to submit any prepaid account agreements to the Bureau if the issuer had fewer than 3,000 open prepaid accounts as of the last business day of the calendar quarter. As in Regulation Z, this de minimis exception would apply to all open prepaid accounts of the issuer, not to each of the issuer's prepaid account programs separately.

    For Regulation Z, the Board was not aware of a way to define a ``credit card plan'' that would not divide issuers' portfolios into such small units that large numbers of credit card agreements could fall under the de minimis exception.\315\ The Board therefore established a de minimis exception based on an issuer's total number of

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    open accounts. Sec. 1026.58(c)(5). The Bureau believes that the same issues apply in attempting to define a ``prepaid account program'' for purposes of a de minimis threshold, and therefore similarly proposes to adopt a de minimis threshold that applies to all of an issuer's prepaid programs, rather than on a program-by-program basis.

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    \315\ 74 FR 54124, 54191 (Oct. 21, 2009).

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    The Bureau is proposing to use a lower de minimis threshold of 3,000 open prepaid accounts, in place of the 10,000 open accounts threshold used in Regulation Z. The prepaid accounts market is smaller than the credit card market (based on number of open accounts) and there are some indications that smaller issuers (i.e., with small numbers of open accounts rather than small based on entity size) may account for more of the prepaid market than do smaller issuers in the credit card market. The Bureau seeks to create a de minimis threshold that would exempt a similar portion of open prepaid accounts from this requirement as are exempted by the current analogous requirement for credit cards. However, the Bureau lacks specific data that would permit it to accurately determine a comparable threshold for prepaid accounts.

    Public data indicate that none of the top 100 Visa and MasterCard credit card issuers (ranked by dollar amount of outstandings, and which covers both consumer and commercial credit cards) come close to falling below the 10,000 Regulation Z de minimis threshold, even as those issuers (when combined with Discover and American Express, which are the two largest U.S. issuers that are not MasterCard or Visa issuers) amount to more than 92 percent of total general purpose credit card loans outstanding.\316\ The smallest credit card issuers in this top-

    100 list, based on total accounts and total active accounts, exceed the de minimis threshold by a factor of between two (for active accounts) and nearly four (for total accounts).

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    \316\ HSN Consultants, Inc., The Nilson Report, Issue 1035 at 8, 10-11 (Feb. 2014), and The Nilson Report, Issue 1038 at 10-11 (Apr. 2014). Public data for the next tranche of credit card issuers does not include account volume, but it does include outstandings volume. The lowest outstandings for an issuer in the third 50 cohort are more than 60 percent of the outstandings for the smallest issuer by total account volume in the top-100. See The Nilson Report, Issue 1042 at 11 (June 2014). As the smallest issuer by total account volume in the top-100 exceeded the de minimis threshold by several factors, the available indications are that the third 50 cohort would not fall below the de minimis threshold either.

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    In comparison, the same public source indicates that three of the top 50 Visa and MasterCard prepaid account issuers would fall below a 10,000 threshold, and one of these is right at the proposed 3,000 threshold.\317\ Furthermore, the data in this report include a number of types of other prepaid products beyond commercial cards that are outside the proposed definition of prepaid account, such as consumer gift, healthcare, and rebates/rewards, creating the likelihood that additional top-50 prepaid issuers could fall below a de minimis threshold of 10,000 open prepaid accounts.\318\ Although it is not straightforward to calculate exactly how much of the market these top-

    50 prepaid issuers represent, available indications are that it is significantly below the 92 percent accounted for by the top-100 credit card issuers.\319\

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    \317\ HSN Consultants, Inc., The Nilson Report, Issue 1043 at 10 (June 2014). One issuer had 9,000 cards in circulation, another had 8,000, and a third had only 3,000.

    \318\ One issuer was reported to have 14,000 cards in circulation, another had 16,000, and a third had 18,000.

    \319\ Nilson reports that the top-50 prepaid issuers accounted for some $118 billion in purchase volume in 2013. The Nilson Report, Issue 1043 at 1 (June 2014). One leading consultancy has estimated load on open-loop prepaid products for that year at over $242 billion. Mercator Advisory Grp., Eleventh Annual U.S. Prepaid Cards Market Forecasts, 2014-2017 (Nov. 2014).

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    The Bureau solicits comment on its proposed adoption of a 3,000 open accounts threshold for the de minimis exception. In addition, the Bureau recognizes that the proposed de minimis exception would not alleviate the administrative burden on large issuers of submitting agreements for prepaid account programs with a very small number of open accounts. The Bureau solicits comment on whether it should create a de minimis exception applicable to a prepaid account program offered by an issuer of any size and, if so, how the Bureau should define ``prepaid account program'' for purposes of such an exception.

    Proposed comment 19(b)(4)-1 would explain that the de minimis exception in proposed Sec. 1005.19(b)(4) is distinct from the product testing exception in proposed Sec. 1005.19(b)(5). The de minimis exception provides that an issuer with fewer than 3,000 open prepaid accounts is not required to submit any agreements to the Bureau, regardless of whether those agreements qualify for the product testing exception. In contrast, the product testing exception provides that an issuer is not required to submit to the Bureau agreements offered solely in connection with certain types of prepaid account programs with fewer than 3,000 open accounts, regardless of the financial institution's total number of open accounts. Proposed comment 19(b)(4)-

    2 would refer to Regulation Z comment 58(c)(5)-2 for additional guidance on the de minimis exception.

    Proposed Sec. 1005.19(b)(4)(ii) would state that if an issuer that previously qualified for the de minimis exception ceases to qualify, the issuer must begin making quarterly submissions to the Bureau no later than the first quarterly submission deadline after the date as of which the issuer ceased to qualify. Proposed comment 19(b)(4)-3 would refer to Regulation Z comment 58(c)(5)-3 for additional guidance on the date for determining whether an issuer qualifies for the de minimis exception. Proposed comment 19(b)(4)-4 would refer to Regulation Z comment 58(c)(5)-4 for additional guidance on the date for determining whether an issuer ceases to qualify for the de minimis exception.

    Finally, proposed Sec. 1005.19(b)(4)(iii) would state that if an issuer that did not previously qualify for the de minimis exception newly qualifies for the de minimis exception, the issuer must continue to make quarterly submissions to the Bureau until the issuer notifies the Bureau that it is withdrawing all agreements it previously submitted to the Bureau. Proposed comment 19(b)(4)-5 would refer to Regulation Z comment 58(c)(5)-5 for additional guidance on an issuer's option to withdraw its agreements submitted to the Bureau.

    Proposed Sec. 1005.19(b)(4) mirrors the Regulation Z provisions regarding the de minimis exception in Sec. 1026.58(c)(5), except for the lower proposed de minimis threshold figure. Proposed comments 19(b)(4)-1 to -5 mirror Regulation Z comments 58(c)(5)-1 to -5, although proposed comments 19(b)(1)-2 to -5 have been shortened to cross-reference the parallel comments in Regulation Z for specific examples regarding the de minimis exception as the Bureau intends that these provisions would function the same for prepaid accounts as they do for credit card accounts. In addition, the references to the private label credit card exception in Regulation Z comment 58(c)(5)-1 have been removed as the Bureau does not believe that exception is relevant in the prepaid card context, as discussed above.

    19(b)(5) Product Testing Exception

    The Bureau is proposing Sec. 1005.19(b)(5) to provide a product testing exception to the requirement to submit prepaid account agreements to the Bureau. Proposed Sec. 1005.19(b)(5) mirrors the Regulation Z provisions regarding the product testing exception in Sec. 1026.58(c)(7).

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    Proposed Sec. 1005.19(b)(5)(i) would provide that an issuer is not required to submit to the Bureau a prepaid account agreement if, as of the last business day of the calendar quarter, the agreement: (A) Is offered as part of a product test offered to only a limited group of consumers for a limited period of time; (B) is used for fewer than 3,000 open prepaid accounts; and (C) is not offered to the public other than in connection with such a product test.

    Proposed Sec. 1005.19(b)(5)(ii) would provide that if an agreement that previously qualified for the product testing exception ceases to qualify, the issuer must submit the agreement to the Bureau no later than the first quarterly submission deadline after the date as of which the agreement ceased to qualify. Finally, proposed Sec. 1005.19(b)(5)(iii) would provide that if an agreement that did not previously qualify for the product testing exception newly qualifies for the exception, the issuer must continue to make quarterly submissions to the Bureau with respect to that agreement until the issuer notifies the Bureau that the agreement is being withdrawn.

    The Bureau believes that the administrative burden on issuers of preparing and submitting to the Bureau agreements used for a small number of prepaid accounts in connection with a product test by an issuer outweighs the benefit of increased transparency of including these agreements on the Bureau's Web site. The Bureau understands that issuers often test new prepaid account strategies and products by offering prepaid accounts to discrete, targeted groups of consumers for a limited time. Posting these agreements on the Bureau's and issuers' Web sites would not facilitate comparison shopping by consumers, as these terms are offered only to a limited group of consumers for a short period of time. Including these agreements could mislead consumers into believing that these terms are available more generally. In addition, posting these agreements could make issuer testing strategies transparent to competitors.

    The Bureau seeks comment on whether it should impose a time limit on how long an issuer can avail itself of the product testing exception, and if so, what that time limit might be, or whether the Bureau should adopt other conditions on use of the product testing exception. The Bureau is concerned about possible circumvention of the proposed requirements in Sec. 1005.19(b) via the product testing exception. For example, the Bureau is concerned about the possibility that issuers might deem small payroll card account programs part of a product test, even when all or substantially all of a particular employer's employees are enrolled in the payroll card account program. The Bureau seeks comment on whether it should specify that if all, or substantially all, of a company's employees are enrolled in a payroll card account program (excluding programs for the employees of the issuer or a service provider to the issuer, such as a program manager), that program does not qualify for the product testing exception.

    19(b)(6) Form and Content of Agreements Submitted to the Bureau

    Proposed Sec. 1005.19(b)(6) would set forth the form and content requirements for prepaid account agreements submitted to the Bureau.

    19(b)(6)(i) Form and Content Generally

    The Bureau is proposing Sec. 1005.19(b)(6)(i) to provide that each prepaid account agreement must contain the provisions of the agreement and the fee information in effect as of the last business day of the preceding calendar quarter. Proposed comment 19(b)(6)-1 would provide the following example to aid in determining the ``as of'' date of an agreement: On June 1, an issuer decides to decrease the out-of-network ATM withdrawal fee associated with one of the agreements it offers to the public. The change in that fee will become effective on August 1. If the issuer submits the agreement to the Bureau on July 31 (for example, because the agreement has been otherwise amended), the agreement submitted should not include the new lower out-of-network ATM withdrawal fee because that lower fee was not in effect on June 30, the last business day of the preceding calendar quarter. Proposed comment 19(b)(6)-1 is similar to Regulation Z comment 58(c)(8)-1.

    Proposed Sec. 1005.19(b)(6)(i) would also state that agreements must not include any personally identifiable information relating to any consumer, such as name, address, telephone number, or account number. Further, as explained in proposed Sec. 1005.19(b)(6)(i), the following would not be deemed to be part of the agreement for purposes of proposed Sec. 1005.19, and therefore are not required to be included in submissions to the Bureau: (1) Ancillary disclosures required by State or Federal law, such as affiliate marketing notices, privacy policies, or disclosures under the E-Sign Act; (2) solicitation or marketing materials; (3) periodic statements; and (4) documents that may be sent to the consumer along with the prepaid account or prepaid account agreement such as a cover letter, a validation sticker on the card, or other information about card security. Finally, proposed Sec. 1005.19(b)(6)(i) would state that agreements must be presented in a clear and legible font.

    Proposed Sec. 1005.19(b)(6)(i) generally mirrors the Regulation Z provisions in Sec. 1026.58(c)(8)(i) regarding the form and content of agreements that would be submitted to the Bureau. This paragraph excludes, however, two additional items listed in Sec. 1026.58(c)(8)(i)(C) that are not deemed to be part of a credit card agreement--ancillary agreements between the issuer and the consumer, such as debt cancellation contracts or debt suspension agreements, and offers for credit insurance or other optional products and other similar advertisement--because the Bureau does not believe these items are relevant in the prepaid account context. Proposed Sec. 1005.19(b)(6)(i) is not intended to provide an exhaustive list of the ancillary State and Federal law disclosures that are not deemed to be part of an agreement under proposed Sec. 1005.19. As indicated by the use of the phrase ``such as,'' the listed disclosures are merely examples of ``ancillary disclosures required by Federal or State law.'' The Bureau does not believe it is feasible to include in this paragraph a comprehensive list of all such disclosures, as such a list would be extensive and would change as State and Federal laws and regulations are amended. The Bureau notes that an issuer would not be prohibited by this or any other provision of proposed Sec. 1005.19 from choosing to include these items in submitted agreements.

    19(b)(6)(ii) Fee Information

    The Bureau is proposing Sec. 1005.19(b)(6)(ii) to provide that fee information must be set forth either in the prepaid account agreement or in a single addendum to that agreement. The agreement or addendum thereto must contain all of the fee information, which is defined by proposed Sec. 1005.19(a)(3) as the information listed for the long-

    form fee disclosure in proposed Sec. 1005.18(b)(2)(ii), as discussed above.

    Proposed Sec. 1005.19(b)(6)(ii) deviates from the provisions governing pricing information in Sec. 1026.58(c)(8)(ii) in that the proposed language permits, but does not require, prepaid account fee information to be provided in an addendum to the prepaid account agreement. The Bureau requests comment on whether it should require, rather than permit, prepaid account fee information in an addendum to the agreement and whether such a requirement might aid consumers in

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    more easily locating fee information in prepaid account agreements.

    Proposed Sec. 1005.19(b)(6)(ii) also omits the provisions contained in Sec. 1026.58(c)(8)(ii)(B) and (C) that address how to disclose pricing information that varies from one cardholder to another (such as annual percentage rates) and how to disclose variable rates and margins. Because prepaid account fees and terms currently do not vary between consumers based on creditworthiness or other factors in the same way that credit card account pricing and other terms do, the Bureau does not believe these provisions are either applicable or necessary with respect to prepaid account agreements. The Bureau likewise has not proposed an equivalent to Sec. 1026.58(c)(8)(iii) which allows for an optional variable terms addendum that allows provisions other than those related to pricing information that may vary from one cardholder to another depending on the cardholder's creditworthiness, State of residence or other factors to be set forth in a single addendum separate from the pricing information addendum. The Bureau has likewise not proposed a comment equivalent to that of 58(c)(8)-2 regarding pricing information, nor that of 58(c)(8)-4 regarding the optional variable terms addendum. The Bureau solicits comment on whether, in light of the revisions proposed herein regarding credit accessed by prepaid accounts, it should incorporate provisions similar to Sec. 1026.58(c)(8)(ii)(B), (8)(ii)(C), (8)(iii) or comments 58(c)(8)-2 or 58(c)(8)-4 into proposed Sec. 1005.19.

    With credit cards, issuers offer a range of terms and conditions and issuers may make those terms and conditions available in a variety of different combinations, particularly with respect to items included in the pricing information. In Regulation Z, pricing information is required to be set out in a separate pricing information addendum, regardless of whether pricing information is also contained in the main text of the agreement. The Board concluded that it could be difficult for consumers to find pricing information if it is integrated into the text of the credit card agreement. The Board believed that requiring pricing information to be attached as a separate addendum would ensure that this information is easily accessible to consumers.\320\ The Bureau does not believe that prepaid account agreements vary in the same manner. The Bureau also believes that if prepaid account agreements contain the long form fee disclosure required by proposed Sec. 1005.18(b)(2)(ii) (see Sample Form A-10(e)), consumers would be able to easily locate such fee information within a prepaid account agreement and to compare fee information across agreements.

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    \320\ 75 FR 7658, 7769 (Feb. 22, 2010).

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    Proposed comment 19(b)(6)-2, which is largely similar to Regulation Z comment 58(c)(8)-3, would explain that fee agreement variations do not constitute separate agreements. Fee information that may vary from one consumer to another depending on the consumer's State of residence or other factors must be disclosed by setting forth all the possible variations or by providing a range of possible variations. Two agreements that differ only with respect to variations in the fee information would not constitute separate agreements for purposes of proposed Sec. 1005.19. For example, an issuer offers two types of prepaid accounts that differ only with respect to the monthly fee. The monthly fee for one type of account is $4.95, while the monthly fee for the other type of account is $0 if the consumer regularly receives direct deposit to the prepaid account. The provisions of the agreement and fee information for the two types of accounts are otherwise identical. The issuer should not submit to the Bureau one agreement with fee information listing a $4.95 monthly fee and another agreement with fee information listing a $0 monthly fee. Instead, the issuer should submit to the Bureau one agreement with fee information listing possible monthly fees of $4.95 or $0, including the explanation that the latter fee is dependent upon the consumer regularly receiving direct deposit.

    19(b)(6)(iii) Integrated Agreement

    The Bureau is proposing Sec. 1005.19(b)(6)(iii) to prohibit issuers from providing provisions of the agreement or fee information to the Bureau in the form of change-in-terms notices or riders (other than the optional fee information addendum). Changes in provisions or fee information must be integrated into the text of the agreement, or the optional fee information addendum, as appropriate. Proposed comment 19(b)(6)-3 would provide the following example illustrating this requirement: It would be impermissible for an issuer to submit to the Bureau an agreement in the form of a terms and conditions document dated January 1, 2015, four subsequent change in terms notices, and two addenda showing variations in fee information. Instead, the issuer must submit a document that integrates the changes made by each of the change in terms notices into the body of the original terms and conditions document and a single optional addendum displaying variations in fee information.

    Proposed Sec. 1005.19(b)(6)(iii) is similar to Sec. 1026.58(c)(8)(iv) in that they both prohibit providing agreements and fee (or pricing) information to the Bureau in the form of change-in-

    terms notice or riders, but the proposed language has been modified to reflect that prepaid account fee information may, but is not required to be, provided in an optional fee information addendum. Proposed comment 19(b)(6)-3 is similar to Regulation Z comment 58(b)-5.

    As discussed previously, the Bureau believes that permitting issuers to submit agreements that include change-in-terms notices or riders containing amendments and revisions would be confusing for consumers and would greatly lessen the usefulness of the agreements posted on the Bureau's Web site. In addition, the Bureau believes that prepaid account issuers customarily incorporate revised terms into their prepaid account agreements on a regular basis.

    The Board believed that there could potentially be significant burden on issuers for updating credit card agreements following changes in terms because of the potential variety in terms offered under a single agreement.\321\ The Bureau does not believe a similar burden exists for prepaid account agreements because a single prepaid account agreement would not contain a variety of variable terms predicated on the consumer's credit worthiness or other factors. In addition, the Bureau does not believe that prepaid account issuers modify the terms of prepaid account agreements as frequently as credit card issuers do. The Bureau nonetheless seeks comment on this aspect of the proposal.

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    \321\ See 75 FR 7658, 7770 (Feb. 22, 2010).

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    19(b)(7) Bureau Posting of Prepaid Account Agreements

    The Bureau is proposing Sec. 1005.19(b)(7) to provide that the Bureau shall receive prepaid account agreements submitted by prepaid account issuers pursuant to proposed Sec. 1005.19(b), and shall post such agreements on a publicly-available Web site established and maintained by the Bureau. There is no equivalent to proposed Sec. 1005.19(b)(7) in Sec. 1026.58 as the Bureau's posting of credit card agreements it receives is directed by TILA section 122(d). 15 U.S.C. 1632(d).

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    19(c) Posting of Agreements Offered to the Public

    The Bureau is proposing Sec. 1005.19(c) to require an issuer to post and maintain on its publicly available Web site the prepaid account agreements that the issuer would be required to submit to the Bureau under proposed Sec. 1005.19(b). Agreements posted pursuant to proposed Sec. 1005.19(c) must conform to the form and content requirements for agreements submitted to the Bureau specified in proposed Sec. 1005.19(b)(6)(i)(B) through (D) and may be posted in any electronic format that is readily usable by the general public. Agreements posted pursuant to proposed Sec. 1005.19(c) must be accurate and updated whenever changes are made. Agreements must be placed in a location that is prominent and readily accessible by the public and must be accessible without submission of personally identifiable information.

    Section 1026.58(d)(1) requires credit card issuers to update the agreements posted on their Web sites at least as frequently as the quarterly schedule required for submission of agreements to the Bureau, but permits an issuer to update its agreements more frequently if it so chooses. For Regulation Z, the Board considered a consumer group comment requesting that the online agreement be updated within a specific period of time no greater than 72 hours. The Board declined to adopt such a requirement because it believed that the burden to card issuers of updating agreements in such a short time would outweigh the benefit. In addition, the Board noted that if a consumer applies or is solicited for a credit card, the consumer will receive the updated disclosure under existing rules in Regulation Z subpart B.\322\ The Bureau believes that prepaid account issuers generally update their agreements posted online as changes are made. The Bureau does not believe that prepaid account issuers face the same burdens as credit card issuers in updating prepaid account agreements posted online because the terms of such agreements do not vary in the same manner as credit card agreement terms, which may offer a variety of rates and fees depending on the creditworthiness of the consumer. Thus, for prepaid account agreements, the Bureau is proposing in Sec. 1005.19(c)(3) that prepaid account agreements posted only be accurate and that issuers update their agreements whenever changes are made. The Bureau seeks comment on whether this portion of the proposal aligns with current industry practice and whether the Bureau should nonetheless specify a specific timeframe for updating prepaid account agreements posted online.

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    \322\ 75 FR 7658, 7772 (Feb. 22, 2010).

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    Proposed comment 19(c)-1 would explain that an issuer's obligation to post and maintain prepaid account agreements on its Web site pursuant to proposed Sec. 1005.19(c) is distinct from that of Sec. 1005.7, which requires an issuer to provide certain disclosures at the time a consumer contracts for an electronic fund transfer service or before the first electronic fund transfer is made involving the consumer's account, as well as the change in terms notice required under Sec. 1005.8(a). This requirement is also distinct from that of proposed Sec. 1005.18(b)(2)(ii), which would require issuers to make the long form disclosure available to consumers prior to prepaid account acquisition and which, depending on the methods an issuer offers prepaid accounts to consumers, may require posting of the long form disclosure on the issuer's Web site. If, for example, an issuer is not required to submit any agreements to the Bureau because the issuer qualifies for the de minimis exception under proposed Sec. 1005.19(b)(4), the issuer is not required to post and maintain any agreements on its Web site under proposed Sec. 1005.19(c). The issuer would still be required to provide each individual consumer with access to his or her specific prepaid account agreement under proposed Sec. 1005.19(d), discussed below, by posting and maintaining the agreement on the issuer's Web site or by providing a copy of the agreement upon the consumer's request. The issuer may also be required to post the long form disclosure required by proposed Sec. 1005.18(b)(2)(ii) online as well, depending on the methods by which the issuer offers prepaid accounts to consumers.

    Proposed comment 19(c)-2 would explain that if an issuer provides consumers with access to specific information about their individual accounts, such as balance information or copies of statements, through a third-party Web site, the issuer is considered to maintain that Web site for purposes of proposed Sec. 1005.19. Such a third-party Web site is deemed to be maintained by the issuer for purposes of proposed Sec. 1005.19(c) even where, for example, an unaffiliated entity designs the Web site and owns and maintains the information technology infrastructure that supports the Web site, consumers with prepaid accounts from multiple issuers can access individual account information through the same Web site, and the Web site is not labeled, branded, or otherwise held out to the public as belonging to the issuer. Therefore, issuers that provide consumers with access to account-specific information through a third-party Web site can comply with proposed Sec. 1005.19(c) by ensuring that the agreements the issuer submits to the Bureau are posted on the third-party Web site in accordance with proposed Sec. 1005.19(c).

    Proposed Sec. 1005.19(c) is similar to Sec. 1026.58(d), but does not include provisions regarding private label credit cards, as discussed above. Specifically, the Bureau is not proposing an equivalent to the provision addressing the Web site to be used for posting private label credit card agreements in Sec. 1026.58(d)(1) as well as Sec. 1026.58(d)(4) requiring quarterly updates of credit card agreements posted on card issuers' Web sites, as discussed above. Proposed comment 19(c)-1 is similar to Regulation Z comment 58(d)-1, although it has been modified to distinguish the requirement in proposed Sec. 1005.19(c) from other disclosure-related obligations in Regulation E. Proposed comment 19(c)-2 mirrors Regulation Z comment 58(d)-2, although both it and proposed comment 19(c)-1 have been modified and to remove the portions discussing the private label credit card exception. An equivalent to Regulation Z comment 58(d)-3, regarding private label credit card plans, has likewise been omitted.

    19(d) Agreements for All Open Accounts

    19(d)(1) Availability of Individual Consumer's Prepaid Account Agreement

    The Bureau is proposing Sec. 1005.19(d)(1) to state that, with respect to any open prepaid account, unless the prepaid account agreement is provided to the Bureau pursuant to proposed Sec. 1005.19(b) and posted to the issuer's publicly available Web site pursuant to proposed Sec. 1005.19(c), an issuer must either post and maintain the consumer's agreement on its Web site, or promptly provide a copy of the consumer's agreement to the consumer upon the consumer's request. Unlike agreements posted pursuant to proposed Sec. 1005.19(c), which must be maintained on an issuer's publicly available Web site, agreements posted pursuant to proposed Sec. 1005.19(d) may be housed on a portion of the issuer's Web site that is available to consumers once they have logged into their accounts. If the issuer makes an agreement available upon request, the issuer must provide the consumer with the ability to request a copy of the agreement by telephone. The issuer must send to the consumer

    Page 77201

    a copy of the consumer's prepaid account agreement no later than five business days after the issuer receives the consumer's request.

    Proposed comment 19(d)-1, which is similar to Regulation Z comment 58(e)-1, would provide examples illustrating the requirements of proposed Sec. 1005.19(d)(1). An issuer that is not required to submit agreements to the Bureau because it qualifies for the de minimis exception under proposed Sec. 1005.19(b)(4) would still be required to provide consumers with access to their specific agreements under proposed Sec. 1005.19(d). Similarly, an agreement that is no longer offered to the public would not be required to be submitted to the Bureau under proposed Sec. 1005.19(b), but would still need to be provided to the consumer to whom it applies under proposed Sec. 1005.19(d).

    The Bureau does not believe it would be appropriate to apply the de minimis exception, the product testing exception, or the exception for accounts not currently offered to the public to the requirement that issuers provide consumers with access to their specific prepaid account agreement through the issuer's Web site. In addition, the Bureau believes that, for the reasons discussed above, posting prepaid account agreements that are not currently offered to the public on the Bureau's Web site would not be beneficial to consumers. However, the Bureau believes that the benefit of increased transparency of providing an individual cardholder access to his or her specific prepaid account agreement is substantial regardless of whether the cardholder's agreement continues to be offered by the issuer. The Bureau believes that this benefit outweighs the administrative burden on issuers of providing such access, and the Bureau therefore is not proposing to exempt agreements that are not offered to the public from the requirements of proposed Sec. 1005.19(d)(1). Similarly, the proposal requires that prepaid account issuers with fewer than 3,000 open prepaid accounts would not be required to submit agreements to the Bureau. However, the Bureau believes that the benefit of increased transparency associated with providing an individual cardholder with access to his or her specific prepaid account agreement is substantial regardless of the number of the issuer's open accounts. The Bureau believes that this benefit of increased transparency for consumers outweighs the administrative burden on issuers of providing such access, and the Bureau therefore is not proposing to apply the de minimis exception to the requirements in proposed Sec. 1005.19(d)(1).

    The Board believed that the administrative burden associated with posting each cardholder's credit card agreement on the issuer's Web site might be substantial for some issuers, particularly smaller institutions with limited information technology resources, and thus gave issuers the option of providing copies of agreements in response to cardholders' requests. The ability to provide agreements in response to a request made via telephone or Web site would ensure that cardholders still be able to obtain copies of their credit card agreements promptly.\323\

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    \323\ See 74 FR 54124, 54192 (Oct. 21, 2009).

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    The Bureau does not know whether similar challenges are faced by prepaid account issuers, particularly for issuers that would qualify for the de minimis or product testing exceptions. The Bureau is thus proposing to similarly allow prepaid account issuers to satisfy the requirements of proposed Sec. 1005.19(d)(1) by providing a copy of a consumer's prepaid account agreement to the consumer upon the consumer's request. The Bureau requests comment on whether this allowance is necessary or if prepaid account issuers should all be required to post agreements on their Web sites. The Bureau also requests comment on whether issuers should be required by this regulation to provide copies of prepaid account agreements to all consumers upon request, regardless of whether the agreements are also posted online.

    Section 1026.58(e)(1) requires a credit card issuer to accept cardholders' requests for copies of their credit card agreements via the issuer's Web site as well as by telephone. The Bureau believes that prepaid account issuers will generally post prepaid account agreements to their Web sites pursuant to proposed Sec. 1005.19(d)(1)(i), even if the agreement is posted in a location that is only accessible to prepaid account consumers after they have logged in to their accounts. The Bureau thus expects that few, if any, issuers would be required to provide agreements in response to a consumer's request pursuant to proposed Sec. 1005.19(d)(1)(ii). The Bureau therefore does not believe it is necessary to require issuers to receive requests via the issuers' Web sites, although issuers could certainly allow consumers to make requests in that manner if they so choose.

    Section 1026.58(e)(1)(ii) also requires credit card issuers to allow cardholders to request copies of their agreements by calling a readily available telephone line the number for which is displayed on the issuer's Web site and clearly identified as to its purpose. Regulation Z comment 58(e)-2 provides additional clarification as to what is required to satisfy the ``readily available telephone line'' standard. Because the Bureau is proposing to require prepaid account issuers to provide telephone numbers for a variety of other purposes,\324\ the Bureau does not believe it is necessary to provide the same level of specificity regarding the telephone number to be used to request a copy of a prepaid account agreement pursuant to proposed Sec. 1005.19(d)(1)(ii) nor to provide a comment equivalent to that of Regulation Z comment 58(e)-2.

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    \324\ See, e.g., proposed Sec. 1005.18(b)(7) (requiring disclosure of a telephone number on the prepaid account access device, to be used to contact the financial institution about the prepaid account).

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    Section 1026.58(e)(1) also allows a credit card issuer, in response to such a cardholder's request for a copy of the cardholder's agreement, to provide that agreement to the cardholder electronically, such as by posting a copy of the agreement to its Web site in a location that is accessible by the cardholder. Because the Bureau expects that few, if any, issuers would be required to provide agreements upon request pursuant to proposed Sec. 1005.19(d)(1)(ii), as discussed above, it does not appear to be necessary or useful to allow an issuer to post a prepaid account agreement to a consumer's online account in response to a consumer's request. The Bureau is thus not proposing to permit issuers to provide copies of prepaid account agreements electronically in response to consumers' requests, except as permitted in proposed Sec. 1005.19(d)(2)(vi), discussed below. In addition, a provision corresponding to Sec. 1026.58(e)(2), containing a special provision for issuers without interactive Web sites, has not been included in proposed Sec. 1005.19, as the Bureau is not aware of any prepaid issuers that do not maintain Web sites (or do not use a third-party service provider to maintain such a Web site) from which consumers can access specific information about their individual prepaid accounts and thus does not believe such a provision is necessary for prepaid accounts. The Bureau is not proposing an equivalent to Regulation Z comment 58(e)-3, which provides examples regarding the deadline for providing copies of requested agreements, as the Bureau does not believe such examples are necessary given the more limited ways that issuers are permitted to respond to

    Page 77202

    requests under proposed Sec. 1005.19(d)(1)(ii).

    Section 1026.58(e)(ii) provides that the card issuer must send to the cardholder or otherwise make available to the cardholder a copy of the cardholder's agreement in electronic or paper form no later than 30 days after the issuer receives the cardholder's request. The Board originally proposed requiring issuers to respond to such a request within 10 business days, but some commenters contended that 10 business days would not provide sufficient time to respond to a request. The commenters noted that they would be required to integrate changes in terms into the agreement and providing pricing information, which, particularly for older agreements that may have had many changes in terms over the years, could require more time. The Board believed it would be reasonable to provide more time for an issuer to respond to a cardholder's request for a copy of the credit card agreement, and thus allowed for 30 days in the final rule.\325\

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    \325\ 75 FR 7658, 7773 (Feb. 22, 2010).

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    The Bureau does not believe that issuers would face the same challenges in integrating changes in terms into prepaid account agreements in the same manner as with credit card agreements. The Bureau believes that requiring issuers to provide prepaid account agreements within five business days gives issuers adequate time to respond to requests while providing consumers with prompt access to their prepaid account agreements. The Bureau solicits comment regarding whether this period should be shorter or longer.

    19(d)(2) Form and Content of Agreements

    The Bureau is proposing Sec. 1005.19(d)(2) to address the form and content requirements for agreements provided to consumers pursuant to proposed Sec. 1005.19(d)(1). Proposed Sec. 1005.19(d)(2)(i) would state that, except as otherwise provided in proposed Sec. 1005.19(d), agreements posted on the issuer's Web site pursuant to proposed Sec. 1005.19(d)(1)(i) or sent to the consumer upon the consumer's request pursuant to proposed Sec. 1005.19(d)(1)(ii) must conform to the form and content requirements for agreements submitted to the Bureau as specified in proposed Sec. 1005.19(b)(6). Proposed Sec. 1005.19(d)(2)(ii) provides that if the issuer posts an agreement on its Web site pursuant to proposed Sec. 1005.19(d)(1)(i), the agreement may be posted in any electronic format that is readily usable by the general public and must be placed in a location that is prominent and readily accessible to the consumer. Proposed Sec. 1005.19(d)(2)(iii) would state that agreements posted or otherwise provided pursuant to proposed Sec. 1005.19(d) may contain personally identifiable information relating to the consumer, such as name, address, telephone number, or account number, provided that the issuer takes appropriate measures to make the agreement accessible only to the consumer or other authorized persons.

    Proposed Sec. 1005.19(d)(2)(iv) would state that agreements posted or otherwise provided pursuant to proposed Sec. 1005.19(d) must set forth the specific provisions and fee information applicable to the particular consumer. Proposed Sec. 1005.19(d)(2)(v) would provide that agreements posted pursuant to proposed Sec. 1005.19(d)(1)(i) must be accurate and updated whenever changes are made. Agreements provided upon consumer request pursuant to proposed Sec. 1005.19 (d)(1)(ii) must be accurate as of the date the agreement is mailed or electronically delivered to the consumer. Proposed Sec. 1005.19(d)(2)(vi) would state that agreements provided upon consumer request pursuant to proposed Sec. 1005.19(d)(1)(ii) must be provided by the issuer in paper form, unless the consumer agrees to receive the agreement electronically.

    Proposed Sec. 1005.19(d)(2) is generally similar to Sec. 1026.58(e)(3), except that it contains modifications to reflect the changes in proposed Sec. 1005.19(d)(1) regarding the methods in which prepaid account agreements may be provided to consumers pursuant to proposed Sec. 1005.19(d). Proposed Sec. 1005.19(d)(2) does not, however, include the provision contained in Sec. 1026.58(e)(3)(iv) that requires agreements for all open prepaid accounts that are posted to a card issuer's Web site or otherwise provided to consumers to contain complete and accurate provisions and pricing information as of a date no more than 60 days prior to the date on which the agreement is posted to the card issuer's Web site pursuant to Sec. 1026.58(e)(1)(i) or the date the cardholder's request is received under Sec. 1026.58(e)(1)(ii) or (e)(2). As described above, the Bureau does not believe that updating prepaid account agreements is as complex as for credit card agreements, nor that prepaid account agreements are modified as frequently as credit card agreements may be. Therefore, the Bureau does not believe that prepaid account issuers should be permitted to provide agreements to consumers that are as much as 60 days out of date. Instead, pursuant to proposed Sec. 1005.19(d)(2)(v), the Bureau is proposing to require that agreements posted online be accurate and updated when changes are made, and that agreements provided upon consumer request be accurate as of the date the agreement is mailed or electronically delivered to the consumer.

    19(e) E-Sign Act Requirements

    The Bureau is proposing Sec. 1005.19(e) to state that, except as otherwise provided in proposed Sec. 1005.19, issuers may provide prepaid account agreements in electronic form under proposed Sec. 1005.19(c) and (d) without regard to the consumer notice and consent requirements of section 101(c) of the Electronic Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.). Because TILA section 122(d) specifies that a credit card issuer must provide access to cardholder agreements on the issuer's Web site, the Board did not believe that the requirements of the E-Sign Act applied to the regulations now contained at Sec. 1026.58.\326\ The Bureau is proposing Sec. 1005.19(e) for ease of administration of these requirements and for consistency with Sec. 1026.58(f).

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    \326\ See 74 FR 54124, 54193 (Oct. 21, 2009).

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    The Bureau requests comment on proposed Sec. 1005.19 generally, including whether it should require submission and posting of agreements at all and whether the procedures proposed herein are appropriate.

    Other Regulation E Subpart A Provisions Applicable to Prepaid Accounts

    Because the Bureau is proposing to bring prepaid accounts within the definition of account generally under Regulation E, the requirements of Regulation E would apply to prepaid accounts except as modified or supplemented by this proposal. Except as otherwise addressed by this proposal, the Bureau envisions that such provisions would extend to prepaid accounts in the same manner they currently apply to payroll card accounts. Such requirements include, but are not limited to, Sec. 1005.5 regarding the issuance of access devices, Sec. 1005.8(a) regarding change in terms notices, Sec. 1005.10(a) through (d) regarding preauthorized transfers to and from consumers' accounts, and Sec. 1005.14 regarding electronic fund transfer service providers that do not hold consumers' accounts.

    The Bureau requests comment generally on the extension of these and other provisions in Regulation E to prepaid accounts. The Bureau also seeks

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    comment on whether any of these or other provisions in Regulation E provisions warrant specific modification for prepaid accounts.

    Appendix A-5 Model Clauses for Government Benefit Accounts (Sec. 1005.15(e)(1) and (2))

    Existing appendix A-5 provides model language for government agencies that offer accounts for distributing government benefits to consumers electronically; this model language reflects the modifications made to certain Regulation E provisions by existing Sec. 1005.15. The Bureau is proposing to relabel appendix A-5 as Model Clauses for Government Benefit Accounts (Sec. 1005.15(e)(1) and (2)) and to revise the heading of paragraph (a) for clarity. The Bureau is also proposing to revise the text of paragraph (a) of appendix A-5, which currently explains to consumers how to obtain information about account balances and account histories, to note that the consumer's balance information, along with an 18 month history of the consumer's account transactions, is available online. The Bureau also proposes to revise the paragraph regarding a written transaction summary to correspond with the proposed revised language for prepaid accounts in paragraph (a) of appendix A-7, to state that the consumer has a right to at least 18 months of written history of account transactions by calling or writing to the agency (or its designee). The paragraph also states that the consumer will not be charged a fee for such information unless the consumer requests it more than once per month. The paragraph retains the existing optional bracketed language stating that the consumer may also request such a history by contacting his or her caseworker.

    The Bureau is similarly proposing to revise paragraph (b) of appendix A-5, which sets forth model clauses regarding disclosure of error resolution procedures for government agencies that provide alternative means of obtaining account information. The Bureau is proposing to revise the section citation in the paragraph heading, and to revise the first paragraph of paragraph (b) to correspond with the proposed revised language for prepaid accounts in paragraph (b) of appendix A-7. Specifically, the Bureau proposes to remove the sentence stating that the agency must hear from the consumer no later than 60 days after the consumer learns of the error, and to add language stating that the agency must allow the consumer to report an error until 60 days after the earlier of the date the consumer electronically accesses his or her account, if the error could be viewed in the electronic history, or the date the agency sent the first written history on which the error appeared. The paragraph would also state that the consumer may request a written transaction history at any time by calling or writing, or optionally by contacting the consumer's caseworker.

    The Bureau requests comment on these proposed modifications to appendix A-5 and whether any additional modifications should be made. In particular, the Bureau solicits comment on whether it is necessary to retain the optional bracketed language that currently appears in paragraph (a) of appendix A-5, and that is mirrored in paragraph (b), directing consumers to request a written summary of transactional history by contacting the consumer's caseworker. The Bureau is particularly interested in whether any government benefit account programs use this optional language in their disclosures and whether inclusion of such language reduces consumer confidence in government benefit accounts or the privacy of consumers' account histories.

    Appendix A-7 Model Clauses for Financial Institutions Offering Prepaid Accounts (Sec. 1005.18(d) and (e)(3))

    Existing appendix A-7 provides model clauses for financial institutions that offer payroll card accounts; these clauses reflect the modifications made by the Payroll Card Rule to certain Regulation E provisions in existing Sec. 1005.18. To reflect the proposed expansion of Sec. 1005.18 to cover prepaid accounts, the Bureau is proposing to revise the heading for appendix A-7 as well as the heading for paragraph (a) of appendix A-7. The Bureau is also proposing to revise paragraph (a) of appendix A-7, which explains to consumers how to obtain account information for payroll card accounts, to change the term payroll card account to prepaid account, and to provide that at least 18 months of electronic and written account transaction history is available to the consumer, rather than 60 days, as proposed in Sec. 1005.18(c)(1)(ii) and (iii). The Bureau also proposes to add a sentence at the end of paragraph (a) of appendix A-7 to inform consumers that they cannot be charged for requesting such written account transaction history, unless requests are made more than once per month. As discussed above, the Bureau is proposing to allow financial institutions to assess a fee or charge for subsequent requests for written account information made in a single calendar month, in proposed comment 18(c)-3.i.

    The Bureau is similarly proposing to revise the heading of paragraph (b), and to revise the text of paragraph (b) of appendix A-7, which sets forth model clauses regarding disclosure of error resolution procedures for financial institutions that provide alternative means of obtaining payroll card account information, to change the term payroll card account to prepaid account and to renumber the section citation in the heading.

    The Bureau is also proposing to add a new paragraph (c) at the end of appendix A-7, for use by a financial institution that chooses, as explained in proposed comment 18(e)-4, not to comply with the liability limits and error resolution requirements in Sec. Sec. 1005.6 and 1005.11 for prepaid accounts which it has not completed its collection of consumer identifying information and identity verification.

    This model language would state that it is important for consumers to register their prepaid accounts as soon as possible and that until a consumer registers his or her prepaid account, the financial institution is not required to research or resolve errors regarding the consumer's account. To register an account, the consumer is directed to a Web site and telephone number. The model language explains that the financial institution will ask for identifying information about the consumer (including full name, address, date of birth, and Social Security Number or government-issued identification number), so that it can verify the consumer's identity. Once the financial institution has done so, it will address the consumer's complaint or question as described earlier in appendix A-7.\327\

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    \327\ The Bureau tested a version of this proposed model language with consumers. See ICF Report, at 23.

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    Appendix A-10 Model Forms and Sample Forms for Financial Institutions Offering Prepaid Accounts (Sec. 1005.15(c)(2) and Sec. 1005.18(b))

    The Bureau is proposing Model Forms A-10(a) through (d) and (f) and Sample Forms A-10(e) and (g) in appendix A in relation to the disclosure requirements set forth in proposed Sec. 1005.15(c)(2) and proposed Sec. 1005.18(b). Proposed Model Form A-10(a)would set forth the short form disclosure for government benefit accounts as described in proposed Sec. 1005.15(c)(2). Proposed Model Form A-10(b) would set forth the short form disclosure for payroll card accounts as described in proposed Sec. 1005.18(b)(2)(i)(A). Proposed Model Form A-10(c) would set forth the short

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    form disclosure for prepaid accounts that could offer an overdraft service or other credit feature as described in proposed Sec. 1005.18(b)(2)(i)(B)(9). Proposed Model Form A-10(d) would set forth the short form disclosure for prepaid accounts that would not offer an overdraft service or other credit feature as described in proposed Sec. 1005.18(b)(2)(i)(B)(9). Proposed Model Form A-10(f) would set forth the short form disclosure for prepaid accounts that offer multiple service plans and choose to disclose them on one short form disclosure as described in proposed Sec. 1005.18(b)(3)(iii)(B)(1).

    Proposed Sample Form A-10(e) would set forth the long form disclosure for prepaid accounts as described in proposed Sec. 1005.18(b)(3)(iii)(A). Proposed Sample Form A-10(g) would set forth the long form disclosure for prepaid accounts that offer multiple service plans as described in proposed Sec. 1005.18(b)(3)(iii)(B)(2).

    Subpart B--Requirements for Remittance Transfers

    Section 1073 of the Dodd-Frank Act added section 919 to EFTA to establish consumer protections for remittance transfers sent by consumers in the United States to individuals and businesses in foreign countries. Among other things, EFTA section 919 requires the following protections for covered transactions sent by remittance transfer providers: (i) The provision of disclosures prior to and at the time of payment by the sender of the transfer; (ii) cancellation and refund rights; and (iii) the investigation and remedy of errors by providers. It also establishes liability standards for providers for the acts of their agents. On February 7, 2012, the Bureau published a final rule implementing these provisions largely in new subpart B of Regulation E.\328\

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    \328\ 77 FR 6194 (Feb. 7, 2012). This final rule was subsequently amended. See 77 FR 40459 (July 10, 2012), 77 FR 50244 (Aug. 20, 2012), 78 FR 6025 (Jan. 29, 2013), 78 FR 30662 (May 22, 2013), 78 FR 49365 (Aug. 14, 2013), and 79 FR 55970 (Sept. 18, 2014) (collectively, the Remittance Rule).

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    The Remittance Rule only applies to those entities that are remittance transfer providers. A remittance transfer provider is any person that provides remittance transfers for a consumer in the normal course of its business, regardless of whether the consumer holds an account with such person. Sec. 1005.30(f). A remittance transfer is the electronic transfer of funds requested by a sender to a designated recipient that is sent by a remittance transfer provider. Sec. 1005.30(e)(1). The term remittance transfer applies regardless of whether the sender holds an account with the provider, and regardless of whether the transaction is also an electronic fund transfer, as defined in Sec. 1005.3(b). The Remittance Rule applies to remittance transfers sent to and from prepaid products. See generally, Sec. 1005.30(c) and (e), and comments 30(c)-2.iii, 30(e)-2.ii, 30(e)-3.i.C, and 30(h)(3).

    Section 1005.30 Remittance Transfer Definitions

    30(g) Sender

    The Bureau proposes to make a conforming change to comment 30(g)-3. Currently, the comment contains a reference to an exception from the definition of account for bona fide trust accounts. As discussed earlier in this section-by-section analysis, the Bureau is proposing to renumber the exception for bona fide trust accounts as Sec. 1005.2(b)(2). Accordingly, the Bureau is proposing conforming change to comment 30(g)-3 to reflect the proposed renumbering.

    As discussed above, the Remittance Rule applies to remittance transfers sent to and from prepaid products. The Bureau does not intend this proposed rule to alter the applicability of the Remittance Rule to transfers sent to and from prepaid products. At the same time, the Bureau welcomes comment on the proposed rule's potential implications for the Remittance Rule. As discussed in the section-by-section analysis above, with certain exceptions such as payroll card accounts, accounts for the receipt of certain government benefits, and gift cards (or certain other types of limited purpose cards), prepaid products generally have not been covered under current subpart A of Regulation E. In proposing to expand the current definition of account in Regulation E, additional prepaid products such as GPR cards and certain digital wallets would fall within the definition of account under Regulation E. Accordingly, the Bureau seeks comment on whether additional clarification or guidance is necessary with respect to the Remittance Rule.

    Regulation Z

    Overview of Bureau's Approach to Its Regulation Z Proposal

    In developing this proposal, the Bureau has considered whether and how to regulate credit accessed through a prepaid account. Specifically, the Bureau has considered potential transactions where financial institutions allow consumers to overdraw their prepaid accounts through an overdraft service, a draw from a linked line of credit, or by pushing credit onto a specified prepaid account to cover transactions for which there are insufficient or unavailable funds. As is explained in detail below, the Bureau proposes to treat most credit plans for which finance charges are imposed as ``open-end (not-home secured) credit plans'' accessed by a ``credit card'' under Regulation Z, and thus subject to credit card protections. In addition and as is explained above, the Bureau is also proposing to revise provisions in Regulation E regarding compulsory use (proposed Sec. 1005.10(e)(1)) and to adopt other rules specific to prepaid accounts that offer credit features (proposed Sec. Sec. 1005.12(a) and 1005.18(b)(2)(i)(B)(9), (b)(2)(ii)(B) and (g)) to provide consumers with greater control over how they enroll in a credit feature and pay any credit balances associated with their prepaid accounts, and also to prevent evasion of the Regulation Z protections.

    In its evaluation of credit features offered in connection with prepaid accounts, the Bureau has carefully considered a variety of information and factors, including existing relevant consumer protection regulations governing overdraft services and a range of credit products subject to Regulation Z; consumers' use of those features to the extent offered in today's market, consumer expectations, and understanding of prepaid accounts and credit features offered in connection with prepaid accounts (including through discussion in the Bureau's consumer testing); review of comments received from industry, consumers, and consumer advocacy groups in response to the Prepaid ANPR; analysis of data from the Bureau's overdraft research on deposit accounts and other available research; further outreach to industry, consumer advocacy, and other groups; and ongoing market analysis.

    The bulk of the feedback the Bureau has received has focused specifically on the permissibility of overdraft services on prepaid accounts. In the Prepaid ANPR, the Bureau noted that while most GPR cards do not offer overdraft features, some do allow cardholders to opt in to an overdraft program in which the issuer may authorize overdrafts and charge an overdraft transaction fee.\329\ The Bureau then sought public input on the costs, benefits, and consumer protection issues related to any credit features that financial institutions may offer on GPR cards.

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    \329\ 77 FR 30923, 30925 (May 24, 2012).

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    The Bureau received a significant number of comments on the issue of credit features and prepaid accounts. Most industry commenters encouraged the Bureau not to adopt regulations that

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    would limit these credit features. In particular, commenters stated that overdraft for prepaid accounts should function as it does for accounts with linked debit cards--i.e., subject to the current Regulation E opt-in framework for overdraft. Commenters argued that to the extent the Bureau wants to treat prepaid accounts as transaction account substitutes, they should be subject to the same regulatory requirements (and exceptions) as those accounts, including opt-in requirements for overdraft services. One trade association argued that it would be unfair for the Bureau to prohibit overdraft on prepaid cards while such features remain permitted on checking accounts. Some industry commenters argued that their customers want--or even need--

    access to short-term credit in connection with their GPR cards. Several other trade associations similarly argued that consumers want access to credit features on prepaid cards. They urged the Bureau to ensure that consumers understand such features, and they argued that the Bureau should conform regulations for such products to those that now exist for traditional deposit accounts in Regulations E, Z, and DD.

    However, some industry commenters urged the Bureau not to permit credit features in connection with prepaid products. For example, one credit union stated that, in its opinion, only the funds loaded onto a prepaid card should be made available for transactions. A large financial institution similarly stated that, in its opinion, GPR cards should remain ``prepaid,'' without being linked or having access to overdraft services. A community bank stated that it was its practice to urge prepaid card customers who wanted overdraft services to transition into checking accounts, where it had systems in place to deal with the credit risk, and that it would not permit overdrafts on its prepaid products.

    Most consumer advocates that commented also urged that the Bureau ban overdraft services in connection with prepaid products, because the overdraft fees and accumulating debt can be harmful. They argued that prepaid consumers are often more vulnerable or do not anticipate having to deal with credit on their prepaid accounts. These commenters explained that prepaid cards are marketed to and used by a variety of vulnerable groups, including low-income consumers, consumers with blemished credit histories, unbanked and underbanked consumers with limited access to traditional accounts, young consumers and students, undereducated consumers, public benefit recipients, and consumers who are trying to control their spending. Many of these vulnerable groups have, historically, struggled with credit products, including overdraft. Additionally, at least one consumer advocacy group commenter urged the Bureau to subject overdraft services on prepaid accounts to Regulation Z's rules for credit cards. Consumer group commenters further argued that permitting credit features on prepaid cards could eviscerate State payday and usury laws as well as protections for servicemembers, such as the MLA. Consumer advocacy group commenters also argued that application of existing opt-in overdraft rules, which currently apply to deposit accounts and payroll card accounts, would not prevent harm to consumers who use prepaid cards because opt-in does not, in the opinion of the commenters, protect vulnerable consumers from predatory lending. In addition, the consumer advocacy group commenters contended that credit features on prepaid products are unnecessary because less vulnerable consumers who can access credit will still have access to credit cards, deposit accounts that offer overdraft services, lines of credit, and other credit products.

    The Bureau also received a number of comments from consumers who use prepaid products currently offering overdraft services. Most of these consumers voiced support for such services, stating that the overdraft fee charged by their prepaid products was less than the overdraft fees charged by banks, allowing them to bridge cash shortfalls between paychecks and fulfill other short-term credit needs. Most participants in the Bureau's consumer testing, however, expressed concern about overdraft programs and explained that they preferred prepaid products because they did not allow them to spend more than what was loaded onto the card.\330\

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    \330\ ICF Report at 6.

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    Since the close of the comment period for the Prepaid ANPR, the Bureau has continued its evaluation of prepaid products and related credit features, received additional feedback on this issue from interested parties, and the Bureau has also collected relevant data. In various forms, parties have submitted studies, additional comment, and other evidence to advocate for different approaches to regulating overdraft services and credit features on prepaid accounts. The Bureau has also reviewed data gathered by third parties and reported on by non-profit organizations and other government agencies.

    As explained in more detail below, the Bureau has concluded that the most appropriate approach is to propose to treat a broad range of credit features that financial institutions could offer in connection with prepaid accounts as subject to the rules governing credit cards under TILA, EFTA, and their implementing regulations. This includes programs structured as overdraft services; the Bureau is declining to extend existing exemptions under Regulation Z and Regulation E's compulsory use provision for overdraft services on deposit accounts to prepaid accounts. In this overview, the Bureau first addresses the application of Regulation Z's rules for open-end (not home-secured) credit plans and for credit cards to overdraft services and other credit features offered on prepaid accounts. Next, the Bureau discusses the benefits of applying these rules to all credit features offered on prepaid accounts. Finally, the Bureau provides section-by-section analysis of its specific proposed revisions to Regulation Z.

    Credit Offered in Connection With Prepaid Cards--Including Overdraft Services--Satisfies TILA's Definition of Open-End Credit

    The Bureau believes that a range of credit features offered in connection with prepaid accounts--including those features structured as overdraft services--should be subject to regulation as credit cards under TILA, EFTA, and their implementing regulations. Specifically, the Bureau believes that overdraft lines of credit, overdraft services, and similar credit features offered in connection with a prepaid account satisfy the definitions of (1) credit; (2) open-end (not home-secured) credit plan; and (3) credit cards under TILA and Regulation Z. Although the Board had chosen to exempt overdraft services (but not other forms of credit) offered in connection with traditional deposit accounts from Regulation Z, the Bureau chooses not to exercise its exception authority to expand further the scope of the existing exemptions to prepaid accounts.

    As described above, TILA defines credit broadly as the right granted by a creditor to a debtor to defer payment of debt or to incur debt and defer its payment. 15 U.S.C. 1602(f). Under the statute and Regulation Z, open-end credit exists where there is a plan in which the creditor reasonably contemplates repeated transactions; the creditor may impose a finance charge from time to time on an outstanding unpaid balance, and the credit is generally replenished to the extent that

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    any outstanding balance is repaid. Sec. 1026.2(a)(20). Closed-end credit is credit that does not meet the definition of open-end credit. Sec. 1026.2(a)(10).

    The Board subjected overdraft lines of credit in connection with traditional deposit accounts to Regulation Z requirements for open-end credit, but carved overdraft services on traditional deposit accounts out from Regulation Z through operation of the definitions of the terms ``creditor'' and ``finance charge.'' A creditor is generally defined under Regulation Z to mean a person who regularly extends consumer credit that is subject to a finance charge or is payable by written agreement in more than four installments (not including a down payment), and to whom the obligation is initially payable, either on the face of the note or contract, or by agreement when there is no note or contract. See Sec. 1026.2(a)(17)(i).\331\ In 1969, however, the Board adopted an exclusion to the definition of finance charge for ``charges imposed by a financial institution for paying items that overdraw an account, unless the payment of such items and the imposition of the charge were previously agreed upon in writing.'' See Sec. 1026.4(c)(3). Thus, the Board created an exception for financial institutions that offer overdraft services in connection with traditional deposit accounts if they do not agree in writing to pay the items and do not structure the repayment of the credit by written agreement in more than four installments. Under the exception, the fees charged for the overdrafts are not ``finance charges'' under Regulation Z, and thus a financial institution extending credit is not a ``creditor'' under Regulation Z because it is not charging a finance charge and is not structuring the repayment of the credit by written agreement in more than four installments. As discussed further below, the Bureau declines to extend this exception to include prepaid accounts. Absent this exception, the Bureau believes that overdraft services, like overdraft lines of credit and similar credit features that could be offered in connection with prepaid accounts, will meet the definitions of credit and open-end credit under TILA and Regulation Z if interest rates, transaction fees, or other types of finance charges are imposed in connection with the credit services.

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    \331\ The term ``creditor'' also includes a card issuer, which is a person that issues credit cards, when that person extends credit accessed by the credit card. See Sec. 1026.2(a)(17)(iii) and (iv). Regulation Z defines the term ``credit card'' to mean any card, plate, or other single credit device that may be used from time to time to obtain credit. See Sec. 1026.2(a)(15). A charge card is a credit card on an account for which no periodic rate is used to compute a finance charge. See Sec. 1026.2(a)(15)(iii). In addition to being creditors under TILA and Regulation Z, card issuers also generally must comply with the credit card rules in the FCBA and in the Credit CARD Act (if the card accesses an open-end credit plan), as implemented in Regulation Z subparts B and G. See generally Sec. Sec. 1026.5(b)(2)(ii), 1026.7(b)(11), 1026.12 and 1026.51 through .1026.60.

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    Finance Charge

    The Bureau analyzed whether it was reasonable to interpret ``credit'' to include when overdrafts are paid in relation to prepaid accounts. The Bureau believes it is because, in accordance with TILA's definition of credit, the payment of an overdraft represents the right granted by a creditor to a debtor to defer payment of debt or to incur debt and defer its payment. 15 U.S.C. 1602(f).

    In its analysis, the Bureau examined whether a fee charged for an overdraft service (or other credit feature on a prepaid product) qualifies as a finance charge. TILA section 106(a) defines finance charge as the sum of all charges, payable directly or indirectly by the person to whom the credit is extended, and imposed directly or indirectly by the creditor as an incident to the extension of credit. 15 U.S.C. 1605(a). The plain language of the definition of credit in TILA section 103(e) covers situations in which a consumer makes a transaction which exceeds the funds in the consumer's account, and the bank elects to cover the transaction by advancing funds to the consumer which the consumer must repay. 15 U.S.C. 1602(f). This statutory language does not exempt overdraft services, including those that may be offered in connection with prepaid accounts.\332\ The Bureau believes that fees levied for overdraft services or other credit features on prepaid accounts--such as interest charges, transaction charges, service charges, and annual or other periodic fees to participate in the credit program--generally represent finance charges. See section-by-section analysis of proposed Sec. 1026.4(a), (b)(2), (c)(3) and (c)(4). Regulation Z defines ``finance charge'' as the cost of consumer credit as a dollar amount. The term includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. Sec. 1026.4(a). The Bureau believes that fees that are levied for overdraft services are thus ``finance charges'' because they are directly payable by the consumer and imposed directly by the creditor as a condition of the extension of credit, which would be funds advanced to cover the consumer's overdraft.

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    \332\ See also OCC 2001 Guidance; Joint Guidance (noting that overdraft satisfies the definition of ``credit'' in TILA).

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    Open-End (Not Home-Secured) Credit Plan

    Having determined that fees for overdraft services and other types of credit products in connection with prepaid accounts can be finance charges, the Bureau then examined the question of whether the programs themselves are open-end (not home-secured) credit plans. As discussed below, the Bureau believes that overdraft lines of credit, overdraft services, and similar products that could be offered in connection with prepaid accounts can be regulated by Regulation Z as ``open-end credit'' where a financial institution routinely extends credit to cover transactions for which there are insufficient funds in the account (even if the institution retains, by contract, the discretion not to pay the transactions) and obligates the consumer contractually to repay the debt, and may impose finance charges from time to time on an outstanding unpaid balance. The Bureau recognizes (as noted above) that a line of credit where there is a written agreement to pay overdrafts and impose finance charges is already covered by Regulation Z as ``open-end credit,'' whether it is associated with a prepaid or checking account; pursuant to this proposal and as discussed further below, overdraft services for prepaid accounts would now be treated similarly to such lines of credit, with certain proposed modifications.

    TILA section 103(j) defines an open-end credit plan as ``a plan under which the creditor reasonably contemplates repeated transactions, which prescribes the terms of such transactions, and which provides for a finance charge which may be computed from time to time on the outstanding unpaid balance.'' 15 U.S.C. 1602(j). Regulation Z defines ``open-end credit'' to mean consumer credit extended by a creditor under a plan in which (1) the creditor reasonably contemplates repeated transactions; (2) the creditor may impose a ``finance charge'' from time to time on an outstanding unpaid balance; and (3) the amount of credit that may be extended to the consumer during the term of the plan (up to any limit set by the creditor) is generally made available to the extent that any outstanding balance is repaid. Regulation Z explains that for there to be an open-end credit plan, there must first be a plan. Comment 2(a)(20)-2 explains that a plan

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    connotes a contractual arrangement between the creditor and the consumer. For a plan to be an open-end credit plan, it must then satisfy the three requirements noted above. See Sec. 1026.2(a)(20).

    The Bureau understands that financial institutions offering automated overdraft services include in their account agreements details about how the overdraft service will operate and information about overdraft fees. These terms and conditions documents explain that consumers using overdraft programs must agree to repay the debt created by an overdraft and the related fee, indicating that a contractual arrangement between the creditor and the consumer exists. Although these agreements typically note that the financial institution retains discretion to authorize or decline any particular overdraft, as a practical matter financial institutions operating automated overdraft programs exercise limited if any discretion in authorizing particular transactions so long as the overdraft transaction is within the overdraft limit that the institution previously established.\333\ The Bureau understands that financial institutions have historically argued (in connection with deposit account overdraft services) that an overdraft service is not an open-end credit plan subject to TILA because, in the account agreement, they typically reserve discretion not to pay overdrafts.\334\ In practice, the Bureau believes that this discretion is typically limited; automated overdraft systems for prepaid accounts are typically programmed to approve all would-be overdrafts that are within a predetermined credit limit. Furthermore, the Bureau believes that the contractual reservation of discretion is no different from credit card issuers' standard practice of reserving discretion to decline a credit card transaction without prior notice, notwithstanding that the transaction is within the credit limit.\335\ Thus, the Bureau believes that simply labeling an overdraft service as discretionary is insufficient to negate the existence of a credit plan.

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    \333\ As noted above, the nature of such an arrangement also establishes an arrangement between the institution and the consumer to pay certain overdrafts.

    \334\ Several commenters to the Prepaid ANPR also made this point.

    \335\ Bureau staff reviewed many agreements in the Bureau's database. See generally http://www.consumerfinance.gov/credit-cards/agreements/.

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    The FDIC reached a similar conclusion in its guidance on automated overdraft payment programs, noting a distinction between ad hoc overdraft services, which typically involve irregular and infrequent occasions on which a bank employee exercises discretion in a specific instance about whether to pay an item (so a customer can avoid an NSF fee that the payee may impose), and ``risks posed by automated overdraft payment programs.'' According to the FDIC guidance, such programs ``are established programs that are often partially or fully computerized, that are used by institutions to determine whether NSF transactions qualify for overdraft coverage based on pre-determined criteria.'' \336\ The Bureau believes the latter formulation is how established prepaid overdraft services function and thus that a plan exists in these cases.

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    \336\ FDIC Overdraft Payment Supervisory Guidance at 3.

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    Having determined that a plan exists, the Bureau evaluated whether such a plan satisfies the three prongs necessary to establish the plan as an open-end (not home-secured) credit plan. The first prong asks whether overdraft services, including those offered in connection with prepaid accounts, can be plans under which the creditor reasonably contemplates repeated transactions. Particularly to the extent that prepaid and deposit account overdraft services are automated, the Bureau believes that overdraft programs typically contemplate and approve repeated transactions.\337\ Indeed, every prepaid overdraft service that charges a fee of which the Bureau is aware contemplates and approves repeated transactions.

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    \337\ As is discussed below, the Bureau intends to exclude overdrafts for which no finance charge as defined in Sec. 1026.4 and no fee described in Sec. 1026.4(c) is charged and repayment is not expected by written agreement in more than four installments.

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    The Bureau then examined the second prong of the definition of ``open-end credit'' to determine whether the creditor may impose a finance charge from time to time on an outstanding unpaid balance. See Sec. 1026.2(a)(20)(ii). As noted above, the Bureau believes that overdraft service fees and charges on other credit features easily meet the general definition of finance charge. With regard to the element focusing on whether a finance charge may be computed and imposed from time to time on an outstanding balance, the Official Interpretations to Regulation Z explain that this provision simply means that there is no specific amount financed for the plan for which the finance charge, total of payments, and payment schedule can be calculated in advance of the usage of the plan. See comment 2(a)(20)-4 (explaining that the requirement that a finance charge may be computed and imposed from time to time on the outstanding balance means there is no specific amount financed for the plan for which the finance charge, total of payments, and payment schedule can be calculated and that a plan may meet the definition of open-end credit even though a finance charge is not normally imposed, provided the creditor has the right, under the plan, to impose a finance charge from time to time on the outstanding balance). For a credit plan where credit is replenishing, an amount financed cannot be calculated for the plan. Such credit plans will meet this element if a finance charge may be imposed on the plan. Indeed, a plan may meet the definition of open-end credit even though a finance charge is not normally imposed, provided the creditor reserves the right, under the plan, to impose a finance charge from time to time on an outstanding balance. See comment 2(a)(20)-4.

    The Bureau does not anticipate that there will be a specific amount financed for a prepaid overdraft service at the time it is established; instead, credit extensions may be added from time to time to the outstanding balance for the plan, and fees or other finance charges may be imposed from time to time in connection with the usage of the plan, thus satisfying this criterion. To the extent that such a plan involves finance charges but no periodic rate, it may be a charge card, which is specifically subject to coverage under Regulation Z. See, e.g., 1026.2(a)(15)(iii) (defining a ``charge card'' as ``a credit card on an account for which no periodic rate is used to compute a finance charge'').

    Lastly, the Bureau anticipates that automated overdraft services for prepaid accounts generally will be structured such that the credit line for the plan will generally replenish to the extent that any outstanding balance is repaid, thus satisfying the final prong of the definition of open-end credit, that the amount of credit that may be extended is generally made available to the extent that any outstanding balance is repaid. Comment 2(a)(20)-5 currently provides that this criterion means that the total amount of credit that may be extended during the existence of an open-end plan is unlimited because available credit is generally replenished as earlier advances are repaid. This unlimited credit distinguishes open-end credit from a series of advances made pursuant to a closed-end credit loan commitment, but it does not mean that the creditor must establish a specific credit limit for the line of credit or that the credit plan must always be replenished to its original amount. The creditor may

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    reduce a credit limit or refuse to extend new credit in a particular case due to changes in the creditor's financial condition or the consumer's creditworthiness, if permitted by Regulation Z; indeed, the Bureau believes that this is a quite common practice with respect to credit cards. While consumers should have a reasonable expectation of obtaining credit as long as they remain current and within any preset credit limits, further extensions of credit need not be an absolute right in order for the plan to meet the self-replenishing criterion. The Bureau believes that overdraft services linked to prepaid accounts generally are and will be structured to meet this criterion. Insofar as the Bureau has determined that the three prongs of an open-end credit plan are met, it finds that an overdraft service on a prepaid account is an open-end credit plan much like an overdraft line of credit or other similar products linked to prepaid accounts.

    Overdraft Services and Other Credit Features on Prepaid Accounts and TILA's Definition of a Credit Card

    Having determined that overdraft services, overdraft lines of credit, or other similar products linked to prepaid accounts can be open-end (not home-secured) credit plans, the Bureau evaluated whether such arrangements involve use of a ``credit card'' under Regulation Z. TILA section 103(k) defines the term credit card to mean any card, plate, coupon book or other credit device existing for the purpose of obtaining money, property, labor, or services on credit. 15 U.S.C. 1602(l). In turn, Sec. 1026.2(a)(15)(i) defines credit card to mean any card, plate, or other single credit device that may be used from time to time to obtain credit.

    The Bureau believes that prepaid accounts that access overdraft services, overdraft lines of credit, or similar products generally meet the definition of ``credit card'' and, absent an exemption, generally would be subject to the rules in Regulation Z applicable to credit cards. As is noted above in the discussion of Regulation E proposed 1005.2(a)(3), the definition of prepaid account includes certain access devices that may not be a physical card. Specifically, the term prepaid account would include cards, codes, or other devices capable of being loaded with funds and usable at a wide variety of unaffiliated merchants or for person-to-person transfers. See proposed Regulation E 1005.2(b)(3). Thus, the proposed Regulation E definition would include physical cards--such as a GPR card--but also would include access devices that are solely online or on a mobile phone. With respect to Regulation Z, the Bureau similarly intends for ``card, code, or other device'' to apply to the panoply of different access devices in addition to physical cards on which credit may be extended including ``hybrid'' cards that may function as both a prepaid account and a credit card.

    The Bureau proposes not to extend the exclusions for debit cards and account numbers to prepaid accounts. The commentary to the definition of ``credit card'' explains that a debit card is not a credit card unless there is a credit feature or agreement to extend credit, even if the creditor occasionally honors an inadvertent overdraft. The Board adopted this commentary to exclude bounce protection plans from becoming subject to Regulation Z when they are accessed by a debit card, consistent with the exclusion for overdraft charges from the definition of finance charge where there is no written agreement to extend credit and charge a fee, as described above.\338\ With regard to overdraft lines of credit and other open-end (not home-

    secured) plans where there is an agreement to extend credit, a debit card that can access the credit is a credit card and is subject to the credit card provisions in Regulation Z subpart B that implement the FCBA, such as the no-offset provision. However, the Board used its TILA exception authority to exempt debit cards that access open-end overdraft lines of credit from the Credit CARD Act provisions, generally set forth in subpart G, because it determined that the protections in Regulation E generally apply to debit cards that access an overdraft line of credit. In addition, the Board noted that overdraft lines of credit were not, at that time, in wide use and that creditors issuing such lines of credit generally did not engage in the practices addressed by the Credit CARD Act.\339\

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    \338\ 46 FR 50288, 50293 (Oct. 9, 1981).

    \339\ See 75 FR 7657, 7664 (Feb. 22, 2010); see also Sec. 1026.2(a)(15)(ii).

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    The existing commentary to the definition of ``credit card'' also excludes an account number (where there is no physical device) from the definition of credit card, unless the account number can access an open-end line of credit to purchase goods or services. For example, if a creditor provides a consumer with an open-end line of credit that can be accessed by an account number in order to transfer funds into another account (such as an asset account with the same creditor), the account number is not a credit card for purposes of Regulation Z. However, if the account number can also access the line of credit to purchase goods or services (such as an account number that can be used to purchase goods or services on the internet), the account number is a credit card for purposes of Regulation Z. Relatedly, the commentary explains that a ``hybrid'' card--a card that accesses both a credit and an asset account (that is, a debit-credit card)--is considered a credit card. See comment 2(a)(15)-2.i.B. Thus, there is a scenario in existing Regulation Z when the same number (the number of the debit-credit card) can access both the credit and the asset account.

    Rather than expanding this existing patchwork approach, the Bureau is proposing to treat all credit offered on or in connection with a particular prepaid account in the same way (to the extent that the credit plan imposes a finance charge or a fee described in Sec. 1026.4(c) and is not payable in more than four installments)--subject to the specific credit card protections in subparts B and G. As is noted above, in addition to overdraft services, prepaid accounts may also be offered with other types of credit features such as linked lines of credit. Although a line of credit accessed by an account number that pushes credit into a checking account would not be considered a credit card under Regulation Z if the account number cannot be used to access an open-end line of credit to purchase goods or services, the Bureau believes it is appropriate to treat all lines of credit linked to prepaid accounts as credit cards when they are linked to a prepaid account.

    Relatedly, the Bureau also believes it appropriate to include as credit cards products involving a range of access devices. For example, the Bureau intends its proposal to apply if the provider offers a credit product in which the consumer has an account number that can access the line of credit, and the credit can be deposited directly only into the prepaid account (even if there was no physical device to access the line of credit).

    The Bureau believes that this is appropriate because of the increased protections offered by the credit card rules, discussed below, and the unique nature of prepaid accounts. While the existence of linked lines of credit and ``push'' credit products associated with prepaid accounts today may be limited, the Bureau is concerned that were such products not covered by the proposed provisions governing credit, they would be offered as a means of evading the requirements articulated in this proposal. Thus, as is discussed in more

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    detail below, the Bureau's proposal also would cover such credit plans.

    Specifically, the proposal would generally provide that prepaid accounts are credit cards under Regulation Z, except where a prepaid account can only access credit that is not subject to any finance charge or fee described in Sec. 1026.4(c) (such as an application fee to apply for credit, late payment fee, over the credit limit fee or returned payment fee) and repayment is not expected by written agreement in more than four installments. To the extent no periodic rate is imposed, such as if an overdraft service charges a flat per transaction fee, then the credit product linked to a prepaid account would be a charge card. See Sec. 1026.2(a)(15)(iii).

    The Bureau believes that the proposal would provide consumers with stronger and more consistent protections than would apply if the Bureau extended exemptions for overdraft services on prepaid accounts that would exempt them entirely from Regulation Z but did not subject lines of credit and products that push credit onto the prepaid account as credit cards. Thus, under the proposal, prepaid accounts generally would be credit cards when they access a credit feature, and generally would be subject to the rules in Regulation Z applicable to credit cards. The proposal also would add additional, unique protections to Regulation Z for prepaid accounts that are credit cards that access overdraft services or credit features.

    Where applicable, the extension of credit card provisions to prepaid accounts would mean that a variety of Regulation Z provisions would apply, such as enhanced protections for credit cardholders pursuant to the FCBA and the Credit CARD Act. Those requirements, in tandem with the proposed application of TILA's no-offset provision (TILA section 169) to prepaid accounts subject to these credit card provisions, and corresponding proposed changes to the compulsory use provision in Regulation E Sec. 1005.10(e)(1), would allow consumers to retain control over the funds in their prepaid accounts if a credit card feature becomes associated with those accounts because they will be able to control when and how debts are repaid. See Sec. 1026.12(d).\340\

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    \340\ This provision implements TILA section 169, which Congress added to TILA when it enacted the FCBA. The provision prohibits card issuers from taking any action to offset a cardholder's indebtedness arising from a consumer credit card transaction against the cardholder's funds held with the issuer, unless such action was previously authorized in writing by the cardholder in accordance with a plan whereby the cardholder agrees to permit the issuer periodically to deduct the debt from the cardholder's deposit account.

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    Specifically, proposing to apply TILA's timing and due date requirements for periodic statements and the no-offset provision and proposing to amend Regulation E's compulsory use provision would, respectively, mean that card issuers would have several restrictions. First, they would be required to adopt reasonable procedures designed to ensure that periodic statements are mailed or delivered at least 21 days prior to the payment due date disclosed on the periodic statement and the due date disclosed must be the same day of the month for each billing cycle. Second, card issuers could only move funds automatically from an asset account held by the card issuer to the credit card account held by the card issuer to pay some or all of the credit card debt no more frequently than once per month, such as on the payment due date, and only pursuant to the consumer's signed, written agreement that the issuer may do so. Third, card issuers must offer consumers a means to repay their outstanding credit balances other than automatic repayment (such as by means of a transfer of funds from the prepaid asset account to the credit account that the consumer affirmatively initiates on the prepaid account's online banking Web site).

    In addition, the Bureau proposes that by virtue of treating credit features offered on prepaid accounts as open-end credit accessed by a credit card, other protections of the Credit CARD Act, mostly implemented in subpart G of Regulation Z, would also apply.\341\ Among other things, these requirements would require such credit card issuers to perform underwriting when opening a credit card account for consumers in accordance with the Credit CARD Act's ability-to-pay requirements. See Sec. 1026.51(a). Such issuers would also generally be required to limit fees (as opposed to periodic interest rates) to 25 percent of the credit limit during the first year after the consumer opens the credit card account (i.e., the credit account linked to the consumer's prepaid account could be opened no earlier than thirty calendar days after the consumer registered the prepaid account). See section-by-section analysis of Sec. 1026.52(a). This limit would apply to any per-transaction fees--such as the prototypical ``overdraft fee''--that issuers might assess each time they authorize a prepaid transaction that accesses the credit account.

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    \341\ As noted above, under the proposal, a prepaid account would not be a credit card if it only accesses credit that is not subject to any finance charge as defined in Sec. 1026.4 or any fee described in Sec. 1026.4(c) and repayment is not expected in more than four installments and thus the provisions discussed herein would not apply.

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    Consideration of Extension of Existing Exemptions for Overdraft Services on Prepaid Accounts

    In this rulemaking, the Bureau considered the alternative of preserving the existing bifurcation in regulatory treatment between overdraft services for traditional deposit accounts and other forms of credit that may be associated with such accounts, but extending traditional deposit account treatment to prepaid accounts. The Bureau believes instead that invoking TILA and Regulation Z protections prepaid consumers that may use prepaid account overdraft services and other credit features is appropriate for several reasons.

    First, the Bureau believes that covering overdraft services offered in connection with prepaid accounts under Regulation Z aligns with TILA's purpose (TILA section 102(a))--to ``assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing and credit card practices.'' 15 U.S.C. 1601(a). In addition and as discussed above, the provisions of the FCBA and the Credit CARD Act would offer additional protections to consumers who use overdraft services and other forms of credit offered in connection with prepaid accounts. In addition to the application of the FCBA and Credit CARD Act credit card provisions to overdraft services accessed by prepaid accounts that would be considered credit cards under the proposal, the Bureau believes that regulation of prepaid account overdraft services as open-end (not home-secured) credit would serve to accomplish the stated purpose of TILA by requiring creditors and other persons to explain the terms of overdraft services to consumers in the context of Regulation Z, protect consumers from high fees during the first year (through Regulation Z's fee harvester provision) and from harms arising from various billing and improper credit card practices, and give consumers strong tools to manage their credit relationships.

    Second, the Bureau believes the Board's justification of the existing regulatory approach is much less convincing as applied to prepaid accounts, both because the historical justification for checking account overdraft services does not apply to

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    prepaid accounts and because there are notable differences between how prepaid accounts and checking accounts function. In constructing the exemption, the Board relied in part on the fact that at that time overdraft in the checking account context was determined to be a ``courtesy'' that enabled consumers to avoid both the embarrassment of bouncing checks and the attendant costs. The Board also relied on the fact that, at the time, overdraft decisions were made on an ad hoc basis; that is no longer true of automated overdraft programs. At the time the Board established the Regulation Z exemption, bounce-

    protection programs (as overdraft services were known) were necessarily check-based because checks and cash were--at that time--consumers' only ways of accessing funds in their deposit accounts. Further, a financial institution's decision whether to pay a given check that triggered an overdraft was at that time necessarily manual, or ad-hoc, because computers (and automated credit decision-making) were only in their infancy. Typically, a consumer's institution (the ``paying bank,'' which is equivalent to the card-issuing bank in a card transaction) cannot authorize or decline a purchase by check when the consumer seeks to make payment (i.e., while at the merchant). As the Board noted in 2009, institutions that historically provided overdraft coverage for check transactions on an ad-hoc basis often provided a benefit to consumers, insofar as paying the check was often a preferable outcome to a bounced, returned check or NSF fee; additional fees imposed by merchants; and even potential criminal liability for passing bad checks.\342\

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    \342\ 77 FR 59033, 59033 (Nov. 17, 2009); see also generally FDIC Overdraft Payment Supervisory Guidance.

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    However, the account structure and logistics for prepaid accounts have never matched those for checking accounts that existed in 1969, because overdraft services in the prepaid account context are not structured by institutions or considered by consumers to be an occasional courtesy to avoid a bounced check. Checking accounts, by definition, allow consumers to write checks and present them to payees without first receiving authorization from their financial institution. Checking accounts also allow incoming debit ACH transactions without preauthorization. These types of transactions are relevant because the exact timing of the check clearance and incoming ACH process can be difficult for the consumer to predict. For instance because sometimes it may take several days or longer for a check to be presented and funds to be withdrawn from the consumer's account, while other times checks may be presented faster. Uncertainty around the timing of check and ACH presentment and the substantial negative consequences of rejected transactions may lead to overdrafts for traditional accounts, but are extremely unlikely for prepaid accounts.

    Indeed, by contrast, virtually all prepaid account transactions are preauthorized, which means that the merchant seeks authorization from the financial institution before providing goods or services to the consumer.\343\ In such cases, the consumer is not at risk of having a payment rejected after a transaction has already occurred and the consumer will not be subjected to NSF and merchant fees; rather, the financial institution can simply reject the transaction before the purchase occurs if there are insufficient funds in the account.\344\ This is true for point-of-sale transactions as well as online bill pay transactions completed via ACH initiated from the prepaid account to the biller (or even with mailed, pre-debited checks). Thus, a consumer using a prepaid account is less like the checking account customer that the Board focused on in creating the exemption for overdraft--a consumer being extended a courtesy in order to avoid potentially harsher repercussions--and instead is like any other consumer using credit to purchase goods or services. To the extent offered, financial institutions' ongoing and routine decisions to pay prepaid account transactions that will result in the creation of a debt and the deferment of payment on that debt function as if they are an extension of credit and constitute a credit plan (unless exempted from Regulation Z). Insofar as this is how most prepaid cards work, they have been distinguishable from traditional checking accounts.

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    \343\ An exception is third-party ACH debits, which could be sent without prior authorization. However, an informal review by the Bureau of major GPR card programs indicates that most will not accept incoming ACH debits or that, by contract, cardholders are not permitted to establish them. The Bureau notes that, as currently structured, most prepaid products do not allow consumers to write checks that are not preauthorized.

    \344\ The Bureau is aware that, in some instances, a transaction will be authorized when the account balance is positive but will ultimately settle when the account balance is negative, because for some types of transactions the final settlement amount may be higher than the authorization amount (e.g., at restaurants because tips are sometimes added after authorization). However, the Bureau believes that such occurrences are rare and generally only for marginal amounts rather than full transactions.

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    Third, the Bureau believes that treating prepaid overdraft services as open-end credit plans acting as credit cards would provide stronger protections that are more closely calibrated to how the industry has broadly marketed prepaid products to consumers and how consumers, in turn, expect to be able to use the products. As noted above, financial institutions deliberately market prepaid accounts to consumers as products that are safer and easier to use than comparable products with credit features, in particular checking accounts with overdraft. Specifically, many companies market prepaid accounts to consumers as products that increase consumers' financial control by preventing overspending and the incurring of debt.\345\ By control, the Bureau believes that these companies mean that prepaid account users can exert control by limiting expenditures to the funds loaded onto the prepaid account and cannot spend funds they do not have. Financial institutions often market prepaid cards as requiring no credit checks, not reporting to credit bureaus unpaid debts (of which there are rarely any), and not including any credit features. Underscoring this marketing approach, many industry commenters to the Bureau's ANPR repeatedly emphasized these unique features of prepaid products as a primary reason behind their growth in popularity.

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    \345\ See, e.g., NBCPA, What are Prepaid Cards?, http://www.nbpca.com/en/What-Are-Prepaid-Cards/Prepaid-Card-Benefits.aspx (last visited Oct. 28, 2014) (``For many Americans, prepaid cards serve as a tool with which to more effectively budget their spending. With a prepaid card, consumers avoid the risk of over-

    spending or overdraft, thus avoiding the interest, fees and potential negative credit score implications of traditional credit cards. And for parents, prepaid cards provide tools to maintain control over their teens' or college students' spending.''); see also Examining Issues in the Prepaid Card Market: Hearing before the Subcomm. On Fin. Inst. and Consumer Prot., S. Comm. on Banking, Housing and Urban Affairs, 112th Cong. 2 (2012) (Remarks of Dan Henry, Chief Executive Officer, NetSpend Holdings, Inc.) (``Our customers are typically working Americans who want control . . .'').

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    Many consumers have chosen prepaid cards specifically because the cards offer greater spending control in general and do not typically offer overdraft services of the same type as commonly found on checking accounts in particular. Thus, the prepaid industry has attracted a large number of both voluntary and involuntary former checking account customers who had their checking account closed. Many prepaid consumers previously had a checking account and either lost that

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    account or gave up that account due to failure to repay debts or related issues.\346\ The Bureau believes that many of these consumers lost their checking accounts because they could not handle repeated overdraft fees. Those who left voluntarily may also have done so due to their difficulty in managing to avoid overdraft fees. Relatedly, the Bureau also believes that many of these consumers, and even many consumers who continue to maintain separate checking accounts, chose to purchase prepaid products because of their promise to allow consumers to control their spending. Indeed, many participants in the Bureau's consumer testing emphasized control as a primary reason they used prepaid cards.\347\ Participants explained that did not want a product with overdraft services because they were afraid they would be tempted to use such a service and incur debt and fees beyond what they could control. As noted above, other studies have similarly found that a primary reason consumers use prepaid cards is that they want increased control over their finances and want to avoid incurring debt and related fees.\348\

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    \346\ 2014 Pew Survey, at 7-8 (Noting both that ``Most prepaid card users who have had a checking account in the past have paid associated overdraft fees for debit card usage'' and that ``Among those prepaid card users who have ever had a bank account, 41 percent of them say they have closed or lost a checking account because of overdraft or bounced check fees.'').

    \347\ See ICF Report at 5.

    \348\ See Bretton Woods, Inc., A Comparative Cost Analysis of Prepaid Cards, Basic Checking Accounts and Check Cashing, at 4 (February 2012), available at http://bretton-woods.com/media/3e145204f3688479ffff832affffd524.pdf (noting that 74 percent of prepaid users like the fact they cannot overspend or overdraft the most about prepaid cards); 2014 Pew Survey, at 14 ex.12 (noting that the top two reasons consumers claim to use prepaid cards related to avoiding credit card debt (67 percent) and helping them not spend more money than they actually have (66 percent)).

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    Thus, to prevent erosion of what the Bureau believes is a clear distinction regarding overdraft services in the current market and in the minds of consumers between prepaid accounts and checking accounts that offer overdraft services, and to ensure that credit products that are associated with prepaid accounts receive consistent treatment regardless of their particular structures, the Bureau is proposing to adopt stronger protections that would treat various credit features associated with prepaid accounts as an open-end credit card product subject to Regulation Z. By doing so, the Bureau believes that consumers will more clearly know and understand when they are accessing credit using a prepaid account and also will benefit from increased protections not available for checking accounts. The Bureau is also concerned that were the Bureau to permit overdraft services without the proposed protections, the approach of marketing prepaid accounts as a safe alternative to checking accounts could be confusing to consumers. To the extent that the issuer of a prepaid account wants to veer from current norms by offering overdraft services or other credit features, the Bureau believes that requiring appropriate markers and full protections for credit card products, including the Bureau's proposed overdraft disclosure requirements in proposed Sec. 1005.18(b) will help consumers recognize that they are taking this extra, and for prepaid products, perhaps unusual step of accessing credit and to treat that credit with appropriate caution. This is in contrast to the historical treatment of checking accounts, where overdraft services have been common across almost all such accounts and consumers expect such services to be offered in connection with checking accounts.

    By labeling overdraft services offered on prepaid products as credit subject to the disclosure requirements of Regulation Z, the Bureau believes that the resulting product will be better understood and managed as credit by consumers to the extent that some prepaid accountholders decide they want to access such credit. In addition, by not permitting financial institutions to accept applications for an overdraft service until 30 calendar days after registration of the prepaid account, see proposed Sec. 1005.18(g)(1) and Sec. 1026.12(h)(1), the Bureau believes it will prevent consumers from being pressured to make a decision on overdraft or credit when acquiring the prepaid account, such as when they buy a GPR card in a retail store. It would also allow consumers time to decide whether the basic prepaid card is a good fit for them before deciding whether to layer on a credit relationship that may be more difficult to walk away from.

    Fourth, there is evidence that a significant portion of consumers with prepaid accounts would particularly benefit from the stronger protections that Regulation Z provides. More clearly defined credit features will be beneficial in part because of the marketing dynamics discussed above and because some consumers have experienced difficult managing overdraft services on traditional checking accounts.\349\ In general, prepaid consumers are disproportionately unbanked or underbanked,\350\ often have limited education, and are often unemployed or recipients of public benefits.\351\ Although the size of this group is not clear, the Bureau believes that some users of prepaid products do vary, in some degree, from users of traditional deposit accounts. Thus, the Bureau believes that they may be seeking or expecting different features from that of a traditional checking account when they use prepaid cards. Moreover, because the costs to buy prepaid accounts are lower than for checking accounts--they are often easily bought in retail stores for a small sum--the Bureau believes that it is likely that this product may continue to attract consumers who are relatively new to the financial system over time.\352\

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    \349\ 2014 Pew Survey, at 7-8 (noting both that ``Most prepaid card users who have had a checking account in the past have paid associated overdraft fees for debit card usage'' and that ``Among those prepaid card users who have ever had a bank account, 41 percent of them say they have closed or lost a checking account because of overdraft or bounced check fees.''). Separately, one large program manager estimates that 80 percent of its GPR card customers earn less than $50,000. See Kate Fitzgerald, Green Dot Chief Sees Prepaid Mobile Payments As Company's Next Challenge (May 7, 2012) http://www.isoandagent.com/news/Green-Dot-Chief-Sees-Prepaid-Mobile-Payments-As-Companys-Next-Challenge-3010590-1.html (explaining that ``single mothers in their late 30s and early 40s comprise 55 percent of one major prepaid card company's target market, with most of them earning less than $50,000 annually.''), while one study found that 84 percent of GPR card users had incomes below the nationwide median. Similarly, others have informed Bureau staff that the average credit score of prepaid account users is far below average.

    \350\ In its report on unbanked and underbanked consumers, the FDIC explained that households are identified as ``unbanked'' if they answered ``no'' to the question, ``Do you or does anyone in your household currently have a checking or savings account?.'' The FDIC further explained that ``underbanked households are defined as those households that have a checking and/or a savings account and had used non-bank money orders, non-bank check cashing services, non-bank remittances, payday loans, rent-to-own services, pawn shops, or refund anticipation loans (RALs) in the past 12 months.'' See FDIC, 2011 FDIC National Survey of Unbanked and Underbanked Households (2011) available at https://www.fdic.gov/householdsurvey/2012_unbankedreport.pdf. For discussion of prepaid consumers' background, see Kansas City Fed Study, at 12-13 (although the report also notes no correlation due to income or education; possibly due to the different types of use by prepaid consumers); available at https://www.kansascityfed.org/publicat/reswkpap/pdf/rwp14-01.pdf.

    \351\ 2011 FDIC Survey, at 16, 18, 40; see also Nat'l Council of La Raza, Perspectives on Prepaid Cards from Low-Income Hispanic Tax Filers at 1-2 (2011) available at http://www.nclr.org/images/uploads/publications/perspectives_on_prepaid_cards_(3).pdf.

    \352\ Relatedly, Congress has similarly sought to address such services on prepaid accounts. EFTA section 920(a), as implemented in Regulation II, limits interchange fees when an overdraft fee may be charged on the prepaid card (by, as noted above, carving cards that may impose overdraft fees out of the exception from the rule's fee caps). While not prohibiting such services outright, the Bureau believes that Congress, in differentiating treatment, acted out of concern regarding overdraft services on prepaid accounts (vis-

    agrave-vis prepaid cards that cannot impose overdraft fees).

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    To the extent some consumers may want to take advantage of credit features if offered in connection with their prepaid account, the Bureau further believes that its proposed approach would provide these consumers with stronger tools and protections that would appropriately limit their credit exposure and reduce the risk of some of the harms that may be associated with using prepaid accounts for which an overdraft service is offered.

    Fifth, unlike with respect to checking accounts where overdraft services have been structured to fit a unique and separate regulatory regime for several decades, the Bureau is proposing to regulate prepaid credit features on a largely blank slate. As noted above, deposit accounts and their pricing structures have evolved under compliance frameworks that were developed in accordance with existing regulations, exceptions to those regulations, and other agencies' guidance. The deposit account industry would view any departure as significantly disruptive. In contrast, very few prepaid products offer overdraft services or other credit features. Most prepaid account programs do not have such a feature and, as a result, providers would have to implement a new compliance regime in any event were they to decide to add such features.

    Similarly, while many have settled expectations that if they write a check or authorize a bill payment through a third party for which there is insufficient funds; the transactions will be paid rather than bounced, the Bureau does not believe that prepaid accountholders expect similar treatment because it is so rare for check and bill payment services to be offered absent pre-authorization. Implementation costs for industry and the risk of disruption to expectations for all stakeholders is thus much different in the context of prepaid accounts. Indeed, by proposing to act now on prepaid accounts before credit features become widespread, the Bureau expects that credit features on prepaid accounts will evolve in a more straightforward and consumer-

    friendly manner consistent with the general framework and protections for credit.

    Proposal's Treatment of Overdraft Services is Limited to Prepaid Accounts

    The Bureau is proposing to make adjustments to Regulation Z and Regulation E that would not extend existing exemptions for overdraft services on traditional deposit accounts to overdraft services on prepaid accounts, but it is not proposing to alter existing provisions that apply to deposit account overdraft, including exemptions for overdraft services from Regulation Z and Regulation E's compulsory use provision. As described above, the Bureau sees significant differences in the underlying accounts and transaction types, the history of marketing and market segmentation, and the transaction costs and other disruptions that would be involved in shifting to a different regulatory framework with respect to checking accounts. Indeed, the Bureau is acting at this time to subject prepaid accounts to Regulation Z and the compulsory use provisions of Regulation E in part because there is no clearly established and predominant regulatory or compliance regime applicable to such programs, such that adopting the Bureau's proposal would not create significant upheaval in the market.

    The Bureau recognizes that historical, operational and other factors have supported a different regulatory approach with respect to overdraft in the checking account context than with respect to prepaid accounts. The Bureau continues to study deposit account overdraft services and will propose any further enhancements to the existing regulatory framework that it deems appropriate as part of that separate endeavor in accordance with its rulemaking procedures.\353\

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    \353\ See CFPB's Unified Agenda for Spring 2014, available at http://www.reginfo.gov/public/do/eAgendaMain?operation=OPERATION_GET_AGENCY_RULE_LIST&currentPub=true&agencyCode=&showStage=active&agencyCd=3170&Image58.x=58&Image58.y=5&Image58=Submit.

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    Other Implications of the Bureau's Approach to Prepaid Credit Products

    The detailed discussion below sets forth the Bureau's proposed changes to Subparts A, B, and G of Regulation Z to effectuate the approach to overdraft services and credit features offered in connection with prepaid accounts. The Bureau seeks comment both on its general approach to such credit products and to the specific changes proposed. In addition, the Bureau seeks comment on certain potential implications of its approach, as described immediately below:

    Military Lending Act. As discussed above, the Department of Defense (the Department) recently proposed to expand the scope of the coverage of its regulation (32 CFR part 232) that implements the MLA to include a broad range of open-end and closed-end credit products, including open-end (not home secured) credit card accounts that are subject to Regulation Z.\354\ Under the MLA, a creditor generally may not apply a military annual percentage rate (MAPR) greater than 36 percent in connection with an extension of consumer credit to a military service member or dependent. For covered credit card accounts, any credit-

    related charge that is a finance charge under Regulation Z (as well as certain other charges) would be included in calculating the MAPR for a particular billing cycle and the MAPR for that billing cycle could not exceed 36 percent.\355\ However, the Department's proposal provides that a credit card issuer does not have to include in the calculation of the MAPR any charge that is a ``bona fide fee'' if the fee is ``reasonable and customary.'' \356\ The Department has proposed a safe harbor that would determine whether fee levels are reasonable and customary based on the average amounts charged by large credit card issuers for substantially similar fees during the last three years.\357\

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    \354\ 79 FR 58602 (Sept. 29, 2014).

    \355\ 79 FR 58602 at 58619.

    \356\ 79 FR 58602 at 58638. See proposed 32 CFR 232.4(d) of the Department's proposal, stating that the exclusion the proposal provides for a bona fide fee applies only to the extent that the charge by the creditor is a bona fide fee and is reasonable and customary for that type of fee. The exclusion for bona fide fees does not apply to periodic rates. It also does not apply to any credit insurance premium, including charges for single premium credit insurance, fees for debt cancellation or debt suspension agreements, or to any fees for credit related ancillary products sold in connection with and either at or before consummation of the credit transaction or upon account opening, because those charges are expressly included in the definition of ``interest'' in the applicable statute (10 U.S.C. 987(i)(3)) and therefore must be included in the MAPR calculation.

    \357\ 79 FR 58602 at 58638. See proposed 32 CFR 232.4(d) of the Department's proposal.

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    Thus, as with fees for other types of consumer credit extended to military service members, fees levied for credit features (including overdraft services) on prepaid accounts held by military service members or their dependents would, as a result of the Department and Bureau proposals in combination (if both proposals are finalized as proposed), generally be included in calculating the MAPR for a billing cycle unless excluded under the bona fide fee exception. The Bureau requests comment on the consequences, if any, from the combined effect of the two proposals (were they to be finalized) with respect to overdraft services and credit features on prepaid accounts held by military service members.

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    Multipurpose Cards and Card Network Rules. The Bureau's approach to credit features in connection with prepaid products would result in a single plastic card or other access device functioning either as a prepaid card or as a credit card, depending on the balance in the asset account that the card accesses at the time of a transaction that the consumer makes. For example, if the asset account balance is sufficient to fund the transaction, the card could function as a prepaid card; if not, the card could function as a credit card. The Bureau has proposed a number of provisions and sought comment as detailed elsewhere to promote consumer understanding, facilitate clear application of the various potentially applicable regulatory regimes, and address other challenges that may arise due to the multipurpose nature of the card product. For example, the Bureau is proposing to amend the provision in Regulation Z (Sec. 1026.13(i)) that addresses the relationship between the Regulation E and Z error resolution regimes to clarify the applicability of those regimes to an extension of credit incident to an electronic fund transfer when the consumer's prepaid account is overdrawn. See Sec. 1026.13(i) in the section-by-section analysis below. The Bureau is also seeking comment on (but not proposing) the possibility of requiring additional real-time notifications of transactions triggering an overdraft or the accessing of a linked credit feature, or requiring real-time opt-in by consumers in order to approve each overdraft or other credit transaction. See Sec. 1005.18(c) in the Regulation E section-by-section analysis above.

    The Bureau seeks comment on these specific amendments and whether further amendments or guidance would be appropriate. For instance, while there is regulatory precedent for similar multipurpose debit/

    credit card products, these cards do not appear to be in wide use today. See, e.g., comment Sec. 1026.12(a)(1)-7 (stating that a credit feature may be added to a previously issued non-credit card only upon the consumer's specific request).\358\ The Bureau also seeks comment on consumer and industry experiences with similar multipurpose products historically, and whether they may yield useful lessons for further refining the Bureau's proposal with regard to prepaid cards.

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    \358\ When the Board amended comment 12(a)(1)-7 in 1999, it stated that the revisions clarified the comment's applicability to then-recent programs where unsolicited cards were marketed from the outset as both stored-value cards and credit cards. See 64 FR 16614, 16615 (Apr. 6, 1999).

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    Finally, the Bureau notes that card network rules may treat a card differently depending on whether it accesses an asset account or a credit account. The Bureau's proposal could result in an increase in the number of cards that can access both an asset account and a credit account, and the Bureau requests comment on any card network rule issues that might arise from its proposal to treat most credit plans accessed by prepaid cards, for which finance charges are imposed, as open-end credit accessed by a credit card under Regulation Z.

    Subpart A

    Section 1026.2 Definitions and Rules of Construction

    2(a) Definitions

    Overview of Proposed Changes to Definitions

    As discussed above in the Overview of Regulation Z Proposal section and below in the section-by-section analysis of Sec. 1026.4, the Bureau proposes several amendments to the definition of ``finance charge,'' and commentary for the definitions of ``open-end plan'' and ``credit card.'' As a result of these proposed changes, a person that offers credit plans accessed by prepaid cards, such as overdraft services, or certain other credit plans linked to prepaid accounts that are accessed by account numbers, where the person charges a finance charge for the credit, generally would be extending ``open-end credit'' that is accessed by a ``credit card'' and thus would be covered by Regulation Z's open-end (not home-secured) rules and credit card rules in subparts B and G.\359\ (The term ``prepaid card'' is defined in the proposal to mean any card, code, or other device that can be used to access a prepaid account as defined under Regulation E, see proposed Sec. 1026.2(a)(15)(v) and (vi).) The open-end (not-home secured) rules in subpart B include account-opening disclosures, periodic statement disclosures, change-in-terms notices, provisions on promptly crediting payments, and billing error resolution procedures. The credit card rules in subpart B include provisions that restrict the unsolicited issuance of credit cards, limit the liability for unauthorized use of credit cards, and prohibit the offset of the credit card debt against funds held in asset accounts by the card issuer. The credit card rules in subpart G include provisions that prohibit credit card issuers from extending credit without assessing the consumer's ability to pay and restrict the amount of required fees that an issuer can charge during the first year after a credit card account is opened. Application of the particular rules is discussed further below.

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    \359\ As discussed in more detail in the section-by-section analysis of Sec. 1026.2(a)(20), with respect to credit accessed by a prepaid card or an account number where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the person, a person would not be a creditor that is extending open-end credit where the person is not charging a finance charge for the credit. Nonetheless, as discussed in more detail in the section-by-section analysis of Sec. 1026.2(a)(17), such persons may still be subject to Regulation Z in certain circumstances.

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    The proposal would cover credit plans, including overdraft services and lines of credit, directly accessed by a prepaid card. This would apply where credit is being ``pulled'' by a prepaid card, such as when the consumer uses the prepaid card at point of sale to access an overdraft plan to fund a purchase. The proposal also would cover credit plans that are not accessed directly by a prepaid card but are structured as a ``push'' account. Under such a credit plan, a person would provide credit accessed by an account number where such extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the person, and cannot be deposited directly into another asset account, such as a deposit account. For example, such a credit plan may allow a consumer to use an account number to request an extension of credit be deposited directly into a particular prepaid account specified by the creditor when the consumer does not have adequate funds in the prepaid account to cover the full amount of a transaction using the prepaid card and the consumer is contractually obligated to repay the credit. A credit plan where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the person would mean that the credit plan allows deposits directly into particular prepaid accounts specified by the creditor but does not allow the consumer to deposit directly extensions of credit from the plan into asset accounts other than particular prepaid accounts specified by the creditor. As discussed in more detail below, the Bureau believes these types of credit plans could act as substitutes for credit plans directly accessed by a prepaid card. The Bureau is not, however, intending to cover general purpose lines of credit where a consumer has the freedom to choose where to deposit directly the credit funds.

    Definition of finance charge. As discussed in more detail in the section-

    Page 77214

    by-section analysis of Sec. 1026.4, under Regulation Z, the term ``finance charge'' generally is defined in Sec. 1026.4(a) to mean ``the cost of consumer credit as a dollar amount.'' It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. It generally does not include any charges of a type payable in a comparable cash transaction. Currently, certain fees or charges are specifically excluded from the term ``finance charge,'' such as (1) charges imposed by a financial institution for paying items that overdraw an account, unless the payment of such items and the imposition of the charge were previously agreed upon in writing; and (2) fees charged for participation in a credit plan, whether assessed on an annual or other periodic basis. See Sec. 1026.4(c)(3) and (4).

    The proposal would amend Sec. 1026.4 and its commentary to provide that these two exceptions do not apply to credit accessed by a prepaid card or by an account number where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor. In addition, the proposal would make other amendments to Sec. 1026.4 and its commentary to provide additional clarification and guidance as to what types of fees and charges constitute ``finance charges'' related to credit accessed by a prepaid card or credit accessed by an account number where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor. For such credit, any service, transaction, activity, or carrying charges imposed on the credit account, and any such charges imposed on a prepaid account if that charge is related to an extension of credit, carrying a credit balance, or credit availability, generally would be a finance charge. See Sec. 1026.4(a), (b)(2), (c)(3) and (4) and comments 4(a)-4 and 4(b)(2)-1.

    Such charges would include periodic participation fees for the credit plan, as well as transaction charges imposed in connection with a credit extension. For example, assume a $1.50 transaction charge is imposed on the prepaid account for each transaction that is made with the prepaid card, including when the prepaid card is used to access credit where the consumer has insufficient or unavailable funds in the prepaid account at the time of authorization or at the time the transaction is paid. The $1.50 transaction charge would be a finance charge when the prepaid card accesses credit, notwithstanding that a $1.50 transaction charge also is imposed on transactions that solely access funds in the prepaid account. The proposal would provide, however, that the term finance charge does not include transaction fees imposed on the prepaid account where the consumer is only withdrawing funds from the prepaid account, fees for opening or holding the prepaid account, and other fees, such as cash reload fees and balance inquiry fees, that are not imposed on the prepaid account because the consumer engaged in a transaction that is funded in whole or in part by credit, for holding a credit plan, or for carrying a credit balance.

    As a result of these proposed changes to the definition of finance charge and related commentary, a person that is offering credit accessed by a prepaid card, or other credit plan linked to prepaid accounts that is accessed by an account number as described above, that is charging fees that are finance charges would be a ``creditor'' under Regulation Z. The term ``creditor'' generally means a person who regularly extends consumer credit that is subject to a finance charge or is payable by written agreement in more than four installments (not including a down payment), and to whom the obligation is initially payable, either on the face of the note or contract, or by agreement when there is no note or contract. See Sec. 1026.2(a)(17)(i). As discussed above, the Bureau is declining to extend provisions that exempt financial institutions that offer overdraft services on traditional deposit accounts from the definition of creditor to financial institutions that offer overdraft services on prepaid accounts.

    Definition of ``open-end credit.'' As discussed above in the Overview of Regulation Z Proposal section and below in the section-by-

    section analysis of Sec. 1026.2(a)(20), the Bureau believes that most creditors that are offering credit plans (including overdraft services, accessed by a prepaid card, or other credit plans linked to prepaid accounts that are accessed by an account number as discussed above) and that are charging finance charges for the credit would be creditors offering ``open-end credit'' that is not home-secured. Such creditors must comply with the open-end (not home-secured) provisions set forth in subpart B.

    The term ``open-end credit'' is defined in Sec. 1026.2(a)(20) to mean consumer ``credit'' extended by a ``creditor'' under a ``plan'' in which (1) the creditor reasonably contemplates repeated transactions; (2) the creditor may impose a ``finance charge'' from time to time on an outstanding unpaid balance; and (3) the amount of credit that may be extended to the consumer during the term of the plan (up to any limit set by the creditor) is generally made available to the extent that any outstanding balance is repaid. The proposal would amend several of the definitions of these terms and provide clarifications and commentary to facilitate the classification of credit plans associated with prepaid accounts.

    Specifically, the proposal would provide that the term ``credit'' under Sec. 1026.2(a)(14) includes an authorized transaction on a prepaid account where the consumer has insufficient or unavailable funds in the prepaid account at the time of authorization. It also would include a paid transaction on a prepaid account where the consumer has insufficient or unavailable funds in the prepaid account at the time the transaction is paid.

    With respect to the term ``plan,'' the proposal would provide additional guidance on when overdraft credit is considered credit extended under a plan. In particular, the proposal would provide that with respect to credit accessed by a prepaid card or accessed by an account number where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor, a plan means a program where the consumer is obligated contractually to repay any credit extended by the creditor. For example, for credit accessed by a prepaid card, a plan includes a program under which a creditor routinely pays transactions when a consumer has insufficient or unavailable funds in a prepaid account and the consumer is obligated contractually to repay those transactions. Similarly, for credit that is accessed by an account number where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor, a plan includes a program under which a creditor routinely will extend credit that is deposited directly into particular prepaid accounts specified by the creditor and the consumer is obligated contractually to repay the credit. In both cases, such programs constitute plans notwithstanding that the creditor retains discretion not to extend credit. Except as described below, the Bureau believes that most overdraft plans accessed by a prepaid card, and other credit plans linked to a prepaid account that are accessed by an account number as described above, generally will meet the other criteria for open-end credit. See

    Page 77215

    the discussion in the Overview of Regulation Z Proposal section and the section-by-section analysis of Sec. 1026.2(a)(17) and (a)(20).

    As described in more detail in the section-by-section analysis of Sec. 1026.2(a)(17), a person would not be extending open-end credit where the person is not charging a finance charge for the credit that is accessed by a prepaid card or accessed by an account number as described above. Nonetheless, the person could still be subject to certain provisions in Regulation Z in certain circumstances, as discussed below.

    Definition of ``credit card'' and ``card issuer.'' Regulation Z defines the term ``credit card'' in Sec. 1026.2(a)(15)(i) to mean ``any card, plate, or other single credit device that may be used from time to time to obtain credit.'' The term ``card issuer'' is defined in Sec. 1026.2(a)(7) to defined to mean ``a person that issues a credit card or that person's agent with respect to the card.'' Under the proposal, certain devices related to prepaid accounts would be credit cards under Sec. 1026.2(a)(15)(i). In particular, the proposal provides that a prepaid card that is a single device that may be used from time to time to access a credit plan generally is a ``credit card'' and the person issuing the card is a ``card issuer.'' As discussed above, a prepaid card would be accessing a credit plan when the consumer is obligated contractually to repay the credit. The proposal provides that a prepaid card would not be a credit card, however, where the prepaid card only accesses credit that is not subject to any finance charge as defined in Sec. 1026.4 or fee that is described in Sec. 1026.4(c) and is not payable by written agreement in more than four installments. A person that offers a credit plan that is accessed only by prepaid cards that falls within the exclusion to the definition of ``credit card'' would be subject solely to the requirements under Regulation E. See section-by-section analysis of Sec. 1026.2(a)(15)(i).

    Also, as discussed in more detail in the section-by-section analysis of Sec. 1026.2(a)(15)(i), the proposal also provides that an account number that is not a prepaid card that may be used from time to time to access a credit plan that allows deposits directly into particular prepaid accounts specified by the creditor would be a credit card under Sec. 1026.2(a)(15)(i).

    Definition of ``credit card account under an open-end (not home secured) consumer credit plan.'' Certain credit card rules in Regulation Z, which generally are set forth in subpart G, apply to card issuers with respect to a ``credit card account under an open-end (not home secured) consumer credit plan.'' Sec. 1026.1(d)(7). These credit card rules include provisions that prohibit credit card issuers from extending credit without assessing the consumer's ability to pay and restrict the amount of required fees that an issuer can charge during the first year after a credit card account is opened. See, e.g., Sec. Sec. 1026.5(b)(2)(ii), 1026.7(b)(11), and 1026.51 through 1026.59.

    Regulation Z defines the term ``credit card account under an open-

    end (not home-secured) consumer credit plan'' in Sec. 1026.2(a)(15)(ii) to mean ``any open-end credit account that is accessed by a credit card, except: (A) a home-equity plan subject to the requirements of Sec. 1026.40 that is accessed by a credit card; or (B) an overdraft line of credit that is accessed by a debit card or an account number.'' Generally, to be a ``credit card account under an open-end (not home-secured) consumer credit plan,'' the credit must be ``open-end credit'' as defined in Sec. 1026.2(a)(20) that is not home-

    secured and the credit must be accessed by a ``credit card'' as defined in Sec. 1026.2(a)(15)(i). The Bureau also proposes to revise the definitions of ``credit card account under an open-end (not home-

    secured) consumer credit plan'' in Sec. 1026.2(a)(15)(ii) and its commentary to include an open-end (not home-secured) credit plan accessed by a prepaid card that is a credit card or by an account number that is a credit card where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor.

    2(a)(7) Card Issuer

    TILA defines the term ``card issuer'' as ``any person who issues a credit card, or the agent of such person with respect to such card.'' 15 U.S.C. 1602(o). Consistent with the TILA definition, Regulation Z defines the term ``card issuer'' in Sec. 1026.2(a)(7) as ``a person that issues a credit card or that person's agent with respect to the card.'' The Regulation further defines the term ``credit card'' in Sec. 1026.2(a)(15)(i) to mean ``any card, plate, or other single credit device that may be used from time to time to obtain credit.'' Card issuers must comply with certain provisions in Regulation Z as applicable. See Sec. Sec. 1026.12 and .60; for card issuers offering a ``credit card account under an open-end (not home-secured) consumer credit plan,'' see, e.g., Sec. Sec. 1026.5(b)(2)(ii), .7(b)(11), and .51 through .59. In addition, card issuers that extend credit would be considered creditors for purposes of Regulation Z. See Sec. 1026.2(a)(17)(iii) and (iv).

    As discussed in the section-by-section analysis of proposed Sec. 1026.2(a)(15)(i), proposed comment 2(a)(15)-2.i.F would provide that the term ``credit card'' generally includes a prepaid card (as defined in proposed Sec. 1026.2(a)(15)(v) to mean any card, code, or other device that can be used to access a prepaid account as that term is proposed to be defined in Regulation E) that is a single device that may be used from time to time to access a credit plan. A person that is issuing a prepaid card that is a credit card would be a ``card issuer'' under Sec. 1026.2(a)(7).

    Nonetheless, under proposed comment 2(a)(15)-2.i.F, the term credit card would not include a prepaid card if the prepaid card only accesses credit that is not subject to any finance charge as defined in Sec. 1026.4 or any fee describe in Sec. 1026.4(c) and is not payable by written agreement in more than four installments. See section-by-

    section analysis of Sec. 1026.4 for a discussion of the term ``finance charge'' and fees described in Sec. 1026.4(c).

    If the prepaid account is accessed only by a prepaid card that does not meet the definition of credit card because the card only accesses credit that is not subject to any finance charge as defined in Sec. 1026.4 or fee described in Sec. 1026.4(c) and is not payable by written agreement in more than four installments, the person issuing the card would not be a ``card issuer'' and the person would not need to comply with the credit card rules in Regulation Z. In addition, the person in extending credit accessed by such a card would not be a ``creditor'' under Regulation Z because the person would not be charging a finance charge and the credit would not be payable by written agreement in more than four installments. See Sec. 1026.2(a)(17)(i). Thus, the person would not need to comply with the disclosure and other requirements in Regulation Z that apply to creditors. The person would be subject, however, to the requirements under Regulation E. See section-by-section analysis of Sec. 1026.2(a)(15)(i).

    Given that no finance charges or fees described in Sec. 1026.4(c) would be charged in connection with the credit, the Bureau anticipates that the credit limit under such plans will be quite low, perhaps $10 or less. Given the expected-low credit limits and the fact that no finance charge or fees described in Sec. 1026.4(c) would be charged for this credit, the Bureau believes that it is appropriate to cover these credit transactions under Regulation E as incidental to the prepaid transaction and exclude prepaid cards that access only this type of credit from the

    Page 77216

    definition of ``credit card'' for purposes of Regulation Z.

    Consistent with the proposed definition of ``credit card,'' proposed comment 2(a)(7)-2 would explain that with respect to credit accessed by a prepaid card, a person is not a card issuer if the card only accesses credit that is not subject to any finance charge as defined in Sec. 1026.4 or fee described in Sec. 1026.4(c) and is not payable by written agreement in more than four installments. For example, a person is not a card issuer if (1) the prepaid card only accesses credit where the person does not impose any finance charge as defined in Sec. 1026.4 or fee described in Sec. 1026.4(c); and (2) the person expects repayment when funds are deposited into the prepaid account. In this case, the prepaid card is not a credit card and the person issuing the card is not a card issuer. See proposed comment 2(a)(15)-2.i.F.

    Prepaid Card That Accesses a Credit Plan Offered by a Third Party

    As noted above, under TILA and Regulation Z, the definition of ``card issuer'' means both a person who issues a credit card as well as the person's agent with respect to the card. Comment 2(a)(7)-1 currently provides guidance on the term ``agent'' for purposes of the definition of ``card issuer.'' Specifically, comment 2(a)(7)-1 provides that because agency relationships are traditionally defined by contract and by state or other applicable law, Regulation Z generally does not define agent. Nonetheless, comment 2(a)(7)-1 provides that merely providing services relating to the production of credit cards or data processing for others does not make one the agent of the card issuer. In contrast, comment 2(a)(7)-1 provides that a financial institution may become the agent of the card issuer if an agreement between the institution and the card issuer provides that the cardholder may use a line of credit with the financial institution to pay obligations incurred by use of the credit card.

    The proposal would provide specific guidance on the term ``agent'' for purposes of Sec. 1026.2(a)(7) where a credit plan offered by a third party is accessed by a prepaid card that is a credit card. This would apply where credit is being ``pulled'' by a prepaid card that is a credit card. In this case, the prepaid card is being used to pull credit from a credit plan that is offered by a third party other than the prepaid card issuer. Under the proposal, the third party offering the credit plan that is accessed by the prepaid card would be considered an agent of the prepaid card issuer and would be a card issuer for purposes of Sec. 1026.2(a)(7). Specifically, proposed comment 2(a)(7)-1.ii would build on the last sentence of the current comment and provide that with respect to a prepaid card that is a credit card where the card directly accesses a credit plan that is offered by a third party, the proposal would specify that a party offering the credit plan that is accessed by the card would be an agent of the person issuing the prepaid card and thus, would be a card issuer with respect to the prepaid card that is a credit card.

    The Bureau notes that current comment 2(a)(7)-1 provides that a financial institution may become the agent of the card issuer if an agreement between the institution and the card issuer provides that the cardholder may use a line of credit with the financial institution to pay obligations incurred by use of the credit card. However, the Bureau believes that it is important in this context to make clear when there is an agent relationship to prevent circumvention of the proposed rules applicable to credit card accounts directly accessed by a prepaid card. The Bureau is concerned that without the proposed provision, prepaid card issuers could structure arrangements with third parties that offer open-end credit plans that are accessed directly by the prepaid card to avoid an agency relationship under state law. Such a result could frustrate the operation of certain consumer protections provided in the proposal.

    For example, Sec. 1026.51(a) provides that a card issuer must not open a credit card account for a consumer under an open-end (not home-

    secured) consumer credit plan, or increase any credit limit applicable to such account, unless the card issuer considers the consumer's ability to make the required minimum periodic payments under the terms of the account based on the consumer's income or assets and the consumer's current obligations. In a case where the issuer of the prepaid card is not the person offering a credit card account under an open-end (not home-secured) consumer credit plan, the responsibilities imposed on the card issuer under Sec. 1026.51(a) might be unclear since the card issuer will not be the person opening the credit card account. Nonetheless, the provision applies to a ``card issuer,'' so it is also unclear what responsibilities are imposed on the third party given that the third party is not a card issuer. Thus, the proposal would specify in proposed comment 2(a)(7)-1.ii that the third party offering the credit plan that is accessed directly by the prepaid card would be an agent of the person issuing the prepaid card and thus, would be a card issuer with respect to that prepaid card. As a result, in the example above related to Sec. 1026.51(a), the third party would be a ``card issuer'' for purposes of that provision and would be required to comply with it. The Bureau also proposes to renumber existing comment 2(a)(7)-1 as 2(a)(7)-1.i.

    2(a)(14) Credit

    In TILA, the term ``credit'' is defined to mean ``the right granted by a creditor to a debtor to defer payment of debt or to incur debt and defer its payment.'' 15 U.S.C. 1602(f). Consistent with the definition of credit in TILA, under Regulation Z, the term ``credit'' is defined in Sec. 1026.2(a)(14) to mean ``the right to defer payment of debt or to incur debt and defer its payment.'' A person is subject to certain disclosure and other requirements in Regulation Z if the person is a creditor. A person is a creditor if the person regularly extends consumer ``credit'' that is subject to a finance charge or is payable by written agreement in more than four installments (not including a down payment), and to whom the obligation is initially payable, either on the face of the note or contract, or by agreement when there is no note or contract. See Sec. 1026.2(a)(17)(i). The term ``creditor'' also includes any card issuer (which is a person that issues credit cards or the person's agent) that extends credit even if no finance charge is imposed and repayment is not permitted in more than four installments. See Sec. 1026.2(a)(17)(iii).

    For the reasons discussed in the Overview of Regulation Z Proposal section, the Bureau believes it is reasonable to interpret ``credit'' to include when overdrafts are paid in relation to prepaid accounts. The proposal provides additional guidance that would express and effectuate this interpretation. In particular, proposed comment 2(a)(14)-3 would provide that credit for purposes of Sec. 1026.2(a)(14) includes an authorized transaction on a prepaid account where the consumer has insufficient or unavailable funds in the prepaid account at the time of authorization. It also includes a paid transaction on a prepaid account where the consumer has insufficient or unavailable funds in the prepaid account at the time the transaction is paid. Thus, the definition includes a situation where the consumer has sufficient or available funds in the prepaid account to cover the amount of the transaction at the time the transaction is authorized, but insufficient or unavailable funds in the

    Page 77217

    prepaid account to cover the amount of the transaction at the time the transaction is paid. As discussed in more detail in the Overview of Regulation Z Proposal section, the Bureau believes that plain language of the definition of ``credit'' in TILA covers the situation in that a consumer makes a transaction which exceeds the funds in the consumer's account and a person elects to cover the transaction by advancing funds to the consumer which the consumer must repay. Nothing in that part of TILA (or elsewhere in the statute) exempts overdraft services, including those that may be offered in connection with a prepaid account. By authorizing or paying a transaction where the consumer does not have sufficient or available funds in the prepaid account to cover the amount of the transaction when the transaction is authorized or paid, the person is allowing the consumer to incur a debt with the person where payment of that debt is not immediate.

    A person that authorizes or pays such transactions would be extending credit and would be subject to certain disclosure and other requirements in Regulation Z if the person is a creditor. As discussed above, a person is a creditor if the person regularly extends consumer ``credit'' that is subject to a finance charge or is payable by written agreement in more than four installments (not including a down payment), and to whom the obligation is initially payable, either on the face of the note or contract, or by agreement when there is no note or contract. See Sec. 1026.2(a)(17)(i). The term ``creditor'' also includes any card issuer (which is a person that issues credit cards or the person's agent) that extends credit even if no finance charge is imposed and repayment is not permitted in more than four installments. See Sec. 1026.2(a)(17)(iii). As discussed in more detail in the section-by-section analysis of Sec. 1026.4, with respect to credit accessed by a prepaid card that is a credit card, or by an account number that is a credit card where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor, a person generally would be charging a finance charge for the credit if the person imposes any service, transaction, activity, or carrying charges on the credit account, or imposes any such charges on a prepaid account if that charge is related to an extension of credit, carrying a credit balance, or credit availability. See Sec. 1026.4(a), (b)(2), (c)(3) and (4) and comments 4(a)-4 and 4(b)(2)-1. Such charges would include periodic participation fees for the credit plan, and transaction charges imposed in connection with a credit extension.

    With respect to credit accessed by a prepaid card that is a credit card, or by an account number that is a credit card where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor, a person also would be a creditor if the person is a card issuer that extends credit accessed by the credit card. With respect to such credit, a person would be a card issuer if the person issues (1) a prepaid card (including a prepaid card that is solely an account number) that is a single device that may be used from time to time to access a credit plan, except if that prepaid card only accesses credit that is not subject to any finance charge as defined in Sec. 1026.4 or any fee described in Sec. 1026.4(c) and is not payable by written agreement in more than four installments; or (2) an account number that is not a prepaid card that may be used from time to time to access a credit plan where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor, but does not allow the consumer to deposit directly extensions of credit from the plan into asset accounts other than particular prepaid accounts specified by the creditor.

    The Bureau notes that for credit that is being accessed by a prepaid card that is a credit card, the creditor would be required to disclose credit extensions on the periodic statement under Sec. 1026.7(b)(2), including a transaction where there are insufficient funds in the prepaid account at authorization to cover the amount of the transaction. The creditor also would be restricted under the offset provision in Sec. 1026.12(d) from automatically applying any deposit to the prepaid account to repay the credit card balance. For example, for a transaction that is authorized where there are insufficient funds in the prepaid account to cover the amount of the transaction, the creditor could not use subsequent deposits received on the same day as the transaction to repay automatically that credit transaction on the credit card account.

    The Bureau generally solicits comment on the definition of credit with respect to prepaid accounts. As discussed above, under the proposal, credit includes (1) transactions that are authorized where the consumer has insufficient or unavailable funds in the prepaid account at the time of authorization; and (2) transactions on a prepaid account where the consumer has insufficient or unavailable funds in the prepaid account at the time the transaction is paid. Such transactions are credit regardless of whether the person establishes a separate credit account to extend the credit or whether the credit is simply reflected as a negative balance on the prepaid account. Nonetheless, the Bureau believes that creditors will tend to establish separate credit accounts to extend that credit accessed by the prepaid card, instead of having the credit balance be reflected as a negative balance on the prepaid account, because creditors generally will find that separate credit accounts aid compliance with the periodic statement requirements in Sec. Sec. 1026.5(b)(2)(ii) and 1026.7(b)(11) and the offset provisions in Sec. 1026.12(d)(3) that would apply to credit card accounts accessed by prepaid cards. See section-by-section analysis of Sec. Sec. 1026.5(b)(2)(ii), 1026.7(b)(11) and 1026.12(d)(3). The Bureau solicits comment on whether creditors are likely to establish separate credit accounts, instead of having the credit balance be reflected as a negative balance on the prepaid account. The Bureau also solicits comment on any implications for compliance depending on how the account is structured (i.e., whether a separate credit account is created or whether the credit balance is reflected as a negative balance on the prepaid account), and whether any differentiation in regulation or guidance would be useful.

    As discussed in more detail in the Overview of Regulation Z Proposal section, with respect to overdraft services on checking accounts, while a person that is providing overdraft services generally would be providing credit under TILA and Regulation Z, the person generally does not meet the definition of ``creditor'' for purposes of Regulation Z because of certain exclusions to the definition of finance charge. See Sec. 1026.4(c)(3). Thus, with respect to overdraft services on checking accounts, a financial institution that does not agree in writing to pay the items and does not structure the repayment of the credit by written agreement in more than four installments would not be a ``creditor'' under the general definition of creditor, even if the institution charges a fee for paying the overdraft item because the fee would not be a ``finance charge.'' In addition, a person does not become a creditor by issuing a debit card to access an overdraft service. See comment 2(a)(15)-2.ii.A (explaining that the definition of ``credit card'' provides that a debit card is not a credit card if there

    Page 77218

    is no credit feature or agreement to extend credit, even if the creditor occasionally honors an inadvertent overdraft). The Bureau is not proposing to change how overdraft services on accounts other than prepaid accounts are treated under Regulation Z.

    2(a)(15)

    2(a)(15)(i) Credit Card

    In TILA, the term ``credit card'' is defined to mean ``any card, plate, coupon book or other credit device existing for the purpose of obtaining money, property, labor, or services on credit.'' 15 U.S.C. 1602(l). Under Regulation Z, the term ``credit card'' is defined in Sec. 1026.2(a)(15)(i) to mean ``any card, plate, or other single credit device that may be used from time to time to obtain credit.'' Current comment 2(a)(15)(i)-2 provides examples of devices that are credit cards and devices that are not credit cards. A person that issues credit cards or the person's agent is a ``card issuer'' and must comply with certain credit card provisions in Regulation Z as applicable. See Sec. Sec. 1026.12 and .60; for card issuers offering a ``credit card account under an open-end (not home-secured) consumer credit plan,'' see, e.g., Sec. Sec. 1026.5(b)(2)(ii), .7(b)(11), and .51 through .59. Any card issuer that extends credit is also a creditor under Regulation Z and must comply with certain disclosure and other requirements in Regulation Z, a discussed in the section-by-section analysis of Sec. 1026.2(a)(17).

    The proposal would provide guidance on when the following devices related to prepaid accounts are ``credit cards:'' (1) Prepaid cards, as defined in proposed Sec. 1026.2(a)(15)(v) to mean any card, code, or other device that can be used to access a prepaid account as defined in Regulation E; and (2) account numbers that may be used from time to time to access a credit plan that allows deposits directly only into particular prepaid accounts specified by the creditor but do not allow consumers to deposit directly extensions of credit from the plan into asset accounts other than particular prepaid accounts specified by the creditor, as defined in Sec. 1026.2(a)(15)(vii).

    Under the proposal, credit plans, including overdraft services and overdraft lines of credit, that are directly accessed by certain prepaid cards would be a credit card account under Regulation Z. In particular, proposed comment 2(a)(15)-2.i.F would provide that the term ``credit card'' includes a prepaid card (including a prepaid card that is solely an account number) that is a single device that may be used from time to time to access a credit plan, except if that prepaid card only accesses credit that is not subject to any finance charge as defined in Sec. 1026.4 or any fee described in Sec. 1026.4(c) and is not payable by written agreement in more than four installments. A prepaid card that is solely an account number would be a credit card if it satisfies the requirements of proposed comment 2(a)(15)-2.i.F.

    With respect to overdraft services or overdraft lines of credit, the prepaid card would be ``pulling'' credit from the credit card account where there are insufficient funds in the prepaid account to cover the amount of the transaction at authorization or settlement. An account where credit is pulled from a credit card account using a prepaid card is referred in this supplemental information as a ``pull account.''

    As discussed further below in connection with Sec. 1026.2(a)(15)(vii), the proposal also covers credit plans that are not directly accessed by a prepaid card, but are structured as ``push'' accounts. Specifically, the proposal would address situations where a separate credit plan is accessed by an account number where consumers are allowed to deposit directly credit extensions taken under the plan into particular prepaid accounts specified by the creditor but would not be allowed to deposit directly extensions of credit from the plan into asset accounts other than the specified prepaid accounts. Such a credit plan would still be covered under the proposal where a consumer could access the credit plan by use of checks or in-person withdrawals, so long as the credit plan allows deposits directly only into particular prepaid accounts specified by the creditor but does not allow the consumer to deposit directly extensions of credit into an asset account other than specified prepaid accounts. See proposed comment 2(a)(15)-5. In referring to account numbers that access credit plans linked to prepaid accounts as discussed above, the proposal uses the term ``account number where extensions of credit are permitted to be deposited directly only into particular prepaid account specified by the creditor.'' See proposed Sec. 1026.2(a)(15)(vii). The proposal would provide that these credit plans would be credit card accounts under Regulation Z. See proposed comment 2(a)(15)-2.i.G.

    The Bureau believes that credit plans will either be structured as ``pull'' accounts where a prepaid card is used directly to access credit from the credit plan or structured as ``push'' accounts where an account number is used to access credit that typically is deposited directly into the prepaid account. For example, the Bureau does not believe that a prepaid card account number would be used to push credit into the prepaid account, but instead will only be used to pull credit from the credit plan, such as when a consumer uses the prepaid card at point of sale or at an ATM to access credit directly. Thus, under the proposal, a prepaid card account number would not be an ``account number where extensions of credit are permitted to be deposited directly only into particular prepaid account specified by the creditor,'' as that term is defined in proposed Sec. 1026.2(a)(15)(vii). Likewise, an account number as defined in proposed Sec. 1026.2(a)(15)(vii) would not be used to access funds in the prepaid account and thus, would not be a prepaid card under proposed Sec. 1026.2(a)(15)(v). The Bureau solicits comment on the distinction between a prepaid card account number that is a credit card under proposed Sec. 1026.2(a)(15)(v) and comment 2(a)(15)-2.i.F and an account number that is a credit card where extensions of credit are permitted to be deposited directly only into particular prepaid account specified by the creditor as defined in proposed Sec. 1026.2(a)(15)(vii) and comment 2(a)(15)-2.i.G. The Bureau also solicits comment on whether there could be situations where a prepaid card account number could be viewed as pushing credit into a prepaid account.

    Generally, the proposal would treat credit card accounts that are accessed by a prepaid card and credit card accounts that are accessed by an account number linked to prepaid accounts as discussed above similarly under the rules. Nonetheless, for some provisions, credit extensions under these two types of credit card accounts would be treated differently. See proposed comments 8(a)-2.ii, 8(b)-1.vi, 12(c)-

    5, 12(c)(1)-1.i, 13(a)(3)-2.ii, 13(i)-1 and -4, 52(a)(2)-2 and -3, 60(b)(4)-3, and 60(b)(8)-4 and -5.

    This proposed difference in treatment generally results from the fact that for a credit card account that is accessed by a prepaid card, the prepaid card can be used to directly access the credit to purchase goods or services. For example, credit accessed by a prepaid card at point of sale would be treated as a ``sale credit'' under Sec. 1026.8(a) because the prepaid card is directly accessing credit to purchase goods or services. On the other hand, for a credit card account accessed by an account number described in proposed Sec. 1026.2(a)(15)(vii), credit that is

    Page 77219

    extended typically would be deposited into the prepaid account. The account number that accesses the credit is not typically viewed as directly used to purchase goods or services with the credit. For example, credit accessed by an account number linked to a prepaid account would be ``nonsale credit'' under Sec. 1026.8(b) because it would not be used directly to purchase goods or services.

    The Bureau believes that these types of ``push accounts'' could be offered as substitutes for overdraft credit plans accessed by a prepaid card, and if they were not covered, creditors could be able to circumvent the consumer protections set forth in the proposal. Nonetheless, the Bureau is not attempting to cover general lines of credit where consumers are not restricted from depositing directly credit extensions taken under the plan into asset accounts of their choosing, including prepaid accounts. The Bureau believes that those types of credit plans are not acting as substitutes for overdraft credit plans because these general lines of credit are not designed to provide credit in connection with particular prepaid accounts. The Bureau solicits comment on this approach, and whether the proposal appropriately covers the types of credit plans that may act as substitutes for overdraft credit plans accessed by prepaid cards.

    The Bureau also solicits comment on whether there are alternative ways to address credit plans that may act as substitutes for overdraft credit plans accessed by prepaid cards. For accounts that permit deposits directly into accounts other than prepaid accounts specified by the creditor, and thus would not be covered above under the proposal, the Bureau seeks comment on whether it should attempt to cover such accounts when they are being used by agreement to push funds to cover specific negative balance purchases. For example, should the rule cover the following situation as a push account: where the prepaid card issuer and a third-party creditor have an arrangement where the prepaid card issuer will notify the consumer that there are insufficient funds in the prepaid account to complete a transaction and contemporaneously prompt the consumer to transfer funds to complete the transaction. The Bureau solicits comment on whether there are other types of account structures that the Bureau should consider covering under the rule, and if so, whether the account structure should be considered a ``push'' account or a ``pull account'' for purposes of the rule, given that in some cases, different rules would apply under the proposal depending on the how account is structured, as discussed above.

    To be a credit card, the prepaid card, or account number that accesses an account where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor, must be a single device that may be used from time to time to access a credit plan.\360\ Current comment 2(a)(15)-1 reiterates that a credit card must be usable from time to time. The comment also provides that since this involves the possibility of repeated use of a single device, checks and similar instruments that can be used only once to obtain a single credit extension are not credit cards.

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    \360\ As discussed in the section-by-section analysis of proposed Sec. 1026.2(a)(20), under the proposal, a person would be extending credit pursuant to a plan where the person pays transactions using a prepaid card where there are insufficient funds in a prepaid account to fund the transactions and the consumer is obligated contractually to repay the credit. In addition, a person would be extending credit pursuant to a plan where the person extends credit to a consumer where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor and the consumer is obligated contractually to repay the credit.

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    The proposal would revise this comment to provide additional guidance on the treatment of preauthorized checks in relation to prepaid accounts. As is described above, preauthorized checks are checks where by a consumer must seek authorization before presenting them for payment. At the time of preauthorization, funds to pay the check are deducted from the account and held by the institution until the check is presented. The proposal would explain in comment 2(a)(15)-

    1 that with respect to a preauthorized check that is issued on a prepaid account for which the funds are withdrawn at the time of preauthorization using the prepaid account number, the credit would be considered obtained using the prepaid account number and not the check. Under the proposal, a prepaid account number typically would be a credit card unless it qualifies for an exception, as discussed below.

    Nonetheless, even if the prepaid card is a single device that may be used from time to time to access a credit plan, the prepaid card still would not be a credit card under Sec. 1026.2(a)(15)(i) if the prepaid card only accesses credit that is not subject to any finance charge as defined in Sec. 1026.4 or fee described in Sec. 1026.4(c) and is not payable by written agreement in more than four installments. As discussed in the section-by-section analysis of Sec. 1026.4, with respect to credit accessed by a prepaid card or credit accessed by an account number where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor, any service, transaction, activity, or carrying charges imposed on the credit account, and any such charges imposed on a prepaid account if that charge is related to an extension of credit, carrying a credit balance, or credit availability, generally would be a finance charge. See Sec. 1026.4(a), (b)(2), (c)(3) and (4) and comments 4(a)-4 and 4(b)(2)-1. Fees described in Sec. 1026.4(c) that are not finance charges include application fees to apply for credit, late payment fees, over-the-limit fees, and returned payment fees.

    To the extent that a prepaid card only accesses credit that is not subject to any finance charge as defined in Sec. 1026.4 or fee described in Sec. 1026.4(c) and is not payable by written agreement in more than four installments, the prepaid card would not be a credit card. To effectuate the purpose of TILA to promote informed use of credit and to facilitate compliance, the Bureau believes it is necessary and proper to exercise its exception authority under TILA section 105(a), to propose to exclude such prepaid cards from the definition of ``credit card'' under TILA section 103(l) and Regulation Z Sec. 1026.2(a)(15)(i). 15 U.S.C. 1602(l). If the credit plan is accessed only by a prepaid card that does not meet the definition of credit card because the card only accesses credit that is not subject to any finance charge as defined in Sec. 1026.4 or fee described in Sec. 1026.4(c) and is not payable by written agreement in more than four installments, the person issuing the card would not be a ``card issuer'' and the person would not need to comply with the credit card rules in Regulation Z. In addition, the person in extending this type of credit would not be a ``creditor'' under Regulation Z because the person would not be charging a finance charge and the credit would not be payable by written agreement in more than four installments. See Sec. 1026.2(a)(17)(i). Thus, the person would not need to comply with the disclosure and other requirements in Regulation Z that apply to creditors.

    The proposed provision would facilitate compliance by allowing a person who is providing such credit to comply only with Regulation E with respect to the prepaid account and this credit, instead of also complying with Regulation Z with respect to the overdraft credit. The Bureau believes

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    that the term ``credit card'' was defined broadly in Regulation Z to ensure that consumers who obtain access devices that access credit receive certain protections, such as receiving periodic statements, limits on liability for unauthorized use and billing error resolution rights, even if a person in issuing the access device would not have met the general definition of creditor in 1026.2(a)(17)(i) because no finance charge is imposed and the credit is not payable in more than four installments. Such access devices that are not linked to an asset account would not receive such protections, such as limits on liability for unauthorized use and billing error resolution rights, if the credit accessed by these access devices were not covered by Regulation Z. Nonetheless, for prepaid cards, the Bureau believes that the proposed protections in Regulation E for prepaid cards would be sufficient to protect consumers when credit extended under a credit plan accessed by a prepaid card is not subject to any finance charge as defined in Sec. 1026.4 or fee described in Sec. 1026.4(c) and is not payable by written agreement in more than four installments.

    Given that no finance charges or fees described in Sec. 1026.4(c) would be charged under the credit plan under this exception and that the Bureau anticipates that the credit limit under such plans would be quite low, perhaps $10 or less, and the credit would not be structured to be paid over a significant amount of time, the Bureau believes that consumers are unlikely to be become overextended in using this credit and incurring substantial fees. Thus, to facilitate compliance, the Bureau believes that this type of credit plan is more properly regulated under Regulation E as credit incidental to the prepaid card transaction. For example, as discussed in more detail in the section-

    by-section analysis of Regulation E proposed Sec. 1005.12(a), Regulation E's provisions in Sec. Sec. 1005.11 and 1005.18(e) regarding a consumer's liability for an unauthorized electronic fund transfer and regarding the investigation of errors would apply to extensions of this credit. In addition, such credit extensions would be disclosed on Regulation E periodic statements if the financial institution elects to provide such statements under proposed Sec. 1005.18(c)(1), or alternatively, would be disclosed on the electronic history of the consumer's prepaid account transactions, such as through a Web site, that covers at least 18 months preceding the date the consumer electronically accesses the account under Regulation E proposed Sec. 1005.18(c)(1)(ii).

    The Bureau also notes that the opt-in provision in Regulation E Sec. 1005.17 would not apply to credit extended under a credit plan accessed by a prepaid card that is not subject to any finance charge as defined in Sec. 1026.4 or fee described in Sec. 1026.4(c) and is not payable by written agreement in more than four installments. Section 1005.17 sets forth requirements that financial institutions must follow in order to provide ``overdraft services'' to consumers related to consumer's accounts. For prepaid accounts, any fees or charges for ATM or one-time ``debit card'' transactions (as that term is used in Regulation E to generally include prepaid cards; see proposed comment 1005.2(b)(3)(i)-8) that access an institution's overdraft service would be considered ``finance charges'' under the proposal and thus would exceed the scope of the proposed exception because it is limited to credit on prepaid accounts for which no finance charges or fees described in Sec. 1026.4(c) are imposed. The Bureau nevertheless seeks comment on whether it should apply Regulation Z to such credit.

    The Bureau notes that the proposal does not provide a similar exception for account numbers that are not prepaid cards that may be used from time to time to access a credit plan that allows deposits directly into particular prepaid accounts specified by the creditor but does not allow the consumer to deposit directly extensions of credit from the plan into asset accounts other than particular prepaid accounts specified by the creditor. See proposed Sec. 1026.2(a)(15)(vii) and comment 2(a)(15)-2.i.G. Such a credit plan would be covered under the proposal even if the credit plan could be accessed by use of checks or in-person withdrawals, so long as the credit plan is accessed by an account number where extensions of credit are allowed to be deposited directly into particular prepaid accounts specified by the creditor and the consumer is not permitted to deposit directly extensions of credit into an asset account other than particular prepaid accounts specified by the creditor. See proposed comment 2(a)(15)-5. Under the proposal, these account numbers would be credit cards regardless of whether credit extended under such credit plans is subject to a finance charge or a fee described in Sec. 1026.4(c) or is payable by written agreement in more than four installments. The Bureau believes that an exception is not appropriate for these types of credit plans because not all credit extensions under such credit plans would be subject to Regulation E protections if Regulation Z did not apply. Although Regulation E would apply to credit extensions that are deposited in a prepaid account by use of an electronic fund transfer, Regulation E would not apply to extensions of credit that are accessed by check or in person withdrawals where the transaction does not involve an electronic fund transfer to or from the prepaid account. The Bureau also believes that an exception for this type of credit is not necessary because creditors that establish a separate credit plan that is accessed by an account number that is not a prepaid card typically will charge a finance charge or fee described in Sec. 1026.4(c) for the credit. The Bureau solicits comment on this approach.

    Under the proposal, a person that issues such an account number would be a ``card issuer'' under Sec. 1026.2(a)(7) even if the account number only accesses credit that is not subject to a finance charge or fee described in Sec. 1026.4(c) and is not payable by written agreement in more than four installments. In addition, the person would be a ``creditor'' by issuing a credit card that accesses credit that is not subject to a finance charge and is not payable by written agreement in more than four installments. See Sec. 1026.2(a)(17)(iii). The person would be required to comply with rules governing open-end (not home-secured) credit plans in subpart B and the credit card rules set forth in subpart B. The rules implementing the Credit CARD Act, generally set forth in subpart G, would not apply because the person would not be charging a finance charge for the credit, and thus, would not be extending ``open-end credit.'' For more a detailed discussion, see the section-by-section analysis of Sec. 1026.2(a)(17).

    Prepaid Cards or Account Numbers That Are Credit Cards

    As discussed above, proposed comment 2(a)(15)-2.i.F would provide that the term ``credit card'' includes a prepaid card (including a prepaid card that is solely an account number) that is a single device that may be used from time to time to access a credit plan, except if that prepaid card only accesses credit that is not subject to any finance charge as defined in Sec. 1026.4 or any fee described in Sec. 1026.4(c) and is not payable by written agreement in more than four installments. Proposed Sec. 1026.2(a)(15)(vii) and comment 2(a)(15)-

    1. i.G would provide that the term ``credit card'' includes an account number that is not a prepaid card that may be used from time to time to access

      Page 77221

      a credit plan that allows deposits directly into particular prepaid accounts specified by the creditor but does not allow the consumer to deposit directly extensions of credit from the plan into asset accounts other than particular prepaid accounts specified by the creditor.

      If a person issues a prepaid card or account number as described above that is a credit card, the person would be a ``card issuer'' under Sec. 1026.2(a)(7). The person would also be a ``creditor'' if the card issuer extends credit accessed by the prepaid card or account number as described above. See Sec. 1026.2(a)(17)(iii) and (iv). If the card issuer extends open-end credit, the person generally would need to comply with the open-end (not home-secured) rules set forth in subpart B and the credit card rules set forth in subparts B and G. As discussed above in the Overview of Regulation Z Proposal section and below in the section-by-section analysis of Sec. 1026.2(a)(20), the Bureau believes that most creditors that are offering credit plans, including overdraft credit services, accessed by a prepaid card, or other credit plans linked to prepaid accounts that are accessed by an account number as discussed above, that are charging finance charges for the credit would be creditors offering ``open-end credit'' under Regulation Z. See the section-by-section analysis of Sec. 1026.2(a)(17) for a discussion of situations in which a creditor may not be offering open-end credit in relation to a prepaid account.

      Account Numbers

      Comment 2(a)(15)-2.ii.C currently provides that the term ``credit card'' does not include an account number that accesses a credit account, unless the account number can access an open-end line of credit to purchase goods or services. For example, if a creditor provides a consumer with an open-end line of credit that can be accessed by an account number in order to transfer funds into another account (such as an asset account with the same creditor), the account number is not a credit card for purposes of Sec. 1026.2(a)(15)(i). However, if the account number can also access the line of credit to purchase goods or services (such as an account number that can be used to purchase goods or services on the Internet), the account number is a credit card for purposes of Sec. 1026.2(a)(15)(i), regardless of whether the creditor treats such transactions as purchases, cash advances, or some other type of transaction. Furthermore, if the line of credit can also be accessed by a card (such as a debit card), that card is a credit card for purposes of Sec. 1026.2(a)(15)(i).

      In 2011, the Board adopted comment 2(a)(15)-2.ii.C as part of implementing the Credit CARD Act provisions. In the supplemental information to the final rule, the Board stated that because most if not all credit accounts can be accessed in some fashion by an account number, the Board did not believe that Congress generally intended to treat account numbers that access a credit account as credit cards for purposes of TILA.\361\ However, the Board was concerned that, when an account number can be used to access an open-end line of credit to purchase goods or services, the Board believed it would be inconsistent with the purposes of the Credit CARD Act to exempt the line of credit from the protections provided for credit card accounts. For example, creditors may offer open-end credit accounts designed for online purchases that function like a traditional credit card account but can only be accessed using an account number. In these circumstances, the Board believed that TILA's credit card protections should apply.

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      \361\ 76 FR 22948, 22949 (Apr. 25, 2011).

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      The proposal would revise comment 2(a)(15)-2.ii.C to indicate that the comment does not apply to prepaid cards and account numbers described in proposed comments 2(a)(15)-2.i.F and G. Comment 2(a)(15)-

    2. ii.C generally would not apply to prepaid cards because such cards generally could be used to purchase goods or services, even if the prepaid card was solely an account number. In addition, as discussed in the Overview of Regulation Z Proposal section, the Bureau is concerned that if lines of credit that are accessed by an account number are not considered credit cards when credit extensions can be deposited directly only into particular prepaid accounts specified by the creditor, they would be offered as a means of evading the requirements articulated in this proposal that apply to credit cards under TILA. Thus, the Bureau does not believe that such credit plans should be exempted from the definition of credit card and proposes to cover such credit plans as credit card accounts.

      Technical Revisions

      The proposal also provides a technical revision to accommodate the changes discussed above. Specifically, comment 2(a)(15)-2.i.B currently provides guidance on when a debit card is a credit card, and the comment provides examples of credit cards that include ``a card that accesses both a credit and an asset account (that is, a debit-credit card).'' Proposed Sec. 1026.2(a)(15)(iv) would define the term ``debit card'' for purposes of Regulation Z to mean ``any card, plate, or other single device that may be used from time to time to access an asset account other than a prepaid account.'' Because the term ``debit card'' under the proposal would not include all cards that access asset accounts, comment 2(a)(15)-2.i.B would be revised to be consistent with the proposed definition of debit card. No substantive changes are intended to the current rules for when debit cards are credit cards under Sec. 1026.2(a)(15)(i).

      2(a)(15)(ii) Credit Card Account Under an Open-end (Not Home-secured) Consumer Credit Plan

      Under Regulation Z, the term ``credit card account under an open-

      end (not home-secured) consumer credit plan'' is defined in Sec. 1026.2(a)(15)(ii) to mean ``any open-end credit account that is accessed by a credit card, except: (A) a home-equity plan subject to the requirements of Sec. 1026.40 that is accessed by a credit card; or (B) an overdraft line of credit that is accessed by a debit card or an account number.'' Certain requirements in the Credit CARD Act, which are generally set forth in subpart G, apply to card issuers offering a credit card account under an open-end (not home-secured) consumer credit plan. See, e.g., Sec. Sec. 1026.5(b)(2)(ii), .7(b)(11), .51 to .59.

      Generally, to be a ``credit card account under an open-end (not home-secured) consumer credit plan,'' the credit must be ``open-end credit'' as defined in Sec. 1026.2(a)(20) and the credit must be accessed by a ``credit card'' as defined in Sec. 1026.2(a)(15)(i). As discussed above in the Overview of Regulation Z Proposal section and in the section-by-section analysis of Sec. 1026.2(a)(20), the Bureau anticipates that most credit accessed by a prepaid card would meet the definition of ``open-end credit'' if the creditor offering the plan may impose a finance charge for the credit.\362\ In addition, under the

      Page 77222

      proposal, a prepaid card that is a single device that may be used from time to time to access such an open-end credit plan would be a credit card. Likewise, the Bureau anticipates that most credit that is deposited into a prepaid account where the extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor would meet the definition of ``open-

      end credit'' if the creditor offering the plan may impose a finance charge for the credit. Also, an account number that may be used from time to time to access such an open-end credit plan would be a credit card. Thus, an open-end credit plan accessed by a prepaid card that is a credit card or an account number that is a credit card (as described above) would be a ``credit card account under an open-end (not home-

      secured) consumer credit plan.''

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      \362\ As discussed in more detail below in the section-by-

      section analysis of Sec. 1026.2(a)(17), a person would not be a creditor that is extending open-end credit where the person extends credit accessed by a prepaid card but the person is not charging a finance charge for the credit. Similarly, a person extending credit accessed by an account number where such extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the person also would not be extending open-

      end credit if the person is not charging a finance charge for the credit. Nonetheless, as discussed in the section-by-section analysis of Sec. 1026.2(a)(17), such persons may still be subject to certain Regulation Z requirements under certain circumstances.

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      For the reasons discussed in the Overview of Regulation Z Proposal section, the proposal also would clarify that the exception in current Sec. 1026.2(a)(15)(ii)(B) does not apply to open-end credit plans accessed by a prepaid card or an account number as described above. Currently, Sec. 1026.2(a)(15)(ii)(B) provides that the definition of ``credit card account under an open-end (not home-secured) consumer credit plan'' does not include an ``overdraft line of credit that is accessed by a debit card or an account number.'' The Bureau notes that the proposed definition of ``debit card'' in Sec. 1026.15(a)(2)(iv) would exclude a prepaid card. Thus, the exception in Sec. 1026.2(a)(15)(ii)(B) does not apply to overdraft lines of credit that are accessed by a prepaid card. In addition, the proposal would revise Sec. 1026.2(a)(15)(ii)(B) to only include the exception for overdraft lines of credit accessed by a debit card. The proposal would move the exception for overdraft lines of credit that are accessed by account numbers from Sec. 1026.2(a)(15)(ii)(B) to proposed Sec. 1026.2(a)(15)(ii)(C). The proposal also would amend proposed Sec. 1026.2(a)(15)(ii)(C) and comment 2(a)(15)-4 to provide that the exception does not apply to an overdraft line of credit that is accessed by an account number where the account number is a prepaid card that is a credit card, or the account number is a credit card where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor.

      2(a)(15)(iii) Charge Card

      Under Regulation Z, the term ``charge card'' is defined in Sec. 1026.15(a)(15)(iii) to mean ``a credit card on an account for which no periodic rate is used to compute a finance charge.'' Current comment 2(a)(15)-3 provides guidance on how the term ``charge card'' is used throughout the Regulation. In particular, the current comment provides that generally, charge cards are cards used in connection with an account on which outstanding balances cannot be carried from one billing cycle to another and are payable when a periodic statement is received. This comment also explains that under the regulation, a reference to credit cards generally includes charge cards. In particular, references to credit card accounts under an open-end (not home-secured) consumer credit plan in subparts B and G generally include charge cards. The term ``charge card'' is, however, distinguished from ``credit card'' or ``credit card account under an open-end (not home-secured) consumer credit plan'' in Sec. Sec. 1026.60, 1026.6(b)(2)(xiv), 1026.7(b)(11) and (b)(12), 1026.9(e) and (f), 1026.28(d), 1026.52(b)(1)(ii)(C), and Appendices G-10 through G-

    3. See also the discussion in Sec. 1026.2(a)(20) relating to charge card accounts as open-end credit.

      The Bureau proposes to revise comment 2(a)(15)-3 in a number of ways to accommodate the proposed inclusion of some forms of prepaid cards as charge cards. First, the existing text of the comment would be placed in comment 2(a)(15)-3.i and a new comment 2(a)(15)-3.ii would be added. Specifically, proposed comment 2(a)(15)-3.ii would explain that a prepaid card is a charge card if it also is a credit card where no periodic rate is used to compute the finance charge. Likewise, an account number where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor would be a charge card if it is a credit card where no periodic rate is used to compute the finance charge. This proposed comment would also explain that unlike other charge cards, such a prepaid card or account number that accesses a credit card account under an open-end (not home-secured) consumer credit plan would be subject to the requirements in Sec. 1026.7(b)(11), which implements certain protections in the Credit CARD Act regarding periodic statements and payment due dates. See the section-by-section analysis of proposed Sec. 1026.7(b). Thus, under Sec. 1026.5(b)(2)(ii), for credit card accounts under an open-end (not home-secured) consumer credit plan, a card issuer of a prepaid card or account number that meets the definition of a charge card because it does not impose a finance charge structured as a periodic rate would be required to adopt reasonable procedures designed to ensure that (1) periodic statements are mailed or delivered at least 21 days prior to the payment due date disclosed on the statement pursuant to Sec. 1026.7(b)(11)(i)(A), and (2) the card issuer does not treat as late for any purposes a required minimum periodic payment received by the card issuer within 21 days after mailing or delivery of the periodic statement disclosing the due date for that payment.

      Under the proposal, the existing language in comment 2(a)(15)-3 (which would be redesignated as proposed comment 2(a)(15)-3.i) would be revised to be consistent with new proposed comment 2(a)(15)-3.ii and the definition of ``charge card.'' Currently, the first sentence of comment 2(a)(15)-3 provides that generally, charge cards are cards used in connection with an account on which outstanding balances cannot be carried from one billing cycle to another and are payable when a periodic statement is received. This sentence would be revised to be more consistent with the definition of charge card in Sec. 1026.2(15)(iii) to state that charge cards are credit cards where no periodic rate is used to compute the finance charge; no substantive change is intended by this proposed revision. The Bureau notes that while most charge cards are structured such that the outstanding balances cannot be carried from one billing cycle to another and are payable when a periodic statement is received, this is not a requirement in order for a card to meet the definition of charge card in Sec. 1026.2(a)(15)(iii). In addition, the last sentence of the existing comment would be revised to cross reference new proposed comment 2(a)(15)-3.ii. The Bureau seeks comment on this proposed approach to charge cards.

      2(a)(15)(iv) Debit Card, 2(a)(15)(v) Prepaid Card, and 2(a)(15)(vi) Prepaid Account

      Although Regulation Z and its commentary use the term ``debit card,'' that term is not defined. Generally, under the existing regulation, this term refers to a card that accesses an asset account. See comment 2(a)(15)-2.i.B. Specifically, comment 2(a)(15)-2.i.B provides as an example of a credit card: ``A card that accesses both a credit and an asset account (that is, a debit-credit card).'' In addition, comment 2(a)(15)-2.ii.A provides that the term credit card does not include a debit card with no credit feature or agreement, even if the creditor occasionally honors an inadvertent overdraft.

      Page 77223

      As discussed in the Overview of Regulation Z Proposal section, under the proposal, different rules generally would apply in Regulation Z depending on whether credit is accessed by a card or device that accesses a prepaid account (which would be defined in proposed Sec. 1026.2(a)(15)(vi) to match the definition under proposed Regulation E Sec. 1005.2(b)(3)) or one that accesses another type of asset account. To assist compliance with the regulation, the proposal would define ``debit card'' for purposes of Regulation Z in Sec. 1026.2(a)(15)(iv) to mean ``any card, plate, or other single device that may be used from time to time to access an asset account other than a prepaid account.'' The proposed definition of ``debit card'' would specify that it does not include a prepaid card. Proposed Sec. 1026.2(a)(15)(v) would define ``prepaid card'' to mean ``any card, code, or other device that can be used to access a prepaid account'' and would define ``prepaid account'' in proposed Sec. 1026.2(a)(15)(vi) to mean a prepaid account as defined in Regulation E proposed Sec. 1005.2(b)(3). Proposed comment 2(a)(15)-6 would provide that the term ``prepaid card'' in Sec. 1026.2(a)(15)(v) includes any card, code or other device that can be used to access a prepaid account, including a prepaid account number or other code. The proposed comment provides that the phrase ``credit accessed by a prepaid card'' means any credit that is accessed by any card, code or other device that also can be used to access a prepaid account.

      The term ``prepaid account'' as defined in proposed Regulation E 1005.2(b)(3) would not include gift cards, government benefit accounts that are excluded under Regulation E Sec. 1005.15(a)(2), employee flex cards, and HSA and other medical expense cards. Under current Regulation Z and the proposal, these cards would not be credit cards unless they were subject to a written agreement to extend credit. Nonetheless, the Bureau solicits comment on whether gift cards, government benefit accounts that are excluded under Regulation E Sec. 1005.15(a)(2), employee flex cards, and HSA and other medical expense cards should be included within the definition of ``prepaid accounts'' for purposes of Regulation Z, even if those accounts would not be considered prepaid accounts for purposes of error resolution, disclosure, and other purposes under Regulation E. By including these accounts into the definition of ``prepaid account'' for purposes of Regulation Z, such a card would be a ``prepaid card'' and the card would be a ``credit card'' if the card is a single device that may be used from time to time to access a credit plan, except if that card only accesses credit that is not subject to any finance charge as defined in Sec. 1026.4 or any fee described in Sec. 1026.4(c) and is not payable by written agreement in more than four installments.\363\ As a credit card, the person issuing the card would be a ``card issuer'' under Regulation Z. See Sec. 1026.2(a)(7). In addition, the person issuing the card would be a ``creditor'' under Regulation Z if the person issuing the card extends the credit. See Sec. 1026.2(a)(17)(iii) and (iv). The specific provisions of Regulation Z that the person would need to comply with as a ``card issuer'' and ``creditor'' would depend on the type of credit that is being extended and the type of fees being imposed. See Sec. 1026.2(a)(17)(iii) and (iv).

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      \363\ Conforming changes also might be needed under Regulation E if these cards became credit cards under Regulation Z.

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      The Bureau is unaware of any credit features currently associated with such cards. The Bureau solicits comment on current and potential credit features that may be offered on these types of cards, the nature of potential risks to consumers if credit features were offered on these types of cards, and incentives for the industry to offer credit features on these types of cards. The Bureau also solicits comment on any implications of treating these products as prepaid accounts under Regulation Z but not Regulation E.

      2(a)(15)(vii) Account Numbers Where Extensions of Credit Are Permitted To Be Deposited Directly Only Into Particular Prepaid Accounts Specified by the Creditor

      As noted above, the proposal covers credit plans that are not accessed directly by a prepaid card, but where a separate credit plan is accessed by an account number that is not a prepaid card that allows deposits directly into particular prepaid accounts specified by the creditor but does not allow the consumer to deposit directly extensions of credit from the plan into asset accounts other than particular prepaid accounts specified by the creditor.

      A credit plan would still be covered under the proposal where a consumer could access the credit plan by use of checks or in-person withdrawals, so long as the credit plan allows deposits directly into particular prepaid accounts specified by the creditor but does not allow the consumer to deposit directly extensions of credit into an asset account other than particular prepaid accounts specified by the creditor. See proposed comment 2(a)(15)-5. The proposal would provide that these credit plans would be credit card accounts under Regulation Z.

      The Bureau believes that these types of credit plans could be offered as substitutes for overdraft credit plans accessed by a prepaid card, and if they were not covered, creditors would be able to avoid the consumer protections set forth in the proposal. Thus, the Bureau believes it is reasonable to include account numbers that access these types of credit products under the definition of credit card. Nonetheless, the Bureau is not attempting to cover general lines of credit where consumers generally are not restricted from depositing directly credit extensions taken under the plan into asset accounts of their choosing, including prepaid accounts. The Bureau believes that those types of credit plans are not acting as substitutes for overdraft credit plans because these general lines of credit are not designed to provide credit in relation to particular prepaid accounts. The Bureau solicits comment on this approach, and whether the proposal appropriately covers the types of credit plans that may act as substitutes for overdraft credit plans accessed by prepaid cards.

      In referring to account numbers that access credit plans linked to prepaid accounts, the proposal uses the term ``account number where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor.'' Proposed Sec. 1026.2(a)(15)(vii) defines this term to mean an account number that is not a prepaid card that may be used from time to time to access a credit plan that allows deposits directly into particular prepaid accounts specified by the creditor but does not allow the consumer to deposit directly extensions of credit from the plan into asset accounts other than particular prepaid accounts specified by the creditor. As noted above, these account numbers would be credit cards under the proposal. See proposed Sec. 1026.2(a)(15)(vii), comments 2(a)(15)-

    4. i.G and -5.

      2(a)(17) Creditor

      Certain disclosure requirements and other requirements in TILA and Regulation Z generally apply to creditors. Under TILA section 103(g), the term ``creditor'' generally is defined to mean ``a person who both (1) regularly extends, whether in connection with loans, sales of property or services, or otherwise, consumer

      Page 77224

      credit which is payable by agreement in more than four installments or for which the payment of a finance charge is or may be required, and (2) is the person to whom the debt arising from the consumer credit transaction is initially payable on the face of the evidence of indebtedness or, if there is no such evidence of indebtedness, by agreement.'' 15 U.S.C. 1602(g). Also, for purposes of certain disclosure provisions in TILA that relate to credit card account-

      opening disclosures and periodic statement disclosures, the term ``creditor'' includes a ``card issuer whether or not the amount due is payable by agreement in more than four installments or the payment of a finance charge is or may be required.'' 15 U.S.C. 1602(g).

      Consistent with TILA, under Regulation Z, the term ``creditor'' is defined generally in Sec. 1026.2(a)(17)(i) to include a ``person who regularly extends consumer credit that is subject to a finance charge or is payable by written agreement in more than four installments (not including a down payment), and to whom the obligation is initially payable, either on the face of the note or contract, or by agreement when there is no note or contract.'' Under Sec. 1026.2(a)(17)(v) and comment 2(a)(17)-4, for open-end credit, a person regularly extends consumer credit if it had more than 25 accounts outstanding in the preceding calendar year. If a person did not meet this numerical standard in the preceding calendar year, the numerical standards must be applied to the current calendar year. In addition, under Sec. 1026.2(a)(17)(iii) and (iv), the term ``creditor'' includes a card issuer (which is a person that issues a credit card or its agent) that extends credit. For purposes of subpart B, a person also is a ``creditor'' if the person is a card issuer that extends credit that is not subject to a finance charge and is not payable by written agreement in more than four installments. See Sec. 1026.2(a)(17)(iii). Thus, under Regulation Z as generally structured, card issuers that only meet this narrow definition of creditor (i.e., extend credit that is not subject to a finance charge and is not payable in more than four installments) generally are subject to the open-end (not home-secured) rules and the credit card rules in subpart B but generally need not comply with the credit card rules in subpart G, except for the credit card disclosures required by Sec. 1026.60.

      Except as described below, the Bureau's proposal generally would apply this existing framework to the prepaid context. Thus, a card issuer that extends open-end credit would meet the general definition of ``creditor'' because the person charges a finance charge and would be subject to the rules governing open-end (not home-secured) credit plans in subpart B and the credit card rules set forth in subparts B and G. A card issuer that extends closed-end credit, and meets the general definition of ``creditor'' because the person charges a finance charge or extends credit payable by written agreement in more than four installments generally would be subject to the closed-end provisions in subpart C and certain open-end disclosure (not home-secured) rules and the credit card rules in subpart B. See Sec. 1026.2(a)(17)(iv).

      With respect to account numbers where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor, card issuers that meet only the special definition of ``creditor'' because they extend credit accessed by the account number where the credit is not subject to a finance charge and is not payable by written agreement in more than four installments would generally be subject to the rules governing open-end (not home-secured) credit plans in subpart B and the credit card rules set forth in subpart B, but not the rules implementing the Credit CARD Act, generally set forth in subpart G. Although a credit plan accessed by such an account number would not be open-end credit because it is not subject to a finance charge, the person generally would be subject to the provisions in subpart B even if the credit is not subject to any fees, including finance charges. See Sec. 1026.2(a)(17)(iii).

      However, the Bureau is clarifying in proposed comment 2(a)(17)(iii)-2 that Sec. 1026.2(a)(17)(iii) does not apply to a person that is extending credit that is accessed by a prepaid card where the credit (1) is not subject to a finance charge, (2) is not subject to fees described in Sec. 1026.4(c), and (3) is not payable by written agreement in more than four installments. As discussed in the section-by-section analysis of Sec. 1026.2(a)(15)(i), in this case, the prepaid card is not a credit card and therefore the person issuing the card is not a card issuer. Prepaid card issuers that satisfy this exclusion would still be subject to Regulation E's requirements, such as error resolution, and limits on liability for unauthorized use.

      Proposed comment 2(a)(17)(iii)-2 would specify that a person is not a creditor where a prepaid card only accesses credit that is not subject to any finance charge as defined in Sec. 1026.4 or fee described in Sec. 1026.4(c) and is not payable by written agreement in more than four installments.

      The Bureau notes, however, that with respect to a credit plan that is accessed by a prepaid card, the person would be a card issuer if the prepaid card accesses a credit plan that is subject to a fee that is not a finance charge that is described in Sec. 1026.4(c), such as a fee for applying for a credit plan, a late payment fee, an over-the-

      limit fee, or a returned payment fee. In this case, the person would not be extending open-end credit because the credit is not subject to a finance charge. Nonetheless, the person would be a card issuer under Sec. 1026.2(a)(7) and would be a creditor under Sec. 1026.2(a)(17)(iii). As a result, the person would be required to comply generally with the rules governing open-end (not home-secured) credit plans in subpart B and the credit card rules set forth in subpart B, but not the rules implementing the Credit CARD Act, generally set forth in subpart G.

      2(a)(20) Open-End Credit

      Under TILA section 103(j), the term ``open-end credit plan'' is defined to mean a ``plan under which the creditor reasonably contemplates repeated transactions, which prescribes the terms of such transactions, and which provides for a finance charge which may be computed from time to time on the outstanding unpaid balance.'' See 15 U.S.C. 1602(j). Under Regulation Z, the term ``open-end credit'' is defined in Sec. 1026.2(a)(20) to mean consumer ``credit'' extended by a ``creditor'' under a ``plan'' in which (1) the creditor reasonably contemplates repeated transactions; (2) the creditor may impose a ``finance charge'' from time to time on an outstanding unpaid balance; and (3) the amount of credit that may be extended to the consumer during the term of the plan (up to any limit set by the creditor) is generally made available to the extent that any outstanding balance is repaid. Thus, to have open-end credit under Regulation Z, there must be (1) consumer ``credit;'' (2) that is extended under a ``plan;'' (3) where the person extending the credit may impose a ``finance charge'' from time to time on an outstanding unpaid balance; (4) the person extending the credit is a ``creditor;'' (5) the person extending credit reasonably contemplates repeated transactions; and (6) the amount of credit that may be extended to the consumer during the term of the plan (up to any limit set by the creditor) is generally made available to the extent that any outstanding balance is repaid.

      As discussed above in the Overview of Regulation Z Proposal section, with narrow exceptions discussed below, the Bureau anticipates that most credit accessed by a prepaid card will

      Page 77225

      constitute credit extended under a ``credit plan'' and will meet the definition of ``open-end credit'' if the creditor offering the plan may impose a finance charge for the credit. Likewise, the Bureau anticipates that most credit that is deposited into a prepaid account where the extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor will constitute credit extended under a ``credit plan'' and will meet the definition of ``open-end credit'' if the creditor offering the plan may impose a finance charge for the credit.

      The proposal would provide additional guidance on the meaning of three terms used in the definition of ``open-end credit:'' (1) ``credit;'' (2) ``plan;'' and (3) ``finance charge.'' For a discussion of the proposed revisions related to the term ``credit,'' see the section-by-section analysis of proposed Sec. 1026.2(a)(14) above. The term ``plan'' is discussed below. The term ``finance charge'' is discussed below and in the section-by-section analysis of Sec. 1026.4. Plan

      The term ``plan'' currently is discussed in comment 2(a)(20)-2, which provides in relevant part that the term ``plan'' connotes a contractual arrangement between the creditor and the consumer. For the reasons described in the Overview of Regulation Z Proposal section, the proposal would revise comment 2(a)(20)-2 to provide additional guidance on what constitutes a plan with respect to credit extended through paying overdrafts in connection with prepaid accounts. A new comment 2(a)(20)-2.ii would be added that would provide that with respect to credit accessed by a prepaid card, a plan would mean a program where the consumer is obligated contractually to repay any credit extended by the creditor. For example, a plan includes a program under which a creditor routinely pays transactions when a consumer has insufficient or unavailable funds in a prepaid account and the consumer is obligated contractually to repay those transactions. Under the proposal, such a program constitutes a plan notwithstanding that the creditor retains discretion not to pay such transactions, the creditor does not pay transactions once the consumer has exceeded a certain amount of credit, or the creditor only pays transactions where there were sufficient or available funds to cover the amount of the transaction at the time the transaction was authorized but not sufficient or available funds to cover the amount of the transaction at the time the transaction is paid.

      In addition, for the reasons discussed in the Overview of Regulation Z Proposal section, a similar new proposed comment 2(a)(20)-

    5. iii would be added to provide guidance on when depositing credit proceeds into a prepaid account would be considered extending credit under a plan. In particular, this proposed comment would provide that with respect to credit accessed by an account number where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor, a plan means a program where the consumer is obligated contractually to repay any credit extended by the creditor. For example, a plan includes a program under which a creditor routinely will extend credit that is deposited directly into particular prepaid accounts specified by the creditor and the consumer is obligated contractually to repay the credit. Such a program constitutes a plan notwithstanding that the creditor retains discretion not to extend credit, or the creditor does not extend credit once the consumer has exceeded a certain amount of credit. For example, a program constitutes a plan where a creditor will routinely extend credit that is deposited directly into a particular prepaid account specified by the creditor when the consumer requests an extension because the consumer does not have adequate funds in the prepaid account to cover the full amount of a transaction using the prepaid card.

      As discussed in more detail in the Overview of Regulation Z Proposal section, with respect to the programs described above, the Bureau believes these programs are plans notwithstanding that the person offering the program reserves the right not to extend credit on individual transactions. The Bureau believes that the person's reservation of such discretion in connection with credit extended with respect to prepaid accounts does not connote the absence of an open-end credit plan. Consumers using overdraft programs, or linked lines of credit, in connection with prepaid accounts must agree to repay the debt created by an overdraft or advance, indicating that a contractual arrangement between the creditor and the consumer exists. The Bureau notes that credit card issuers similarly reserve the right to reject individual transactions, and thus the Bureau believes that automated overdrafts services are comparable.

      To accommodate the proposed changes, the proposal also would make several technical revisions to comment 2(a)(20)-2. Specifically, the first sentence of the existing language in comment 2(a)(20)-2 would be moved to proposed comment 20(a)(20)-2.i, and the remaining language of the existing comment would be moved to proposed comment 2(a)(20)-2.iv.

      Finance Charge Imposed From Time to Time on an Outstanding Unpaid Balance

      In Regulation Z, credit will not meet the definition of ``open-end credit'' unless the person extending the credit may impose a ``finance charge'' from time to time on an outstanding unpaid balance. Comment 2(a)(20)-4 provides that the requirement that a finance charge may be computed and imposed from time to time on the outstanding balance means that there is no specific amount financed for the plan for which the finance charge, total of payments, and payment schedule can be calculated. This comment also provides that a plan may meet the definition of open-end credit even though a finance charge is not normally imposed, provided the creditor has the right, under the plan, to impose a finance charge from time to time on the outstanding balance. The term ``finance charge'' generally is defined in Sec. 1026.4 to mean ``the cost of consumer credit as a dollar amount'' and it includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. The term does not include any charge of a type payable in a comparable cash transaction.

      The proposal would add 2(a)(20)-4.ii to note that with respect to credit accessed by a prepaid card (including a prepaid card that is solely an account number) or credit accessed by an account number where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor, any service, transaction, activity, or carrying charges imposed on a credit account, and any such charges imposed on a prepaid account if that charge is related to an extension of credit, carrying a credit balance, or credit availability, generally would be a finance charge. See Sec. 1026.4(a), (b)(2), (c)(3) and (4) and comments 4(a)-4 and 4(b)(2)-1. In addition, proposed comment 2(a)(20)- 4.ii would provide that with respect to that credit, such service, transaction, activity or carrying charges would constitute finance charges imposed from time to time on an outstanding unpaid balance if there is no specific amount financed for the plan for which the finance charge, total of payments, and payment schedule can be calculated.

      Page 77226

      The Bureau does not anticipate that there will be a specific amount financed for credit plans accessed by prepaid cards, or credit plans that are linked to prepaid accounts and accessed by account numbers as discussed above, at the time the credit plan is established. Instead, the Bureau anticipates that the credit lines on these credit plans generally will be replenishing. In such cases, an amount financed for the plan could not be calculated because the creditor will not know at the time the plan is established the amount of credit that will be extended under the plan. Thus, to the extent that any finance charge may be imposed on such credit plans, the credit plan will meet this criterion.

      As discussed in the section-by-section analysis of Sec. 1026.4, the Bureau is proposing to expand the types of fees that would be finance charges for purposes of credit linked to prepaid accounts. Currently, certain fees or charges are specifically excluded from the term ``finance charge,'' such as (1) charges imposed by a financial institution for paying items that overdraw an account, unless the payment of such items and the imposition of the charge were previously agreed upon in writing; and (2) fees charged for participation in a credit plan, whether assessed on an annual or other periodic basis. See Sec. 1026.4(c)(3) and (4). The proposal would amend Sec. 1026.4 and its commentary that relates to the definition of ``finance charge'' to provide that these two exceptions do not apply to credit accessed by a prepaid card or an account number where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor. In addition, the proposal would make additional amendments to Sec. 1026.4 and related commentary related to credit accessed by a prepaid card or credit accessed by an account number where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor. For such credit, any service, transaction, activity, or carrying charges imposed on the credit account, and any such charges imposed on a prepaid account if that charge is related to an extension of credit, carrying a credit balance, or credit availability, generally would be a finance charge. See Sec. 1026.4(a), (b)(2), (c)(3) and (4) and comments 4(a)-4 and 4(b)(2)-1. Such charges would include periodic participation fees for the credit plan, and transaction charges imposed in connection with a credit extension.

      As a result of the proposal to expand the definition of finance charge for credit linked to prepaid accounts, the Bureau believes that charge card accounts accessed by prepaid cards or account numbers as discussed above would be open-end credit when transaction fees, participation fees, or other finance charges may be imposed on the account. If the Bureau were to read the criterion of open-end credit that a finance charge may be imposed time to time on an outstanding unpaid balance narrowly, there is a chance that some types of charge card accounts offered in connection with prepaid accounts would constitute closed-end credit. A person offering such a charge card account would be required to comply with the closed-end provisions in subpart C as well as certain open-end (not home-secured) rules and the credit card rules in subpart B. See Sec. 1026.2(a)(17)(iv). The Bureau believes that receiving closed-end disclosures for these types of accounts would be confusing to consumers, because the disclosures would be different from their other credit card accounts. Where the transactions otherwise would seem to fit an open-end plan based on repeated transactions and replenishing credit, the Bureau believes that consumers would be better protected and better informed if such transactions were treated as open-end plans in the same way as their other credit card accounts. In addition, with respect to credit accessed by prepaid cards, the Bureau believes that complying with the closed-end credit rules would be difficult for card issuers (for example, at point of sale) because closed-end disclosures specific to each credit extension would need to be provided prior to each transaction. Thus, the Bureau proposes to retain the current interpretation of the finance charge criterion for the term ``open-end credit'' which would result in most charge card accounts meeting the definition of ``open-end credit'' if a transaction fee, participation fee or other finance charge may be imposed on the credit plan. The Bureau solicits comment on this approach.

      The Bureau also notes that persons that offer charge card accounts where no finance charge is imposed may still be subject to certain Regulation Z provisions. See the section-by-section analysis of Sec. 1026.2(a)(17).

      As a technical revision, the proposal would move the existing language of comment 2(a)(20)-4 to proposed comment 20(a)(20)-4.i.

      Section 1026.4 Finance Charge

      Under TILA section 106(a), the term ``finance charge'' generally provides that ``the amount of the finance charge in connection with any consumer credit transaction shall be determined as the sum of all charges, payable directly or indirectly by the person to whom the credit is extended, and imposed directly or indirectly by the creditor as an incident to the extension of credit.'' The finance charge does not include charges of a type payable in a comparable cash transaction. 15 U.S.C. 1605(a).

      Under Regulation Z, the term ``finance charge'' generally is defined in Sec. 1026.4(a) to mean ``the cost of consumer credit as a dollar amount.'' It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. It does not include any charge of a type payable in a comparable cash transaction. However, certain fee or charges are specifically excluded from the current definition of ``finance charge,'' including (1) charges imposed by a financial institution for paying items that overdraw an account, unless the payment of such items and the imposition of the charge were previously agreed upon in writing; and (2) fees charged for participation in a credit plan, whether assessed on an annual or other periodic basis. See Sec. 1026.4(c)(3) and (4).

      The proposal would amend Sec. 1026.4 and its commentary that relates to the definition of ``finance charge'' in two ways. First, it would provide that the exception regarding overdrafts would not apply to credit accessed by a prepaid card or by an account number where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor, as discussed further below and in the Overview of Regulation Z Proposal section. Second, it would provide that the second exception regarding participation fees does not apply to credit accessed by prepaid card or by an account number where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor. The proposal also would make certain other additional amendments to Sec. 1026.4 and related commentary related to credit accessed by a prepaid card or credit accessed by an account number where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor to clarify which types of charges are finance charges and which are not. As discussed below, this

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      portion of the proposal is designed to ensure proposed protections for prepaid accounts.

      4(a) Definition

      Under Regulation Z, the term ``finance charge'' generally is defined in Sec. 1026.4(a) to mean ``the cost of consumer credit as a dollar amount.'' It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. It does not include any charge of a type payable in a comparable cash transaction. Comment 4(a)-4 provides guidance on when transaction charges imposed on credit card accounts are finance charges under Sec. 1026.4(a). (Transaction charges that are imposed on checking accounts or other transaction accounts are discussed in the section-by-section analysis of Sec. 1026.4(b).)

      Specifically, comment 4(a)-4 provides that any transaction charge imposed on a cardholder by a card issuer is a finance charge, regardless of whether the issuer imposes the same, greater, or lesser charge on withdrawals of funds from an asset account such as a checking or savings account. For example, any charge imposed on a credit cardholder by a card issuer for the use of an ATM to obtain a cash advance (whether in a proprietary, shared, interchange, or other system) is a finance charge regardless of whether the card issuer imposes a charge on its debit cardholders for using the ATM to withdraw cash from a consumer asset account, such as a checking or savings account. In addition, any charge imposed on a credit cardholder for making a purchase or obtaining a cash advance outside the United States with a foreign merchant, or in a foreign currency, is a finance charge, regardless of whether a charge is imposed on debit cardholders for such transactions. This comment essentially provides that debit card transactions are not considered ``comparable cash transactions'' to credit card transactions with respect to transaction charges imposed by a card issuer on a credit cardholder when those fees are imposed on the credit card account.

      In the supplemental information accompanying the rule that adopted this comment, the Board noted the inherent complexity of seeking to distinguish transactions that are ``comparable cash transactions'' to credit card transactions from transactions that are not.\364\ For example, the Board discussed the situation of a transaction fee imposed by a card issuer on the credit card account for a cash advance through an ATM. A transaction fee for a cash advance through an ATM would not always be a finance charge if the ``comparable cash transaction'' exception considered fees that are imposed on debit cards offered by the credit card issuer in determining whether a transaction fee for a cash advance through an ATM imposed on the credit account is a finance charge. Instead, whether this fee is a finance charge would depend on whether the credit card issuer provides asset accounts and offers debit cards on those accounts and whether the fee exceeds the fee imposed for a cash advance transaction through an ATM on the asset account. The Board believed this type of distinction is not helpful for consumers in understanding transaction fees that are imposed on credit card accounts. Thus, the Board adopted comment 4(a)-4, which provides that any transaction charge imposed on a cardholder by a card issuer is a finance charge, regardless of whether the issuer imposes the same, greater, or lesser charge on withdrawals of funds from an asset account such as a checking or savings account. The Board noted that it was not revising comment 4(b)(2)-1, which states that if a checking or transaction account charge imposed on an account with a credit feature does not exceed the charge for an account without a credit feature, the charge is not a finance charge. The Board further noted that comment 4(b)(2)-1 addresses different situations as comment 4(a)-1, as discussed below in the section-by-section analysis of Sec. 1026.4(b)(2).

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      \364\ 74 FR 5244, 5263 (Jan. 29, 2009).

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      The Bureau proposes to add two new examples to this comment to provide guidance on how this comment applies to prepaid cards that are credit cards and to account numbers that are credit cards where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor. In particular, proposed comment 4(a)-4.iii would provide that any transaction charge imposed on a cardholder by a card issuer for credit accessed by a prepaid card that also is a credit card is a finance charge regardless of whether the card issuer imposes the same, greater or lesser charge on the withdrawal of funds from a prepaid account. For example, assume a prepaid card issuer charges $15 for each transaction accessing credit with a prepaid card. This $15 fee would be a finance charge regardless of whether the prepaid card issuer charges the same, greater or lesser fee to the consumer to access funds in the prepaid account using the prepaid card.

      In addition, proposed comment 4(a)-4.iv would provide that any transaction charge imposed on a cardholder by a card issuer for credit accessed by an account number that is a credit card where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor is a finance charge regardless of whether the card issuer imposes the same, greater or lesser charge on the withdrawal of funds from a prepaid account. For example, assume a card issuer charges a $15 fee each time a consumer uses an account number to access credit that is deposited into a prepaid account where extensions of credit are permitted to be deposited directly only into particular prepaid accounts specified by the creditor. This $15 fee is a finance charge regardless of whether the card issuer charges the same, greater or lesser fee to the consumer to access funds in the prepaid account using a prepaid card.

      4(b) Examples of Finance Charges

      4(b)(2)

      Section 1026.4(b) provides examples of the types of charges that are finance charges, except if those charges are specifically excluded under Sec. 1026.4(c) through (e). In particular, Sec. 1026.4(b)(2) provides that examples of finance charges generally include service, transaction, activity, and carrying charges. However, the Board added a partial exception to this example stating that for any charge imposed on a checking or other transaction account, such service or transaction account charge is only a finance charge to the extent that the charge exceeds the charge for a similar account without a credit feature. Comment 4(b)(2)-1 similarly provides that a checking or transaction account charge imposed in connection with a credit feature is a finance charge under Sec. 1026.4(b)(2) to the extent the charge exceeds the charge for a similar account without a credit feature. If a charge for a checking or transaction account with a credit feature does not exceed the charge for an account without a credit feature, the charge is not a finance charge under Sec. 1026.4(b)(2).\365\

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      \365\ To illustrate: A $5 service charge is imposed on a checking or transaction account with an overdraft line of credit (wher