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CFPB finalizes prepaid rules

The Consumer Financial Protection Bureau finalizedprepaid account rulesthat would require financial institutions to limit consumer losses on stolen orlost cards, resolve reported transaction errors, and give consumers free andeasy access to account information.

The new rule also finalized new "Know Before YouOwe" disclosures that would clarify fees and other key details associatedwith a prepaid account.

The rule extends credit card protections from the FederalReserve's RegulationE to prepaid accounts, which include traditional prepaid cards andelectronic products such as mobile wallets and person-to-person paymentaccounts.

"Many of these products lacked strong consumerprotections under federal law," CFPB Director Richard Cordray said on aconference call. "Our new rule closes loopholes and protects prepaidcustomers."

Under the new rule, consumer liability would be capped at$50 if a prepaid card is lost or stolen and used for unauthorized transactions.If a consumer hasn't lost the card but wants to resolve unauthorized charges orerrors on their accounts, financial institutions will now be required to creditthe disputed amount to the user's account while investigating the issue.

The CFPB also included a set of disclosure protections thatwould force prepaid account issuers to publish one short and one long"easy-to-understand" disclosure that would be standardized by theregulator's "Know Before You Owe" template currently used formortgages and student financial aid offers. 

Since many prepaid products also allow the extension of somecredit, the CFPB will expand protections from the Truth in Lending Act and theCredit Card Accountability Responsibility and Disclosure Act, such as requiringthe prepaid account issuer to check for the ability to pay. The rule also capstotal fees for credit features at 25% of the credit limit. 

The rule also partitions prepaid funds and credit repaymenton a given prepaid account by prohibiting financial institutions from payingoff existing credit debt from reloaded funds.

The CFPB said the total amount stored in prepaid accountsgrew from less than $1 billion in 2003 to nearly $65 billion in 2012, when theagency launched its initialnotice of proposal rulemaking on the issue. By 2018, Cordray said,prepaid accounts are expected to hold about $112 billion.

"These new important protections fill gaps in the lawfor consumers," he said. "The rapidly growing ranks of prepaid usersdeserve a safe place to store their money and a practical way to carry outtheir financial transactions."

The new rule will be applied to prepaid accounts Oct. 1,2017. Prepaid account issuers will have to submit agreements to the CFPB byOctober 2018.