ABA to CFPB: Objective Definition of ‘Prepaid Account’ Is Necessary

Noting that numerous compliance challenges remain, the American Bankers Association today welcomed the Consumer Financial Protection Bureau’s proposal to delay the implementation of its final rule on prepaid products for six months. The proposal would delay the compliance date to April 1, 2018.

However, ABA warned that the rule still requires significant adjustment to ensure banks can confidently offer checking and prepaid accounts without liability risk. ABA urged the bureau to adopt a more objective definition of “prepaid account” as any product marketed or labeled as a prepaid account or card, rather than the more subjective approach of saying it “is not a checking account, share draft account or [NOW] account.”

“Absent a usable distinction, banks face unfair and significant compliance risk and liability for inadvertent violations if an examiner or plaintiffs’ lawyer asserts that the bank’s checking account should be treated as a prepaid account and subject to the related disclosures and restrictions of the rule,” ABA said, adding that greater specificity would provide greater protection from civil liability.

ABA also noted that the lack of specificity in the final rule calls into question whether “model safe accounts,” which the bureau encourages banks to offer and which lack a paper check feature, are covered by the prepaid final rule. This regulatory ambiguity could discourage banks from offering these checkless checking accounts and inhibit further innovation in financial services for the underbanked. For more information, contact ABA’s Nessa Feddis.