Last week, the Consumer Financial Protection Bureau released an Advance Notice of Proposed Rulemaking (ANPR) on the subject of general purpose reloadable (GPR) cards. In the ANPR, the Bureau announced that it plans to issue a proposal to extend Regulation E to cover GPR cards. The ANPR poses a series of questions and gives the public an opportunity to submit comments. Comments must be received by July 23, 2012.
To begin, the ANPR requests comment on Regulation E coverage. First, the Bureau seeks input on an appropriate definition of “GPR card.” In addition to seeking guidance on a basic definition, the Bureau asks whether certain prepaid products, such as “university cards or health spending cards,” should be excluded from coverage. Second, the Bureau asks which parts of Regulation E it should apply to GPR cards. Not all products subject to Regulation E are subject to the exact same provisions; for example, as noted in the ANPR, payroll cards are subject to a slightly modified set of Regulation E requirements, often called “Reg E Lite.” The Bureau asks commenters to discuss whether a modified version of Regulation E should apply to GPR cards (Reg E Lite or a different modified version) and whether there are any “alternative protections or requirements” that the Bureau should propose.
Next, the ANPR asks questions about product fees and disclosures. First, the Bureau requests general input regarding how to ensure that consumers are provided with “transparent, useful, and timely fee disclosures.” In particular, the Bureau asks whether disclosures should be required pre-sale, post-sale, or both. Second, the Bureau requests comment on how to enable consumers to compare different GPR cards and other payment products. Given the limited space on a GPR card to disclose the terms, the Bureau would like suggestions on how card issuers should communicate the most important terms to consumers so that consumers can make an educated decision about whether to purchase the card. It appears that the Bureau might be evaluating whether to adopt an analogue to the “Schumer Box” for GPR cards. Finally, the Bureau asks whether the existence or lack of pass-through FDIC insurance should be disclosed to consumers, and if so, how it should be disclosed. Thus, at present, the Bureau appears to be focused on requiring disclosure rather than requiring pass-through FDIC insurance for all GPR cards.
The ANPR then turns its attention to product features, requesting input on “the costs, benefits, and consumer protection issues” associated with credit features (such as “overdraft” features) and savings features that may be offered in connection with GPR cards. The Bureau also asks for information regarding the effectiveness and marketing of GPR card features that claim to provide cardholders with an opportunity to build or improve credit.
Finally, the ANPR asks how and when market participants communicate information, such as changes in contract terms, to cardholders. The Bureau also requests information relevant to the cost of regulatory compliance (including, but not limited to, information regarding inventory replacement cycles and systems maintenance). In conclusion, the Bureau asks for any other relevant information that the Bureau should consider as it formulates its proposal.
Thus, it appears that the Bureau has made a more-or-less final decision to extend at least some Regulation E protections to GPR cards. While the ANPR asks for input regarding the scope and nature of the Regulation E coverage, the Bureau never asks whether it would be advisable to apply Regulation E to GPR cards at all. Card issuers and other market participants should seriously consider taking advantage of the opportunity to submit comments that may inform the rulemaking process. With regard to disclosures intended to enable consumers to compare different cards, implementing a single point of comparison may prove to be difficult and not necessarily beneficial to consumers. GPR cards appeal to consumers for different reasons and are used for a variety of purposes. Depending on how a consumer intends to use a card, different terms and conditions may be more or less important. Along the same lines, requiring compliance with certain requirements could impede innovation, to the detriment of consumers. Finally, it will be essential for the Bureau to consider whether possible benefits to consumers might be outweighed by burdens on the industry and the effect on competition. In order for the Bureau to make this assessment, the industry will need to provide comprehensive information about the costs of compliance.
K&L Gates is available to assist in the preparation of comment letters.