WASHINGTON—CUNA is asking the CFPB to limit the impact on credit unions from new regulatory requirements the bureau is proposing for prepaid cards.
Many analysts believe the issue if far larger than just prepaid cards, and are expressing strong concerns that the CFPB’s proposed rules, which would re-categorize overdrafts as a loan, will eventually extend to checking and force FIs to eliminate overdrafts, putting free checking in jeopardy. CUToday.info is publishing a series called “Checking on Checking” that is examining this very issue.
Focusing on how the proposed rules could negatively affect CUs, and their ability to serve the underserved, Luke Martone, CUNA senior director of advocacy and counsel in a letter outlined key areas of concern.
In addition to the new rules adding more compliance burden, Martone stated that CUNA is concerned “there are several aspects of the proposal that would be ineffective and/or counterproductive. We urge the agency to limit any new regulatory requirements on credit unions that offer prepaid accounts, so that such accounts remain accessible, especially by the underserved."
Reg E Not Appropriate Here
The proposal would apply the Federal Reserve's Regulation E, which provides a basic framework of rights, liabilities and responsibilities of those involved in electronic funds transfer systems, to prepaid accounts. While CUNA stated it supports safe and transparent disclosures and appropriate consumer protections, it is concerned that applying Regulation E to prepaid accounts may not be appropriate.
The trade association pointed out that the Federal Reserve Board decided against applying its payroll cards final rule under Regulation E to prepaid cards in 2006, deciding that it would result in limited consumer benefit alongside potentially significant compliance costs for card issuers.
"We share the Board's concerns that additional Regulation E requirements would impose additional compliance costs to issue prepaid cards, which are likely not the consumer's principal transaction account," Martone wrote.
Undue Expense
CUNA's outreach efforts during the comment period found roughly 800 credit unions that offer prepaid accounts—a fast-growing market—and the majority of those offer prepaid cards through a third-party vendor relationship.
"Even in instances where the third-party will update initial and other disclosures, it is the credit union that will continue to bear ultimate responsibility for ensuring compliance with these disclosures as well as all other consumer protections provided under Regulation E," stated Martone.
CUNA also strongly opposes the part of the proposal that would require financial institutions to disclose up to three incidence-based fees, the most frequently incurred during the previous 12 months, and those disclosures must be updated each year if changes are needed.
"We believe this will cause credit unions to incur undue expense in attempting to comply," Martone explained. "Since a prepaid account is typically short-lived, the annual assessment will likely not have a large enough base of mature accounts to provide a financial institution with a valid perspective of the most common fees."