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CFPB’s Delay in Announcing Further Delay of the Prepaid Card Rule

The Consumer Financial Protection Bureau has issued a brief press announcement that the Prepaid Card Rule would be further revised and that the effective date for compliance will be further postponed from the current deadline in April 2018.

The announcement creates more worry than relief – it’s just a tease. The announcement did not say what changes would be made or when the new deadline will be. It only said that amendments to “certain aspects” of the rule would be coming “soon after the new year.”  No doubt the Bureau meant for this announcement to be helpful to someone, but it is not clear if anyone is actually helped.

Prepaid card issuers are scrambling to implement the systems changes and new business processes necessary to support the sweeping changes required by the rule. With this announcement, they must now wonder which of those efforts will turn out to be wasted, or perhaps need to be re-worked, and they can’t pause pursuing any specific implementation efforts until the actual amendments are published. Are they supposed to trust that the extra time to be allowed by the CFPB will be sufficient to accommodate this pivot?

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New Regs Will Change How Colleges Offer Bank Accounts to Students

On October 30, 2015, the Department of Education issued regulations to impose requirements on the marketing and terms of deposit and prepaid accounts offered to students at educational institutions that participate in Federal student aid programs. According to the DOE, the regulations are intended to ensure that students have convenient access to their title IV, Higher Education Act program funds, do not incur unreasonable and uncommon account fees on their title IV funds, and are not led to believe that they must open a particular financial account to receive Federal student aid. Most of these new rules take effect on July 1, 2016.

On December 16, the CFPB published a Safe Student Account Toolkit “to help colleges evaluate whether to co-sponsor a prepaid or checking account with a financial institution.” The Toolkit includes a Scorecard that can be used by schools when selecting a third-party vendor for student accounts and an Administrator Handbook designed to help school administrators gather relevant information to review, compare and evaluate accounts offered by different financial institutions.

The CFPB’s Toolkit provides guidance on the new DOE regulations, but with a focus on those provisions that are designed to protect students. The CFPB can bring and has brought enforcement actions against colleges under federal consumer protection laws. Their issuing of the Toolkit should be understood as a warning that they also will be enforcing the consumer protection portions of the DOE rules, though perhaps under their unfair, deceptive and abusive practices statute.

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Welcome to 2015: Another Big Year for Consumer Financial Services Regulation

As we begin 2015, it is worth noting the various federal regulations that will or might take effect. This article summarizes the key regulations that took effect late in 2014, that will take effect in 2015, and that have at least some potential of taking effect in 2015. We focus here on those regulations directly impacting consumer financial services.

Rules Taking Effect in 2015 (and Late 2014)

Integrated Disclosures under the Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z)

Perhaps the most significant new consumer regulations to take effect in 2015 are the integrated disclosure regulations under the Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z) (the Final Integrated Disclosure Rule). Released on November 20, 2013, by the CFPB, the Final Integrated Disclosure Rule will be effective on August 1, 2015. 78 Fed.Reg. 79730, December 31, 2013. For loan applications received prior to August 1, 2015, the existing Regulation X and Regulation Z rules would apply and, for loan applications received on or after August 1, 2015, the new disclosure requirements would apply.

The Final Integrated Disclosure Rule consolidated the RESPA and TILA initial disclosures, and the RESPA and TILA loan closing disclosures for most closed-end consumer mortgage transactions, resulting in a single Loan Estimate disclosure and a single Closing Disclosure. The new rules do not apply to home equity lines of credit, reverse mortgages, or loans secured by a mobile home or other dwelling that is not attached to real property.

Countless articles and seminars have provided details of the Final Integrated Disclosure Rule, and vendors have stepped into the breach to provide the forms and systems needed to create new disclosures. This article therefore does not address the new Integrated Disclosure Rules in detail. However, a proposal issued on October 10, 2014, (the “October Proposal”) should be noted.

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CFPB Warns Employers Against Mandatory Use of Payroll Cards

While Employers Can Mandate Electronic Direct Deposit, Employers Are Prohibited From Requiring the Use of a Specific Payroll Card Selected by the Employer.

On September 12, 2013, the Consumer Financial Protection Bureau (“CFPB”) published Bulletin 2013-10 (“Bulletin”) establishing that any “financial institution or other person” is prohibited from requiring that an employee receive wages only on a payroll card issued a particular financial institution of the employer’s choosing, based on the application of federal law to payroll card accounts. In particular, the Bulletin affirms that the Electronic Fund Transfer Act (“EFTA”) and its implementing regulation Regulation E (“Reg E”), prohibit mandatory payment of wages through a payroll card issued by a particular financial institution. Although “Regulation E permits an employer to require direct deposit of wages by electronic means,” the employee must be “allowed to choose the institution that will receive the direct deposit.” The CFPB explicitly states, however, that employers may offer employees “the choice of receiving their wages on a payroll card or receiving it by some other means.” (emphasis added). According to the Bulletin, “payroll card accounts” refer to those “accounts that are established directly or indirectly through an employer, and to which transfers of the consumer’s salary, wages, or other employee compensation are made on a recurring basis.”

The CFPB’s Bulletin was issued following reports that New York State Attorney General Eric Schneiderman was investigating some of the nation’s largest employers in connection with their payroll card programs.

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Payments Team Presents on 2012 Year in Review


The Bryan Cave Payments Team recently held a webinar providing an overview of major legal and regulatory events impacting both open and closed looped credit cards and other emerging payments.

Topics included a review of key Consumer Financial Protection Bureau activities for prepaid and payments; new regulatory concerns and open issues for 2013 from FinCEN on anti-money laundering issues; an update on FinCen’s cross-border reporting regulation for prepaid cards; an update on the “Durbin Amendment,” including effective dates on routing restrictions; a 2012 bank regulatory overview; recent trends in social media, mobile products, E-sign and PCI DSS in privacy and data security; and new developments in retail and reward cards, including abandoned property and consumer protection issues.

Presenters included Judith Rinearson (New York), John ReVeal (Washington, D.C.), Linda Odom (Washington, D.C.), Kristine Andreassen (Washington, D.C.) and Margo Strahlberg (Chicago). The full presentation is available online, and the slides themselves are also available online.

Bryan Cave’s Prepaid and Emerging Payments Team provides legal counsel and advice on a broad range of payment-related issues including prepaid and stored value, mobile and contactless payments, bank regulatory compliance, money services business (MSB) compliance, electronic wallets and P2P payments, anti-money laundering compliance, bill payment, overdraft and lines of credit, retail gift cards, abandoned property, money transmitter licensing, privacy and data security, patents and intellectual property and litigation strategy and defense.

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Illinois Orders Six Unlicensed Money Transmitters to Cease & Desist

The Illinois Department of Financial & Professional Regulation recently released five cease and desist orders from January 2013 against six entities charging each with unlicensed activities under the state’s Transmitters of Money Act. These six entities offer a variety of services in Illinois, including domestic and international money transfer, bill payment services and prepaid cards.

One of these companies, Square, Inc. is described in its order as providing “mobile card reading devices for the express purpose of transmitting money,” providing iPhone and Android apps to Illinois consumers “for the express purpose of transmitting money” through those devices and selling and issuing “digital gift cards to Illinois consumers for the express purpose of purchasing items from designated vendors on Square’s Website.”

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CFPB Focusing on General Purpose Reloadable Prepaid Cards

As a precursor to further regulation of general purpose reloadable (GPR) cards, the Consumer Financial Protection Bureau (CFPB) is seeking responses to 10 questions before July 23, 2012.

The CFPB recently released an advance notice of proposed rulemaking (ANPR) seeking comments, data and information regarding GPR cards, including questions regarding costs, benefits and risks to consumers. The ANPR is the first step in the long-anticipated process of regulation by the CFPB over “open loop” or “general use” prepaid cards.

While the ANPR specifically discusses “cards,” other mechanisms that access a prepaid financial account are also encompassed, including key fobs and cell phone apps. The ANPR is focused on GPR cards which the CFPB defines loosely as a general use prepaid card “issued for a set amount in exchange for payment made by a consumer” that is reloadable by the consumer, “meaning the consumer can add funds to the card.”  The ANPR is not seeking information about corporate-funded cards, closed-loop prepaid cards, traditional debit cards, non-reloadable cards, payroll cards, EBT cards or gift cards.

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Prepaid & Emerging Payments Year in Review

Looking back at 2011, on Wednesday, January 25, 2012, from 2:00 to 3:30 pm EST, the Bryan Cave Payments Team has prepared a “Prepaid Card in Reviewwebinar for Bryan Cave clients and friends.  In addition to an overview of major legal and regulatory events impacting both open and closed loop cards, the Team will offer their views on likely future developments.

We will provide an overview of major legal and regulatory events impacting both open and closed loop cards and other emerging payments, including:

  • The “Durbin Amendment” and the subsequent FAQs from the Fed
  • Prepaid Access AML regulations
  • The CFPB – Current activity and the recess appointment of Richard Cordray
  • Abandoned Property – the implications of the New Jersey abandoned property legislation and the recent Third Circuit Opinion
  • Consumer Protection Laws – Life after the CARD Act.
  • Remote Deposit Capture – Check Cashing or Deposit Taking?  Current Views.
  • Preemption post Dodd-Frank – recent decisions.  Is preemption “dead”?
  • Money Transmitter Licensing – Why so many new payment companies are getting licensed: The pros, the cons, and the risks.
  • Privacy and Data Security – Are Prepaid & Emerging Payments riskier or safer than traditional payment products?
  • Mergers & Acquisitions in the Payments Area – Risks and rewards from acquisitions of licensed money transmitters.

The slides for this webinar are now online.

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FinCEN issues Proposed Rulemaking Regarding Cross-Border Reporting of Prepaid Cards

FinCEN has released a proposed rulemaking that would require consumers holding prepaid cards that aggregate to more than $10,000 in value, to report such prepaid cards when crossing into or out of the U.S., in the same way they currently report cash, travelers checks and other monetary instruments. The notice of proposed rulemaking (NPRM) would add “tangible prepaid access devices” to the list of currency and monetary instruments that must be reported when transported, mailed or shipped into or out of the United States in aggregate amounts over $10,000.

Currently persons crossing into or out of the US must report cash and monetary instruments exceeding $10,000, using FinCEN Form 105, the Report of International Transportation of Currency or Monetary Instruments known as the “CMIR” form. The NPRM’s inclusion of tangible prepaid access devices as a type of monetary instrument applies only to the $10,000 CMIR filing obligation; it does not extend to other requirements, such as the $3,000 recordkeeping requirement applicable to monetary instruments.

Interestingly, however, the NPRM also acknowledges that FinCEN is only authorized to extend CMIR reporting to items similar to U.S. currency based on the legislative purpose behind BSA reporting, that is to facilitate “the traceability of currency and its equivalents and eliminating anonymous international flows of money.” To the extent prepaid cards are not the equivalent to currency, and do not provide for “anonymous international flows of money” arguably the extension of CMIR reporting should not apply.

This proposal appears to have only a limited direct impact on prepaid card issuers and program managers. However, it will impact cardholders directly, possibly with negative consequences for customer experience and satisfaction. The proposal may result in holders of prepaid cards feeling discriminated against and/or stigmatized as compared to holders of debit and credit cards, who do not need to report their associated funds nor their access to lines of credit. It may also result in increased inquiries from law enforcement to designated providers of prepaid access and/or issuing banks about the value of specific cards crossing the border as well as increased website traffic and calls to customer service from individuals checking card balances to determine whether reporting is required and for what amount.

What is a “tangible prepaid access device”?

The term “tangible prepaid access device” is defined as “any physical item that can be transported, mailed, or shipped into or out of the United States and the use of which is dedicated to obtaining access to prepaid funds or the value of funds by the possessor in any manner without regard to whom the prepaid access is issued.” (Emphasis added.) The value of a tangible prepaid access device for reporting purposes would be the amount of funds available to which the device provides access, at the time it is transported, mailed or shipped.

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FinCEN Extends Compliance Date for Many Aspects of Prepaid Access Rule

The Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) announced on September 9, 2011, that it is extending the compliance date for most aspects of its final rule on prepaid access (the Final Rule). The Final Rule, which was published on July 29, 2011, was set to go into effect on September 27.

Compliance Date for Sellers of Prepaid Access Extended Until March 31, 2012

The provisions of the Final Rule applicable to “sellers of prepaid access” (Sellers) will become effective March 31, 2012. FinCEN states it received compelling information from the industry on the compliance challenges faced by Sellers, given that the Final Rule’s original effective date coincides with the back-to-school season and the beginning of the holiday shopping season. Many retailers impose a “lockdown” on their IT systems at this time of year, to accommodate peak retail sales and consumer traffic, which prevents any systems changes until the close of the holiday season in late January.

Compliance Date for Providers of Prepaid Access Remains Sept. 27, 2011 In Part; Extended Until March 31, 2012 In Part 

Some provisions of the Final Rule applicable to “providers of prepaid access” (Providers) still become effective Sept. 27, 2011; other provisions are extended until March 31, 2012. By Sept. 27, Providers must:

  • Develop an anti-money laundering (AML) compliance program that is risk-based and commensurate with the location, size, and types of financial services offered. (As required by 31 CFR 1022.210(a) and (b).)
  • Report suspicious transactions. (31 CFR 1022.320.)
  • Maintain transactional records related to prepaid access. (31 CFR 1022.420.)

Compliance with all other aspects of the Final Rule for Providers is extended until March 31, 2012.

FinCEN notes that in addition to preparing their own systems for compliance with the Final Rule, Providers may also need to negotiate new contracts with their distributors and retailers in order to clarify the status of their products under the Final Rule. However, FinCEN states it has learned that Providers are differently situated than Sellers, and some are currently capable of complying with the three basic requirements listed above. In fact, FinCEN believes many aspects of the Final Rule are already common business practices for Providers, and thus they will be able to comply with those aspects of the Final Rule by the original effective date of Sept. 27.

No Enforcement Prior to March 31, 2012

FinCEN states that for both Providers and Sellers, it will not initiate any compliance matter or enforcement action prior to March 31, 2012 for violations of the Final Rule, nor will it assess any civil money penalties for violations that occur prior to March 31, 2012.

FinCEN’s announcement of this administrative relief is available at http://fincen.gov/whatsnew/html/20110909.html.

Our previous client alert on the Final Rule may be viewed at http://www.bankbryancave.com/2011/09/fincen-issues-final-rule-on-prepaid-access/

If you have any questions or would like more information about FinCEN’s prepaid access Final Rule, please contact Kris Andreassen or Judie Rinearson.

Kristine M. Andreassen
Bryan Cave LLP
1155 F Street NW
Washington, DC 20004
(202)508-6117 phone
(202) 220-7417 fax
Judith Rinearson
Bryan Cave LLP
1290 Avenue of the Americas
New York, NY 10404
(212) 541-1135 phone
(212) 541-1385 fax
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