Prepaid Accounts Under the Electronic Fund Transfer Act (Regulation E) and the Truth In Lending Act (Regulation Z), 83934-84387 [2016-24503]

Agencies

• BUREAU OF CONSUMER FINANCIAL PROTECTION

[Federal Register Volume 81, Number 225 (Tuesday, November 22, 2016)]
[Rules and Regulations]
[Pages 83934-84387]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-24503]



[[Page 83933]]

Vol. 81

Tuesday,

No. 225

November 22, 2016

Part II

Book 2 of 2 Books

Pages 83933-84388





 Bureau of Consumer Financial Protection





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12 CFR Parts 1005 and 1026



 Prepaid Accounts Under the Electronic Fund Transfer Act (Regulation E) 
and the Truth In Lending Act (Regulation Z); Final Rule

Federal Register / Vol. 81 , No. 225 / Tuesday, November 22, 2016 / 
Rules and Regulations

[[Page 83934]]


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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Parts 1005 and 1026

[Docket No. CFPB-2014-0031]
RIN 3170-AA22


Prepaid Accounts Under the Electronic Fund Transfer Act 
(Regulation E) and the Truth In Lending Act (Regulation Z)

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Final rule; official interpretations.

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SUMMARY: The Bureau of Consumer Financial Protection (Bureau or CFPB) 
is issuing this final rule to create comprehensive consumer protections 
for prepaid accounts under Regulation E, which implements the 
Electronic Fund Transfer Act; Regulation Z, which implements the Truth 
in Lending Act; and the official interpretations to those regulations. 
The final rule modifies general Regulation E requirements to create 
tailored provisions governing disclosures, limited liability and error 
resolution, and periodic statements, and adds new requirements 
regarding the posting of account agreements. Additionally, the final 
rule regulates overdraft credit features that may be offered in 
conjunction with prepaid accounts. Subject to certain exceptions, such 
credit features will be covered under Regulation Z where the credit 
feature is offered by the prepaid account issuer, its affiliate, or its 
business partner and credit can be accessed in the course of a 
transaction conducted with a prepaid card.

DATES: This rule is effective on October 1, 2017, except for the 
addition of Sec.  1005.19(b), which is delayed until October 1, 2018.

FOR FURTHER INFORMATION CONTACT: Jane Raso, Yaritza Velez, and Shiri 
Wolf, Counsels; Kristine M. Andreassen, Krista Ayoub, and Marta I. 
Tanenhaus, Senior Counsels, Office of Regulations, at (202) 435-7700.

SUPPLEMENTARY INFORMATION: 

I. Summary of the Final Rule

    Regulation E implements the Electronic Fund Transfer Act (EFTA), 
and Regulation Z implements the Truth in Lending Act (TILA). On 
November 13, 2014, the Bureau issued a proposed rule to amend 
Regulations E and Z, which was published in the Federal Register on 
December 23, 2014 (the proposal or the proposed rule).\1\ The Bureau is 
publishing herein final amendments to extend Regulation E coverage to 
prepaid accounts and to adopt provisions specific to such accounts, and 
to generally expand Regulation Z's coverage to overdraft credit 
features that may be offered in conjunction with prepaid accounts. The 
Bureau is generally adopting the rule as proposed, with certain 
modifications based on public comments and other considerations as 
discussed in detail in part IV below. This final rule represents the 
culmination of several years of research and analysis by the Bureau 
regarding prepaid products.
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    \1\ 79 FR 77102 (Dec. 23, 2014). See also Press Release, CFPB, 
CFPB Proposes Strong Federal Protections for Prepaid Products (Nov. 
13, 2014), available at https://www.consumerfinance.gov/newsroom/cfpb-proposes-strong-federal-protections-for-prepaid-products. The 
Bureau had previously published an advance notice of proposed 
rulemaking (Prepaid ANPR) that posed a series of questions for 
public comment about how the Bureau might consider regulating GPR 
cards and other prepaid products. 77 FR 30923 (May 24, 2012).
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    Scope. The final rule's definition of prepaid accounts specifically 
includes payroll card accounts and government benefit accounts that are 
currently subject to Regulation E. In addition, it covers accounts that 
are marketed or labeled as ``prepaid'' that are redeemable upon 
presentation at multiple, unaffiliated merchants for goods or services, 
or that are usable at automated teller machines (ATMs). It also covers 
accounts that are issued on a prepaid basis or capable of being loaded 
with funds, whose primary function is to conduct transactions with 
multiple, unaffiliated merchants for goods or services, or at ATMs, or 
to conduct person-to-person (P2P) transfers, and that are not checking 
accounts, share draft accounts, or negotiable order of withdrawal (NOW) 
accounts.
    The final rule adopts a number of exclusions from the definition of 
prepaid account, including for gift cards and gift certificates; 
accounts used for savings or reimbursements related to certain health, 
dependent care, and transit or parking expenses; accounts used to 
distribute qualified disaster relief payments; and the P2P 
functionality of accounts established by or through the United States 
government whose primary function is to conduct closed-loop 
transactions on U.S. military installations or vessels, or similar 
government facilities.
    Pre-acquisition disclosures. The final rule establishes pre-
acquisition disclosure requirements specific to prepaid accounts. Under 
the final rule, financial institutions must generally provide both a 
``short form'' disclosure and a ``long form'' disclosure before a 
consumer acquires a prepaid account. The final rule provides guidance 
as to what constitutes acquisition for purposes of disclosure delivery; 
in general, a consumer acquires a prepaid account by purchasing, 
opening, or choosing to be paid via a prepaid account. The final rule 
offers an alternative timing regime for the delivery of the long form 
disclosure for prepaid accounts acquired at retail locations and by 
telephone, provided certain conditions are met. For this purpose, a 
retail location is a store or other physical site where a consumer can 
purchase a prepaid account in person and that is operated by an entity 
other than the financial institution that issues the prepaid account.
    The short form disclosure sets forth the prepaid account's most 
important fees and certain other information to facilitate consumer 
understanding of the account's key terms and comparison shopping among 
prepaid account programs. The long form disclosure, on the other hand, 
provides a comprehensive list of all of the fees associated with the 
prepaid account and detailed information on how those fees are 
assessed, as well as certain other information about the prepaid 
account program. The final rule also adopts specific content, form, and 
formatting requirements for both the short form and the long form 
disclosures.
    The first part of the short form contains ``static'' fees, setting 
forth standardized fee disclosures that must be provided for all 
prepaid account programs, even if such fees are $0 or if they relate to 
features not offered by a particular program. The second part provides 
information about some additional types of fees that may be charged for 
that prepaid account program. This includes a statement regarding the 
number of additional fee types the financial institution may charge 
consumers; they must also list the two fee types that generate the 
highest revenue from consumers (excluding certain fees, such as those 
that fall below a de minimis threshold) for the prepaid account program 
or across prepaid account programs that share the same fee schedule. 
The final part of the short form provides certain other key 
information, including statements regarding registration and Federal 
Deposit Insurance Corporation (FDIC) deposit or National Credit Union 
Administration (NCUA) share insurance eligibility, and whether an 
overdraft credit feature may be offered in conjunction with the 
account. In addition, the final rule requires that short form 
disclosures for payroll card accounts and government benefit

[[Page 83935]]

accounts include, at the top of the form, a statement regarding 
alternative wage or benefit payment options.
    The long form disclosure, in contrast, sets forth in a table all of 
the prepaid account's fees and their qualifying conditions, as well as 
certain other information about the prepaid account program. This 
includes, for example, more detailed information regarding FDIC or NCUA 
insurance eligibility and a separate disclosure for the fees associated 
with any overdraft credit feature that may be offered in conjunction 
with the prepaid account.
    The final rule includes several model short form disclosures that 
offer a safe harbor to the financial institutions that use them, 
provided that the model forms are used accurately and appropriately. 
The final rule also includes one sample long form disclosure as an 
example of how financial institutions might choose to structure this 
disclosure.
    The final rule also includes requirements to disclose certain 
information such as any purchase price or activation fee outside, but 
in close proximity to, the short form disclosure; disclosures required 
to be printed on the prepaid card itself; and short form and long form 
disclosure requirements for prepaid accounts with multiple service 
plans.
    The final rule requires financial institutions to provide pre-
acquisition disclosures in a foreign language if the financial 
institution uses that same foreign language in connection with the 
acquisition of a prepaid account in certain circumstances. The 
financial institution also must provide the long form disclosure in 
English upon a consumer's request and on its Web site where it 
discloses this information in a foreign language.
    Access to account information. The final rule adopts an alternative 
to Regulation E's periodic statement requirement that permits financial 
institutions to make available to consumers certain methods for 
accessing information about their prepaid accounts in lieu of sending 
periodic statements. The final rule also adopts a requirement that 
financial institutions provide summary totals of the fees they have 
assessed against the prepaid account on a monthly and annual basis.
    Limited liability and error resolution, including provisional 
credit. The final rule extends Regulation E's limited liability and 
error resolution requirements to all prepaid accounts, regardless of 
whether the financial institution has completed its consumer 
identification and verification process with respect to the account, 
but does not require provisional credit for unverified accounts. Once 
an account has been verified, the financial institution must comply 
with the provisional credit requirements, for both errors that occur 
prior to and after account verification, within the provisional credit 
timeframe.
    Submission and posting of prepaid account agreements. Under the 
final rule, prepaid account issuers must submit their prepaid account 
agreements to the Bureau. The final rule also requires that prepaid 
account issuers publicly post on their own Web sites prepaid account 
agreements that are offered to the general public. Financial 
institutions must make any agreements not posted on their own Web sites 
available upon request for consumers who have prepaid accounts under 
those agreements.
    Remittance transfers. The final rule makes several revisions to the 
rules governing remittance transfers in subpart B of Regulation E that 
are intended to continue the current application of those rules to 
prepaid products. Specifically, they clarify that for prepaid accounts 
other than payroll card accounts and government benefit accounts, the 
location of these accounts does not determine where funds are being 
sent to or from for purposes of application of the rules in subpart B. 
They also clarify that the temporary exception allowing insured 
institutions to use estimates when providing certain disclosures does 
not apply to prepaid accounts, unless the prepaid account is a payroll 
card account or government benefit account.
    Overdraft credit features. The final rule amends Regulations E and 
Z generally to regulate prepaid accounts that offer overdraft credit 
features. Specifically, the final rule generally covers under 
Regulation Z's credit card rules any credit feature offered in 
conjunction with a prepaid account where the credit feature is offered 
by the prepaid account issuer, its affiliate, or its business partner 
and credit can be accessed in the course of a transaction conducted 
with the prepaid card to obtain goods or services, obtain cash, or 
conduct P2P transfers. The final rule generally requires that such 
credit features be distinct from the asset portion of the prepaid 
account--structured as a separate credit account or a credit sub-
account to the asset account--to facilitate transparency and compliance 
with various Regulation Z requirements. The final rule uses the term 
``hybrid prepaid-credit card'' to refer to a prepaid card that can 
access both an overdraft credit feature that is subject to the 
Regulation Z credit card rules and the asset portion of a prepaid 
account.
    An issuer may not extend credit via a negative balance on the 
prepaid account except in several limited circumstances where the 
credit is incidental and the issuer generally does not charge credit-
related fees for that credit; in these circumstances, the incidental 
credit is not subject to Regulation Z. These exceptions for incidental 
credit cover situations where the issuer has a general established 
policy and practice of declining to authorize transactions when the 
consumer has insufficient or unavailable funds to cover the transaction 
but credit is nonetheless extended as a result of so-called ``force 
pay'' transactions, transactions that will not take the account 
negative by more than $10 (i.e., a de minimis ``purchase cushion''), or 
certain transactions that are conducted while incoming deposits to the 
prepaid account are pending.
    The final rule's provisions regarding hybrid prepaid-credit cards 
are largely housed in new Regulation Z Sec.  1026.61. To effectuate 
these provisions and provide compliance guidance to industry, the final 
rule also amends certain other existing credit card provisions in 
Regulation Z. The final rule does not adopt the proposal's provisions 
that would have made certain account numbers into credit cards where 
the credit could only be deposited directly to particular prepaid 
accounts specified by the creditor.
    The final rule subjects overdraft credit features accessible by 
hybrid prepaid-credit cards to various credit card rules under 
Regulation Z. For open-end products, this includes rules restricting 
certain fees charged in the first year after account opening, 
limitations on penalty fees, and a requirement to assess a consumer's 
ability to pay. In addition, the final rule requires issuers to wait at 
least 30 days after a prepaid account is registered before soliciting a 
consumer to link a covered credit feature to the prepaid account and to 
obtain consumer consent before linking such a credit feature to a 
prepaid account. The final rule permits issuers to deduct all or a part 
of the cardholder's credit card debt automatically from the prepaid 
account or other deposit account held by the card issuer no more 
frequently than once per month, pursuant to a signed, written 
authorization by the cardholder to do so, and requires that issuers 
allow consumers to have at least 21 days to repay the debt incurred in 
connection with using such features. It also amends the compulsory use 
provision under Regulation E so that prepaid account issuers are 
prohibited from requiring

[[Page 83936]]

consumers to set up preauthorized electronic fund transfers (EFTs) to 
repay credit extended through an overdraft credit feature accessible by 
a hybrid prepaid-credit card.
    Effective date. The final rule generally becomes effective on 
October 1, 2017. Financial institutions are not required to pull and 
replace prepaid account packaging materials prepared in the normal 
course of business prior to that date that do not comply with the final 
rule's disclosure requirements. The final rule also contains several 
additional provisions addressing notices of certain changes in terms 
and updated initial disclosures as a result of this final rule taking 
effect in certain circumstances, and for rolling compliance with 
certain access to account information requirements if financial 
institutions do not have readily accessible the data necessary to 
comply with the final rule's requirements as of October 1, 2017. The 
requirement that issuers submit their prepaid account agreements to the 
Bureau pursuant to Sec.  1005.19(b) becomes effective on October 1, 
2018, as described in Sec.  1005.19(f).

II. Background

A. Prepaid Financial Products

    Prepaid products--in various forms--have been among the fastest 
growing types of payment instruments in the United States. A 2013 study 
by the Board of Governors of the Federal Reserve System (the Board) 
reported that compared with noncash payments such as credit, debit, 
automated clearing house (ACH), and check, prepaid card payments 
increased at the fastest rate from 2009 to 2012.\2\ Among other things, 
the study found that the number of prepaid card payments reached 9.2 
billion transactions in 2012 (up from 5.9 billion in 2009).\3\
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    \2\ Fed. Reserve Sys., The 2013 Federal Reserve Payments Study, 
Recent and Long-Term Payment Trends in the United States: 2003-2012, 
Detailed Report and Updated Data Release (2014), available at 
https://www.frbservices.org/files/communications/pdf/general/2013_fed_res_paymt_study_detailed_rpt.pdf.
    \3\ Id. at 37.
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    The U.S. market for prepaid products can largely be categorized 
into two general market segments: Closed-loop and open-loop products. 
The total amount of funds loaded onto open-loop and closed-loop prepaid 
products has grown significantly, from approximately $358 billion in 
2009 to approximately $594 billion in 2014.\4\ A consumer or other 
authorized party can add funds to both closed-loop and open-loop 
prepaid products; however, typically, consumers can only use funds 
stored on closed-loop prepaid products at designated locations (e.g., 
at a specific merchant or group of merchants in the case of certain 
gift cards; within a specific transportation system in the case of 
transit cards). In contrast, consumers have more options with respect 
to how to spend funds held on open-loop prepaid products, because 
transactions made with these products are typically run on payment 
network rails (often through point-of-sale (POS) terminals, ATM 
networks, or both).\5\ As discussed below, a general purpose reloadable 
(GPR) card is one type of reloadable, open-loop prepaid product. Other 
open-loop products are used by third parties to distribute funds to 
consumers, including payroll cards, cards for the disbursement of 
student loans or insurance proceeds, and cards used to disburse Federal 
and non-needs based State and local government benefits.\6\
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    \4\ Mercator Advisory Group, Twelfth Annual U.S. Prepaid Cards 
Market Forecasts, 2015-2018, at 8 (Dec. 2015) (Mercator 12th Annual 
Market Forecasts).
    \5\ Payment networks include Visa, MasterCard, American Express, 
and Discover; ATM networks include NYCE, PULSE, STAR, and Cirrus.
    \6\ As noted in the proposal, certain prepaid products are not 
reloadable. See 79 FR 77102, 77104 (Dec. 23, 2014).
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    Closed-loop and open-loop prepaid products are regulated by at both 
the Federal and State level. Regulation E, for example, currently 
contains protections for consumers who use payroll card accounts and 
certain government benefit accounts, as well as consumers who use 
certain gift cards and similar products.\7\ However, the status of GPR 
cards and certain other newer prepaid products such as digital and 
mobile wallets is less clear under existing regulation. As discussed in 
greater detail throughout this notice, this final rule imposes a 
comprehensive regulatory regime for prepaid accounts to ensure that 
consumers who use them receive consistent protections. This part II.A 
provides a condensed discussion of the detailed background information 
contained in the proposal, which the Bureau considered and relied on in 
preparing this final rule.\8\
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    \7\ See Sec. Sec.  1005.18, 1005.15, and 1005.20, respectively.
    \8\ See 79 FR 77102, 77103-77112 (Dec. 23, 2014).
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General Purpose Reloadable Cards
    A GPR card is one of the most common and widely available forms of 
open-loop prepaid products. GPR cards, which can be purchased at retail 
locations as well as directly from financial institutions, can be 
loaded with funds through a variety of means and can be used to access 
loaded funds at POS terminals and ATMs, online, and often through other 
mechanisms as well. Accordingly, they increasingly can be used as 
substitutes for traditional checking accounts.\9\
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    \9\ Throughout the supplementary information for this final 
rule, the term checking account generally also refers to credit 
union share draft accounts.
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    The prevalence of GPR cards has grown rapidly. According to 
estimates by the Mercator Advisory Group, the amount of funds loaded 
onto GPR cards grew from under $1 billion in 2003 to nearly $65 billion 
in 2012.\10\ This makes GPR cards among the fastest-growing forms of 
prepaid products over that decade, growing from less than 8 percent of 
prepaid load to over 36 percent during that same period. The Mercator 
Advisory Group further projects that the total dollar value loaded onto 
GPR cards will grow annually by 5 percent through 2019, when it will 
exceed $117 billion.\11\
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    \10\ Mercator Advisory Group, Eleventh Annual U.S. Prepaid Cards 
Market Forecasts, 2014-2017, at 13 (Nov. 2014).
    \11\ Mercator Advisory Group, Thirteenth Annual U.S. Open-Loop 
Prepaid Cards Market Forecasts, 2016-2019, at 9 (Sept. 2016) 
(Mercator 13th Annual Market Forecasts).
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    The Bureau notes that the top five GPR card programs (as measured 
by the total number of cards in circulation) have maximum balance 
amounts that vary significantly.\12\ To the extent that the cards have 
a maximum balance cap, the range is between $2,500 and $100,000.\13\ 
One of these top five GPR card programs does not have a maximum balance 
amount, but does have a monthly cash deposit limit of $4,000.\14\
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    \12\ See First Annapolis, Chase Enhances Competitive Positioning 
of Liquid (Sept. 2015), available at https://www.firstannapolis.com/articles/chase-enhances-competitive-positioning-of-liquid; see also 
American Express Serve[supreg] Prepaid Card Cardholder Agreement, 
available at https://serve.com/intuit/pdf/ServeTemp_Card_Agreement.pdf.
    \13\ See Green Dot Card Cardholder Agreement, available at 
https://www.greendot.com/content/docs/Legacy(4-2012).pdf; see also 
American Express Serve[supreg] Prepaid Card Cardholder Agreement, 
available at https://serve.com/intuit/pdf/ServeTemp_Card_Agreement.pdf.
    \14\ See Chase Liquid Agreement, available at https://www.chase.com/content/dam/chasecom/en/debit-reloadable-cards/documents/chase_liquid_terms_conditions.pdf.
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    Virtual GPR cards. Prepaid products are not all tied to a physical 
card or device. Some may exist only electronically; these virtual 
products are accessible and usable online or at a physical location 
through a mobile device such as a smartphone. To use these ``virtual 
GPR cards,'' consumers receive an account number or other information 
that they can then use to make purchases using a mobile application or 
other means. The use of GPR prepaid products not linked to a

[[Page 83937]]

physical card or device to store and transfer funds via the internet, 
text, or mobile phone application appears to be growing.\15\
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    \15\ See, e.g., Mercator Advisory Group, Consumers and Prepaid: 
Rising Use, Especially by Mobile, at 16-18 (Dec. 2014).
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GPR Card Functionality
    Consumers generally purchase or acquire GPR cards at retail 
locations, over the telephone, or online. When buying a GPR card at a 
retail location, consumers typically pay an up-front purchase fee. A 
GPR card is usually loaded by the retailer at the time of purchase with 
funds provided by the consumer. Some GPR cards purchased at retail are 
activated at the time of purchase so that the card can be used 
immediately for POS purchases and potentially certain other types of 
transactions; other cards require the consumer to contact the financial 
institution or program manager online or by phone to activate the card 
before it can be used. However, in order to take advantage of all of 
the GPR card's features, including to make ATM withdrawals and to be 
able to reload the card, consumers are generally required to contact 
the financial institution or program manager in order to register the 
card. (Many financial institutions combine the activation and 
registration process for GPR cards.) After registration, financial 
institutions often send a permanent card embossed with the consumer's 
name that, once activated, replaces the temporary card the consumer 
acquired from the retailer. The process for acquiring GPR cards 
directly from the financial institution or program manager online or by 
telephone tends to be more streamlined; financial institutions 
typically do not charge an up-front purchase fee and registration is 
completed during the acquisition process before the consumer is mailed 
a physical card.
    Registration is driven both by Bank Secrecy Act (BSA) \16\ 
requirements and by the financial institution's desire to establish 
full communications and an ongoing relationship with its customers. In 
order for financial institutions to satisfy the BSA's Customer 
Identification Program (CIP) requirements, financial institutions 
typically require consumers to provide specific identifying information 
(i.e., full name, domestic residential address, date of birth, and a 
Social Security Number or Taxpayer Identification Number, or, in some 
instances, another government-issued identification number) as part of 
the registration process.\17\ The financial institution or program 
manager uses the information to verify the consumer's identity. If the 
consumer's identity cannot be verified, the card is not considered 
registered; the consumer can typically spend down the card balance at 
POS but cannot withdraw funds at an ATM and cannot reload the card.
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    \16\ See, in part, 31 U.S.C. 5311 et seq. See also 31 CFR 
chapter X.
    \17\ See Bd. of Governors of the Fed. Reserve Sys., Fed. Deposit 
Ins. Corp., Nat'l Credit Union Admin., Office of the Comptroller of 
the Currency, Fin. Crimes Enforcement Network, Interagency Guidance 
to Issuing Banks on Applying Customer Identification Programs to 
Holders of Prepaid Access Cards (Mar. 21, 2016), available at https://www.federalreserve.gov/newsevents/press/bcreg/bcreg20160321a1.pdf. 
Among other things, the guidance clarified that a financial 
institution's CIP should apply to GPR cardholders if the GPR card is 
issued by the financial institution.
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    GPR cards can generally be reloaded through a variety of means, 
including direct deposit of wages, pensions, or government benefits; 
cash reloads conducted at, for example, retail locations designated by 
the card issuer or program manager,\18\ or by purchasing a ``reload 
pack'' at retail; transfer from another prepaid account, or a checking 
or savings account; or deposit of a check at a participating check-
cashing outlet or via remote deposit capture.\19\ Consumers can 
typically obtain cash from their GPR cards via ATM withdrawals, bank 
teller transactions, or by electing to obtain cash back from merchants 
through POS transactions using a personal identification number (PIN). 
Additionally, consumers can typically make purchases with their GPR 
cards wherever the payment network brand appearing on the card is 
accepted. A number of GPR card programs also offer an online bill pay 
function, which sometimes has a fee associated with it. Consumers can 
typically obtain updates regarding their GPR card's account balance 
(and, for some programs, recent transaction activity) via toll-free 
telephone calls to the financial institution or program manager, text 
messages, email alerts, the program's Web site or mobile application, 
at ATMs, or by requesting written account histories sent by mail. Some 
GPR card providers charge consumers to speak to a customer service 
agent or to receive a written copy of their account history. Consumers 
may also incur fees to obtain balance information at ATMs.
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    \18\ See, e.g., Green Dot Card Cardholder Agreement, available 
at https://www.greendot.com/content/docs/CardholderAgreement-Legacy(4-2012).pdf.
    \19\ The Bureau understands some financial institutions permit 
consumers to reload GPR cards via paper checks mailed to the 
financial institution or program manager.
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    GPR cards can vary substantially with respect to the fees and 
charges assessed to consumers, both in terms of their total volume as 
well as in the number and type of fees assessed. Based on its review of 
a 2012 study of consumer use of prepaid products by the Federal Reserve 
Bank of Philadelphia, the Bureau believes average cardholder costs for 
GPR and payroll cards range from approximately $7 to $11 per month, 
depending on the type and distribution channel of the account.\20\ In a 
2014 report, The Pew Charitable Trusts (Pew) estimated that the median 
consumer using one of the 66 major GPR cards it examined would be 
charged approximately $10 to $30 every month for use of the cards, on 
average, depending on the consumer's understanding of the card's fee 
structure and ability to alter behavior to avoid fees.\21\ The 2012 FRB 
Philadelphia Study also found that in terms of total value, maintenance 
and ATM withdrawal fees are among the most significant fees incurred by 
users of open-loop prepaid products.\22\
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    \20\ Stephanie Wilshusen et al., Consumers' Use of Prepaid 
Cards: A Transaction-Based Analysis, at 39 (Fed. Reserve Bank of 
Phila., Discussion Paper, 2012), available at https://www.philadelphiafed.org/consumer-credit-and-payments/payment-cards-center/publications/discussion-papers/2012/D-2012-August-Prepaid.pdf 
(2012 FRB Philadelphia Study). The authors of the report noted that 
the report's primary focus is on GPR cards and payroll cards, which 
will be discussed in greater detail below.
    \21\ The Pew Charitable Trusts, Consumers Continue to Load Up on 
Prepaid Cards, at 39 (Feb. 2014), available at https://www.pewtrusts.org/en/research-and-analysis/reports/2014/02/06/consumers-continue-to-load-up-on-prepaid-cards (2014 Pew Study).
    \22\ 2012 FRB Philadelphia Study at 6.
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Consumers' Use of GPR Cards
    The 2012 FRB Philadelphia Study found that most of the prepaid 
products in its study are used for both cash withdrawals and purchases 
of goods and services, with cash withdrawals accounting for about one-
third to one-half of the funds taken off a product, depending on the 
product. The study also concluded that prepaid cards are used primarily 
to purchase nondurable goods and noted that many of the products 
studied were also used to pay bills.\23\
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    \23\ Id.
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    The types of consumers who use GPR cards and their reasons for 
doing so vary. For consumers who lack access to more established 
products such as bank accounts and credit cards, GPR cards can be 
appealing because they are subject to less up-front screening by 
financial institutions. While CIP requirements for checking and savings

[[Page 83938]]

accounts apply to GPR cards as well, banks and credit unions generally 
review information about prospective checking and savings account 
customers obtained from specialized reporting agencies that can reveal 
a prior history of involuntary account closure, unsatisfied balances, 
and other issues with prior account use. Even where financial 
institutions do not intend to provide overdraft services to a consumer, 
they may be motivated to evaluate potential checking account customers 
for credit risk more closely than for prepaid customers. For example, 
check deposits may be a more prevalent feature of checking accounts 
than prepaid accounts and, because a deposited check can be returned 
unpaid (in contrast to a cash deposit or load), a check deposit may 
present credit risk to a financial institution. With respect to credit 
cards, approvals are generally contingent on a consumer successfully 
navigating an underwriting process to determine whether an applicant is 
an appropriate credit risk. In contrast, most financial institutions do 
not engage in screening or underwriting GPR customers (aside from CIP) 
because the product involves little credit risk.
    In light of these distinctions, it is not surprising that consumers 
who lack access to more established financial products such as bank 
accounts and credit cards consistently make up a sizeable segment of 
the consumer base that uses GPR cards on a regular basis. For example, 
a 2014 Pew survey found that 41 percent of prepaid card users did not 
have a checking account, and that 26 percent of the consumers in this 
group believed that they would not be approved for a checking 
account.\24\ It also found that prepaid card users were much more 
likely to use an alternative financial product or service, such as a 
payday loan, compared to consumers in the general population (40 
percent vs. 25 percent).\25\ The survey also found that 33 percent of 
monthly users of open-loop prepaid products have never had a credit 
card.\26\ A 2015 Pew survey suggested that unbanked prepaid card users 
tended to be less knowledgeable than consumers with bank accounts about 
whether their prepaid card had FDIC insurance and about liability 
limits if their card is lost or stolen.\27\
---------------------------------------------------------------------------

    \24\ The Pew Charitable Trusts, Why Americans Use Prepaid Cards: 
A Survey of Cardholders' Motivations and Views, at 7, 14 (Feb. 
2014), available at https://www.pewtrusts.org/~/media/legacy/
uploadedfiles/pcs_assets//prepaidcardssurveyreportpdf.pdf (2014 Pew 
Survey). It appears that the prepaid products discussed in the 
report included GPR cards, payroll cards, and government benefit 
cards. The report excluded closed-loop prepaid products.
    \25\ Id. at 9.
    \26\ See Id. at 7. The Bureau recognizes that this figure may 
include consumers that have never tried opening a credit card 
account, as well as those that tried to open a credit card account 
but had their applications denied.
    \27\ The Pew Charitable Trusts, Banking on Prepaid: Survey of 
Motivations and Views of Prepaid Card Users, at 10-12 (June 2015), 
available at https://www.pewtrusts.org/en/research-and-analysis/reports/2015/06/banking-on-prepaid (2015 Pew Survey).
---------------------------------------------------------------------------

    Consistent with Pew's findings, a 2013 survey by the FDIC found 
that approximately 33 percent of those who reported using a prepaid 
card in the 30 days prior to being surveyed were unbanked.\28\ More 
broadly, the survey found that 19.7 percent of underbanked and 27.1 
percent of unbanked households, as well as 33 percent of previously 
banked households,\29\ reported having used such cards (compared with 
12 percent reported use in the entire population).\30\ The FDIC also 
found that while GPR card usage among all households had remained 
relatively stable since 2009, the proportion of unbanked households 
that had used a prepaid card increased from 12.2 percent in 2009 to 
17.8 percent in 2011 and to 27.1 percent in 2013.\31\ The FDIC survey 
also found that prepaid card users were more likely than the general 
population to be young, single mothers, or disabled, and to have 
incomes below $50,000; they were less likely than the general 
population to be homeowners, white, have college degrees, and to be 
employed.\32\
---------------------------------------------------------------------------

    \28\ See Fed. Deposit Ins. Corp., 2013 FDIC National Survey of 
Unbanked and Underbanked Households, at 31 (Oct. 2014), available at 
https://www.fdic.gov/householdsurvey/2013report.pdf (2013 FDIC 
Survey). The FDIC survey found, generally, that there are 
approximately 30 million unbanked and underbanked households in the 
United States. Like Pew, the FDIC found that unbanked and 
underbanked consumers are more likely than the general population to 
use open-loop prepaid products such as GPR cards. Id. at 4.
    \29\ Previously banked households are households that had a bank 
account in the past. The FDIC survey treats these households as a 
subset of unbanked households. 2013 FDIC Survey at 29.
    \30\ Id.
    \31\ Id.
    \32\ 2013 FDIC Survey at 46-47.
---------------------------------------------------------------------------

    For consumers with access to traditional financial products and 
services, GPR cards may be appealing as a limited-use product instead 
of as a transaction account substitute.\33\ For example, the Bureau 
understands that one of the ways in which many consumers use such cards 
is for a limited purpose such as while traveling or making online 
purchases, because they may believe that using prepaid cards is safer 
than using cash, a credit card, or a debit card in those 
situations.\34\ These consumers may not ever register and reload the 
card. Instead, they may let the card become dormant or discard it after 
spending down the initial balance, and then purchase another GPR card 
at a later date if new needs arise. The Bureau understands that another 
popular way in which consumers use GPR cards is as a budgeting tool to 
help them better manage their funds. For example, a family might budget 
a fixed amount each month for dining out and put those funds on a GPR 
card, or parents may provide a GPR card, as opposed to a credit card 
for example, to a child at college to control the child's spending. Pew 
has found that the majority of both unbanked and banked GPR card users 
would like their cards to have a feature allowing them to put some of 
their card balances into savings and a budgeting tool that would track 
their spending in different categories automatically and alert them if 
they overspent.\35\
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    \33\ 2014 Pew Survey at 7. It found that 59 percent of prepaid 
card users also have a checking account and that most prepaid card 
users also have experience using credit cards, with almost half 
having used a credit card in the past year.
    \34\ See, e.g., 2014 Pew Survey at 1, 13.
    \35\ 2015 Pew Survey at 7.
---------------------------------------------------------------------------

    Additionally, for both unbanked and banked consumers, the desire to 
avoid overdraft services associated with checking accounts appears to 
motivate many consumers to choose GPR cards over checking accounts. The 
2015 Pew Survey reports that most GPR prepaid card users would rather 
have a purchase denied than overdraft their accounts and incur an 
overdraft fee.\36\ Its 2014 survey found that 41 percent of prepaid 
users have closed or lost a checking account due to overdraft fees or 
bounced check fees.\37\ As discussed further below, in contrast to 
checking overdraft fees, which are often $35 per item,\38\ GPR cards 
generally are not offered with an overdraft service nor other credit 
features, and the few exceptions appear to involve smaller fees.\39\ 
Indeed, the Bureau has observed that many GPR cards are advertised as a 
``safe'' or ``secure'' alternative to a

[[Page 83939]]

checking account precisely because they do not offer overdraft 
services.
---------------------------------------------------------------------------

    \36\ Id.
    \37\ 2014 Pew Survey at 8.
    \38\ As part of this rulemaking, the Bureau calculated the 
median checking account overdraft fee charged as of July 2014 among 
the 50 largest U.S. banks ranked by consumer checking balances at 
$35 per item. Nearly all banks the Bureau considered assess 
overdraft fees on a per-item basis. Among those that do, both the 
median and modal lowest-tier overdraft fee is $35. Some banks have 
higher overdraft fees that apply after a certain number of overdraft 
occurrences. However, the Bureau's analysis considered only the 
lowest-tier fees a consumer would encounter if de minimis or other 
policies do not preclude a fee. For banks that charge different 
amounts in different regions, Bureau staff considered pricing for 
the region where the bank is headquartered.
    \39\ See, e.g., 2014 Pew Study at 4, 9-10.
---------------------------------------------------------------------------

    Based on the Bureau's market research and analysis, the Bureau 
believes that consumer acceptance of GPR cards will grow. It also 
believes that some consumers that currently use GPR cards may 
increasingly find that they no longer want or need to have traditional 
financial products and services such as a checking account or a credit 
card in addition to their GPR card as these products continue to 
evolve. The Bureau notes that GPR card functionality has been 
expanding. For example, some GPR card programs have started to offer 
checking account-like features such as the ability to write checks 
using pre-authorized checks. Similarly, many GPR programs allow third 
parties to credit the GPR card account via ACH (e.g., through direct 
deposit) and in more limited circumstances, to debit the GPR card 
account via ACH. Additionally, many GPR card programs have offered 
consumers ways to access their account online, including through mobile 
devices such as smartphones. For example, oftentimes consumers can use 
smart phone applications to closely monitor their GPR card 
transactions, balances, and fees; to load funds to their GPR cards; and 
to transfer funds between accounts. The 2015 Pew Survey found that for 
both unbanked and banked GPR card users, more than half monitor their 
account balances through online access.\40\ Lastly, as discussed above, 
like credit and debit cards, GPR cards provide access to payment 
networks. Consumers may find this to be an important feature of GPR 
cards in that some merchants may only accept payment through a card 
that provides access to one of these networks.
---------------------------------------------------------------------------

    \40\ 2015 Pew Survey at 13.
---------------------------------------------------------------------------

Marketing and Sale of GPR Cards
    In recent years, the GPR card segment has grown increasingly 
competitive, which has resulted in a decrease in prices, coupled with 
an increase in transparency for many products.\41\ Nevertheless, 
various factors continue to negatively affect consumers' ability to 
make meaningful comparisons.\42\ Because card packaging is generally 
designed to be sold in retail stores, the ``J-hook package'' is no 
larger than 4 inches by 5.25 inches.\43\ Thus, card packages have 
limited space in which to explain their product and disclose key 
features. Consumer groups have also criticized GPR product providers 
for making comparison shopping challenging by, for example, using 
different terms to describe similar fees and providing consumers with 
incomplete information about fees.\44\ In addition to the size 
limitations on GPR card packaging, certain other aspects of purchasing 
GPR cards in retail settings may also pose obstacles to comparison 
shopping. For example, some retail locations may only offer one or a 
few types of GPR cards.\45\ Some stores may only display prepaid 
products behind a register, requiring a consumer to ask to see each 
product individually, and stores may display GPR cards with or near 
closed-loop products such as prepaid cellular phone plan cards or gift 
cards. Store personnel may not be sufficiently familiar with the 
different products to respond accurately to consumer questions. When 
consumers are purchasing a GPR card along with groceries and 
convenience items, general time pressures may cause consumers to make 
decisions quickly and ask fewer questions.
---------------------------------------------------------------------------

    \41\ See, e.g., Fed. Reserve Bank of St. Louis, Cards, Cards and 
More Cards: The Evolution to Prepaid Cards, Inside the Vault, at 1, 
2 (Fall 2011), available at https://www.stlouisfed.org/publications/itv/articles/?id=2168 (``Competition among prepaid card issuers and 
increased volume have helped lower card fees and simplify card 
terms.''). See also 2014 Pew Study at 2 (``[O]ur research finds that 
the providers are competing for business by lowering some fees and 
are facing pressure from new entrants in the market.'').
    \42\ 2014 Pew Survey at 5, 6.
    \43\ A j-hook is a looped hook used by retailers to hang prepaid 
cards (and other products). Retailers often sell prepaid cards on j-
hooks in a standalone display rack at the end of an aisle in a 
store.
    \44\ See, e.g., Consumer Reports, Prepaid Cards: How They Rate 
2014, at 5 (Nov. 2014), available at https://consumersunion.org/wp-content/uploads/2014/11/Prepaid_Cards_How_They_Rate_2014.pdf.
    \45\ Prepaid card providers can establish exclusive marketing 
arrangements that may prevent competitors' cards from being sold in 
the same store. See, e.g., Press Release, Blackhawk Network, 
Blackhawk Network, Safeway and Blackhawk extend exclusive prepaid 
card distribution agreement through 2019 (Mar. 7, 2014), available 
at https://blackhawknetwork.com/blackhawk-comments-on-parent-company-safeways-spin-off-announcement/. The press release announced that 
Blackhawk Network Holdings, Inc., a major prepaid product provider, 
extended its exclusive distribution arrangement with Safeway Inc. 
through 2019.
---------------------------------------------------------------------------

    All of these factors mean that consumers often purchase a card and 
load initial funds on it before they have an opportunity to review the 
full terms and conditions. Retail locations often cannot refund the 
cash loaded onto the card, and the Bureau believes that few consumers 
are likely to realize that refunds may be available from the GPR card 
programs. Thus, it is likely far more typical that consumers would 
spend down the funds initially loaded onto a GPR card and then discard 
it if they find it to be unsatisfactory as a long-term product. 
However, monthly maintenance fees may continue to accrue on spent-down 
cards. Moreover, the 2015 Pew Survey suggests that it can be 
particularly difficult for unbanked GPR card users to disentangle 
themselves from their cards. For example, Pew reported that more than 
40 percent of unbanked GPR card users put their wages on their GPR 
cards through direct deposit and approximately 75 percent of them 
reload their cards regularly.\46\
---------------------------------------------------------------------------

    \46\ 2015 Pew Survey at 5.
---------------------------------------------------------------------------

Structure of Typical GPR Card Programs
    GPR cards are generally provided by combinations of entities 
working together rather than by a single, vertically integrated entity 
operating all aspects of the GPR card program. Although a consumer may 
only interact with a single entity or limited number of entities, the 
Bureau believes that the presence of many different companies in the 
supply chain could expose consumers as well as the entities themselves 
to greater risks, such as potential losses resulting from the 
insolvency or malfeasance of a business partner, than those associated 
with a traditional vertically integrated checking or savings account 
program. The Bureau discusses the various entities that may be involved 
in a typical GPR card program below.
    Entities involved in a typical GPR card program. One of the most 
important entities involved in a GPR card program is the prepaid card 
issuer, which is typically either a depository institution or credit 
union. Some of the major payment card networks' rules require that GPR 
cards bearing their brand be issued by banks or credit unions, although 
one payment card network that issues its own cards does so through a 
non-bank entity. Issuers also typically manage the underlying accounts 
that hold funds loaded onto the cards. Some banks and credit unions are 
actively involved in all aspects of their GPR card programs, serving as 
program manager as well as issuer. Other banks and credit unions act as 
issuers and provide sponsorship into specific payment card networks, 
but work with a non-bank entity that serves as the program manager. 
Program managers are generally responsible for designing, managing, 
marketing, and operating GPR card programs. The Bureau understands that 
variations in issuers' roles can be driven by the extent to which the 
program manager performs particular services by itself, as well as

[[Page 83940]]

due to the particular features of a specific GPR card program.\47\
---------------------------------------------------------------------------

    \47\ In some cases, a white label model is used whereby banks 
and credit unions rely upon another institution to issue prepaid 
accounts, which may be branded with the bank or credit union's name. 
There are a handful of such programs through which banks and credit 
unions offer prepaid accounts (typically as a convenience to their 
customers or members).
---------------------------------------------------------------------------

    Program managers typically establish or negotiate a GPR card 
program's terms and conditions, market the card, assume most of the 
financial risks associated with the program, and reap the bulk of the 
revenue from the program.\48\ Some program managers may exercise 
substantial control over and responsibility for GPR card programs. For 
example, some program managers maintain the databases that contain 
cardholder account and transaction histories. They also approve and 
decline transactions.\49\ The program manager is also, in most cases, 
the primary consumer-facing party in connection with a GPR card because 
it is typically the program manager's brand on the card as well as its 
packaging.\50\
---------------------------------------------------------------------------

    \48\ See Fumiko Hayashi & Emily Cuddy, General Purpose 
Reloadable Prepaid Cards: Penetration, Use, Fees, and Fraud Risks, 
at 6 (Fed. Reserve Bank of Kan. City, Working Paper No. RWP 14-01, 
Feb. 2014), available at https://www.kansascityfed.org/publicat/reswkpap/pdf/rwp14-01.pdf (2012 FRB Kansas City Study).
    \49\ Id.
    \50\ Id. See also Aite Group LLC, Prepaid Debit Card Realities: 
Cardholder Demographics and Revenue Models, at 17 (Nov. 2013).
---------------------------------------------------------------------------

    Program managers often contract with other third-party service 
providers to perform specific functions for a GPR card program. To 
produce, market, and sell GPR cards, program managers often work with 
manufacturers that are responsible for printing and assembling the 
cards and associated packaging. Distributors arrange for GPR cards to 
be sold through various channels including through retailers, money 
transfer agents, tax preparers, check cashers, and payday lenders. 
Further, payment processors often provide many of the back-office 
processing functions associated with initial account opening (including 
those related to transitioning from temporary to permanent cards), 
transaction authorization and processing, and account reporting. 
Lastly, the payment networks themselves also establish and enforce 
their own rules and security standards related to payment cards 
generally and prepaid products such as GPR cards specifically. The 
networks also facilitate card acceptance, routing, processing, and 
settling of transactions between merchants and card issuers.
    How funds are held. Prepaid products including GPR cards differ 
from traditional checking or savings accounts in that the underlying 
funds are typically held in a pooled account at a depository 
institution or credit union. This means that rather than establish 
individual accounts for each cardholder, a program manager may 
establish a single account at a depository institution or credit union 
in its own name, but typically title the account to indicate that it is 
held for the benefit of each individual underlying cardholder. The 
Bureau understands that the program manager, sometimes in conjunction 
with the issuing depository institution or credit union or the 
depository institution or credit union holding the funds, will 
typically establish policies and procedures and put in place systems to 
demarcate each cardholder's funds within the pooled account. As 
discussed in detail below, these pooled accounts may qualify for, as 
applicable, FDIC pass-through deposit insurance or NCUA pass-through 
share insurance.
    Revenue generation. The Bureau understands that GPR cards typically 
generate revenue through the up-front purchase price paid by the 
consumer where applicable, the assessment of various monthly 
maintenance and/or transactional fees, and interchange fees collected 
from merchants by the payment networks. The 2012 FRB Philadelphia Study 
found that interchange fees paid by a merchant or acquiring bank for 
the purpose of compensating an issuer for its involvement in prepaid 
programs account for more than 20 percent of issuer revenues in GPR 
programs and almost 50 percent of revenues in payroll program.\51\ The 
Bureau understands that in most cases, publicly available details of 
how revenue is distributed and expenses are accounted among entities 
involved in the GPR card supply chain is sparse, although as discussed 
above, program managers generally reap the bulk of the revenue from GPR 
card programs. The Bureau believes that allocation of revenue and 
expenses likely varies across programs.
---------------------------------------------------------------------------

    \51\ 2012 FRB Philadelphia Study at 6.
---------------------------------------------------------------------------

Prepaid Products Distributed and Funded by Third Parties
    Consumers may also receive network-branded open-loop prepaid 
products from third parties such as employers, student aid sources, 
insurance companies, and government agencies that disburse funds to 
consumers by loading the funds into such accounts. These prepaid 
products are thus taking the place of distributions to the consumer via 
paper check, direct deposit into a traditional checking or savings 
account, or cash. The following discussion highlights some of the most 
common or fastest growing open-loop prepaid products onto which funds 
are loaded that are distributed to consumers by third parties.
    Payroll cards. Payroll cards are the most common example of prepaid 
products used by third parties to distribute funds to consumers. In 
2013, over 5 million payroll cards were issued, and $30.6 billion was 
loaded onto them.\52\ According to the Mercator Advisory Group, payroll 
cards make up the second largest segment in the U.S. open-loop prepaid 
product market.\53\ The total amount of funds loaded onto payroll cards 
is expected to grow on average 6 percent each year through 2019, when 
it will reach $44.6 billion.\54\ While direct deposit into consumer 
accounts remains the most popular form of wage distribution 
overall,\55\ the number of consumers who receive their wages on payroll 
cards surpassed the number of consumers paid by paper checks for the 
first time in 2015, and an estimated 12.2 million workers are expected 
to receive their wages on payroll cards by 2019, compared to an 
estimated 2.2 million workers who are expected to get paper checks.\56\
---------------------------------------------------------------------------

    \52\ See Mercator Advisory Group, Eleventh Annual U.S. Prepaid 
Cards Market Forecasts, 2014-2017, at 32 (Nov. 2014).
    \53\ Mercator 13th Annual Market Forecasts at 28. The payroll 
card segment, as measured by the Mercator Advisory Group, is made up 
of wages paid to employees and 1099 workers using an employer-
provided prepaid card.
    \54\ Id. at 29.
    \55\ Aite Group LLC, Checkmate: U.S. Payroll Cards Trump Paper 
Checks, at 5 (Apr. 2015) (reporting that according to the American 
Payroll Association, 90 percent of all employees currently receive 
their pay through direct deposit to checking accounts).
    \56\ Id. at 6.
---------------------------------------------------------------------------

    An employer generally works with a financial institution to set up 
a payroll card program. Among other things, the financial institution 
issues the payroll cards and holds the funds loaded into the payroll 
card accounts. Section 1005.10(e)(2) of Regulation E prohibits 
financial institutions and employers from requiring consumers to agree 
to have their compensation distributed via a payroll card as a 
condition of employment. As discussed in greater detail below, the 
Bureau is finalizing specific disclosure requirements as part of the 
short form disclosure, to make clear Sec.  1005.10(e)(2)'s 
applicability to payroll card accounts. Where employees choose to 
participate in a payroll card program, the employer will provide the 
employee with a network-branded prepaid card issued by the employer's 
financial institution partner that

[[Page 83941]]

accesses a subaccount assigned to the individual employee. On each 
payday, the employer will transfer the employee's compensation to the 
payroll card account, instead of providing the employee with a paper 
check or making a direct deposit of funds to the employee's checking or 
savings account. The employee can use the payroll card to withdraw 
funds at an ATM or over-the-counter via a bank teller. The employee can 
also use the payroll card to make purchases online and at physical 
retail locations, and may also be able to obtain cash back at POS. Some 
payroll cards may offer features such as convenience checks and 
electronic bill payment.
    The Bureau understands that employers market payroll cards as an 
effective means to receive wages for employees who may lack a 
traditional banking relationship, and that unbanked consumers may find 
the cards to be a more suitable, cheaper, and safer method of receiving 
their wages as compared to other methods, such as receiving a check and 
going to a check-cashing store. Nonetheless, within the last 10 years, 
there have been increasing concerns raised about payroll cards, with 
specific focus on potentially harmful fees and practices associated 
with them. These problematic practices may impact low-income consumers 
disproportionately, as it has been reported that payroll cards are 
especially prevalent in industries that have many low-wage, hourly 
workers.\57\
---------------------------------------------------------------------------

    \57\ Nat'l Consumer L. Ctr., Rating State Government Payroll 
Cards, at 5 (Nov. 2015), available at https://www.nclc.org/images/pdf/pr-reports/payroll-card-report.pdf.
---------------------------------------------------------------------------

    As explained in greater detail below, the Bureau issued a guidance 
bulletin in September 2013 to remind employers that they cannot require 
their employees to receive wages on a payroll card and to explain some 
of the Regulation E protections that apply to payroll card accounts, 
such as those pertaining to fee disclosure, access to account history, 
limited liability for unauthorized use, and error resolution 
rights.\58\ Although it appears that certain industry stakeholders have 
worked to develop industry standards incorporating and building upon 
the guidance given in the bulletin,\59\ concerns persist as to whether 
and how employers and financial institutions are complying with the 
compulsory use provision and other provisions of Regulation E, as well 
as related State laws applicable to the distribution of wages.\60\ For 
example, employees may not always be aware of the ways in which they 
may receive their wages because States may have differing and evolving 
requirements.\61\
---------------------------------------------------------------------------

    \58\ CFPB Bulletin 2013-10, Payroll Card Accounts (Regulation E) 
(Sept. 12, 2013), available at https://www.consumerfinance.gov/f/201309_cfpb_payroll-card-bulletin.pdf.
    \59\ See, e.g., Press Release, MasterCard, MasterCard Introduces 
Payroll Card Standards (Dec. 13, 2013), available at https://newsroom.mastercard.com/press-releases/mastercard-introduces-payroll-card-standards/.
    \60\ See, e.g., N.Y. St. Att'y Gen., Labor Bureau, The Impact of 
Payroll Cards on Low-Wage Workers, available at https://www.ag.ny.gov/pdfs/Pinched%20by%20Plastic.pdf.
    \61\ See, e.g., https://paycard.americanpayroll.org/compliance-regulations (listing the various State regulations that apply to 
payroll cards).
---------------------------------------------------------------------------

    The Bureau additionally believes that payroll card accounts raise 
transparency issues beyond those addressed by its payroll card accounts 
guidance bulletin. Employers may offer a payroll card account when an 
employee starts employment, when it is likely that the question of how 
the employee is to be paid will be one of many human resource issues 
confronting the employee during orientation. An employee may be 
provided with a stack of forms to complete and may not have the time or 
opportunity to review them. It is also possible that the employee may 
be unaware that receiving wages via a payroll card account is optional, 
particularly if the employer does not present the options clearly. The 
forms the employee may receive from the employer may not always include 
all of the relevant information regarding the terms and conditions of 
the payroll card account, such as fees associated with the card and how 
cardholders can withdraw funds on the card. Employees who want to 
complete their hiring paperwork in a single setting may not take the 
opportunity to comparison shop. Separately, some industry observers 
have raised concerns about the extent to which payroll card providers 
share program revenue with employers and, if so, whether that revenue 
sharing has negative consequences for cardholders, for instance by 
creating incentives to increase the fees on payroll card products.
    Campus cards. Federal law permits Federal financial aid to be 
disbursed to students via prepaid products.\62\ A number of colleges 
and universities partner with banks and program managers to market and 
often disburse student financial aid proceeds into network-branded 
open-loop prepaid products that are endorsed by those colleges and 
universities, as a potential alternative to direct deposit into a 
student or parent's existing checking account, prepaid account, or 
other means of disbursement. The total amount of funds loaded in the 
open-loop campus card segment grew by 15 percent in 2015, to $2.72 
billion, and is forecasted to have an average annual growth rate of 10 
percent through 2019, when it is forecasted to reach $3.98 billion.\63\
---------------------------------------------------------------------------

    \62\ See 34 CFR 668.164(c)(2) (treating certain Federal student 
aid payments disbursed via ``an account that underlies a stored-
value card'' as direct payments to a student or parent).
    \63\ Mercator 13th Annual Market Forecasts at 16. These figures 
include campus cards used by colleges and universities, as well as 
K-12 institutions.
---------------------------------------------------------------------------

    Similar to payroll card accounts, some have raised concerns about 
the ways in which students are encouraged to obtain an endorsed prepaid 
product and with the potential incentives created by revenue sharing in 
connection with prepaid cards provided to students. A 2014 Government 
Accountability Office (GAO) report found that of the U.S. colleges and 
universities participating in Federal student aid programs for the 
2011-2012 school year that had agreements with banks and program 
managers to provide debit and prepaid card services for students, 
approximately 20 percent of such agreements were for prepaid cards.\64\ 
The report also stated that more than 80 percent of the schools 
identified in the report with card agreements indicated that students 
could use their cards to receive financial aid and other funds from the 
school.\65\
---------------------------------------------------------------------------

    \64\ U.S. Gov't Accountability Office, GAO-14-91, College Debit 
Cards, Actions Needed to Address ATM Access, Student Choice, 
Transparency, a Report to the Chairman, Committee on Health, 
Education, Labor, and Pension, U.S. Senate, at 8 (Feb. 2014), 
available at https://www.gao.gov/assets/670/660919.pdf. The GAO found 
that the rest of the agreements were for debit cards.
    \65\ Id. at 9.
---------------------------------------------------------------------------

    Among other things, the GAO noted concerns about the fees on 
student debit and prepaid cards, as well as the lack of ATM access and 
the lack of the schools' neutrality toward the card programs.\66\ It 
found instances in which schools appeared to encourage students to 
enroll in the school's specific prepaid card program, rather than 
present neutral information about disbursement options for financial 
aid.\67\ As discussed in greater detail below, the U.S. Department of 
Education (ED) issued a final rule in October 2015 that addresses a 
number of concerns with campus cards that the GAO described in its 
report.
---------------------------------------------------------------------------

    \66\ U.S. Gov't Accountability Office, GAO Highlights: 
Highlights of GAO-14-91, a Report to the Chairman, Committee on 
Health, Education, Labor, and Pension, U.S. Senate (Feb. 2014), 
available at https://www.gao.gov/assets/670/660920.pdf.
    \67\ Id.
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    Government benefit cards. Government entities also distribute

[[Page 83942]]

various funds onto prepaid products by partnering with financial 
institutions and program managers. In its latest annual report to 
Congress on the prevalence of prepaid card use in Federal, State, and 
local government-administered payment programs, the Board reports that 
a number of government entities now mandate that recipients receive 
payments electronically, through either a prepaid card or direct 
deposit.\68\ The Board reported that government offices distributed 
$150 billion through prepaid cards in 2015.\69\ The Federal government 
and various State governments may use prepaid products to distribute 
government benefits such as Social Security payments,\70\ unemployment 
insurance benefits,\71\ and child support payments, as well as a 
distinct set of disbursements called needs-tested benefits.
---------------------------------------------------------------------------

    \68\ Bd. of Governors of the Fed. Reserve Sys., Report to the 
Congress on Government Administered, General-Use Prepaid Cards, at 3 
(July 2016), available at https://www.federalreserve.gov/publications/other-reports/files/government-prepaid-report-201607.pdf (2016 FRB Government Prepaid Cards Report).
    \69\ Id. at 1.
    \70\ The U.S. Department of the Treasury (Treasury) has 
established the Direct Express program for the distribution of 
government benefits such as Social Security payments.
    \71\ See, e.g., Nat'l Consumer Law Ctr., 2013 Survey of 
Unemployment Compensation Prepaid Cards, at 3, 7 (Jan. 2013), 
available at https://www.nclc.org/issues/unemployment-compensation-prepaid-cards.html (noting that 42 States offer some form of prepaid 
card for distribution of unemployment compensation payments).
---------------------------------------------------------------------------

    Most States offer a choice at least between direct deposit to a 
traditional checking or savings account or a prepaid product for the 
receipt of unemployment insurance benefits. However, the Bureau is 
aware that, in the recent past, several States have required the 
distribution of at least the first payment of such benefits onto 
prepaid cards.
    State and local government programs for distributing needs-tested 
benefits are typically referred to as electronic benefit transfer (EBT) 
programs. Needs-tested benefits include funds related to Temporary 
Assistance for Needy Families (TANF), Special Supplemental Nutrition 
Program for Women, Infants, and Children (WIC), and the Supplemental 
Nutrition Assistance Program (SNAP). According to the Board, State 
agencies administering SNAP disbursed approximately $69 billion onto 
EBT cards in 2015.\72\ As noted below in the discussion of relevant 
law, Regulation E does not apply to EBT programs.\73\
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    \72\ 2016 FRB Government Prepaid Cards Report at 5.
    \73\ EFTA section 904(d)(2)(B); Sec.  1005.15(a)(2).
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    In addition, Treasury's Bureau of the Fiscal Service, on behalf of 
the United States military, provides both closed-loop and open-loop 
prepaid cards for use by servicemembers and contractors in the various 
branches of the armed forces.\74\ The features of and fees charged in 
connection with these cards may vary.
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    \74\ See, e.g., Navy Cash/Marine Cash, (https://fms.treas.gov/navycash/) and Eagle Cash, (https://www.fiscal.treasury.gov/fsservices/gov/pmt/eagleCash/eagleCash_home.htm). The Navy Cash and Marine Cash products may have 
multiple ``purses'' such that one ``purse'' can only be used at a 
limited number of linked merchants (such as various places on a 
Naval vessel) while the other ``purse'' can be linked to a payment 
card network that provides global acceptance to unaffiliated 
merchants.
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    Other open-loop prepaid cards distributed and funded by third 
parties. Open-loop prepaid cards are also used by some insurance 
providers to pay certain insurance claims such as claims related to a 
property or casualty loss and for emergency payments designed to help 
consumers get through immediate problems.\75\ During the Bureau's pre-
proposal outreach, some insurance providers informed the Bureau that, 
where permitted by State law, it is faster and more economical to 
provide workers compensation payments on prepaid cards relative to 
mailing paper checks. Additionally, after a natural disaster, the 
disbursement of funds from insurance claims onto prepaid cards may 
allow funds to be delivered to consumers who may be unable to use or 
access traditional checking or savings accounts. The Mercator Advisory 
Group reports that the total amount loaded onto insurance cards is 
expected to grow at a rate of 3 percent per year through 2019, when 
loads are expected to exceed $13 billion.\76\
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    \75\ Mercator 12th Annual Market Forecasts at 28.
    \76\ Mercator 13th Annual Market Forecasts at 26. The insurance 
category in the report measures funds loaded onto prepaid cards for 
disbursements of insurance settlements and for emergency payments.
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    Similarly, taxpayers may direct tax refunds onto prepaid cards 
provided by tax preparers or arranged by government entities. These 
cards are typically open-loop and may or may not be reloadable. Other 
disbursements onto prepaid cards include disbursement of mass transit 
or other commuting-related funds, which are typically onto restricted 
closed-loop cards. However, the Bureau understands that new transit 
payment models are emerging, and these models tend to involve open-loop 
prepaid cards.\77\ Aid distributed by relief organizations or 
government agencies in response to natural disasters is usually loaded 
onto open-loop cards. In some of these cases, the cards may be reloaded 
by the entity that initially disbursed funds onto the card.\78\
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    \77\ See, e.g., Ventra Card, https://www.ventrachicago.com/ (the 
city of Chicago's mass transit card has reloadable open-loop 
features). See also SEPTA, https://www.septa.org/key/ (the city of 
Philadelphia announced that its mass transit card will also have 
reloadable open-loop features).
    \78\ As discussed in greater detail below in the section-by-
section analysis of Sec.  1005.2(b)(3)(ii), the final rule excludes 
from the definition of prepaid account those accounts that are 
directly or indirectly established through a third party and loaded 
only with qualified disaster relief payments.
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    As evidenced by the discussions above in connection with payroll 
and campus cards, prepaid products loaded by third parties can raise a 
number of consumer protection concerns. Some of these issues appear to 
be largely the same as GPR cards on items such as the lack of clear, 
consistent disclosures about fees and other important terms and 
conditions. Consumers may use these products as their primary 
transaction accounts, particularly when the products are loaded with 
all of the consumers' incoming funds (e.g., wages, unemployment 
benefits, student loan proceeds). In accepting the product, a consumer 
may not fully grasp all of its fees and terms and how those fees and 
terms might impact the consumer over time.
    However, the Bureau believes that some consumer issues may be 
heightened or unique to particular categories of prepaid products 
loaded by third parties. For example, in selecting a GPR card, the 
consumer is making a distinct purchase decision; while some sales 
channels may be more convenient than others for comparison shopping, 
the consumer is in any event focused on the transaction as a standalone 
decision. Where a prepaid product is being provided to a consumer by a 
third party, however, the consumer may be deciding whether to accept 
the prepaid product in the course of another activity (such as starting 
a new job or school term, or dealing with a catastrophic event). 
Consumers may not understand the extent to which they can reject the 
product being offered, may not have a practicable option to comparison 
shop under the circumstances if they do not already have a transaction 
account to serve as an alternative, and may have concerns about 
upsetting an employer or other third party by rejecting the option. In 
addition, where there are revenue sharing arrangements in place, the 
third party may have a financial incentive to select a product offering 
with higher fees and to structure the sign-up process in a way that 
tends to increase participation. Further, the

[[Page 83943]]

Bureau understands many of the prepaid accounts that are loaded by 
third parties are distributed to very specific segments of consumers 
such as college-age students or very low-income consumers, and 
accordingly, there may be distinct consumer protection issues 
associated with these prepaid products.
Digital Wallets
    A consumer may keep cash, debit and credit cards, GPR cards, and 
gift cards in a physical wallet or purse. ``Digital wallets'' and 
``mobile wallets'' (i.e., digital wallets that a consumer could access 
using a mobile device such as a smartphone) similarly store one or more 
of the consumer's payment credentials electronically.\79\ These payment 
credentials may be accessed by the consumer through a Web site or 
mobile application. The Bureau understands that some, but not all, 
digital and mobile wallets allow a consumer to store funds in them 
directly or by funding a prepaid product, and draw down the stored 
funds. A 2015 survey by the Board suggests that digital wallets serve 
as an important funding source for mobile payments (i.e., consumer 
payment for goods and services using mobile phones). The survey 
reported that 15 percent of mobile payment users reported that they 
used an account at a non-financial institution such as PayPal to fund 
their payments.\80\
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    \79\ Aite Group LLC, Money Goes Mobile (May 2014).
    \80\ Bd. of Governors of the Fed. Reserve Sys., Consumers and 
Mobile Financial Services 2015, at 17 (Mar. 2015), available at 
https://www.federalreserve.gov/econresdata/consumers-and-mobile-financial-services-report-201503.pdf (2015 FRB Consumers and Mobile 
Financial Services Survey). The survey was updated in 2016. The 
percentage of mobile payment users reported that they used an 
account at a non-financial institution such as PayPal to fund their 
payments appears to have held steady at 16 percent. See Bd. of 
Governors of the Fed. Reserve Sys., Consumers and Mobile Financial 
Services Survey 2016, at 17 (Mar. 2016), available at https://www.federalreserve.gov/econresdata/and-mobile-financial-services-report-201603.pdf (2016 FRB Consumers and Mobile Financial Services 
Survey).
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    Digital and mobile wallets have been marketed as allowing consumers 
to electronically transmit funds in multiple settings. Currently, such 
wallets can be used by a consumer for online purchases,\81\ payments at 
brick-and-mortar retailers through, for example, contactless 
communication at the point of sale,\82\ as well as person-to-business 
(i.e., bill pay) and P2P transfers.\83\ The Bureau understands that 
there may be significant variations in how funds are held in digital 
and mobile wallets and how payments are processed by such wallets. It 
also understands that payment processing by digital and mobile wallets 
is evolving quickly. For instance, some such wallets provide methods 
for accessing the ACH system to make a payment. A consumer might use 
such a digital or mobile wallet to pay for an online purchase, and the 
wallet would facilitate the transfer of funds from the consumer's 
checking account to fund the transaction. In other cases, the 
consumer's funds are first transferred to the digital or mobile wallet 
either by the consumer or the wallet provider, and then transferred to 
the ultimate payee. For example, it may be possible for a consumer to 
maintain a positive balance in the digital or mobile wallet through 
transfers from sources such as a bank account, a credit, debit, or 
prepaid card, or a P2P transfer. The consumer's digital or mobile 
wallet balance may be held in the name of the wallet provider. The 
Bureau expects that variations of digital and mobile wallets will 
continue to grow and observes that the methods described herein are a 
few of the funding options available in the current market. As 
discussed above, the application of EFTA and Regulation E to digital 
and mobile wallets has been less clear than the application of the 
statute and the regulation to prepaid products such as payroll card 
accounts and government benefit accounts.\84\
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    \81\ See, e.g., Visa Checkout Terms of Service, https://secure.checkout.visa.com/pages/terms?country=VUS&locale=en.
    \82\ See, e.g., Google Wallet Terms of Service, https://wallet.google.com/termsOfService?type=BUYER&gl=US.
    \83\ See, e.g., Boost Mobile Wallet Terms of Service, https://boostmobile.wipit.me/legal/terms.aspx.
    \84\ Law360, PayPal Customers Take Another Stab at $3.2M Class 
Deal (Sept. 10, 2015), available at https://www.law360.com/articles/701403/paypal-customers-take-another-stab-at-3-2m-class-deal. The 
class action was brought by PayPal customers to sue PayPal for, 
among other things, alleged violations of EFTA in managing the 
customers' accounts.
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Credit Features, Overdraft Programs, and Prepaid Products
    As described briefly above, most prepaid products as currently 
offered and marketed do not generally allow consumers to spend more 
money than is loaded onto the product. Although there are a few 
exceptions, most providers of prepaid products do not currently offer 
overdraft services,\85\ a linked line of credit,\86\ access to a 
deposit advance product,\87\ or other method of accessing formal credit 
features in connection with a prepaid product.\88\ Instead, prepaid 
products, including many GPR cards, are actively marketed as ``safe'' 
alternatives to checking accounts with opt-in overdraft services, 
credit cards, or other credit options.\89\ Prepaid account

[[Page 83944]]

balances can nonetheless be taken negative under certain limited 
circumstances, however. Specifically, so-called ``force pay'' 
transactions can occur when the prepaid account issuer either does not 
receive a request to authorize a transaction in advance or the final 
transaction amount is higher than the authorized amount, and the 
prepaid account issuer is required by card network rules to pay the 
transaction even though there are insufficient or unavailable funds in 
the prepaid account to cover the transaction at settlement. In such 
circumstances, prepaid issuers generally are not charging credit-
related fees to consumers in connection with force pay transactions.
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    \85\ As discussed further below, overdraft services evolved in 
the context of checking accounts from ad hoc, discretionary programs 
in which financial institutions would sometimes cover particular 
transactions that would otherwise overdraw a checking account as a 
courtesy to the consumer rather than return the transaction and 
subject the consumer to a not sufficient-funds fee, merchant fees, 
and other negative consequences from bounced checks. Overdraft 
services fees are generally imposed on a per-transaction basis, and 
the financial institution takes the balance owed as soon as 
additional funds are deposited into the account. As explained below, 
the Board exempted overdraft services from regulation under TILA and 
Regulation Z, unless the payment of items that overdraw an account 
and the imposition of the charges for paying such items were 
previously agreed upon in writing. In addition, these programs are 
not typically subject to traditional underwriting processes used for 
other credit products. Under Regulation E, financial institutions 
must obtain an opt-in from the consumer before imposing overdraft 
fees on ATM and one-time debit card transactions. See Sec.  
1005.17(b).
    \86\ A linked line of credit is a separate line of credit that a 
financial institution ``links'' to a deposit account or prepaid 
product to draw funds automatically where a transaction made using 
funds from the account or product would otherwise take the balance 
on the account or product negative. Such a credit feature is 
generally subject to interest rates, traditional credit 
underwriting, and TILA and Regulation Z. Similarly, some financial 
institutions offer consumers an option to link their credit card to 
a deposit account to provide automatic ``pulls'' to cover 
transactions that would otherwise exceed the balance in the account.
    \87\ A deposit advance product (DAP) is a small-dollar, short-
term loan or line of credit that a financial institution makes 
available to a customer whose deposit account reflects recurring 
direct deposits. The customer obtains a loan, which is to be repaid 
from the proceeds of the next direct deposit. DAPs typically do not 
assess interest and are fee-based products. Repayments are typically 
collected from ensuing deposits, often in advance of the customer's 
other bills. See CFPB, Payday and Deposit Advance Products: A White 
Paper of Initial Data Findings (Apr. 24, 2013), available at https://files.consumerfinance.gov/f/201304_cfpb_payday-dap-whitepaper.pdf; 
see also FDIC and OCC Final Guidance on Supervisory Concerns and 
Expectations Regarding Deposit Advance Products, 78 FR 70552 and 78 
FR 70624 (Nov. 26, 2013). Publication of the Bureau's White Paper 
and the guidance issued by the FDIC and OCC has caused many 
financial institutions to reevaluate their DAP programs.
    \88\ For example, a financial institution could offer a product 
whereby consumers with a credit account access that account and 
``push'' the credit into their prepaid accounts where it can be 
spent.
    \89\ See, e.g., Network Branded Prepaid Card Ass'n, Prepaid Card 
Benefits, https://www.nbpca.com/en/What-Are-Prepaid-Cards/Prepaid-Card-Benefits.aspx (last visited Oct. 1, 2016) (``For many 
Americans, prepaid cards serve as a tool with which to more 
effectively budget their spending. With a prepaid card, consumers 
avoid the risk of over-spending or overdraft, thus avoiding the 
interest, fees and potential negative credit score implications of 
traditional credit cards. And for parents, prepaid cards provide 
tools to maintain control over their teens' or college students' 
spending.''); see also Examining Issues in the Prepaid Card Market, 
Hearing before the Subcomm. on Fin. Inst. and Consumer Prot., S. 
Comm. on Banking, Housing and Urban Affairs, 112th Cong. 2 (2012) 
(Remarks of Dan Henry, C.E.O., NetSpend Holdings, Inc.) (``Our 
customers are typically working Americans who want control. . . 
.'').
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    As also discussed above, according to the 2014 Pew Survey, a desire 
to avoid fee-based overdraft services motivates a sizeable portion of 
consumers to choose prepaid products, such as GPR cards, over checking 
accounts.\90\ The survey also reported that a slight majority of 
participants stated that one of the major reasons that they use prepaid 
products is that those products help those consumers control their 
spending.\91\ Similarly, the Bureau's own focus groups also found that 
many consumers choose prepaid products because the products help them 
control their spending.\92\
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    \90\ 2014 Pew Survey at 1.
    \91\ Id. at 14 ex.12 (noting that the top two reasons consumers 
claim to use prepaid cards related to avoiding credit card debt (67 
percent) and helping them not spend more money than they actually 
have (66 percent).
    \92\ ICF Int'l, ICF Report: Summary of Findings: Design and 
Testing of Prepaid Card Fee Disclosures, at 5 (Nov. 2014), available 
at https://files.consumerfinance.gov/f/201411_cfpb_summary-findings-design-testing-prepaid-card-disclosures.pdf (ICF Report I).
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    It also appears that many consumers specifically seek to acquire 
prepaid products that do not offer overdraft credit features because 
they have had negative experiences with credit products, including 
checking accounts with overdraft features, or want to avoid fees 
related to such products. As discussed above, the 2014 Pew Survey found 
that many prepaid consumers previously had a checking account and 
either lost that account (due to failure to repay overdrafts or related 
issues) or gave up the checking account due to overdraft or bounced 
check fees.\93\ Relatedly, the survey reported that prepaid products 
are often used by consumers who cannot obtain a checking account due to 
bad credit or other issues.\94\ GPR cards, which are sometimes marketed 
as involving ``no credit check,'' provide consumers with access to 
electronic payment networks, the ability to make online purchases, and 
increased security and convenience over alternatives such as cash.\95\
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    \93\ 2014 Pew Survey at 7-8 (noting both that ``Most prepaid 
card users who have had a checking account in the past have paid 
associated overdraft fees for debit card usage'' and that ``Among 
those prepaid card users who have ever had a bank account, 41 
percent of them say they have closed or lost a checking account 
because of overdraft or bounced check fees'').
    \94\ Id. at 8 (noting that 34 percent of prepaid consumers who 
ever had a checking account say they have closed a checking account 
themselves because of overdraft or bounced check fees, and 21 
percent say they have had a financial institution close their 
account because of overdraft or bounced check fees.
    \95\ See ICF Report I at 5; see also 2014 Pew Survey at 14 ex.12 
(noting that 72 percent of prepaid consumers say that a reason they 
have a prepaid card is to make purchases online and other places 
that do not accept cash).
---------------------------------------------------------------------------

    Apart from consumers' reasons for favoring prepaid products, 
regulatory factors may also have discouraged prepaid product providers 
from offering overdraft credit features in connection with their 
products. The Bureau understands that some prepaid issuers have 
received guidance from their prudential regulators that has deterred 
these financial institutions from allowing prepaid cards they issue to 
offer overdraft credit features. Relatedly, the Bureau believes that a 
2011 Office of Thrift Supervision enforcement action regarding a linked 
deposit advance feature may also have had a chilling effect on the 
offering of deposit advance products in connection with prepaid 
accounts.\96\ Further, while a number of industry commenters to the 
Prepaid ANPR expressed interest in offering overdraft credit features 
in connection with prepaid products, some industry commenters also 
expressed their reluctance to proceed until there is greater certainty 
as to whether this rulemaking would alter the permissible bounds of 
such a program. In addition, as discussed further below, the Bureau 
understands that a Dodd-Frank Act provision affecting interchange fees 
on prepaid products with overdraft features seems to have further 
discouraged activity.\97\ The Board found that among prepaid cards 
provided to consumers pursuant to government-administered payment 
programs, virtually all revenue from overdraft fees disappeared in 
2014.\98\
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    \96\ See In the Matter of MetaBank, Office of Thrift 
Supervision, Order No. CN 11-25 (July 15, 2011), available at https://www.occ.gov/static/ots/enforcement/97744.pdf.
    \97\ The debit card interchange restrictions and exemptions 
thereto are discussed in greater detail in part II.B below.
    \98\ See Bd. of Governors of the Fed. Reserve Sys., Report to 
the Congress on Government Administered, General-Use Prepaid Cards, 
at 9 (July 2015), available athttps://www.federalreserve.gov/publications/other-reports/files/government-prepaid-report-201507.pdf (2015 FRB Government Prepaid Cards Report). See also 2016 
FRB Government Prepaid Cards Report at 8.
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    The Bureau understands that currently, credit features are 
generally not being offered on prepaid accounts. When they are offered, 
the Bureau understands that they are typically structured as overdraft 
services,\99\ which in some ways appear less expensive as well as more 
consumer friendly in other respects than their checking account 
analogs.\100\ For example, the programs charge a per transaction fee 
each time the consumer incurs an overdraft (e.g., one program charges 
$15), although the fees tend to be lower than those charged for 
overdraft services on checking accounts (median fee as of July 2014 was 
$35).\101\ Along these lines, one recent study found that for consumers 
who overdraft, under the currently available programs, GPR cards are 
significantly less costly than checking accounts. For these consumers, 
the study found that the average total cost of checking accounts per 
month ranged between $86 and $112, while GPR cards' monthly costs 
ranged between $38 and $57.\102\ In addition, some

[[Page 83945]]

programs will waive the overdraft fee if the consumer repays the 
overdraft quickly (e.g., within 24 hours) or if the amount by which the 
account is negative is only for a nominal amount (e.g., $5 or $10). 
Further, some programs may also limit the number of overdrafts that 
will be permitted in a given month and the amount by which the account 
balance can go negative, and impose ``cooling off'' periods after a 
consumer has incurred more than a certain number of overdrafts. During 
the cooling off period, the consumer is typically prohibited from using 
the overdraft service.
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    \99\ The Bureau is aware of one prepaid account program where a 
linked credit service is structured as a line of credit.
    \100\ See Ctr. for Fin. Services Innovation, CFSI Prepaid 
Industry Scorecard: Assessing Quality in the Prepaid Industry with 
CFSI's Compass Principles, at 11 (March 2014), available at https://www.cfsinnovation.com/CMSPages/GetFile.aspx?guid=b596e5ee-41fe-4d30-82e7-a9cbf407a716 (2014 CFSI Scorecard) (noting that only two in a 
survey of 18 GPR programs representing 25 percent of the market 
currently offers an opt-in overdraft service); CFPB, Study of 
Overdraft Programs: A White Paper of Initial Data Findings, at 14 
(June 2013), available at https://files.consumerfinance.gov/f/201306_cfpb_whitepaper_overdraft-practices.pdf (CFPB Overdraft White 
Paper) (summarizing data showing that most banks and credit unions 
offer opt-in overdraft programs). Apart from actual overdraft 
programs, some prepaid programs, according to their terms and 
conditions, reserve the right to impose a fee for a negative balance 
on a prepaid account. (These programs' agreements typically state 
that the cardholder is not permitted to spend beyond the balance in 
the prepaid account, but if circumstances were to occur that cause 
the balance to go negative, a fee will or may be imposed. Some 
agreements state that repeated attempts to spend beyond the card 
balance will or may result in the prepaid account being closed). 
Roughly 10 percent of reviewed agreements noted such a charge.
    \101\ As part of this rulemaking, Bureau staff determined the 
median figure for checking account overdraft fees through an 
analysis of the overdraft fees charged by the largest 50 U.S. banks 
ranked by consumer checking balances.
    \102\ Fumiko Hayashi et al., Driver of Choice? The Cost of 
Financial Products for Unbanked Consumers, at 20 (Fed. Reserve Bank 
of Kan. City, Working Paper No. 15-15, Nov. 2015), available at 
https://www.kansascityfed.org/publicat/reswkpap/pdf/rwp15-15.pdf 
(the authors assumed that a consumer who overdrafts makes at most 
one overdraft transaction in a day and each overdraft transaction 
results in four consecutive days of negative balance in the 
consumer's account).
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    Revenue from overdraft services does not appear to have 
significantly influenced the pricing structure of prepaid products 
overall, as has happened with traditional checking accounts as 
discussed further below. Indeed, as noted above, overdraft services 
offered in connection with prepaid products are relatively rare, and 
fees are relatively modest compared to similar fees associated with 
checking account overdraft programs. As discussed in greater detail in 
the section-by-section analysis below, as a result of several 
regulatory exemptions, the Bureau believes that checking account 
overdraft programs have evolved from courtesy programs under which 
financial institutions would decide on a manual, ad hoc basis to cover 
particular transactions and help consumers avoid negative consequences 
to automated programs that are the source of as much as two-thirds of 
financial institutions' deposit account revenue.\103\ As a result, 
banks and credit unions have developed checking accounts to have low 
(or sometimes no) up-front costs, to add services such as online bill 
pay \104\ at no additional cost, and to rely on ``back end'' fees such 
as per transaction overdraft fees and non-sufficient funds (NSF) fees 
to maintain profitability. The Bureau believes that financial 
institutions that issue prepaid accounts typically do not earn their 
revenue from ``back-end'' overdraft fees or NSF fees. Instead, they 
earn revenue from other types of fees, such as ATM fees and interchange 
fees collected from use of payment networks.\105\
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    \103\ According to information supplied to the Bureau as part of 
its large bank overdraft study and reported in the CFPB Overdraft 
White Paper, overdraft and NSF-related fees from consumer checking 
accounts constituted 61 percent of consumer and 37 percent of total 
deposit account service charges earned by study banks in 2011. If 
aggregate study bank fee revenue ratios could be extrapolated to all 
FDIC-insured institutions, this would imply the banking industry 
earned roughly $12.6 billion in consumer NSF and overdraft fees in 
2011. See CFPB Overdraft White Paper at 14-15.
    \104\ Such bill pay services may include not only electronic 
payments through the ACH network, but also manual generation of 
checks authorized through the bank or credit union's online bill pay 
portal. Id at 12.
    \105\ For example, in both 2013 and 2014, one major program 
manager derived approximately 60 percent of its operating revenue 
from cash-reload fees and interchange fees. See Green Dot Corp., 
2014 Annual Report, at 29 (2015), available at https://phx.corporate-ir.net/phoenix.zhtml?c=235286&p=irol-reportsAnnual; see also Green 
Dot Corp., 2015 Annual Report, at 30 (2016), available at https://phx.corporate-ir.net/phoenix.zhtml?c=235286&p=irol-reportsAnnual.
---------------------------------------------------------------------------

    The Bureau understands that program managers of prepaid products 
with overdraft credit features have structured their products to comply 
with Regulation E's rules regarding overdraft services. Specifically, 
the Bureau understands that providers of overdraft programs on GPR and 
payroll card accounts purport to provide a disclosure similar to Model 
Form A-9 in appendix A to Regulation E.\106\ Model Form A-9 is a model 
consent form that a financial institution may use to obtain a 
consumer's opt-in to overdraft services for a fee for one-time debit 
card or ATM transactions.\107\
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    \106\ The Bureau understands that prepaid providers that offer 
overdraft services typically do so with respect to both their GPR 
cards and payroll card accounts, to the extent they offer both 
products.
    \107\ As discussed in greater detail below, the Bureau reviewed 
publicly available account agreements for prepaid products that 
appeared to meet the Bureau's proposed definition of the term 
``prepaid account'' and found that some programs' agreements stated 
that while they do not offer formal overdraft services, they will 
impose negative balance or other similar fees for transactions that 
may take an account negative despite generally not permitting such 
activity. See CFPB, Study of Prepaid Account Agreements, at 24-25 
(Nov. 2014), available at https://files.consumerfinance.gov/f/201411_cfpb_study-of-prepaid-account-agreements.pdf (Study of 
Prepaid Account Agreements). However, the Bureau does not believe 
such fees are typically charged.
---------------------------------------------------------------------------

    The Bureau understands that prepaid products with overdraft credit 
features generally offer such features only to those consumers that 
meet specified criteria, such as evidence of the receipt of recurring 
deposits over a certain dollar amount. These recurring deposits 
presumably allow the financial institution to have some confidence that 
there will be incoming funds of adequate amounts to repay the debt. 
Further, the Bureau understands that the terms and conditions of 
prepaid product overdraft programs typically require that the next 
deposit of funds into the prepaid product--through either recurring 
deposits or cash reloads--be used to repay the overdraft, or the 
provider will claim such funds for the purpose of repaying the 
overdraft.

B. Existing Regulation of Prepaid Products

    Various Federal and State regulations apply to prepaid products. 
With respect to Federal regulation, there are several Federal 
regulatory regimes, including those regarding consumer protection, 
receipt of Federal payments, interchange fees, financial crimes, and 
Federal student aid disbursement, that apply to some or all types of 
prepaid products. Some of the most relevant applicable Federal laws and 
regulations include EFTA and Regulation E; Treasury's rule governing 
the receipt of Federal payments on prepaid cards; \108\ the Board's 
Regulation II on debit card interchange and routing; \109\ the 
Financial Crime Enforcement Network's (FinCEN) prepaid access rule; 
\110\ and ED's Cash Management Regulation.\111\
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    \108\ 75 FR 80335 (Dec. 22, 2010).
    \109\ 12 CFR part 235.
    \110\ 76 FR 45403 (July 29, 2011).
    \111\ 80 FR 67126 (Oct. 30, 2015).
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    Prudential regulators have also issued guidance about the 
application of their regulations to prepaid products, program managers, 
and financial institutions that issue prepaid products. For example, as 
discussed in greater detail below, both the FDIC and the NCUA have set 
criteria regarding how prepaid products may qualify for, as applicable, 
pass-through deposit (or share) insurance. In addition, the Office of 
the Comptroller of the Currency (OCC) has a bulletin that provides 
guidance to depository institutions under its supervision with respect 
to how to assess and manage the risks associated with prepaid access 
programs.\112\ However, as the Bureau noted in the proposal, it 
believes that there are gaps in the existing Federal regulatory regimes 
that cause certain prepaid products not to receive full consumer 
protections, in particular under EFTA and Regulation E.
---------------------------------------------------------------------------

    \112\ Office of the Comptroller of Currency, OCC Bulletin 2011-
27, Prepaid Access Programs, Risk Management Guidance and Sound 
Practices (June 28, 2011), available at https://www.occ.gov/news-issuances/bulletins/2011/-27.html.
---------------------------------------------------------------------------

EFTA and Related Provisions in Regulation E
    Congress enacted EFTA in 1978 with the purpose of ``provid[ing] a 
basic framework establishing the rights, liabilities, and 
responsibilities of participants in electronic fund transfer systems.'' 
EFTA's primary objective is ``the provision of individual consumer 
rights.'' \113\ Congress also empowered the Board to promulgate 
regulations

[[Page 83946]]

implementing EFTA.\114\ With the adoption of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act (Dodd-Frank Act), authority to 
implement most of EFTA transferred to the Bureau.\115\
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    \113\ See Public Law 95-630; 92 Stat. 3728 (1978).
    \114\ EFTA section 904(a).
    \115\ Public Law 111-203, section 1084, 124 Stat. 2081 (2010) 
(codified at 15 U.S.C. 1693a et seq.). See also Dodd-Frank Act 
section 1061(b); 12 U.S.C. 5581(b).
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    The regulations first promulgated by the Board to implement EFTA 
now reside in subpart A of Regulation E.\116\ These rules provide a 
broad suite of protections to consumers who make EFTs. An EFT is any 
transfer of funds initiated through an electronic terminal, telephone, 
computer, or magnetic tape for the purpose of ordering, instructing, or 
authorizing a financial institution to debit or credit a consumer's 
account.\117\ Regulation E also provides protections for accounts from 
which consumers can make EFTs. In its initial rulemaking to implement 
EFTA, the Board developed a broad definition of ``account,'' which 
closely mirrored the definition of ``account'' in EFTA.\118\ The 
definition provides that, subject to certain specific exceptions, an 
account is a demand deposit (checking), savings, or other consumer 
asset account (other than an occasional or incidental credit balance in 
a credit plan) held directly or indirectly by a financial institution 
and established primarily for personal, family, or household 
purposes.\119\
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    \116\ These provisions were originally adopted as 12 CFR part 
205 but upon transfer of authority in the Dodd-Frank Act to 
implement Regulation E to the Bureau were renumbered as 12 CFR part 
1005. 76 FR 81020 (Dec. 27, 2011). Unless otherwise noted, 
historical provisions described as residing in 12 CFR part 1005 
originally were contained in 12 CFR part 205.
    \117\ Sec.  1005.3(b)(1).
    \118\ 44 FR 18468, 18480 (Mar. 28, 1979).
    \119\ Sec.  1005.2(b)(1).
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    For covered accounts, Regulation E mandates that consumers receive 
certain initial disclosures, in writing and in a form that the consumer 
can keep.\120\ As applicable, the initial disclosures must include, 
among other things, disclosures regarding a consumer's liability for 
unauthorized EFTs, an error resolution notice, contact information for 
the financial institution providing the account, the types of transfers 
a consumer may make and any limitations on the frequency and dollar 
amount of transfers, and the fees associated with making EFTs.\121\ 
Regulation E also sets forth substantive provisions on error resolution 
and imposes limits on a consumer's liability for unauthorized 
EFTs.\122\ Moreover, Regulation E contains, among other things, 
provisions specific to periodic statements (which generally must be 
provided in writing),\123\ the issuance of access devices,\124\ 
preauthorized EFTs and compulsory use,\125\ overdraft services,\126\ 
and ATM disclosures.\127\
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    \120\ Sec.  1005.4(a)(1).
    \121\ See generally Sec.  1005.7(b).
    \122\ See Sec. Sec.  1005.6 and 1005.11.
    \123\ Sec.  1005.9(b).
    \124\ Sec.  1005.5. An access device is a card, code, or other 
means of access to a consumer's account, or any combination thereof, 
that may be used by the consumer to initiate EFTs. Sec.  
1005.2(a)(1).
    \125\ Sec.  1005.10.
    \126\ Sec.  1005.17.
    \127\ Sec.  1005.16. Since the transfer of authorities, the 
Bureau has amended Regulation E in two substantive respects. First, 
the Bureau added consumer protections to Regulation E in new subpart 
B for certain international fund transfers. Sec. Sec.  1005.30 
through 1005.36. Additionally, the Bureau amended Regulation E with 
respect to certain rules pertaining to ATM fee notices. 78 FR 18221 
(Mar. 26, 2013).
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    As discussed in greater detail in the proposal,\128\ between 1994 
and 2010, the Board amended Regulation E a number of times to add 
consumer protection for certain prepaid and other stored-value 
products. First, the Board adopted consumer protections in the mid 
1990s for accounts used to distribute benefits for Federally-
administered government benefit programs and non-needs tested State and 
local government benefit programs, such as employment-related 
ones.\129\ As noted in the proposal, the Board's original rule included 
needs-tested State and local electronic benefit transfer programs 
(e.g., benefits such as those provided under SNAP and the Aid to 
Families with Dependent Children program),\130\ but Congress 
subsequently enacted legislation that limited the application of EFTA 
and Regulation E with respect to State and local electronic benefit 
transfer programs to only those programs that are ``non-needs tested.'' 
\131\ The Board issued updated rules in 1997.\132\
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    \128\ 79 FR 77102, 77113-14 (Dec. 23, 2014).
    \129\ See current Sec.  1005.15.
    \130\ 59 FR 10678 (Mar. 7, 1994).
    \131\ Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996, Public Law 104-193, 110 Stat. 2105 
(1996).
    \132\ 62 FR 43467 (Aug. 14, 1997).
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    In the mid 2000s, the Board expanded Regulation E to provide 
specific protections for prepaid products that are payroll card 
accounts established by an employer for providing an employee's 
compensation on a regular basis.\133\ The Payroll Card Rule, among 
other things, brought payroll card accounts within the definition of 
account in Sec.  1005.2(b).\134\ The Board also tailored certain 
general Regulation E requirements to the payroll context. For example, 
the Board allowed providers of payroll card accounts to avoid the 
general requirement to provide written periodic statements, if the 
institution makes available to the consumer: (1) The account balance, 
through a readily available telephone line; (2) an electronic history 
of account transactions that covers at least 60 days (including all the 
information required in periodic statements by Sec.  1005.9(b)); and 
(3) a written history of account transactions that is provided promptly 
in response to an oral or written request and that covers at least 60 
days (including all the information required in periodic statements by 
Sec.  1005.9(b)).\135\ Related provisions in Sec.  1005.18(c) modify 
other requirements of Regulation E with respect to payroll card 
accounts, including initial disclosures, annual error resolution 
notices (otherwise required by Sec.  1005.8(b)), and error resolution 
and limitations on liability, in recognition of the modified periodic 
statement requirement.
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    \133\ 71 FR 51437, 51438 (Aug. 30, 2006). The Board proposed the 
rule in 2004. 69 FR 55996 (Sept. 17, 2004). The Payroll Card Rule is 
codified in Sec.  1005.18.
    \134\ 71 FR 51437, 51438 (Aug. 30, 2006).
    \135\ See Sec.  1005.18(b).
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    More recently, the Board adopted a rule in 2010 to implement 
certain sections of the Credit Card Accountability Responsibility and 
Disclosure Act of 2009 (Credit CARD Act) \136\ applicable to gift 
cards, gift certificates, and certain types of general-use prepaid 
cards that are marketed or labeled as gift cards (the Gift Card 
Rule).\137\ Although the Credit CARD Act explicitly gave the Board the 
discretionary authority to apply the majority of Regulation E's 
protections, including provisions regarding periodic statements, 
liability for unauthorized transactions, and error resolution to 
covered products,\138\ the Board chose only to implement specific 
statutory provisions governing expiration dates and dormancy or 
inactivity fees.\139\
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    \136\ Public Law 111-24, 123 Stat. 1734 (2009).
    \137\ Sec.  1005.20.
    \138\ Credit CARD Act section 401; EFTA section 915(d)(1). The 
Gift Card Rule only covers certain general-use prepaid cards. 
Consistent with the Credit CARD Act, covered general-use prepaid 
cards are those that are non-reloadable cards or that are reloadable 
and marketed or sold as a gift card. See Sec.  1005.20(a)(3) 
(definition of a ``general-use prepaid card''). Moreover, like the 
Credit CARD Act, the Gift Card Rule excludes those general-use 
prepaid cards that are reloadable and not marketed or labeled as a 
gift card or gift certificate. Sec.  1005.20(b)(2).
    \139\ Id.
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    The Board considered whether to regulate GPR cards under EFTA and 
Regulation E several times, both in the course of promulgating these 
other amendments and independently. For example, when the Board 
initiated

[[Page 83947]]

rulemaking in 1996 to amend its 1994 rule on government benefit 
accounts to exclude needs-tested programs, it took notice that prepaid 
cards (at the time referred to as stored-value cards) were beginning to 
be used by more consumers. The Board explained its belief that facts 
supported the determination that ``accounts'' under Regulation E would 
include stored-value accounts and sought comment on whether to adopt 
rules specific to prepaid financial products (other than government 
benefit accounts) pursuant to its authority under EFTA and noted 
pending legislation in Congress that would address stored-value 
cards.\140\ Ultimately, Congress directed the Board to conduct a study 
to evaluate whether provisions of EFTA could be applied to stored-value 
products without adversely affecting the cost, development, and 
operation of such products.\141\ The Board implemented the directive 
and published its findings in March 1997. It found, among other things, 
that the market for stored-value products was evolving rapidly and was 
not yet ripe for regulation.\142\ The Board did not finalize its 1996 
proposal on stored-value.
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    \140\ 61 FR 19696 (May 2, 1996); H.R. 2520, 104th Cong., Sec.  
443; S. 650, 104th Cong., Sec.  601 (1995). Among the provisions 
considered in the 1996 proposal on stored-value, the Board proposed 
to extend Regulation E's error resolution provisions to stored-value 
accounts and provide a periodic statement alternative for such 
accounts similar to what was adopted for government benefit cards in 
1994. The Board also noted pending legislation in Congress that 
would address stored-value cards.
    \141\ Public Law 104-208, 110 Stat. 3009 (1996).
    \142\ Bd. of Governors of the Fed. Reserve Sys., Report to 
Congress on the Application of the Electronic Fund Transfer Act to 
Electronic Stored-Value Products, at 75 (Mar. 1997), available at 
https://www.federalreserve.gov/boarddocs/rptcongress/efta_rpt.pdf. 
Notably, the products examined by the Board in this report differ 
from most prepaid products in use today.
---------------------------------------------------------------------------

    The Board again considered whether to regulate stored value cards 
in the course of issuing the Payroll Card Rule, but decided to focus 
solely on payroll card accounts because at that time they were more 
often used as transaction account substitutes than were other types of 
prepaid products.\143\
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    \143\ 71 FR 51437, 51441 (Aug 30, 2006). Taking stock of the 
market at that time, the Board noted that consumers did not often 
use other prepaid products such as general-use prepaid cards in the 
same way that they used payroll card accounts. The Board stated that 
``[F]or payroll card accounts that are established through an 
employer, there is a greater likelihood [than for general-use 
prepaid cards] that the account will serve as a consumer's principal 
transaction account and hold significant funds for an extended 
period of time.'' Id. Similarly, in an earlier interim final rule 
that established that payroll card accounts are covered accounts 
under Regulation E, the Board expressed its belief that to the 
extent that consumers use general-use prepaid cards like gift cards, 
``consumers would derive little benefit from receiving full 
Regulation E protections for a card that may only be used on a 
limited, short-term basis and which may hold minimal funds, while 
the costs of providing Regulation E initial disclosures, periodic 
statements, and error resolution rights would be quite significant 
for the issuer.'' 71 FR 1473, 1475 (Jan. 10, 2006). At the time, the 
Board viewed GPR cards as ``generally designed to make one-time or a 
limited number of payments to consumers and . . . not intended to be 
used on a long-term basis.'' Id.
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FMS Regulations of the Treasury Department
    The Treasury Financial Management Service (FMS), now part of 
Treasury's Bureau of the Fiscal Service, manages all Federal payments. 
In 2010, it promulgated an interim final rule that permitted delivery 
of Federal payment to prepaid cards (the FMS Rule).\144\ Among other 
things, the FMS Rule provides that for a prepaid card to be eligible to 
receive Federal payments, the card account must be held at an insured 
financial institution, must be set up to meet the requirements for FDIC 
or NCUA pass-through insurance, and must not have an attached line of 
credit or loan feature that triggers automatic repayment from the card 
account. Additionally, the card account issuer must comply with all of 
the requirements, and provide the cardholder with all of the consumer 
protections, that apply to payroll card accounts under Regulation 
E.\145\
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    \144\ 75 FR 80335 (Dec. 22, 2010). Prior to the effective date 
of the FMS Rule, prepaid cards (other than those issued under FMS-
established programs) were not eligible to receive Federal payments.
    \145\ 31 CFR 210.5(b)(5)(i).
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    Based on Bureau research and as explained in the proposal, the 
Bureau believes that many GPR card providers have chosen to structure 
their prepaid products generally to comply with the FMS Rule, rather 
than tailoring compliance only for those accounts that actually receive 
Federal payments.\146\ For example, if, prior to the FMS Rule, a 
prepaid provider did not maintain error resolution procedures with 
respect to its prepaid products (or maintained procedures different 
from Regulation E's error resolution regulations), the provider had to 
either adjust its processes to provide consumers who receive Federal 
payments with Regulation E's error resolution rights or ensure that 
their prepaid products do not receive Federal payments. Rather than 
provide two different error resolution regimes for individual 
customers, many providers have opted to apply the same procedures to 
all cards on their systems.
---------------------------------------------------------------------------

    \146\ In issuing the FMS Rule, Treasury noted that it expected 
prepaid card issuers to comply with the FMS Rule (and thus provide 
Regulation E payroll card protections) to ensure that their products 
remain eligible to receive Federal payments. 75 FR 80335, 80338 
(Dec. 22, 2010).
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Pass-Through Deposit (or Share) Insurance
    Both the FDIC and NCUA have special rules regarding how the deposit 
or share insurance they provide generally applies to funds loaded onto 
prepaid products that are held in pooled accounts at banks and credit 
unions, as applicable.\147\ In the case of the FDIC, its 2008 General 
Counsel Opinion No. 8 provides that FDIC's deposit insurance coverage 
will ``pass through'' the custodian to the underlying individual owners 
of the deposits in the event of failure of an insured depository 
institution, provided that three specific criteria are met.\148\ First, 
the account records of the insured depository institution must disclose 
the existence of the agency or custodial relationship.\149\ Second, the 
records of the insured depository institution or records maintained by 
the custodian or other party must disclose the identities of the actual 
owners and the amount owned by each such owner. Third, the funds in the 
account actually must be owned (under the agreements among the parties 
or applicable law) by the purported owners and not by the custodian (or 
other party).150 151
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    \147\ FDIC deposit insurance generally protects deposit 
accounts, including checking and savings accounts, money market 
deposit accounts and certificates of deposit against loss up to 
$250,000 per depositor, per insured depository institution, within 
each account ownership category (e.g., for individual owners, co-
owners, trust beneficiaries, and the like). See, e.g., https://www.fdic.gov/deposit. The FDIC also has resources for consumers 
about pass-through deposit insurance for prepaid cards. See 
fdic.gov/deposit/deposits/prepaid.html. The NCUA administers the 
National Credit Union Share Insurance Fund (NCUSIF) for the purpose 
of providing insurance to protect deposits of credit union members 
of insured credit unions. See, e.g., https://www.ncua.gov/DataApps/Pages/SI-NCUA.aspx.
    \148\ FDIC General Counsel Opinion No. 8, Insurability of Funds 
Underlying Stored Value Cards and Other Nontraditional Access 
Mechanisms, 73 FR 67155 (Nov. 13, 2008), internal citations omitted.
    \149\ This requirement can be satisfied by opening the account 
under a title such as the following: ``ABC Company as Custodian for 
Cardholders.'' See id. at 67157.
    \150\ Id.
    \151\ The FDIC has also issued guidance on the application of 
requirements for brokered deposits as applied to prepaid cards. See, 
e.g., FDIC, Identifying, Accepting and Reporting Brokered Deposits 
Frequently Asked Questions (updated June 2016), available at https://www.fdic.gov/news/news/financial/2016/fil16042b.pdf.
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    Similarly, NCUA regulations generally require that the details of 
the existence of a relationship which may provide a basis for 
additional insurance and the interest of other parties in the account 
must be ascertainable either

[[Page 83948]]

from the records of the credit union or the records of the member 
maintained in good faith and in the regular course of business.\152\
---------------------------------------------------------------------------

    \152\ 12 CFR 745.2(c)(2).
---------------------------------------------------------------------------

    The Bureau believes that most prepaid products subject to this 
final rule are set up to be eligible for FDIC or NCUA pass-through 
insurance. As discussed in greater detail below in the section-by-
section analysis of Sec.  1005.18(b)(2)(xi), this final rule requires a 
financial institution to indicate on the short form disclosure required 
pursuant to Sec.  1005.18(b)(2) whether a prepaid account is eligible 
for FDIC or NCUA pass-through insurance.
Interchange and the Board's Regulation II
    Section 1075 of the Dodd-Frank Act added new section 920 to EFTA 
regarding debit card interchange and amended EFTA section 904(a) to 
give the Board sole authority to prescribe rules to carry out the 
purposes of section 920.\153\ The statute also addresses prepaid cards 
that operate on debit card networks. Specifically, EFTA section 
920(a)(2) requires that the amount of any interchange fee that an 
issuer of debit cards receives or charges with respect to an electronic 
debit transaction be reasonable and proportional to the cost incurred 
by the issuer with respect to the transaction. It directs the Board to 
establish standards for assessing whether the amount of any interchange 
fee is reasonable and proportional to the cost incurred by the issuer. 
The statute also provides certain exemptions from the interchange fee 
limitations for certain cards, including in section 920(a)(7)(A) an 
exemption for general-use reloadable prepaid (and debit) cards provided 
to a consumer pursuant to government-administered payment programs and 
for certain GPR cards. In addition, there is a blanket exemption from 
the interchange fee limitations for cards of issuers with total assets 
of less than $10 billion. Thus, interchange fees for transactions made 
with prepaid cards meeting the criteria for the statutory exemptions 
are generally not subject to the fee restrictions of EFTA section 
920(a). However, the statute also provides a carveback that rescinds 
the exemption if certain fees, such as an overdraft fee, may be charged 
with respect to a card listed in section 920(a)(7)(A). There is no such 
carveback for the cards of issuers with total assets below $10 billion, 
however. The statute uses the same definition of general-use prepaid 
card as the Credit CARD Act.\154\ In July 2011, the Board promulgated 
Regulation II (12 CFR part 235) to implement EFTA section 920. The 
provisions regarding debit card interchange fee restrictions became 
effective as of October 1 of that year.\155\
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    \153\ The amendment is known as ``The Durbin Amendment,'' after 
U.S. Senator Richard Durbin of Illinois, who was the amendment's 
chief sponsor. See, e.g., David Morrison, Durbin Amendment Lawsuit 
Unresolved as 2013 Winds Down, Credit Union Times Magazine, Dec. 18, 
2013, available at https://www.cutimes.com/2013/12/18/durbin-amendment-lawsuit-unresolved-as-2013-winds; see also Zhu Wang, Debit 
Card Interchange Fee Regulation: Some Assessments and 
Considerations, 98 Econ. Q. 159 (2012), available at https://www.richmondfed.org/-/media/richmondfedorg/publications/research/economic_quarterly/2012/q3/pdf/wang.pdf.
    \154\ EFTA section 920(c)(2)(B).
    \155\ 76 FR 43394 (July 20, 2011); 76 FR 43478 (July 20, 2011); 
amended by 77 FR 46258 (Aug. 3, 2012).
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FinCEN's Prepaid Access Rule
    FinCEN, a bureau of the Treasury, regulates prepaid products 
pursuant to its mission to safeguard the financial system from illicit 
use, combat money laundering, and promote national security through the 
collection, analysis, and dissemination of financial intelligence and 
strategic use of financial authorities. In 2011, pursuant to a mandate 
under the Credit CARD Act, FinCEN published a final rule to amend BSA 
regulations applicable to money services businesses with respect to 
stored value or ``prepaid access'' (FinCEN's Prepaid Access Rule).\156\ 
The rule regulates prepaid access in a number of ways, including 
requiring providers or sellers of prepaid access to: (1) File 
suspicious activity reports; (2) collect and retain certain customer 
and transactional information; and (3) maintain an anti-money 
laundering program. The customer identification and verification 
requirements for providers and sellers of prepaid access under this 
rule are largely similar to the CIP requirements for banks and credit 
unions. These BSA requirements are similar to those that apply to other 
categories of money services businesses.\157\ However, consumer 
protection is not the focus of FinCEN's rules.
---------------------------------------------------------------------------

    \156\ 76 FR 45403 (July 29, 2011). Subject to certain specific 
exemptions, a ``prepaid program'' is defined as an ``arrangement 
under which one or more persons acting together provide(s) prepaid 
access.'' 31 CFR 1010.100(ff)(4)(iii). The term ``prepaid access'' 
is defined as ``access to funds or the value of funds that have been 
paid in advance and can be retrieved or transferred at some point in 
the future through an electronic device or vehicle, such as a card, 
code, electronic serial number, mobile identification number, or 
personal identification.'' 31 CFR 1010.100(ww).
    \157\ 76 FR 45403, 45419 (July 29, 2011).
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Department of Education's Cash Management Regulations
    ED, among other things, regulates the disbursement of Federal 
financial aid by colleges and universities. In October 2015, it adopted 
a final rule that amends its cash management regulations by setting 
forth new criteria that apply to colleges that partner with vendors to 
distribute Title IV funds and/or sponsor or directly market accounts to 
their students.\158\ Among other things, the rule prohibits colleges 
and universities that receive Federal financial aid from requiring 
students or parents to open a certain account into which student aid 
funds are deposited. Additionally, colleges and universities must 
provide students with a list of account options that the student may 
choose from to receive the student's aid disbursement. Each option must 
be presented neutrally and the student's preexisting bank account must 
be listed as the first and most prominent option with no account 
preselected. Further, the final rule bans point-of-sale and overdraft 
fees on accounts, including prepaid card accounts, that are directly 
marketed to students by a financial institution with which the 
student's college or university has an arrangement to disburse Federal 
financial aid on behalf of the post-secondary institution. Moreover, 
the final rule requires that college-sponsored accounts provide 
students with reasonable access to surcharge-free ATMs and deposit 
insurance.
---------------------------------------------------------------------------

    \158\ 80 FR 67126 (Oct. 30, 2015).
---------------------------------------------------------------------------

    As discussed in greater detail in the Prepaid Proposal and noted 
above, some colleges and universities partner with third parties to 
disburse financial aid proceeds into network-branded open-loop prepaid 
products endorsed by the colleges and universities, and questions have 
been raised about revenue sharing between the colleges and universities 
and these third parties.\159\ Indeed, in its final rule, ED stated its 
belief that the new regulations are warranted because of the numerous 
concerns that have been raised about the practices of certain colleges 
and universities and third parties with respect to the distribution of 
Federal student aid. These practices include implying to students that 
they must sign up for certain accounts to receive Federal student aid 
and charging students onerous, confusing, or unavoidable fees in order 
to access student aid funds or otherwise use the account.\160\
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    \159\ See 79 FR 77102, 77109 (Dec. 23, 2014).
    \160\ See, e.g., 80 FR 67126, 67129, 67179 (Oct. 30, 2015).

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[[Page 83949]]

State Laws
    As discussed in greater detail in the proposal, many States have 
passed consumer protection laws or other rules to regulate prepaid 
products in general, and in particular, certain types of prepaid 
products such as government benefits cards. For example, in 2013, 
Illinois imposed pre-acquisition, on-card, and at-the-time-of-purchase 
disclosure requirements on ``general-use reloadable prepaid cards.'' 
\161\ Also in 2013, California enacted a law that extended protections 
similar to the FMS Rule to prepaid products receiving unemployment 
benefits and basic-needs benefits from the State of California.\162\
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    \161\ IL SB 1829 (2013), Public Act 098-0545, codified at 205 
Ill. Comp. Stat. 616/10 and 616/46. The Illinois law defines 
``general use reloadable card'' as, among other things, issued for 
consumer use; can be reloaded; is open-loop; and not marketed or 
labeled as a gift card or gift certificate. 205 ILCS 616/10.
    \162\ CA A 1820 (2013), ch. 557, codified at Cal. Unemp. Ins. 
Code Sec.  1339.1 and Cal. Welf. & Inst. Code Sec.  11006.2. Similar 
to the FMS Rule, this law includes provisions requiring that, among 
other things, such accounts to be set up to be eligible for pass-
through deposit or share insurance, not be attached to any credit or 
overdraft feature that is automatically repaid from the account 
after delivery of the payment, and compliance not only with the 
Payroll Card Rule (or other rules subsequently adopted under EFTA 
that apply to prepaid card accounts). See also CA A 2252 (2014), ch. 
180, codified at Cal. Fam. Code Sec.  17325 (extending similar 
protections to cards used for distribution of child support 
payments).
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    Further, many States have money transmitter laws that may apply to 
prepaid product providers. The laws vary by State but generally require 
a company to be licensed and to post a surety bond to cover 
accountholder losses if it becomes insolvent. Most States further 
require that the companies hold high-grade investments to back the 
money in customer accounts. But as noted in the proposal, States vary 
in the amount of their oversight of companies licensed under the money 
transmitter laws, and many may not have streamlined processes to pay 
out funds in the event a prepaid product provider were to file for 
bankruptcy protection.\163\
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    \163\ See, e.g., The Pew Charitable Trusts, Imperfect 
Protection--Using Money Transmitter Laws to Insure Prepaid Cards 
(Mar. 2013), available at https://www.pewtrusts.org/~/media/legacy/
uploadedfiles/pcs_assets/2013/.pdf.
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C. Existing Regulation of Credit Products and Overdraft Services 
Offered in Connection With Transaction Accounts

    As discussed further below, this final rule sets forth certain 
requirements that apply to overdraft credit features offered in 
connection with prepaid accounts. In crafting a regime to apply to 
credit accessed by prepaid cards, the Bureau has been conscious of 
existing regimes for regulating overdraft lines of credit (where there 
is a written agreement to pay overdrafts) generally under TILA and its 
implementing Regulation Z and overdraft services in the context of 
checking accounts (where there is no written agreement to pay 
overdrafts) under EFTA and Regulation E. Such overdraft services are 
exempt from Regulation Z but subject to certain parts of Regulation E.
Open-End (Not Home-Secured) Credit Products Under the Truth in Lending 
Act and the Electronic Fund Transfer Act
    Credit products are generally subject to TILA and Regulation Z, 
although the application of specific provisions of the statute and 
regulation depends on the attributes of the particular credit product. 
In 1968, Congress enacted TILA to promote the informed use of consumer 
credit by requiring disclosures about its terms and cost and to provide 
standardized disclosures. Congress has revised TILA several times and 
its purpose now is to ``assure a meaningful disclosure of credit terms 
so that the consumer will be able to compare more readily the various 
credit terms available to him,'' to ``avoid the uninformed use of 
credit,'' and ``to protect the consumer against inaccurate and unfair 
credit billing and credit card practices.'' \164\ TILA defines credit 
broadly to mean the right granted by a creditor to a debtor to defer 
payment of debt or incur debt and defer its payment.\165\
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    \164\ 15 U.S.C. 1601(a).
    \165\ 15 U.S.C. 1602(f). The term creditor in Regulation Z, set 
forth in Sec.  1026.2(a)(17)(i), generally means a person who 
regularly extends consumer credit that is subject to a finance 
charge or is payable by written agreement in more than four 
installments (not including a down payment), and to whom the 
obligation is initially payable, either on the face of the note or 
contract, or by agreement when there is no note or contract.
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    Congress has amended TILA on several occasions to provide consumers 
using certain types of credit products with additional protections. The 
Fair Credit Billing Act (FCBA),\166\ enacted in 1974, added a number of 
substantive protections for consumers who use open-end credit \167\ or 
use credit cards subject to TILA.\168\ For example, the FCBA increased 
rights and remedies for consumers who assert billing errors and 
required a minimum 14-day grace period for payments for creditors that 
offer a grace period, prompt re-crediting of refunds, and refunds of 
credit balances. Credit cards are also subject to these 
requirements,\169\ but also to a broad range of additional protections. 
Regulation Z defines the term ``credit card'' to mean any card, plate, 
or other single credit device that may be used from time to time to 
obtain credit.\170\ Cognizant that many financial institutions issue 
credit cards to cardholders with whom they also have a deposit account 
relationship, Congress in the FCBA also restricted the right of such 
institutions from taking funds out of a deposit account to satisfy 
their credit card claims.\171\ In 1988, Congress amended TILA through 
the Fair Credit and Charge Card Disclosure Act, which required issuers 
of credit cards and charge cards to provide certain disclosures at the 
time of application and solicitation.\172\
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    \166\ Public Law 93-495, 88 Stat. 1511 (1974).
    \167\ As discussed in greater detail in the section-by-section 
analysis of Sec.  1026.2(a)(20), open-end credit exists where there 
is a plan in which the creditor reasonably contemplates repeated 
transactions; the creditor may impose a finance charge from time to 
time on an outstanding unpaid balance; and the amount of credit that 
may be extended to the consumer during the term of the plan (up to 
any limit set by the creditor) is generally made available (even if 
not disclosed) to the extent that any outstanding balance is repaid. 
Sec.  1026.2(a)(20). Closed-end credit is credit that does not meet 
the definition of open-end credit. Sec.  1026.2(a)(10).
    \168\ Public Law 93-495, 88 Stat. 1511 (1974).
    \169\ Indeed, credit cards are subject to specialized and 
heightened disclosure requirements in advertisements, at the time of 
account opening, periodically for each billing cycle (i.e., periodic 
statements), and when certain terms of the account change. In 
addition, for credit card accounts disclosures generally are 
required on or with applications or solicitations. Among the 
required disclosures for credit cards on or with an application or 
solicitation is a tabular disclosure setting forth seven different 
disclosures. Sec.  1026.60. This ``Schumer box'' must be similar to 
the model forms in appendix G-10 to Regulation Z and must set forth 
certain fees, interest rates, transaction charges, and other 
required charges.
    \170\ See Sec.  1026.2(a)(15)(i).
    \171\ See Gardner v. Montgomery County Teachers Fed. Credit 
Union, 864 F.Supp.2d 410 (D. Md. 2012) (providing an overview of the 
FCBA's no offset provision).
    \172\ A charge card is a credit card on an account for which no 
periodic rate is used to compute a finance charge. Sec.  
1026.2(a)(15)(iii).
---------------------------------------------------------------------------

    In 2009, Congress enhanced protections for credit cards in the 
Credit CARD Act, which it enacted to ``establish fair and transparent 
practices related to the extension of credit'' in the credit card 
market.\173\ The Credit CARD Act, which amended TILA and EFTA, 
regulates both the underwriting and pricing of credit card accounts. 
Specifically, it prohibits credit card issuers from extending credit 
without assessing the consumer's ability to pay and imposes special 
rules regarding the extension of credit to persons under the age of 21 
and to college students. The Credit CARD Act also restricts the fees 
that an issuer can charge during the first

[[Page 83950]]

year after an account is opened, and limits both the instances in which 
issuers can charge ``back-end'' penalty fees when a consumer makes a 
late payment or exceeds his or her credit limit and the amount of such 
fees. Additionally, the Credit CARD Act restricts the circumstances 
under which issuers can increase interest rates on credit card accounts 
and establishes procedures for doing so. The Board generally 
implemented these provisions in subpart G of Regulation Z. Thus, while 
all open-end (not home-secured) credit plans receive some of TILA's 
protections, generally only open-end (not home-secured) credit plans 
that are accessed by credit cards receive the additional protections of 
the Credit CARD Act.
---------------------------------------------------------------------------

    \173\ Public Law 111-24, 123 Stat. 1734 (2009).
---------------------------------------------------------------------------

    Although EFTA does not generally focus on credit issues, Congress 
provided a specific credit-related protection in that statute. Known as 
the compulsory use provision, it provides that no person may 
``condition the extension of credit to a consumer on such consumer's 
repayment by means of preauthorized electronic fund transfers.'' \174\ 
A preauthorized EFT is an EFT authorized in advance to recur at 
substantially regular intervals, such as a recurring direct deposit or 
ACH debit. Where applicable, the compulsory use provision thus prevents 
a creditor from requiring a particular form of payment, such as a 
recurring ACH debit to another account, to repay credit. This provides 
consumers with the ability to control how and when they repay credit 
and does not allow a creditor to insist on a particular form of 
repayment. Thus, as implemented in Regulations Z and E, some of these 
protections are broadly applicable to credit generally while others are 
specific to particular credit products. For example, open-end lines of 
credit that consumers can link to a deposit account to pull funds when 
the account has insufficient funds where there is a written agreement 
to pay overdrafts generally are subject to certain disclosure 
requirements under Regulation Z and certain provisions of the FCBA. The 
Board, however, exempted overdraft lines of credit from the compulsory 
use provision, as discussed in more detail below). The Board also 
exempted overdraft lines of credit accessed by a debit card from the 
Credit CARD Act provisions.\175\
---------------------------------------------------------------------------

    \174\ EFTA section 913(1). As implemented in Regulation E, this 
provision (Sec.  1005.10(e)(1)) contains an exception for overdraft 
credit plans: ``No financial institution or other person may 
condition an extension of credit to a consumer on the consumer's 
repayment by preauthorized electronic fund transfers, except for 
credit extended under an overdraft credit plan or extended to 
maintain a specified minimum balance in the consumer's account.''
    \175\ 75 FR 7658 (Feb. 22, 2010).
---------------------------------------------------------------------------

Federal Regulatory Treatment of Deposit Account Overdraft Services
    A separate regulatory regime has evolved over the years with regard 
to treatment of overdraft services, which started as courtesy programs 
under which financial institutions would decide on a manual, ad hoc 
basis to cover particular check transactions for which consumers lacked 
funds in their deposit accounts rather than to return the transactions 
and subject consumers to a NSF fee, merchant fees, and other negative 
consequences from bounced checks. Although Congress did not exempt 
overdraft services or similar programs offered in connection with 
deposit accounts when it enacted TILA, the Board in issuing Regulation 
Z in 1969 carved financial institutions' overdraft programs (also then 
commonly known as ``bounce protection programs'') out of the new 
regulation.\176\ The Board distinguished between bounce protection 
programs where there is no written agreement to pay items that overdraw 
the account and more formal line-of-credit overdraft programs where 
there is a written agreement to pay overdrafts. Specifically, the Board 
exempted informal bounce protection programs but subjected overdraft 
lines of credit to Regulation Z when the creditor imposes a finance 
charge.\177\
---------------------------------------------------------------------------

    \176\ 34 FR 2002 (Feb. 11, 1969). See also, e.g., Sec.  
1026.4(c)(3) (excluding charges imposed by a financial institution 
for paying items that overdraw an account from the definition of 
``finance charge,'' unless the payment of such items and the 
imposition of the charge were previously agreed upon in writing); 
Sec.  1026.4(b)(2) (providing that any charge imposed on a checking 
or other transaction account is an example of a finance charge only 
to the extent that the charge exceeds the charge for a similar 
account without a credit feature).
    \177\ Later in the 1970s, the Board added provisions in 
Regulation Z specifically addressing credit cards. 40 FR 43200 
(Sept. 19, 1975). The Board subsequently carved debit cards, where 
there is no agreement to extend credit, out of the definition of 
credit card. 46 FR 50288, 50293 (Oct. 9, 1981).
---------------------------------------------------------------------------

    The Board revisited the exception of bounce protection programs 
from Regulation Z in 1981, in a rulemaking in which the Board 
implemented the Truth in Lending Simplification and Reform Act.\178\ In 
the related proposal, the Board considered adjusting its overdraft 
exemption to apply only to ``inadvertent'' overdrafts because, the 
Board stated, a charge imposed for honoring an instrument under any 
agreement between the institution and the consumer is a charge imposed 
for a credit extension and thus fits the general definition of a 
finance charge, regardless of whether the charge and the honoring of 
the check are reflected in a written agreement.\179\ Ultimately, 
however, the Board made only a ``few minor editorial changes'' to the 
exception in Sec.  1026.4(c)(3) from the definition of finance charge 
that applied to fees for paying items that overdraw an account where 
there is no written agreement to pay, concluding that it would exclude 
from Regulation Z ``overdraft charges from the [definition of] finance 
charge unless there is an agreement in writing to pay items and impose 
a charge.'' \180\
---------------------------------------------------------------------------

    \178\ Public Law 96-221, sec. 601, 94 Stat. 132; 45 FR 80648 
(Dec. 5, 1980).
    \179\ 45 FR 80648, 80657.
    \180\ 46 FR 20848, 20855 (Apr. 7, 1981).
---------------------------------------------------------------------------

    The Board also took up the status of bounce protection programs in 
the early 1980s in connection with the enactment of EFTA. As noted 
above, EFTA's compulsory use provision generally prohibits financial 
institutions or other persons from conditioning the extension of credit 
on a consumer's repayment by means of preauthorized EFTs. The Board, 
however, exercised its EFTA section 904(c) exception authority to 
create an exception to the compulsory use provision for credit extended 
under an overdraft credit plan or extended to maintain a specified 
minimum balance in the consumer's account.\181\ In adopting this 
exception, the Board stated that ``overdraft protection is a service 
that financial institutions have been providing to consumers at little 
or no extra cost beyond the cost of the protected account.'' \182\
---------------------------------------------------------------------------

    \181\ See Sec.  1005.10(e)(1).
    \182\ 46 FR 2972, 2973 (Jan. 13, 1981).
---------------------------------------------------------------------------

    Overdraft services in the 1990s began to evolve away from the 
historical model of bounce protection programs in a number of ways. One 
major industry change was a shift away from manual ad hoc decision-
making by financial institution employees to a system involving heavy 
reliance on automated programs to process transactions and to make 
overdraft decisions. A second was to impose higher overdraft fees. In 
addition, broader changes in payment transaction types also increased 
the impacts of these other changes on overdraft services. In 
particular, debit card use expanded dramatically, and financial 
institutions began extending overdraft services to debit card 
transactions.
    In the 1990s, many institutions expanded transactional capabilities 
by replacing consumers' ATM-only cards with debit cards that consumers 
could use to make electronic payments to merchants and service 
providers directly from their checking accounts

[[Page 83951]]

using the major payment networks (and thus most merchants could accept 
them).\183\ As a result, debit card transaction volumes grew quickly as 
payment networks that enable these transactions broadened. Acceptance 
by grocery stores, gas stations, fast food restaurants, and other 
retailers helped to drive the popularity of debit card payments across 
regional and global ATM networks (accessed by using a PIN). By the late 
1990s, ``signature debit'' transaction volumes became the most common 
type of debit card transaction.\184\ These debit cards offered 
acceptance at all merchants that honored payments from the major 
payment networks, such as internet retailers.\185\
---------------------------------------------------------------------------

    \183\ See R. Borzekowski et al., Consumers' Use of Debit Cards: 
Patterns, Preferences, and Price Response, at 2 (Fed. Reserve Board, 
Apr. 2006), available at https://www.federalreserve.gov/pubs/feds/2006/200616/200616pap.pdf (noting that, as of 2006, ``[a]nnual debit 
card transactions at the point of sale have been growing at over 
twenty percent per year since 1996 and now exceed credit card 
transactions.''). By 2006, debit card payment transaction volumes in 
the U.S. had exceeded both check and credit card payments, and from 
2006 to 2011, the total volume of U.S. consumer debit card 
transactions nearly doubled.
    \184\ Fumiko Hayashi, The New Debit Card Regulations: Initial 
Effects on Networks and Banks, Fed. Reserve Bank of Kan. City Econ. 
Rev., at 83 chart 2 (4th quarter 2012), available at https://www.kansascityfed.org/publicat/econrev//12q4Hayashi.pdf. With 
respect to ``signature debit'' transactions, a consumer does not use 
a PIN but instead typically signs a copy of a transaction receipt 
provided by the merchant in order to affirm the consumer's identity. 
For further information on the difference between signature-based 
and PIN-based card transactions, see, for example, the preamble of 
the Board's proposed rule to implement the Durbin amendment. 75 FR 
81722, 81723 (Dec. 28, 2010).
    \185\ See generally CFPB Overdraft White Paper at 11-17 
(explaining growth of debit card transactions from consumers' 
deposit accounts).
---------------------------------------------------------------------------

    As a result of these operational changes, overdraft services became 
a significant source of revenue for banks and credit unions as the 
volume of transactions involving checking accounts increased due 
primarily to the growth of debit cards.\186\ Before debit card use 
grew, overdraft fees on check and ATM transactions formed a greater 
portion of deposit account overdrafts. Debit card transactions 
presented consumers with markedly more chances to incur an overdraft 
fee when making a purchase because of increased acceptance and use of 
debit cards for relatively small transactions (e.g., fast food and 
grocery stores).\187\ Over time, revenue from overdraft increased and 
began to influence significantly the overall pricing structure for many 
deposit accounts, as providers began relying heavily on back-end 
pricing while eliminating or reducing front-end pricing (i.e., ``free'' 
checking accounts with no monthly fees) as discussed above.\188\
---------------------------------------------------------------------------

    \186\ Id. at 16.
    \187\ Id. at 11-12.
    \188\ Id. at 16-17.
---------------------------------------------------------------------------

    As a result of the growth of debit card transactions and the 
changing landscape of deposit account overdraft services, Federal 
banking regulators expressed increasing concern about consumer 
protection issues and began a series of issuances and rulemakings. 
First, in September 2001, the OCC released an interpretive letter 
expressing concern about overdraft protection services.\189\ The letter 
noted that overdrafts are credit but that related fees may not be 
finance charges under Regulation Z. In declining to issue a ``comfort 
letter'' regarding an unnamed overdraft service, the OCC called 
attention to a number of troubling practices, including inadequate 
disclosure to consumers of the risk of harm from overdraft services and 
failure to properly help consumers who were using overdraft services as 
``a means of meeting regular obligations'' to find more economical 
forms of credit.\190\
---------------------------------------------------------------------------

    \189\ Office of the Comptroller of the Currency, Interpretive 
Letter No. 914, 3rd Party Program, (Aug. 3, 2001), available at 
https://www.occ.gov/static/interpretations-and-precedents/sep01/int914.pdf.
    \190\ Id.
---------------------------------------------------------------------------

    The Board also signaled concern with overdraft services in a number 
of rulemaking actions. In a 2002 proposal to amend Regulation Z with 
regard to the status of certain credit card-related fees and other 
issues, the Board noted that some overdraft services may not be all 
that different from overdraft lines of credit and requested comment on 
whether and how Regulation Z should be applied to banks' bounce-
protection services, in light of the Regulation's exclusion of such 
services but inclusion of lines-of-credit where a finance charge is 
imposed or is accessed by a debit card.\191\ The Board did not modify 
the Regulation Z exemptions when it issued final rules in 2003,\192\ 
but proposed revisions to Regulation DD (which implements the Truth in 
Savings Act (TISA)) and its commentary in 2004 to address concerns 
about the uniformity and adequacy of institutions' disclosure of 
overdraft fees generally and to address concerns about advertised 
automated overdraft services in particular.\193\ The Board specifically 
noted that it was not proposing to cover overdraft services under TILA 
and Regulation Z, but that further consideration of the need for such 
coverage would be appropriate if consumer protection concerns about 
these overdraft services were to persist in the future.\194\
---------------------------------------------------------------------------

    \191\ 67 FR 72618, 72620 (Dec. 6, 2002).
    \192\ The March 2003 final rule preamble stated that ``[t]he 
Board's staff is continuing to gather information on these services, 
which are not addressed in the final rule.'' 68 FR 16185 (Apr. 3, 
2003).
    \193\ 69 FR 31760 (June 7, 2004).
    \194\ Id. at 31761.
---------------------------------------------------------------------------

    When the Board finalized the Regulation DD proposal in 2005, it 
noted that it declined at that time to extend Regulation Z to overdraft 
services. In doing so, it noted that industry commenters were concerned 
about the cost of imposing Regulation Z requirements on deposit 
accounts and about the compliance burden of providing an annual 
percentage rate (APR) that is calculated based on overdraft fees 
without corresponding benefits to consumers in better understanding the 
costs of credit. The Board noted that consumer advocates stated that 
overdraft services compete with traditional credit products--open-end 
lines of credit, credit cards, and short-term closed-end loans--all of 
which are covered under TILA and Regulation Z and provide consumers 
with the cost of credit expressed as a dollar finance charge and an 
APR. The Board explained that these commenters believed TILA 
disclosures would enhance consumers' understanding of the cost of 
overdraft services and their ability to compare costs of competing 
financial services. The Board also noted that some members of its 
Consumer Advisory Council believed that overdraft services are the 
functional equivalent of a traditional overdraft line of credit and 
thus should be subject to Regulation Z, but that financial 
institutions' historical practice of paying occasional overdrafts on an 
ad hoc basis should not be covered by Regulation Z. While not 
specifically addressing these concerns, the Board emphasized that its 
decision not to apply Regulation Z did not preclude future 
consideration regarding whether it was appropriate to extend Regulation 
Z to overdraft services.\195\
---------------------------------------------------------------------------

    \195\ 70 FR 29582, 29584-85 (May 24, 2005). In this 2005 
rulemaking, the Board revised Regulation DD to address concerns 
about the uniformity and adequacy of information provided to 
consumers when they overdraw their deposit accounts. Among other 
things, the final rule required institutions that promote the 
payment of overdrafts in an advertisement to disclose on periodic 
statements, total fees imposed for paying overdrafts and total fees 
imposed for returning items unpaid on periodic statements, both for 
the statement period and the calendar year to date, and to include 
certain other disclosures in advertisements of overdraft services. 
Id. Ultimately, in 2009, the Board expanded this provision to all 
institutions, not just those that promote the payments of 
overdrafts. See 74 FR 5584 (Jan. 29, 2009).
---------------------------------------------------------------------------

    In February 2005 (prior to the Board having finalized the 
Regulation DD

[[Page 83952]]

changes discussed above), the Federal banking agencies also issued 
joint guidance on overdraft programs in response to the increased 
availability and customer use of overdraft services.\196\ The purpose 
of the Joint Guidance was to assist insured banks in the responsible 
disclosure and administration of overdraft programs. The agencies were 
concerned that the banks failed to clearly disclose the terms and 
conditions of the programs, including the fees associated with them and 
that consumers might have been misled.\197\
---------------------------------------------------------------------------

    \196\ 70 FR 9127 (Feb. 24, 2005) (Joint Guidance). The Office of 
Thrift Supervision also issued guidance on overdraft protection 
programs. See 70 FR 8428 (Feb. 18, 2005).
    \197\ 70 FR 9127, 9129 (Feb. 24, 2005).
---------------------------------------------------------------------------

    The Joint Guidance stated that ``the existing regulatory exceptions 
[i.e., exceptions in Regulation Z such that the Regulation does not 
apply] were created for the occasional payment of overdrafts, and as 
such could be reevaluated by the Board in the future, if necessary. 
Were the Board to address these issues more specifically, it would do 
so separately under its clear [TILA] authority.'' \198\ The Joint 
Guidance went on to state that ``[w]hen overdrafts are paid, credit is 
extended. Overdraft protection programs may expose an institution to 
more credit risk (e.g., higher delinquencies and losses) than overdraft 
lines of credit and other traditional overdraft protection options to 
the extent these programs lack individual account underwriting.'' \199\ 
This guidance remains in effect.
---------------------------------------------------------------------------

    \198\ Id. at 9128.
    \199\ Id.
---------------------------------------------------------------------------

    In the late 2000s as controversy regarding overdraft services 
continued to mount despite the increase in regulatory activity, Federal 
agencies began exploring various additional measures with regard to 
overdraft, including whether to require that consumers affirmatively 
opt in before being charged for overdraft services. First, in May 2008, 
the Board along with the NCUA and the now-defunct Office of Thrift 
Supervision proposed to exercise their authority under section 5 of the 
Federal Trade Commission Act (FTC Act) \200\ to prohibit institutions 
from assessing any fees on a consumer's account in connection with an 
overdraft service, unless the consumer was given notice and the right 
to opt out of the service, and the consumer did not opt out.\201\ At 
the same time, the Board issued a proposal under Regulation DD to 
expand disclosure requirements and revise periodic statement 
requirements to provide aggregate totals for overdraft fees and for 
returned item fees for the periodic statement period and the year to 
date.\202\ The Board finalized portions of the Regulation DD proposal 
in January 2009.\203\ In addition, although the three agencies did not 
finalize their FTC Act proposal, the Board ultimately adopted an opt-in 
requirement for ATM and one-time debit card transactions under 
Regulation E in late 2009.
---------------------------------------------------------------------------

    \200\ Section 5 of the FTC Act prohibits ``unfair or deceptive 
acts or practices in or affecting commerce.'' 15 U.S.C. 45. See also 
Federal Deposit Insurance Act section 8 (extending to the Board 
authority to take appropriate action when unfair or deceptive acts 
or practices are discovered). 12 U.S.C. 1818.
    \201\ 73 FR 28904 (May 19, 2008).
    \202\ 73 FR 28730 (May 19, 2008).
    \203\ 74 FR 5584 (Jan. 29, 2009). Specifically, this rule 
required, among other things, all banks to disclose aggregate 
overdraft fees on periodic statements, and not solely institutions 
that promote the payment of overdrafts.
---------------------------------------------------------------------------

    The overdraft opt-in rule in Regulation E applies to all accounts 
covered by Regulation E, including payroll card accounts. In addressing 
overdraft services for the first time as a feature of accounts in 
Regulation E,\204\ the Board concluded that the opt-in rule carried out 
``the express purposes of EFTA by: (a) establishing notice requirements 
to help consumers better understand the cost of overdraft services for 
certain EFTs; and (b) providing consumers with a choice as to whether 
they want overdraft services for ATM and one-time debit card 
transactions in light of the costs associated with those services.'' 
\205\ The rule did not discuss GPR cards, which as noted above, the 
Board had not expressly subjected to Regulation E coverage.
---------------------------------------------------------------------------

    \204\ 74 FR 59033 (Nov. 17, 2009).
    \205\ Id. at 59037.
---------------------------------------------------------------------------

    Following the adoption of the Board's overdraft opt-in rule, the 
FDIC expanded on the previously issued Joint Guidance via a Financial 
Institution Letter to reaffirm its existing supervisory expectations 
with respect to overdraft payment programs generally and provide 
specific guidance with respect to automated overdraft payment 
programs.\206\ In 2011, the OCC proposed similar guidance regarding 
automatic overdraft programs and deposit advance products. This 
guidance, if finalized, would have clarified the OCC's application of 
principles of safe and sound banking practices in connection with 
deposit-related consumer credit products such as automated overdraft 
services and direct deposit advance programs.\207\ The OCC withdrew 
this proposed guidance in 2013.\208\
---------------------------------------------------------------------------

    \206\ Fed. Deposit Ins. Corp., FIL-81-2010, Overdraft Payment 
Programs and Consumer Protection Final Overdraft Payment Supervisory 
Guidance (Fin. Inst. Letter, Nov. 24, 2010), available at https://www.fdic.gov/news/news//2010/fil10081.html.
    \207\ 76 FR 33409 (June 8, 2011). The Office of Thrift 
Supervision also proposed supplemental guidance on overdraft 
protection programs. 75 FR 22681 (Apr. 29, 2010).
    \208\ 78 FR 25353 (Apr. 30, 2013).
---------------------------------------------------------------------------

    Since the Bureau assumed authority from the Board for implementing 
most of EFTA in 2011, it has taken a number of steps--including 
research, analysis, and solicitation of comment--to assess the impact 
and efficacy of the Board's 2009 overdraft opt-in rule. In early 2012, 
the Bureau issued a Request For Information that sought input from the 
public on a number of overdraft topics, including lower cost 
alternatives to overdraft protection programs, consumer alerts and 
information provided regarding balances and overdraft triggers, the 
impact of changes to Regulations DD and E and overdraft opt-in rates, 
the impact of changes in financial institutions' operating policies, 
the economics of overdraft programs, and the long-term impact on 
consumers.\209\ In response, the Bureau received over 1,000 comments. 
The Bureau did not request information specific to prepaid products, 
and few commenters specifically addressed prepaid products. The Bureau 
has also undertaken significant research into overdraft services that 
has resulted, to date, in the release of the CFPB Overdraft White 
Paper, noted above, and a data point in July 2014.\210\ The Bureau is 
engaged in pre-rule making activities to consider potential regulation 
of overdraft services on checking accounts.\211\ As part of its 
preparations, the Bureau has begun consumer testing initiatives related 
to the opt-in process set forth in current Regulation E.\212\
---------------------------------------------------------------------------

    \209\ 77 FR 12031 (Feb. 28, 2012).
    \210\ See CFPB, Data Point: Checking Account Overdraft (July 
2014), available at https://files.consumerfinance.gov/f/201407_cfpb_report_data-point_overdrafts.pdf.
    \211\ See CFPB, Spring 2016 Rulemaking Agenda (May 2016), 
available at https://www.consumerfinance.gov/about-us/blog/spring-2016-rulemaking-agenda/.
    \212\ Id.
---------------------------------------------------------------------------

Other Relevant Federal Regulatory Activity
    In addition, several Federal initiatives have specifically 
addressed the possibility of credit features being offered in 
connection with prepaid products. First, the Treasury FMS Rule 
(described above), adopted in late December 2011, permits Federal 
payments to be deposited onto a prepaid product only if the product is 
not attached to a line of credit or loan agreement under which 
repayment from

[[Page 83953]]

the account is triggered upon delivery of the Federal payments, among 
other conditions.\213\ The preamble to that Interim Final Rule 
indicates that the goal of this requirement is to prevent payday 
lending and other arrangements in which a financial institution or 
creditor ``advances'' funds to a cardholder's account, and then repays 
itself for the advance and any related fees by taking some or all of 
the cardholder's next deposit.\214\ The Treasury FMS Rule does not, 
however, directly address the permissibility of overdraft services.
---------------------------------------------------------------------------

    \213\ See 31 CFR 210.5(b)(5)(i)(C).
    \214\ 75 FR 80335 (Dec. 22, 2010).
---------------------------------------------------------------------------

    Second, as discussed above, the Board's Regulation II generally 
caps interchange fees that may be imposed on debit card transactions. 
Regulation II provides an exemption from the fee restrictions for cards 
provided pursuant to a Federal, State, or local government-administered 
payment program and for certain reloadable prepaid cards.\215\ However, 
Regulation II carves out of this exemption interchange fees for 
transactions made with these prepaid cards if, with respect to the 
card, an overdraft fee may be charged.\216\ EFTA and Regulation II 
provide a separate, blanket exemption for cards of issuers with assets 
of less than $10 billion, so these cards are not subject to the fee 
restrictions even if overdraft fees may be charged.\217\
---------------------------------------------------------------------------

    \215\ See 12 CFR 235.5(b) through (d).
    \216\ 12 CFR 235.5(d)(1).
    \217\ See EFTA section 920(a)(6)(A) and 12 CFR 235.5(a).
---------------------------------------------------------------------------

    Third, as discussed above in part II.B, ED's cash management 
regulation bans point-of-sale and overdraft fees on accounts, including 
prepaid card accounts, that are directly marketed to students by a 
financial institution with which the student's college or university 
has an arrangement to disburse Federal financial aid on behalf of the 
post-secondary institution.\218\
---------------------------------------------------------------------------

    \218\ See generally 80 FR 67126 (Oct. 30, 2015).
---------------------------------------------------------------------------

    Separately, in 2015, the Department of Defense (DOD) issued a final 
rule \219\ amending its regulation \220\ that implements the Military 
Lending Act (MLA).\221\ Under the MLA, a creditor generally may not 
apply a military APR (MAPR) greater than 36 percent in connection with 
an extension of consumer credit to a military service member or 
dependent.\222\ The final rule expands the types of consumer credit 
covered by the regulation that implements the MLA so that it is now 
more consistent with the types of consumer credit covered by TILA, 
subject to certain statutory exemptions set forth in the MLA. Because 
overdraft services are exempted from Regulation Z, they are also 
exempted from the regulation that implements the MLA.\223\ 
Additionally, although the DOD proposed that for open-end (not home-
secured) credit card accounts, any credit-related charge that is a 
finance charge under Regulation Z (as well as certain other charges) 
would be included in calculating the MAPR for a particular billing 
cycle, and the MAPR for that billing cycle could not exceed 36 percent, 
the final rule provides a two-year exemption for credit extended in a 
credit card account under an open-end (not home-secured) consumer 
credit plan.\224\
---------------------------------------------------------------------------

    \219\ 80 FR 43560 (July 22, 2015). The DOD issued a related 
interpretive rule in August 2016. See 81 FR 58840 (Aug. 26, 2016).
    \220\ 32 CFR part 232.
    \221\ 10 U.S.C. 987 et seq.
    \222\ 10 U.S.C. 987(b).
    \223\ 80 FR 43560, 43580 (July 22, 2015).
    \224\ 32 CFR 232.13.
---------------------------------------------------------------------------

D. Other Payments-Related Bureau Actions

    The Bureau has handled approximately 5,600 prepaid card complaints 
as of August 1, 2016.\225\ Concerns have included issues related to 
accessing funds loaded on the prepaid cards, unauthorized transactions, 
fees, and error resolution.\226\ In June 2014, the Bureau issued a 
Request for Information regarding the opportunities and challenges 
associated with the use of mobile financial products and services.\227\ 
The Bureau sought information on how mobile technologies are impacting 
economically vulnerable consumers with limited access to traditional 
banking systems. The Bureau received approximately 48 comments in 
response to this request for information, and published a summary of 
the comments in November 2015.\228\ Among other things, the summary 
noted that the comments indicated a significant increase in the use of 
virtual prepaid products (prepaid products accessed via computer or on 
a mobile device without a physical card) by underserved consumers 
(i.e., low-income, unbanked, underbanked, and economically vulnerable 
consumers).
---------------------------------------------------------------------------

    \225\ While this number reflects complaints since July 11, 2011, 
the Bureau did not officially begin accepting consumer complaints 
about prepaid products until July 2014. See Press Release, CFPB, 
CFPB Begins Accepting Consumer Complaints on Prepaid Cards and 
Additional Nonbank Products (July 21, 2014), available at https://www.consumerfinance.gov/newsroom/cfpb-begins-accepting-consumer-complaints-on-prepaid-cards-and-additional-nonbank-products.
    \226\ See, e.g., CFPB Monthly Complaint Report, at 11-12 (Mar. 
2016), available at https://files.consumerfinance.gov/f/201603_cfpb_monthly-complaint-report-vol-8.pdf (the monthly report 
included a section on prepaid card complaints).
    \227\ 79 FR 33731 (June 12, 2014).
    \228\ CFPB, Mobile Financial Services--A Summary of Comments 
from the Public on Opportunities, Challenges, and Risks for the 
Underserved (Nov. 2015), available at https://files.consumerfinance.gov/f/201511_cfpb_mobile-financial-services.pdf.
---------------------------------------------------------------------------

    In August 2014, the Bureau issued a consumer advisory on virtual 
currencies that discussed the risks to consumers posed by them.\229\ At 
the same time, the Bureau also began accepting consumer complaints 
regarding virtual currencies. In the proposal, the Bureau stated that 
its analysis with respect to virtual currencies and related products 
and services was ongoing. The proposal did not resolve specific issues 
with respect to the application of either existing regulations or the 
proposed rule to virtual currencies and related products and 
services.\230\ Nonetheless, the Bureau received some comments on 
whether the Bureau should regulate virtual currency products and 
services under this final rule. These comments are discussed in greater 
detail in the section-by-section analysis of Sec.  1005.2(b) below.
---------------------------------------------------------------------------

    \229\ CFPB Consumer Advisory, Risks to Consumers Posed by 
Virtual Currencies (Aug. 2014), available at https://files.consumerfinance.gov/f/201408_cfpb_consumer-advisory_virtual-currencies.pdf.
    \230\ 79 FR 77102, 77133 (Dec. 23, 2014).
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III. Summary of the Rulemaking Process

    The Bureau undertook several years of research, analysis, and other 
outreach before issuing this final rule. As noted above, the Bureau 
issued the Prepaid ANPR in 2012, which posed a series of questions for 
public comment about how the Bureau might consider regulating GPR 
cards. The Bureau sought input on the following topics: (1) The 
disclosure of fees and terms; (2) if consumers should be informed 
whether their funds are protected by FDIC pass-through deposit 
insurance; (3) unauthorized transactions and the costs and benefits of 
requiring card issuers to provide limited liability protection from 
unauthorized transactions similar to those protections available for 
other accounts under Regulation E; and (4) other product features 
including credit features in general and overdraft services in 
particular, linked savings accounts, and credit repair or credit 
building features.
    The Bureau received over 220 comments on the Prepaid ANPR.\231\ 
Industry commenters, including banks and credit unions, prepaid program 
managers, payment networks and

[[Page 83954]]

industry trade associations, submitted the majority of comments. The 
Bureau also received comment letters from consumer and other interest 
groups, as well as several individual consumers. The Bureau evaluated 
the comments received in response to the Prepaid ANPR in its 
preparation of the proposed rule.
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    \231\ The comments can be reviewed at https://www.regulations.gov/#!documentDetail;D=CFPB-2012-0019-0001.
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    The Bureau conducted extensive and significant additional outreach 
and research following the Prepaid ANPR as part of its efforts to study 
and evaluate prepaid products. The Bureau's pre-proposal outreach 
included meetings with industry, consumer groups, and non-partisan 
research and advocacy organizations. The Bureau also conducted market 
research, monitoring, and related actions pursuant to section 
1022(c)(4) of the Dodd-Frank Act, which allows the Bureau to gather 
information from time to time regarding the organization, business 
conduct, markets, and activities of covered persons and service 
providers to aid the Bureau's market monitoring efforts. Further, the 
Bureau obtained information directly from consumers through focus 
groups and consumer testing. Additionally, as noted above, the Bureau 
studied publicly available account agreements for prepaid products that 
appear to meet the Bureau's proposed definition of the term ``prepaid 
account'' that involved Bureau staff reviewing of numerous prepaid 
products' terms and conditions to determine current industry practices 
in a number of areas to inform its understanding of the potential costs 
and benefits of extending various Regulation E provisions to prepaid 
accounts. The Bureau's consumer testing and Study of Prepaid Account 
Agreements are discussed in greater detail below.
    To prepare this final rule, the Bureau considered, among other 
things, feedback provided in response to the Prepaid ANPR, feedback 
provided to the Bureau prior to the issuance of its proposal, including 
information gathered during consumer testing, interagency 
consultations, and feedback provided in response to the proposed rule, 
and additional consumer testing.

A. Pre-Proposal and Post-Proposal Consumer Testing

    The Bureau conducted both pre-proposal and post-proposal 
qualitative testing of prepaid account prototype disclosure forms with 
prepaid card users to inform the Bureau's design and development of the 
model and sample forms included in the final rule. The prototypes 
included forms that could be used in the context of GPR cards, payroll 
and government benefits cards, and for prepaid account programs with 
multiple service plans. The Bureau engaged and directed a third-party 
vendor selected by competitive bid, ICF International (ICF), to 
coordinate this qualitative consumer testing. ICF prepared a report 
memorializing the consumer testing after both pre-proposal and post-
proposal testing in, respectively, ICF Report I and ICF Report II.\232\ 
The qualitative testing was conducted in accordance with OMB Control 
Number 3170-0022.
---------------------------------------------------------------------------

    \232\ See ICF Report I, and ICF Int'l, Final Report of Findings: 
Post-Proposal Testing of Prepaid Card Disclosures (Oct. 2015), 
available at https://files.consumerfinance.gov/f/201510_cfpb_report-findings-testing-prepaid-card-disclosures.pdf (ICF Report II).
---------------------------------------------------------------------------

    Pre-proposal testing consisted of (1) four informal focus groups to 
gather in-depth information about how consumers shop for prepaid cards 
and the factors they consider when acquiring such products and (2) 
three rounds of one-on-one interviews to see how consumers interact 
with the prototype forms developed by the Bureau and use them in 
comparison shopping exercises. The focus groups were held in Bethesda, 
Maryland in December 2013; each lasted approximately 90 minutes and 
included eight to 10 participants. Each of the three rounds of one-on-
one interviews lasted approximately 60 to 75 minutes, included nine or 
10 participants each, and took place in early 2014 in Baltimore, 
Maryland; Los Angeles, California; and Kansas City, Missouri.
    The findings from the focus groups, as well as responses to the 
Bureau's ANPR (see the section-by-section analysis of Sec.  1005.18(b) 
below) and other outreach activities, strongly influenced the Bureau's 
decision to develop and propose a pre-acquisition disclosure regime 
that includes both an easily digestible ``short form'' disclosure 
highlighting key fees and features of a prepaid account program in a 
standardized format apt for comparison shopping that could fit on 
existing packaging material used to market prepaid products on J-hooks 
in retail locations and a ``long form'' disclosure containing a 
comprehensive list of fees and other information germane to the 
purchase and use of the prepaid account program. Pre-proposal one-on-
one testing allowed the Bureau to experiment with various structures 
and content to arrive at an optimal design.
    Post-proposal testing, which consisted of two rounds of one-on-one 
interviews, had the same goals as pre-proposal interviews but with the 
added goal of further refining the proposed model and sample short form 
and long form disclosures. This further refinement was based on the 
response of testing participants to changes to the prototypes resulting 
from the Bureau's own internal review as well as public comments 
received in response to the proposed rule. Each one-on-one interview 
lasted approximately 75 minutes and took place in Arlington, Virginia 
in July 2015 and Milwaukee, Wisconsin in August 2015 with 9 and 11 
participants, respectively.
    Eighty-nine consumers participated in the pre- and post-proposal 
testing, representing a range of ages, races, and education 
levels.\233\ All testing was conducted in English, but each round 
included native speakers of languages other than English. All 
participants self-identified as having used a prepaid card in the 
previous six months (for focus group participants) or 12 months (for 
interview participants). Several participants had experience with 
payroll or government benefits cards in addition to or in lieu of GPR 
cards.
---------------------------------------------------------------------------

    \233\ For a detailed discussion of the methodology used in the 
consumer testing, including participant selection, see, 
respectively, ICF Report I at 2-4 and ICF Report II at 4.
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    Focus group findings highlights. Few focus group participants 
reported doing any formal comparison shopping before purchasing a 
prepaid card in a retail store. Furthermore, only about half of 
participants indicated that they learned about the fees associated with 
their prepaid cards prior to purchase; a few of them reported learning 
about a card's fees post-acquisition only after unknowingly incurring 
certain fees and seeing that the fees were deducted from their card 
balance. When asked about which fees were most important to them, 
almost all participants cited one of the following fees: (1) Monthly 
maintenance fees; (2) per purchase fees; (3) ATM withdrawal fees; and 
(4) cash reload fees. Based on these finding and the Bureau's outreach 
more generally, the Bureau developed several ``short form'' and ``long 
form'' prototype disclosure forms to test with participants in the 
individual interview segment of the consumer testing.
    Individual interviews findings highlights. In both pre- and post-
proposal consumer testing, ICF asked participants questions to assess 
how well they were able to comprehend the fees and other information 
included on prototype forms. In some cases, ICF also asked participants 
to engage in shopping exercises to compare fee information printed on 
different prototype forms. After each round of testing, ICF analyzed 
and briefed the Bureau on the results of the testing. The Bureau used 
this feedback to make

[[Page 83955]]

iterative changes, as necessary, to the form design for the next round 
of testing.
    In the first round of pre-proposal testing, the Bureau tested short 
form disclosures that variably included: (1) A ``top-line'' of four 
fees displayed more prominently than the other fees, (2) fees grouped 
together by category, or (3) fees listed without including either the 
top-line or fee categories. Generally, participants were able to 
understand the basic fee information presented in all of the prototype 
disclosure forms. However, many participants expressed a preference for 
a form that is both easy to read and that prominently displays the most 
important fee information. These participants also said they believed 
that prototype forms that included a ``top line'' disclosure of certain 
fees met these objectives.
    The Bureau also focused on developing and testing a short form that 
did not disclose all the variations for each fee and full explanations 
of the conditions under which those variations could be incurred. In 
other words, the Bureau used testing to determine how to best present a 
subset of key information about a prepaid product in the short form 
disclosure, while effectively indicating to consumers that additional 
information not included on the form was also available. The prototype 
forms in the first round of testing included a system with sets of 
multiple asterisks to indicate additional information was available for 
fees that could vary in amount. Many participants, however, failed to 
notice the text associated with the asterisks or struggled to 
accurately connect the various symbols with the appropriate fees.
    To improve comprehension, the Bureau introduced forms in the second 
round of testing that only included a single symbol linked to one line 
of explanatory text indicating all of the fees that might vary on the 
form. This modification appeared to increase the frequency with which 
participants noticed the language associated with the symbol, and thus, 
the frequency with which participants noticed that fees could vary also 
increased. In the third round of testing, in addition to reviewing 
additional short form disclosure prototypes, participants engaged in a 
shopping exercise with a prototype long form disclosure to compare the 
relative utility of the short form and long form disclosures.
    During its pre-proposal testing, the Bureau posted a blog on its 
Web site that included two of the prototype short form disclosure 
designs used during the second round of testing \234\ and invited the 
public to provide feedback on the prototypes, including suggestions for 
improvement. The Bureau received over 80 comments from industry, 
consumer advocacy groups, and individual consumers, in addition to 
email submissions and other correspondence. These comments informed the 
Bureau's form design for the ensuing round of pre-proposal consumer 
testing as well as for the model forms included in the proposed rule.
---------------------------------------------------------------------------

    \234\ Eric Goldberg, Prepaid cards: Help design a new 
disclosure, CFPB Blog Post, (Mar. 18, 2014), https://www.consumerfinance.gov/blog/prepaid-cards-help-design-a-new-disclosure/.
---------------------------------------------------------------------------

    Post-proposal testing consisted of two rounds of one-on-one 
interviews intended to further refine the model and sample forms 
published in the proposed rule. In addition to general refinement of 
the text and design of the proposed short form and long form 
disclosures, the Bureau tested new elements introduced as a result of 
internal Bureau analysis and stakeholder input from comments to the 
proposal and post-proposal ex-parte communications.\235\
---------------------------------------------------------------------------

    \235\ For more detailed discussion of post-proposal testing, see 
ICF Report II and the specific section-by-section analysis of the 
particular disclosure elements below.
---------------------------------------------------------------------------

    Post-proposal testing of the overall design integrity and 
effectiveness of the disclosures confirmed participants' general 
ability to navigate and understand the short and long form disclosures. 
Nearly all participants were able to successfully identify all fees on 
the short form disclosure when asked whether the prepaid account had 
such a fee.\236\ Further, when asked about a fee that did not appear on 
or with the short form disclosure, almost all participants referred to 
the long form disclosure and were able to successfully find the 
information for which they were looking.\237\ Also, when comparing 
short forms for two different hypothetical prepaid account programs, 
most participants were able to compare fees between forms and reach an 
informed decision as to which card would be best for their 
circumstances.\238\ This was true even when one of the forms described 
a prepaid card with a more complex, multiple fee plan structure.\239\ 
With regard to the requirement to disclose the highest fee in the short 
form disclosure, continued refinement in post-proposal testing of the 
asterisk system to alert consumers of when the fee amount could be 
lower resulted in increased participant comprehension with almost all 
participants correctly applying the text to fees with an asterisk, and 
fewer misapplications of the text to fees without an asterisk.\240\
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    \236\ See ICF Report II at 5.
    \237\ Id. at 7.
    \238\ Id. at 5.
    \239\ Id.
    \240\ Id. See also the section-by-section analysis of Sec.  
1005.18(b)(3)(i) below.
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    Post-proposal testing of a statement regarding overdraft and credit 
generally showed participants correctly understood that they would not 
necessarily be offered credit or overdraft by the prepaid provider, 
would have to wait 30 days to get the feature, and might be charged 
fees for the feature.\241\ Testing of a statement regarding FDIC 
insurance coverage generally showed participants understood whether or 
not the prepaid card offered such insurance and that insurance coverage 
was a positive feature, although less than half were able to accurately 
explain against what FDIC insurance would protect them.\242\ The 
testing of two versions of language at the top of the short form 
disclosure for payroll cards and government benefits cards explaining 
that other methods were also available for potential card recipients to 
receive their wages or benefits indicated that participants who saw 
this language generally understood they did not have to accept payment 
on the card.\243\ Testing also revealed that neither version affected 
whether or not participants said they would be interested in receiving 
wages or benefits via the card.\244\
---------------------------------------------------------------------------

    \241\ Id. at 6, 14-15, and 24-25. See also the section-by-
section analysis of Sec.  1005.18(b)(2)(x) below.
    \242\ Id. at 7. See also the section-by-section analysis of 
Sec.  1005.18(b)(2)(xi) below.
    \243\ Id. at 7. See also the section-by-section analysis of 
Sec.  1005.18(b)(2)(iv)(A) below.
    \244\ Id.
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    Post-proposal testing indicated the effectiveness of the removal or 
addition of some disclosure elements from the proposed short form 
disclosures that the Bureau is adopting in this final rule. For 
example, in an attempt to streamline the short form with a single 
disclosure for like fees, when testing participants were presented with 
a single fee for ATM withdrawals, as opposed to separate fees for both 
``in-network'' and ``out-of-network'' withdrawals, all participants 
seemed to understand that the amount of this fee would not depend on 
whether the cardholder used an in-network or out-of-network ATM.\245\ 
Also, the testing of the addition of a second symbol (a dagger symbol 
([dagger]), in addition to the asterisk discussed above) linked to a 
statement about situations in which the monthly fee would be waived or 
discounted revealed that most

[[Page 83956]]

participants saw the dagger and were able to link it to the appropriate 
statement.\246\
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    \245\ Id. at 5. See also the section-by-section analysis of 
Sec.  1005.18(b)(3)(iii) below.
    \246\ Id. at 5. See also the section-by-section analysis of 
Sec.  1005.18(b)(3)(ii) below.
---------------------------------------------------------------------------

    Results from the focus groups and one-on-one testing conducted by 
the Bureau and ICF in pre- and post-proposal consumer testing, 
fortified with a variety of forms of stakeholder input and the Bureau's 
own research and analysis, led the Bureau to its final disclosure 
requirements and the design of the model and sample forms contained in 
this final rule.

B. Study of Prepaid Account Agreements

    To determine current industry practices with respect to existing 
compliance with Regulation E and other features and protections 
currently offered by prepaid products and to inform its understanding 
of the potential costs and benefits of extending various Regulation E 
protections to prepaid accounts, the Bureau conducted a study of 325 
publicly available account agreements for prepaid products that 
appeared to meet the Bureau's proposed definition of the term ``prepaid 
account,'' and published the results in the Study of Prepaid Account 
Agreements concurrently with the Bureau's issuance of the proposal.
    The study contains the Bureau's analysis of key provisions 
regarding error resolution protections, including provisional credit; 
limited liability protections; access to account information; overdraft 
and treatment of negative balances and declined transaction fees; FDIC 
or NCUA pass-through insurance; and general disclosure of fees. The 
agreements the Bureau analyzed included GPR card program agreements 
(including GPR cards marketed for specific purposes, such as travel or 
receipt of tax refunds, or for specific users, such as teenagers or 
students), payroll cards agreements, agreements for cards used for the 
distribution of certain government benefits, and agreements for similar 
card programs. The Bureau also included agreements for prepaid products 
specifically used for P2P transfers that appeared to be encompassed by 
the proposal's definition of prepaid account. The Bureau did not 
include gift, incentive and rebate card programs, health spending 
account and flexible spending account programs, and needs-tested State 
and local government benefit card programs in the study, because the 
Bureau proposed to exclude such products from the rulemaking. As 
discussed in greater detail in the proposal, the Bureau cautioned that 
its agreement collection was neither comprehensive nor complete. In 
addition, the study was not intended to be relied upon as an assessment 
of legal issues, including actual compliance with current Regulation E 
provisions that apply to payroll card accounts or cards used for the 
distribution of certain government benefits, the FMS Rule, or the 
proposal.\247\
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    \247\ 79 FR 77102, 77123 (Dec. 23, 2014).
---------------------------------------------------------------------------

C. The Bureau's Proposal

    In November 2014, the Bureau released for public comment a notice 
of proposed rulemaking regarding Regulations E and Z that proposed 
comprehensive consumer protections for prepaid accounts. The proposal 
was published in the Federal Register in December 2014.\248\ Although 
prepaid products are among the fastest growing types of payment 
instruments in the United States, with certain limited exceptions 
prepaid products have not been subject to the existing Federal consumer 
regulatory regime in Regulation E that provides consumer disclosures, 
error resolution, and protection from unauthorized transfers.\249\
---------------------------------------------------------------------------

    \248\ 79 FR 77102 (Dec. 23, 2014).
    \249\ See generally 12 CFR part 1005.
---------------------------------------------------------------------------

    The Bureau proposed to establish a new definition of ``prepaid 
account'' within Regulation E and adopt comprehensive consumer 
protection rules for such accounts. The proposal would have extended 
Regulation E protections to prepaid products that are cards, codes, or 
other devices capable of being loaded with funds, not otherwise 
accounts under Regulation E and redeemable upon presentation at 
multiple, unaffiliated merchants for goods or services, or usable at 
either ATMs or for P2P transfers; and are not gift cards (or certain 
other types of limited purpose cards), by bringing these products under 
the proposed definition of ``prepaid account.''
    The proposal also would have modified Regulation E, as it would 
pertain to prepaid accounts, in several key respects. First, the 
proposal would have required financial institutions to make certain 
disclosures available to consumers before a consumer acquires a prepaid 
account. These disclosures would have taken two forms, whether provided 
orally, in writing, or electronically. The first would have been a 
short form highlighting key fees that the Bureau believed to be most 
important for consumers to know about prior to acquisition. The second 
would have been a long form setting forth all of the prepaid account's 
fees and the conditions under which those fees could be imposed. In 
certain circumstances, the proposed rule would have provided an 
exception for financial institutions that offered prepaid cards for 
sale over the phone or in retail stores that would have allowed such 
institutions to provide consumers with access to the long form 
disclosure by telephone or internet, but otherwise not make the long 
form available until after a consumer had acquired the prepaid account. 
To facilitate compliance, the proposal contained new model forms and 
sample forms, as well as revisions to existing Regulation E model forms 
and model clauses. The use of the model forms would have established a 
safe harbor for compliance with the short form disclosure requirement.
    In addition, with certain modifications, the proposed rule would 
have extended to all prepaid accounts the existing Regulation E 
requirements regarding the provision of transaction information to 
accountholders that currently apply to payroll card accounts, Federal 
government benefit accounts, and non-needs tested State and local 
government benefit accounts. These provisions would have allowed 
financial institutions to either provide periodic statements or, 
alternatively, make available to the consumer: (1) The account balance, 
through a readily available telephone line; (2) an electronic history 
of account transactions that covered at least 18 months; and (3) a 
written history of account transactions that covered at least 18 months 
upon request. For all prepaid accounts, the proposed rule would have 
required financial institutions to disclose monthly and annual summary 
totals of all fees imposed on a prepaid account, as well as the total 
amount of all deposits to and debits from a prepaid account when 
providing a periodic statement or electronic or written account 
history.
    Further, the proposed rule would have modified Regulation E to 
adopt error resolution and limited liability provisions specific to 
prepaid accounts. Regulation E limits consumers' liability for 
unauthorized transfers, provided that the consumer gives timely notice 
to the financial institution, and requires financial institutions to 
resolve certain errors in covered accounts. The proposal would have 
extended these consumer protections to registered prepaid accounts, 
with modifications to the timing requirements for reporting 
unauthorized transfers and errors when a financial institution followed 
the periodic statement alternative described above.

[[Page 83957]]

    In addition, the proposed rule would have required prepaid account 
issuers to post prepaid account agreements on the issuers' Web sites 
(or make them available upon request in limited circumstances) and to 
submit new and amended agreements to the Bureau on a quarterly basis 
for posting on a Web site maintained by the Bureau.
    The proposed rule would have also revised various other provisions 
in subparts A and B of Regulation E. With respect to subpart A, the 
proposed amendments included a revision that would have made clear 
that, similar to payroll card accounts, a consumer could not be 
required to establish an account with a particular institution for 
receipt of government benefits. Additionally, the Bureau proposed to 
revise official interpretations to Regulation E to incorporate a 
preemption determination the Bureau made regarding certain State laws 
related to unclaimed gift cards. With respect to subpart B, which 
applies to remittance transfers, the Bureau proposed certain conforming 
and streamlining changes to the official interpretations that would not 
have affected the substance of the interpretations.
Overdraft Services and Certain Other Credit Features
    The proposed rule would have modified Regulations Z and E to 
address the treatment of overdraft services and certain other credit 
features offered in connection with prepaid accounts.
    Regulation Z. The proposal would have amended Regulation Z so that 
prepaid account issuers that offered prepaid accounts with overdraft 
services and certain other credit features and charged a fee for the 
service (such as interest, transaction fees, annual fees, or other 
participation fees) generally would have become subject to Regulation 
Z's credit card rules and disclosure requirements for open-end (not 
home-secured) consumer credit plans. In addition, the proposed rule 
would have revised Regulation Z so that its credit card rules have 
applied to separate lines of credit linked to prepaid accounts. The 
proposed rule would have also required an issuer to obtain an 
application or request from a consumer before adding overdraft credit 
features to a prepaid account and would have prohibited the issuer from 
adding such features until at least 30 calendar days after a consumer 
registered the prepaid account. Moreover, the proposed rule would have 
amended Regulation Z to provide that a consumer would receive a 
periodic statement not more often than once per month and then have at 
least 21 days to repay the debt the consumer incurred in connection 
with using an overdraft service or credit feature. The proposed rule 
would have also prevented an issuer from automatically deducting 
overdraft amounts from the next deposit to the prepaid account, such as 
cash loads or direct deposits, to repay and replenish the credit line.
    Regulation E. The proposed rule would have revised Regulation E to 
include disclosures about overdraft services and certain other credit 
features that could be linked to prepaid accounts in the short form and 
long form disclosures. The proposed rule also would have provided that 
the compulsory use prohibition would apply to overdraft services and 
certain other credit features linked to prepaid accounts. Prepaid 
account issuers would have been prohibited from requiring consumers to 
set up preauthorized EFTs to repay credit extended through an overdraft 
service or credit feature. Lastly, the proposed rule would have amended 
Regulation E to restrict issuers from applying to a consumer's prepaid 
account different terms and conditions such as charging different fees 
for accessing funds in a prepaid account, depending on whether the 
consumer elects to link the prepaid account to an overdraft service or 
credit feature.
Effective Date
    The proposed rule would have provided that with certain exceptions, 
the effective date for the requirements set forth in a final rule would 
be nine months after publication in the Federal Register. The exception 
would have been that for a period of 12 months after the final rule is 
published in the Federal Register, financial institutions would be 
permitted to continue selling prepaid accounts that do not comply with 
the final rule's pre-acquisition disclosure requirements, if the 
account and its packaging material were printed prior to the proposed 
effective date.
Requests To Extend the Comment Period
    The Bureau set the length of the comment period on the proposal at 
90 days from the date on which it was published in the Federal 
Register. The proposal was published on December 23, 2014, thus making 
March 23, 2015 the last day of the comment period. A number of members 
of Congress and two national trade associations representing prepaid 
product providers submitted written requests that asked the Bureau 
extend the 90-day comment period by an additional 60 days. The requests 
indicated that additional time would enable industry to evaluate the 
proposal in a more thorough manner. The Bureau believes that the 90-day 
comment period set forth in the proposed rule gave interested parties a 
sufficient amount of time to consider the proposal and prepare their 
responses, and thus did not extend the comment period beyond March 23, 
2015. However, as discussed below, the Bureau considered ex parte 
comments submitted after the deadline as part of its deliberations.
D. Feedback Provided to the Bureau
    The Bureau received over 65,000 comments on the proposal during the 
comment period. Approximately 150 comments were unique, detailed 
comment letters representing diverse interests. These commenters 
included consumer advocacy groups; national and regional industry trade 
associations; prepaid industry members including issuing banks and 
credit unions, program managers, payment networks, and payment 
processors; digital wallet providers; virtual currency companies; non-
partisan research and advocacy organizations; members of Congress; 
State and local government agencies; and individual consumers.
    Approximately 6,000 consumers submitted comments generally 
supporting the availability of overdraft services for prepaid products 
(approximately 1,000 of which were form comments). Approximately 56,000 
form comments were submitted by individual consumers as part of a 
comment submission campaign organized by a national consumer advocacy 
group, generally in support of the proposal--particularly related to 
limited liability and the requirement to assess consumers' ability to 
pay before offering credit attached to prepaid cards.\250\ These form 
comments also urged the Bureau to go further in certain respects; 
requesting, among other things, that the Bureau add additional 
information to its proposed disclosure forms and require that funds 
loaded into prepaid accounts be FDIC insured. Several hundred of these 
56,000 comments contained additional remarks from consumer commenters, 
though many of these were outside the scope of this rulemaking.
---------------------------------------------------------------------------

    \250\ The Bureau typically does not post form letters containing 
identical comments to the docket. Rather, the Bureau generally posts 
a single example of the form letter to the docket. Form letter 
comments that contain some customization from the sender are all 
posted to the docket.
---------------------------------------------------------------------------

    In addition, the Bureau also considered comments received after the 
comment period closed via approximately 65 ex parte submissions,

[[Page 83958]]

meetings, and telephone conferences.\251\ Materials on the record, 
including ex parte submissions and summaries of ex parte meetings and 
telephone conferences, are publicly available at https://www.regulations.gov. Relevant information received is discussed below 
in the section-by-section analysis and subsequent parts of this notice, 
as applicable. The Bureau considered all the comments it received 
regarding the proposal, made certain modifications, and is adopting the 
final rule as described part V below.
---------------------------------------------------------------------------

    \251\ See also CFPB Bulletin 11-3, CFPB Policy on Ex Parte 
Presentations in Rulemaking Proceedings (2011), available at https://files.consumerfinance.gov/f/2011/08/Bulletin_20110819_ExPartePresentationsRulemaking.pdf.
---------------------------------------------------------------------------

IV. Legal Authority

    The Bureau is issuing this final rule pursuant to its authority 
under EFTA, the Dodd-Frank Act, and TILA, as discussed in this part IV 
and throughout the section-by-section analyses of the final rule in 
part V below.

A. The Electronic Fund Transfer Act

    EFTA section 902 establishes that the purpose of the statute is to 
provide a basic framework establishing the rights, liabilities, and 
responsibilities of participants in EFT and remittance transfer systems 
but that its primary objective is the provision of individual consumer 
rights. Among other things, EFTA contains provisions regarding 
disclosures made at the time a consumer contracts for an EFT 
service,\252\ notices of certain changes to account terms or 
conditions,\253\ provision of written documentation to consumers 
regarding EFTs,\254\ error resolution,\255\ consumers' and financial 
institutions' liability for unauthorized EFTs,\256\ and compulsory use 
of EFTs.\257\
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    \252\ EFTA section 905(a).
    \253\ EFTA section 905(b).
    \254\ EFTA section 906.
    \255\ EFTA section 908.
    \256\ EFTA sections 909 and 910.
    \257\ EFTA section 913.
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    With respect to disclosures provided prior to opening an account, 
EFTA section 905(a) states that the terms and conditions of EFTs 
involving a consumer's account shall be disclosed at the time the 
consumer contracts for an EFT service, in accordance with regulations 
of the Bureau. EFTA section 904(b) establishes that the Bureau shall 
issue model clauses for optional use by financial institutions to 
facilitate compliance with the disclosure requirements of EFTA section 
905 and to aid consumers in understanding the rights and 
responsibilities of participants in EFTs by utilizing readily 
understandable language. As discussed in the section-by-section 
analysis below, the final rule's pre-acquisition disclosure 
requirements (including those in final Sec.  1005.18(b)) are adopted 
pursuant to the Bureau's authority under EFTA sections 904(a), (b), 
905(a), and its adjustments and exceptions authority under EFTA section 
904(c).
    As amended by the Dodd-Frank Act, EFTA section 904(a) authorizes 
the Bureau to prescribe regulations necessary to carry out the purposes 
of EFTA. As noted above, the express purposes of EFTA, are to establish 
``the rights, liabilities, and responsibilities of participants in 
electronic fund and remittance transfer systems'' and to provide 
``individual consumer rights.'' \258\ EFTA section 904(c) further 
provides that regulations prescribed by the Bureau may contain such 
classifications, differentiations, or other provisions, and may provide 
for such adjustments or exceptions, for any class of EFTs or remittance 
transfers that the Bureau deems necessary or proper to effectuate the 
purposes of EFTA, to prevent circumvention or evasion, or to facilitate 
compliance. The Senate Report accompanying EFTA noted that regulations 
are ``essential to the act's effectiveness'' and ``[permit] the 
[Bureau] to modify the act's requirements to suit the characteristics 
of individual EFT services. Moreover, since no one can foresee EFT 
developments in the future, regulations would keep pace with new 
services and assure that the act's basic protections continue to 
apply.'' \259\ As discussed in the section-by-section analyses below, 
the Bureau is adopting amendments to Regulation E, including with 
respect to the definition of account, limited liability, procedures for 
resolving errors, access to account information, and prepaid accounts 
that may offer an overdraft credit feature, pursuant to the Bureau's 
authority under, as applicable, EFTA sections 904(a) and (c).
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    \258\ EFTA section 902(b).
    \259\ See S. Rept. No. 95-1273, at 26 (Oct. 4, 1978).
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B. Section 1022 of the Dodd-Frank Act

    Section 1022(b)(1) of the Dodd-Frank Act authorizes the Bureau to 
prescribe rules ``as may be necessary or appropriate to enable the 
Bureau to administer and carry out the purposes and objectives of the 
Federal consumer financial laws, and to prevent evasions thereof.'' 
Among other statutes, title X of the Dodd-Frank Act, EFTA, and TILA are 
Federal consumer financial laws.\260\ Accordingly, in adopting this 
final rule, the Bureau is exercising its authority under Dodd-Frank Act 
section 1022(b) to prescribe rules under EFTA, TILA, and title X that 
carry out the purposes and objectives and prevent evasion of those 
laws. Section 1022(b)(2) of the Dodd-Frank Act prescribes certain 
standards for rulemaking that the Bureau must follow in exercising its 
authority under section 1022(b)(1). See part VII below for a discussion 
of the Bureau's standards for rulemaking under Dodd-Frank Act section 
1022(b)(2).
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    \260\ Dodd-Frank Act section 1002(14) (defining ``Federal 
consumer financial law'' to include the ``enumerated consumer laws'' 
and the provisions of title X of the Dodd-Frank Act); Dodd-Frank Act 
section 1002(12) (defining ``enumerated consumer laws'' to include 
TILA and EFTA).
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    Dodd-Frank Act section 1022(c)(1) provides that, to support its 
rulemaking and other functions, the Bureau shall monitor for risks to 
consumers in the offering or provision of consumer financial products 
or services, including developments in markets for such products or 
services. Section 1022(c)(3) provides that the Bureau shall publish not 
fewer than one report of significant findings of its monitoring in each 
calendar year and may make public such information obtained by the 
Bureau under this section as is in the public interest.\261\ Moreover, 
section 1022(c)(4) provides that, in conducting such monitoring or 
assessments, the Bureau shall have the authority to gather information 
from time to time regarding the organization, business conduct, 
markets, and activities of covered persons and service providers. As 
discussed in the section-by-section analysis below, new Sec.  1005.19 
is adopted pursuant to the Bureau's authority under Dodd-Frank Act 
sections 1022(c) and 1032(a), as well as its authority under EFTA 
sections 904 and 905. It requires submission of prepaid account 
agreements to the Bureau. It also requires that financial institutions 
disclose such agreements on their Web sites.
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    \261\ Dodd-Frank Act section 1022(c)(3).
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C. Section 1032 of the Dodd-Frank Act

    Section 1032(a) of the Dodd-Frank Act provides that the Bureau 
``may prescribe rules to ensure that the features of any consumer 
financial product or service, both initially and over the term of the 
product or service, are fully, accurately, and effectively disclosed to 
consumers in a manner that permits consumers to understand the costs, 
benefits, and risks associated with the product or service, in light of 
the facts and circumstances.'' The authority granted to the Bureau in 
section 1032(a) is broad, and empowers the Bureau to prescribe rules 
regarding

[[Page 83959]]

the disclosure of the ``features'' of consumer financial products and 
services generally. Accordingly, the Bureau may prescribe disclosure 
requirements in rules regarding particular features even if other 
Federal consumer financial laws do not specifically require disclosure 
of such features.
    Dodd-Frank Act section 1032(c) provides that, in prescribing rules 
pursuant to section 1032, the Bureau ``shall consider available 
evidence about consumer awareness, understanding of, and responses to 
disclosures or communications about the risks, costs, and benefits of 
consumer financial products or services.'' Accordingly, in developing 
this final rule under Dodd-Frank Act section 1032(a), the Bureau has 
considered available studies, reports, and other evidence about 
consumer awareness, understanding of, and responses to disclosures or 
communications about the risks, costs, and benefits of consumer 
financial products or services. Moreover, the Bureau has considered the 
evidence developed through its consumer testing of the model forms as 
discussed above and in ICF Report I and ICF Report II.
    In addition, Dodd-Frank Act section 1032(b)(1) provides that ``any 
final rule prescribed by the Bureau under [section 1032] requiring 
disclosures may include a model form that may be used at the option of 
the covered person for provision of the required disclosures.'' Any 
model form issued pursuant to that authority shall contain a clear and 
conspicuous disclosure that, at a minimum, uses plain language that is 
comprehensible to consumers, contains a clear format and design, such 
as an easily readable type font, and succinctly explains the 
information that must be communicated to the consumer.\262\
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    \262\ Dodd-Frank Act section 1032(b)(2).
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    As discussed in more detail below, certain portions of this final 
rule are adopted pursuant to the Bureau's disclosure authority under 
Dodd-Frank Act section 1032(a).

D. The Truth in Lending Act

    As discussed above, TILA is a Federal consumer financial law. In 
adopting TILA, Congress explained that:

    [E]conomic stabilization would be enhanced and the competition 
among the various financial institutions and other firms engaged in 
the extension of consumer credit would be strengthened by the 
informed use of credit. The informed use of credit results from an 
awareness of the cost thereof by consumers. It is the purpose of 
this subchapter to assure a meaningful disclosure of credit terms so 
that the consumer will be able to compare more readily the various 
credit terms available to him and avoid the uninformed use of 
credit, and to protect the consumer against inaccurate and unfair 
credit billing and credit card practices.\263\
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    \263\ TILA section 102(a); 15 U.S.C. 1601(a).

    TILA and Regulation Z define credit broadly as the right granted by 
a creditor to a debtor to defer payment of debt or to incur debt and 
defer its payment.\264\ TILA and Regulation Z set forth disclosure and 
other requirements that apply to creditors. Different rules apply to 
creditors depending on whether they are extending ``open-end credit'' 
or ``closed-end credit.'' Under the statute and Regulation Z, open-end 
credit exists where there is a plan in which the creditor reasonably 
contemplates repeated transactions; the creditor may impose a finance 
charge from time to time on an outstanding unpaid balance; and the 
amount of credit that may be extended to the consumer during the term 
of the plan (up to any limit set by the creditor) is generally made 
available to the extent that any outstanding balance is repaid.\265\ 
Closed-end credit is credit that does not meet the definition of open-
end credit.\266\
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    \264\ TILA section 103(f); 15 U.S.C. 1602(f); Sec.  
1026.2(a)(14); 15 U.S.C. 1602(f).
    \265\ Sec.  1026.2(a)(20).
    \266\ Sec.  1026.2(a)(10).
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    The term ``creditor'' generally means a person who regularly 
extends consumer credit that is subject to a finance charge or is 
payable by written agreement in more than four installments (not 
including a down payment), and to whom the obligation is initially 
payable, either on the face of the note or contract, or by agreement 
when there is no note or contract.\267\ TILA defines finance charge 
broadly as the sum of all charges, payable directly or indirectly by 
the person to whom the credit is extended, and imposed directly or 
indirectly by the creditor as an incident to the extension of 
credit.\268\ The term ``creditor'' also includes a card issuer, which 
is a person or its agent that issues credit cards, when that person 
extends credit accessed by the credit card.\269\ Regulation Z defines 
the term ``credit card'' to mean any card, plate, or other single 
credit device that may be used from time to time to obtain credit.\270\ 
In addition to being subject to the general rules of TILA and 
Regulation Z applicable to all creditors, card issuers also generally 
must comply with the credit card rules set forth in the FCBA and in the 
Credit CARD Act (if the card accesses an open-end credit plan), as 
implemented in Regulation Z subparts B and G.\271\
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    \267\ TILA section 103(g); 15 U.S.C. 1602(g); Sec.  
1026.2(a)(17)(i).
    \268\ TILA section 106(a); 12 U.S.C. 1605(a); Sec.  1026.4.
    \269\ TILA section103(g); 15 U.S.C. 1602(g); Sec.  
1026.2(a)(17)(iii) and (iv).
    \270\ Sec.  1026.2(a)(15). As noted above, under Regulation Z, a 
charge card is a credit card on an account for which no periodic 
rate is used to compute a finance charge. Sec.  1026.2(a)(15)(iii).
    \271\ See generally Sec. Sec.  1026.5(b)(2)(ii)(A), 
1026.7(b)(11), 1026.12, and 1026.51 through 1026.60.
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    TILA section 105(a). As amended by the Dodd-Frank Act, TILA section 
105(a) \272\ directs the Bureau to prescribe regulations to carry out 
the purposes of TILA, and provides that such regulations may contain 
additional requirements, classifications, differentiations, or other 
provisions, and may provide for such adjustments and exceptions for all 
or any class of transactions, that the Bureau judges are necessary or 
proper to effectuate the purposes of TILA, to prevent circumvention or 
evasion thereof, or to facilitate compliance. As discussed above, 
pursuant to TILA section 102(a), a purpose of TILA is ``to assure a 
meaningful disclosure of credit terms so that the consumer will be able 
to compare more readily the various credit terms available to him and 
avoid the uninformed use of credit.'' Moreover, this stated purpose is 
tied to Congress's finding that ``economic stabilization would be 
enhanced and the competition among the various financial institutions 
and other firms engaged in the extension of consumer credit would be 
strengthened by the informed use of credit.'' \273\ Thus, strengthened 
competition among financial institutions is a goal of TILA, achieved 
through the effectuation of TILA's purposes.
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    \272\ 15 U.S.C. 1604(a).
    \273\ TILA section 102(a).
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    Historically, TILA section 105(a) has served as a broad source of 
authority for rules that promote the informed use of credit through 
required disclosures and substantive regulation of certain practices. 
However, Dodd-Frank Act section 1100A clarified the Bureau's section 
105(a) authority by amending that section to provide express authority 
to prescribe regulations that contain ``additional requirements'' that 
the Bureau finds are necessary or proper to effectuate the purposes of 
TILA, to prevent circumvention or evasion thereof, or to facilitate 
compliance. This amendment clarified the authority to exercise TILA 
section 105(a) to prescribe requirements beyond those specifically 
listed in the statute that meet the standards outlined in section 
105(a). Accordingly, as amended by the Dodd-Frank Act, TILA section 
105(a)

[[Page 83960]]

authority to make adjustments and exceptions to the requirements of 
TILA applies to all transactions subject to TILA, except with respect 
to the provisions of TILA section 129 that apply to the high-cost 
mortgages referred to in TILA section 103(bb).\274\
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    \274\ 15 U.S.C. 1602(bb).
---------------------------------------------------------------------------

    For the reasons discussed in this notice, the Bureau is adopting 
amendments to Regulation Z with respect to certain prepaid accounts 
that are associated with overdraft credit features to carry out TILA's 
purposes and is adopting such additional requirements, adjustments, and 
exceptions as, in the Bureau's judgment, are necessary and proper to 
carry out the purposes of TILA, prevent circumvention or evasion 
thereof, or to facilitate compliance. In developing these aspects of 
this final rule pursuant to its authority under TILA section 
105(a),\275\ the Bureau has considered the purposes of TILA, including 
ensuring meaningful disclosures, facilitating consumers' ability to 
compare credit terms, and helping consumers avoid the uninformed use of 
credit, and the findings of TILA, including strengthening competition 
among financial institutions and promoting economic stabilization.
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    \275\ As discussed further in the section-by-section analysis of 
Regulation Z Sec.  1026.60(b), the Bureau also relies on TILA 
section 127(c)(5) for the requirements in the final rule for 
additional disclosures provided on or with charge card applications 
and solicitations.
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V. Section-by-Section Analysis

Regulation E

Subpart A--General
Overview of the Bureau's Approach to Regulation E
    As discussed above in part III.C, the Bureau proposed to amend 
Regulation E, which implements EFTA, along with the official 
interpretations thereto. The proposal would have created comprehensive 
consumer protections for prepaid financial products by expressly 
bringing such products within the ambit of Regulation E as prepaid 
accounts. In addition, the proposal would have created several new 
provisions specific to such accounts.
    After consideration of the feedback received at every stage of the 
rulemaking process (in response to the Prepaid ANPR, in the course of 
developing the proposal, and since issuing the proposal) as well as 
multiple rounds of consumer testing, and interagency consultations, the 
Bureau is adopting this same general approach in the final rule, with 
some modifications, as discussed herein.
    The Bureau's rationale for its approach in the final rule, and its 
response to specific comments addressing each of the proposed revisions 
and additions, are discussed in greater detail in the section-by-
section analyses that follow.
Comments Received on the Bureau's Proposed Approach Generally
    In addition to comments regarding specific sections of the 
proposal, the Bureau received comments addressing more generally its 
proposed approach to regulating prepaid accounts under Regulation E. 
Consumer group commenters largely praised the Bureau for proposing to 
add protections for prepaid accounts. They pointed to what they 
described as a gap in regulatory protection relating to GPR cards, and 
noted the importance of additional protections for this product 
segment, especially in light of what they characterized as increased 
consumer usage and increased complexity of product offerings in the GPR 
card market. In particular, following a high-profile service disruption 
affecting a particular issuer and thousands of its prepaid 
accountholders, several consumer groups submitted a joint letter 
commending the Bureau for its proposal to extend Regulation E to all 
prepaid accounts. The letter suggested that, had Regulation E applied 
uniformly to all prepaid accounts at the time of the incident, 
consumers may have had more and better tools at their disposal to 
address the incident. In addition to generally commending the Bureau 
for proposing a rule that, in their view, would provide necessary 
protections for prepaid account consumers that consumers of other 
account types already have, consumer group commenters voiced general 
support for specific key portions of the Bureau's proposal, in 
particular the standardization of prepaid account disclosures, 
extending Regulation E's limited liability and error resolution 
provisions to prepaid accounts, and regulating credit features offered 
in connection with prepaid accounts.
    Most consumer group commenters, however, urged the Bureau to go 
farther by finalizing additional protections beyond those that were 
proposed. Specifically, several consumer groups urged the Bureau to ban 
or limit specific fees generally or to do so for specific products. For 
example, commenters argued that the Bureau should ban or limit balance 
inquiry fees, fees for making customer service calls, declined 
transaction or NSF fees, card replacement fees, inactivity fees, 
maintenance fees, legal process fees, research fees, and account 
closing fees. Still other commenters argued that the Bureau should ban 
all fees on cards used by correctional facilities to distribute funds 
to formerly-incarcerated individuals, or that it should ban or limit 
all fees for withdrawing salary or wages, or insurance, tax, or student 
financial aid funds, especially in cases where the cardholder has no 
choice but to receive those funds on a prepaid account.
    Consumer group commenters also sought certain prohibitions 
unrelated to fees. For example, a number of consumer groups asked the 
Bureau to prohibit forced arbitration and class action ban clauses in 
prepaid account agreements. One consumer group urged the Bureau to 
limit financial institutions' ability to place holds on account funds 
while a transaction clears. Other consumer groups urged the Bureau to 
require that additional features be offered in connection with prepaid 
accounts. For example, a number of consumer groups asked the Bureau to 
consider requiring, or at least encouraging, financial institutions to 
offer linked savings accounts in connection with prepaid accounts, and 
a coalition of consumer groups urged the Bureau to require that 
consumers' prepaid account usage be reported to the credit reporting 
agencies.\276\
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    \276\ In the Prepaid ANPR, the Bureau sought input and data on 
the efficacy of certain other features that are or could be offered 
in connection with prepaid accounts, including linked savings 
features and credit-building features whereby consumers' transaction 
history may be reported to credit reporting agencies. Based on the 
ANPR comments received, as well as its understanding of the state of 
the market, the Bureau stated its belief that it would not be 
appropriate to take further action on those issues in the context of 
the proposal. Nonetheless, the Bureau solicited additional input and 
data on these issues.
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    While most commenters, including industry groups, did not object to 
the general concept of bringing prepaid products within the ambit of 
Regulation E, many industry commenters voiced concern about the overall 
level of burden that would be imposed by the proposal on entities that 
issue or act as service providers for issuers of prepaid accounts. This 
includes some trade associations, issuing banks and credit unions, 
program managers, and others, as well as a member of Congress, who 
argued that the overall burdens of the proposal would be 
disproportionate to what they viewed as limited benefits. Some of these 
commenters argued in particular that the rule was unnecessary because 
most issuers of GPR cards are already following Regulation E. A subset 
of these commenters, including an issuing bank, a law firm writing on

[[Page 83961]]

behalf of a coalition of prepaid issuers, and a payment network, argued 
that the proposed rule would over-burden industry because it was 
impractical or impossible to comply with, overly complex, highly 
prescriptive, or overly broad. These and other commenters, including 
industry trade associations, issuing banks, and a payment network, 
argued further that financial institutions would respond to these 
additional burdens by either exiting the market, reducing their product 
offerings, or raising prices, all of which, they said, have the 
potential to reduce overall consumer choice in the prepaid marketplace. 
Some of these commenters expressed concern particularly about the 
impacts of the rule on digital wallets and other emerging products. 
Some commenters, including a program manager, industry trade 
associations, an issuing bank, and the law firm writing on behalf of a 
coalition of prepaid issuers, also argued that the burdens imposed by 
the rule were not justified by the intended consumer benefits or by the 
Bureau's desire to remedy what the commenters viewed as relatively 
minor or hypothetical consumer harms.
    Commenters urged the Bureau to exclude specific types of entities 
from coverage under the rule. In particular, a number of industry 
commenters noted the unique burdens they believed the rule would place 
on small banks and credit unions, while a subset of these commenters, 
including an issuing credit union, trade associations representing 
banks and credit unions, and a program manager, argued that the Bureau 
should exempt these smaller institutions from the rule altogether. By 
contrast, one industry trade association urged the Bureau to take 
additional steps to supervise and enforce against non-depository 
financial institutions in the prepaid market, such as by issuing a rule 
under section 1024 of the Dodd-Frank Act,\277\ arguing that without 
direct oversight from the Bureau, these non-depository players would be 
unfairly advantaged by lower compliance costs.
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    \277\ Under section 1024 of the Dodd-Frank Act, the Bureau is 
authorized to supervise certain non-bank covered persons for 
compliance with Federal consumer financial laws and for other 
purposes. Under section 1024(a)(1)(B) of the Dodd-Frank Act, for 
certain markets, the supervision program generally will apply only 
to ``larger participant[s]'' of these markets. The Bureau has 
defined larger participants in several markets and is considering 
issuing additional regulations to define further the scope of the 
Bureau's non-bank supervision program.
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Summary of the Bureau's Approach To Regulating Prepaid Accounts Under 
Regulation E
    The Bureau has considered these general comments and has made 
certain modifications to the rule, as discussed in detail in the 
section-by-section analyses that follow, to calibrate carefully with 
regard to burden concerns. The major provisions of the final rule are 
organized as follows: Sec.  1005.2(b)(3) adds the term prepaid account 
to the general definition of account in Regulation E and sets forth a 
definition for that term, revised from the proposal for clarity and 
with some additional exclusions. Comment 10(e)(2)-2 clarifies that the 
existing prohibition on compulsory use in Sec.  1005.10(e)(2) prohibits 
a government agency from requiring consumers to receive government 
benefits by direct deposit to any particular institution. Section 
1005.15, which includes preexisting provisions applicable to government 
benefit accounts, also includes new provisions setting forth and 
clarifying the application of several provisions of revised Sec.  
1005.18 (concerning disclosures, access to account information, error 
resolution and limited liability requirements, and overdraft credit 
features) to government benefit accounts.
    Section 1005.18 contains the bulk of the final rule's specific 
requirements for prepaid accounts. Section 1005.18(a) states that 
prepaid accounts must comply with subpart A of Regulation E, except as 
modified by Sec.  1005.18. Section 1005.18(b)(1) sets forth that, in 
general, both the short form and long form disclosures must be provided 
before a consumer acquires a prepaid account. For prepaid accounts sold 
at retail locations, however, a financial institution may provide the 
long form disclosure after acquisition so long as the short form 
contains information enabling the consumer to access the long form by 
telephone and on a Web site. A similar accommodation is made for 
prepaid accounts acquired orally by telephone. Section 1005.18(b)(2) 
contains the general content requirements for the short form 
disclosure, while Sec.  1005.18(b)(3) addresses specific short form 
requirements related to disclosure of variable fees and third-party 
fees, as well as treatment of finance charges on overdraft credit 
features offered in connection with a prepaid account. Section 
1005.18(b)(4) contains the content requirements for the long form 
disclosure. Section 1005.18(b)(5) requires that certain additional 
information be disclosed outside but in close proximity to the short 
form, including the purchase price and activation fee, if any, for the 
prepaid account. Section 1005.18(b)(6) contains requirements regarding 
the form of the pre-acquisition disclosures, including specific 
requirements applicable when disclosures are provided in writing, 
electronically, or orally by telephone. Section 1005.18(b)(7) sets 
forth formatting requirements for the short form and long form 
disclosures generally, as well as formatting requirements for payroll 
card accounts and prepaid accounts that offer multiple service plans in 
particular. Section 1005.18(b)(8) requires that fee names and other 
terms must be used consistently within and across the disclosures 
required by final Sec.  1005.18(b). Section 1005.18(b)(9) requires 
financial institutions to provide pre-acquisition disclosures in 
foreign languages in certain circumstances.
    Next, Sec.  1005.18(c) addresses access to account information 
requirements for prepaid accounts. It states that a financial 
institution is not required to provide periodic statements if it makes 
available to the consumer balance information by telephone, at least 12 
months of electronic account transaction history, and upon the 
consumer's request, at least 24 months of written account transaction 
history. Periodic statements and account transaction histories must 
disclose the amount of any fees assessed against the account, and must 
display a summary total of the amount of all fees assessed by the 
financial institution against the consumer's prepaid account for the 
prior calendar month and for the calendar year to date. Section 
1005.18(d) sets forth alternative disclosure requirements for both the 
initial disclosures and annual error resolution notices for financial 
institutions that provide information under the periodic statement 
alternative in Sec.  1005.18(c).
    Section 1005.18(e) clarifies that prepaid accounts must generally 
comply with the limited liability provisions in existing Sec.  1005.6 
and the error resolution requirements in Sec.  1005.11, with some 
modifications. Specifically, the final rule extends Regulation E's 
limited liability and error resolution requirements to all prepaid 
accounts, regardless of whether the financial institution has completed 
its consumer identification and verification process with respect to 
the account, but does not require provisional credit for unverified 
accounts. Section 1005.18(f) contains certain other disclosure 
requirements, such as a requirement that the initial disclosures 
required by Sec.  1005.7 include

[[Page 83962]]

all of the information required to be disclosed in the long form and 
specific disclosures that must be provided on prepaid account access 
devices. Finally, Sec.  1005.18(h) sets forth a general effective date 
of October 1, 2017 for most of the final rule, with some specific 
accommodations related to disclosures and account information. Among 
other things, the final rule permits financial institutions to continue 
distributing prepaid account packaging material that was manufactured, 
printed, or otherwise produced prior to the effective date provided 
certain conditions are met.
    Section 1005.19 contains the requirements for submitting prepaid 
account agreements to the Bureau and for posting the agreements to the 
Web site of the prepaid account issuer. Section 1005.19(a) provides 
certain definitions specific to Sec.  1005.19. Section 1005.19(b)(1) 
requires an issuer to make submissions to the Bureau no later than 30 
days after an issuer offers, amends, or ceases to offer any prepaid 
account agreement. Sections 1005.19(b)(2) and (3) set forth the 
requirements for the submission of amended agreements and the 
notification of agreements no longer offered. Sections 1005.19(b)(4) 
and (5) provide de minimis and product testing exceptions to the 
submission requirement. Section 1005.19(b)(6) sets forth the form and 
content requirements for prepaid account agreements submitted to the 
Bureau. Section 1005.19(c) generally requires an issuer to post and 
maintain on its publicly available Web site prepaid account agreements 
that are offered to the general public. Section 1005.19(d) requires 
issuers to provide consumers with access to their individual prepaid 
account agreements either by posting and maintaining the agreements on 
their Web site, or by promptly providing a copy of the agreement to the 
consumer upon request. Section 1005.19(f) provides a delayed effective 
date of October 1, 2018 for the requirement to submit prepaid account 
agreements to the Bureau.
    The final rule also adds provisions to Regulation E that supplement 
and complement the final rule amendments to Regulation Z regarding 
overdraft credit features offered in connection with a prepaid account. 
As discussed below in the section-by-section analyses under Regulation 
Z, the final rule generally applies the Regulation Z credit card rules 
to overdraft credit features that can be accessed in the course of a 
transaction with the prepaid card where such credit features are 
provided by the prepaid account issuer, its affiliate, or its business 
partner. The final rule generally requires that such overdraft credit 
features be structured as separate sub-accounts or accounts, distinct 
from the prepaid asset account. Under the final rule, a prepaid card 
that can access such an overdraft credit feature is defined as a 
``hybrid prepaid-credit card,'' and the overdraft credit feature is 
defined as a ``covered separate credit feature.'' Related modifications 
to Regulation E include a revision to Sec.  1005.10(e)(1) that 
prohibits issuers from requiring consumers to set up preauthorized EFTs 
to repay credit extended through a covered separate credit feature 
accessible by a hybrid prepaid-credit card. Section 1005.12(a) 
clarifies whether Regulation E or Regulation Z governs the issuance of 
a hybrid prepaid-credit card, and a consumer's liability and error 
resolution rights with respect to transactions that occur in connection 
with a prepaid account with a covered separate credit feature. Section 
1005.17 clarifies that a covered separate credit feature accessible by 
a hybrid prepaid-credit card is not an ``overdraft service'' as that 
term has been defined under Regulation E in connection with checking 
accounts. Finally, Sec.  1005.18(g) requires a financial institution to 
provide the same account terms, conditions, and features on a prepaid 
account without a covered separate credit feature that it provides on 
prepaid accounts in the same prepaid account program that have such a 
credit feature, except that the financial institution may impose higher 
fees or charges on a prepaid account with such a credit feature.
    In finalizing these provisions, the Bureau has carefully considered 
the general comments summarized above expressing concerns about the 
Bureau's proposal to extend Regulation E coverage to prepaid accounts. 
The Bureau believes that comments opposing this approach generally fell 
into three categories. First, some commenters argued that the potential 
burden and risk to financial institutions of formally subjecting their 
prepaid account programs to Regulation E requirements would not produce 
substantial benefits for consumers because, among other reasons, many 
programs (particularly those for GPR cards) are already generally 
operated in compliance with the requirements for payroll cards in 
Regulation E. Second, some commenters were concerned that the 
rulemaking would define prepaid accounts broadly to include digital 
wallets and other emerging products, thereby chilling innovation in the 
payments market. Third, some commenters were primarily concerned about 
the burden and complexity of specific portions of the proposal. The 
Bureau has carefully considered the potential benefits and costs with 
regard to each of these sub-issues in deciding to finalize the rule.
    As discussed in greater detail below in connection with the 
definition of prepaid account in Sec.  1005.2(b)(3) that shapes the 
scope of coverage under the final rule, the Bureau believes that there 
is substantial benefit to consumers in subjecting prepaid accounts to 
Regulation E coverage even if some issuers are already generally in 
compliance. The Bureau notes that those issuers who are in fact in 
compliance will face a substantially lesser implementation burden than 
those who are not, as discussed in part VII below. Moreover, the Bureau 
believes that consumer protections are clearer and more effective when 
companies are accountable for complying with them as a matter of law, 
rather than by the choice or discretion of individual issuers. Indeed, 
the Bureau agrees with the consumer group commenters who asserted that 
uniform coverage of prepaid accounts under Regulation E will better 
equip and empower consumers to work with financial institutions to 
address problems with their prepaid accounts.
    As discussed in greater detail in connection with Sec.  
1005.2(b)(3) below, the Bureau has carefully evaluated the benefits and 
costs of extending Regulation E to digital wallets and other similar 
products, as well as to government benefit accounts, payroll card 
accounts, GPR cards, and other types of prepaid products. The Bureau 
recognizes that there is some need for tailoring of particular 
provisions for prepaid accounts in certain circumstances, and has made 
revisions to various specific requirements to address such nuances. For 
example, the Bureau has revised proposed Sec.  1005.19(c) such that the 
final rule does not require issuers to post on their publicly-available 
Web sites account agreements that are not offered to the general 
public, such as those for government benefit and payroll card accounts. 
Nevertheless, the Bureau believes that there is substantial value to 
both consumers and financial institutions in promoting consistent 
treatment where logical and appropriate across products. The Bureau has 
considered the possibility that providers might pass on increased costs 
to consumers or be more cautious in developing additional products or 
features, as discussed in part VII below, and believes that such 
concerns are relatively modest.

[[Page 83963]]

    Likewise, the Bureau acknowledges industry's concerns about the 
volume of information financial institutions will have to disclose 
under the final rule's pre-acquisition disclosure regime, and the 
potential redundancies between the short form and long form 
disclosures. The Bureau continues to believe, however, that there is 
clear consumer benefit to ensuring consumers have access to both of 
these disclosures pre-acquisition because the disclosures play crucial 
but distinct roles. The Bureau designed and developed the short form 
disclosure to provide a concise snapshot of a prepaid account's key 
fees and features that is both easily noticeable and digestible by 
consumers. The Bureau believes that the overall standardization of the 
short form disclosure will facilitate consumers' ability to comparison 
shop among prepaid account programs. On the other hand, the Bureau also 
recognizes that providing only a subset of a prepaid account program's 
fee information on the short form might not provide all consumers with 
the information they need to make fully-informed acquisition decisions 
in all cases. For this reason, the final rule also requires the long 
form disclosure to be provided as a companion disclosure to the short 
form, offering a comprehensive repository of all of a prepaid account's 
fees and the conditions under which those fees could be imposed, along 
with certain other key information about the prepaid account. The 
Bureau notes that, under the alternative timing regime for disclosures 
provided in a retail location or by phone, a financial institution may 
provide the long form disclosure after acquisition so long as the short 
form contains information enabling the consumer to access the long form 
by telephone and on a Web site. In sum, the short form and the long 
form disclosures together provide consumers with an overview of the key 
information about the prepaid account and an unabridged list of fees 
and conditions and other important information about the account.
    The Bureau has also considered concerns about burden and complexity 
both with regard to specific elements of the proposal and regarding 
coverage and compliance more broadly, and has made numerous adjustments 
to more finely calibrate the final rule to promote compliance and a 
smooth implementation process, as discussed in more detail with regard 
to individual provisions in the section-by-section analyses that 
follow. At the outset, the Bureau notes that the fact that a 
significant majority of these products are already substantially in 
compliance with existing Regulation E provisions applicable to payroll 
card accounts will reduce implementation burdens considerably. 
Furthermore, the Bureau notes that several provisions of the final rule 
have been adjusted to take more careful account of current industry 
practices, and as such should not require significant changes to 
existing procedures. For example, the Bureau has specifically clarified 
the timing of acquisition requirements for purposes of delivering pre-
acquisition disclosures in final comment 18(b)(1)(i)-1 for payroll card 
accounts and prepaid accounts generally, and in final comments 15(c)-1 
and -2 for government benefit accounts. These revisions are consistent 
with what the Bureau believes to be the current practices of many 
employers and government agencies and therefore should not require 
significant modifications to current procedures.
    The Bureau also has incorporated certain burden-reducing measures 
to address various concerns raised by commenters about the burden on 
industry they asserted would result from the proposed pre-acquisition 
disclosure regime. These burden-alleviating modifications include the 
various changes to the additional fee types disclosures, including 
disclosure of two fees rather than three; a de minimis threshold; and 
reassessment and updating required every 24 months rather than 12. 
Other measures in the final rule that reduce burden include permitting 
reference in the short form disclosure for payroll card accounts (and 
government benefit accounts) to State-required information and other 
fee discounts and waivers pursuant to final Sec.  
1005.18(b)(2)(xiv)(B); permitting disclosure of the long form within 
other disclosures required by Regulation E pursuant to final Sec.  
1005.18(b)(7)(iii); and flexible updating of third-party fees in the 
long form disclosure pursuant to Sec.  1005.18(b)(4)(ii).
    As another example, the Bureau has modified the periodic statement 
alternative in Sec.  1005.18(c)(1)(ii) to require at least 12 months of 
electronic account transaction history (instead of 18 months as 
proposed), which commenters explained many financial institutions 
already make available; the Bureau therefore believes any changes 
needed to comply with that portion of the rule for most financial 
institutions should be minimal. Likewise, implementing changes to 
provide at least 24 months of written account transaction history upon 
request pursuant to final Sec.  1005.18(c)(1)(iii) should also not be 
problematic because the Bureau understands financial institutions 
generally retain several years of account transaction data in archived 
form. Relatedly, final Sec.  1005.18(c)(5) requires financial 
institutions to provide a summary total of the fees assessed against 
the consumer's prepaid account for the prior calendar month and 
calendar year to date, but not summary totals of all deposits to and 
debits from a consumer's prepaid account as proposed.
    Similarly, regarding the prepaid account agreement posting 
requirement, the Bureau believes the modification in final Sec.  
1005.19(c) to require issuers to post on their publicly-available Web 
sites only the agreements that are offered to the general public will 
reduce the number of agreements prepaid account issuers must post. In 
addition, this is generally consistent with the types of agreements 
that issuers post to their Web sites already, thus reducing the burden 
associated with this requirement relative to the proposal. Likewise, 
the Bureau believes that the revision in final Sec.  1005.19(b)(1) to 
submit agreements to the Bureau on a rolling basis (instead of 
quarterly) should reduce the burden of the submission requirement on 
issuers relative to the proposal.
    The Bureau has also given substantial thought to ways in which it 
can facilitate industry's implementation process for this final rule. 
For example, the Bureau has extended the general effective date of the 
rule from the proposed nine months following the publication of the 
rule in the Federal Register to approximately 12 months following the 
Bureau's issuance of this final rule. The Bureau has also eliminated 
the proposed requirement to pull and replace non-compliant prepaid 
account access devices and packaging materials after the effective 
date, which the Bureau believes obviates commenters' concerns about the 
environmental impact and cost of retrieving and destroying old 
packaging. The Bureau is also providing native design files for print 
and source code for web-based disclosures for all of the model and 
sample forms included in the final rule for the convenience of the 
prepaid industry and to help reduce development costs.\278\ The Bureau 
also believes the accommodation set forth in new Sec.  1005.18(h)(3) 
for financial institutions that do not have readily available the data 
necessary to comply in full with the periodic statement alternative or 
summary totals of fees requirements as of October 1, 2017

[[Page 83964]]

should provide financial institutions with the additional flexibility 
in preparing for this final rule's effective date. Finally, the Bureau 
believes the delayed effective date of October 1, 2018 set forth in new 
Sec.  1005.19(f)(2) for the prepaid account agreement submission 
requirement, as well as the other modifications made to the posting 
requirement in final Sec.  1005.19, as discussed above, should help 
alleviate the time pressures prepaid account issuers might otherwise 
face when complying with those provisions.
---------------------------------------------------------------------------

    \278\ These files are available at www.consumerfinance.gov/prepaid-disclosure-files.
---------------------------------------------------------------------------

    In addition to these specific modifications to the rule to reduce 
burden to industry relative to the proposal, the Bureau is committed to 
working with industry to facilitate the transition process through 
regulatory implementation support and guidance, including by developing 
and providing a compliance guide to covered entities.\279\
---------------------------------------------------------------------------

    \279\ Under section 212 of the Small Business Regulatory 
Enforcement Fairness Act of 1996 (SBREFA), for each rule or group of 
related rules for which an agency is required to prepare a final 
regulatory flexibility analysis under 5 U.S.C. 605(b), the Bureau is 
required to publish a small entity compliance guide. As set forth in 
part VIII below, the Bureau has certified that this rule does not 
require a final regulatory flexibility analysis. Accordingly, the 
Bureau is not required under SBREFA to publish a small entity 
compliance guide, but nonetheless intends to do so to assist 
industry with implementation and compliance.
    Regulatory implementation materials related to this final rule 
are available at https://www.consumerfinance.gov/policy-compliance/guidance/implementation-guidance/prepaid.
---------------------------------------------------------------------------

    In light of the modifications the Bureau has made to the rule as 
proposed, as well as the benefits of the final rule to consumers, the 
Bureau does not believe that further modifications to its general 
approach of regulating prepaid accounts under Regulation E--that is, 
beyond those specific modifications discussed in the following section-
by-section analyses--are warranted. Nor does it believe that it would 
be appropriate to exempt from the final rule entire categories of 
financial institutions, as some commenters writing on behalf of smaller 
banks and credit unions suggested. The Bureau notes, however, that to 
the extent smaller banks or credit unions merely sell prepaid accounts 
issued by other entities, they are not covered financial institutions 
under Regulation E, since they do not satisfy either part of the 
definition of financial institution (i.e., they do not hold prepaid 
accounts, nor do they issue prepaid accounts and agree with consumers 
to provide EFT services in connection with prepaid accounts).\280\ As 
such, while some of the required changes may be implemented by third-
party service providers, such as program managers or processors, the 
burden of and liability for complying with this final rule would 
generally fall on the financial institution that issues the prepaid 
accounts, not on the banks or credit unions selling those products. 
Moreover, to help alleviate some of the burdens anticipated by smaller 
banks and credit unions in this situation with respect to disclosures, 
the Bureau has expanded the alternative timing regime for pre-
acquisition disclosures that applies to prepaid accounts acquired in 
person to apply to any retail location, not just a retail store--under 
the final rule, therefore, banks and credit unions that sell other 
financial institutions' prepaid accounts in their branches will be able 
to provide the long form disclosure after acquisition, provided they 
comply with the requirements set forth in final Sec.  
1005.18(b)(1)(ii).
---------------------------------------------------------------------------

    \280\ See Sec.  1005.2(i).
---------------------------------------------------------------------------

    With respect to the comment requesting the Bureau to increase its 
supervisory authority over non-depository financial institutions in the 
market for prepaid accounts, the Bureau notes that this final rule's 
requirements apply equally to depositories and non-depositories alike. 
The Bureau will continue to monitor the markets, and may consider 
future rulemakings aimed at defining larger participants in this or 
other relevant markets, pursuant to its authority under section 1024 of 
the Dodd-Frank Act.
    With respect to specific requests made by consumer groups for 
additional requirements or prohibitions, the Bureau notes that many of 
the requests go significantly beyond the scope of what the Bureau 
contemplated in the proposed rule. Specifically, requests to ban 
certain fees, either in general or in the context of particular types 
of cards, are outside the scope of this rulemaking, and as such, the 
Bureau declines to include any such blanket fee bans in the final rule. 
Nonetheless, the Bureau recognizes commenters' concerns regarding 
financial institutions' fee practices, particularly with respect to 
practices that disproportionately impact vulnerable populations, such 
as formerly incarcerated individuals, and will continue to monitor 
these practices going forward. Likewise, the final rule does not 
address financial institutions' practices with respect to placing holds 
on funds pending clearance of a transaction.\281\
---------------------------------------------------------------------------

    \281\ The Bureau notes that the U.S. transition from magnetic 
strip to EMV chip payment cards is expected to reduce the incidence 
of card-related fraud. As such, account holds related to fraud 
prevention may likewise reduce in amount or frequency.
---------------------------------------------------------------------------

    The request that the Bureau ban arbitration or class action waivers 
in prepaid account agreements is also outside the scope of this 
rulemaking. The Bureau notes, however, that if finalized as proposed, 
the Bureau's recent Arbitration Agreements NPRM would prohibit covered 
providers of certain consumer financial products and services from 
using an arbitration agreement to bar the consumer from filing or 
participating in a class action with respect to the covered consumer 
financial product or service.\282\
---------------------------------------------------------------------------

    \282\ 81 FR 32830 (May 24, 2016). The proposal would also 
facilitate monitoring of consumer arbitrations by requiring 
providers to report certain information to the Bureau in connection 
with individual arbitration proceedings.
---------------------------------------------------------------------------

    Finally, with respect to consumer group commenters' requests that 
the Bureau require or encourage financial institutions to add savings 
or credit building features to prepaid accounts, the Bureau agrees with 
commenters that such features can be beneficial to consumers. Linked 
savings programs, for instance, may allow participating consumers to 
better manage their current spending and set aside funds for planned or 
unexpected expenses. Nevertheless, the Bureau does not believe it would 
be appropriate to mandate one at this juncture. The Bureau will 
continue to encourage financial institutions to expand their offerings 
in this area, in such a way as to provide protections and opportunities 
for consumers.\283\
---------------------------------------------------------------------------

    \283\ See also Press Release, CFPB, CFPB Project Catalyst Study 
Finds Savings Offers Double the Number of Consumers Saving (Sept. 
29, 2016), available at https://www.consumerfinance.gov/about-us/newsroom/cfpb-project-catalyst-study-finds-savings-offers-double-number-consumers-saving/.
---------------------------------------------------------------------------

Other Regulation E Subpart A Provisions Applicable to Prepaid Accounts
    The Bureau explained in the proposal that unless as otherwise 
provided under the proposed rule, the requirements of current subpart A 
of Regulation E would extend to prepaid accounts in the same manner 
they currently apply to payroll card accounts. This aspect of the 
proposal is adopted as proposed.
    A law firm commenter representing a coalition of prepaid issuers 
asserted that the Bureau should permit financial institutions to 
provide all required disclosures related to prepaid accounts 
electronically regardless of whether a financial institution complies 
with the Electronic Signatures in Global and National Commerce Act (E-
Sign Act),\284\ which generally requires consumer consent and a 
demonstration that the

[[Page 83965]]

consumer can receive materials electronically before written 
disclosures can be delivered electronically.
---------------------------------------------------------------------------

    \284\ 15 U.S.C. 7001 et seq.
---------------------------------------------------------------------------

    In general, the Bureau believes that existing Sec.  1005.4(a)(1) 
should apply to prepaid accounts. Section 1005.4(a)(1) permits the 
electronic delivery of disclosures required pursuant to subpart A of 
Regulation E, subject to compliance with the consumer consent and other 
applicable provisions of the E-Sign Act. However, the final rule 
permits financial institutions to provide the short form and long form 
disclosures electronically without E-Sign consent for prepaid accounts 
that are acquired electronically, including via a mobile device, to 
ensure that consumers receive relevant disclosure information at the 
appropriate time. During the pre-acquisition time period for prepaid 
accounts, the Bureau believes that it is important for consumers who 
decide to go online to acquire a prepaid account to see the relevant 
disclosures in electronic form. The Bureau believes that many consumers 
may decide whether to acquire a particular prepaid account after doing 
research online, and that if they are not able to see disclosures on 
the prepaid account program's Web site, they cannot make an informed 
acquisition decision. But the fact that the consumer has used the Web 
site once to acquire the account does not mean that the consumer 
intends to receive all disclosures later in the account relationship 
via Web site, absent a formal process by which the consumer is informed 
of and consents to that delivery method. And with accounts acquired 
through other means, the Bureau similarly believes it is important that 
consumers have an opportunity to consent to electronic delivery of 
disclosures in general. Accordingly, the Bureau declines to permit 
financial institutions to provide all required disclosures related to 
prepaid accounts electronically regardless of whether a financial 
institution complies with the E-Sign Act.
    Finally, current Sec.  1005.10(c) provides that a consumer can 
revoke authorization of preauthorized EFTs orally or in writing. If the 
consumer gives the stop payment request orally, a financial institution 
may require the consumer to then give written confirmation, or else the 
oral stop payment order will cease to bind the financial institution. A 
consumer group commenter requested that the Bureau clarify that 
consumers can revoke their authorization of preauthorized EFTs in 
writing, electronically, or orally in any manner, as long as the method 
provides a consumer's creditor with reasonable notice and opportunity 
to act. The Bureau declines to modify Sec.  1005.10(c) in this way, as 
doing so would be outside of the scope of this rulemaking insofar as 
any such clarification would presumably apply to all Regulation E 
accounts, not just prepaid accounts.
    The Bureau notes that among the other various Regulation E 
provisions that will apply to prepaid accounts are the limitations on 
the unsolicited issuance of an access device in existing Sec.  1005.5 
and the requirement in existing (Sec.  1005.13) to retain records that 
evidence compliance with the requirements of EFTA and Regulation E.
Section 1005.2 Definitions
2(b) Account
2(b)(2) Bona Fide Trust Account
    The current definition of account in Regulation E includes an 
exception for bona fide trust accounts.\285\ To accommodate the 
proposed definition for the term prepaid account and a proposed 
adjustment to the definition of payroll card account, the Bureau 
proposed to renumber the exception for bona fide trust accounts as 
Sec.  1005.2(b)(2) without any substantive changes to the exception. 
The Bureau did not receive any comments on this portion of the proposal 
and is finalizing this change as proposed. As explained in the 
proposal, to accommodate this change, the Bureau does not need to 
renumber existing comments 2(b)(2)-1 and -2 because those comments are 
currently misnumbered in the Official Interpretations to Regulation E.
---------------------------------------------------------------------------

    \285\ See existing Sec.  1005.2(b)(3).
---------------------------------------------------------------------------

2(b)(3) Prepaid Account
The Bureau's Proposal
    The Bureau proposed several changes to Sec.  1005.2(b), as 
discussed below. In sum, these changes would have created a broad new 
defined term, ``prepaid account,'' as a subcategory of the definition 
of ``account'' in existing Sec.  1005.2(b)(1), and thus subject to 
Regulation E. As discussed in detail in the proposal, existing Sec.  
1005.2(b)(1) defines an ``account'' generally for purposes of 
Regulation E as a demand deposit (checking), savings, or other consumer 
asset account (other than an occasional or incidental credit balance in 
a credit plan) held directly or indirectly by a financial institution 
and established primarily for personal, family, or household purposes. 
EFTA and existing Regulation E contain explicit provisions applying 
specifically to payroll card accounts, as well as accounts used for the 
distribution of government benefits in existing Sec. Sec.  1005.18 and 
1005.15, respectively. Gift cards, although not included in the Sec.  
1005.2(b) definition of account, are addressed specifically in Sec.  
1005.20. The Board, in adopting rules to include payroll card accounts 
within the ambit of Regulation E, explicitly stated that Regulation E 
did not, at that time, cover general spending cards to which a consumer 
might transfer by direct deposit some portion of the consumer's 
wages.\286\ As a result, some regulators, the prepaid industry, and 
others had interpreted Regulation E as not applying to various types of 
prepaid products that are not payroll card accounts, accounts used for 
the distribution of government benefits, or gift cards.\287\
---------------------------------------------------------------------------

    \286\ 71 FR 51437, 51441 (Aug. 30, 2006).
    \287\ See, e.g., FMS Rule, 75 FR 80335, 80337 (Dec. 22, 2010). 
However, as evidenced by the Study of Prepaid Account Agreements, 
many prepaid providers have, for a variety of reasons, elected to 
apply some or all of Regulation E's provisions (as modified by the 
Payroll Card Rule) to their non-payroll prepaid products generally.
---------------------------------------------------------------------------

    After the Bureau assumed authority for implementing most of EFTA 
pursuant to the transfer of certain authorities from the Board to the 
Bureau under the Dodd-Frank Act, it analyzed whether other types of 
prepaid products not already specifically identified in Regulation E 
could or should be covered by the regulation. It first considered the 
applicability of EFTA to prepaid products. EFTA, among other things, 
governs transactions that involve an EFT to or from a consumer's 
account. It defines an account to be ``a demand deposit, savings 
deposit, or other asset account . . . as described in regulations of 
the Bureau, established primarily for personal, family, or household 
purposes.'' \288\ Insofar as the statute defines account broadly to 
include any other asset account and for the other reasons discussed 
below, the Bureau believed it was reasonable to interpret ``account'' 
in EFTA to include prepaid accounts. Thus, it proposed to include 
prepaid accounts expressly within Regulation E's definition of account. 
To clarify the scope of the proposed rule and to modify Regulation E to 
reflect the characteristics of prepaid accounts, the Bureau proposed to 
modify the definition of ``account'' under Sec.  1005.2(b) to create a 
specific sub-definition for prepaid account.
---------------------------------------------------------------------------

    \288\ EFTA section 903(2), 15 U.S.C. 1693a(2).
---------------------------------------------------------------------------

    The Bureau believed that proposing to apply Regulation E to prepaid 
accounts was appropriate for several reasons. First, it concluded that 
consumers' use of prepaid products had evolved significantly since 
2006, when the Board last examined the issue in the course of its 
payroll card account

[[Page 83966]]

rulemaking. The Bureau noted that a substantial number of consumers 
could and do use prepaid accounts that involve substantial sums of 
money, in part because many have wages and/or benefits loaded onto 
prepaid cards through direct deposit.\289\ In addition, consumers use 
prepaid cards for a variety of purposes, including making purchases, 
paying bills, and receiving payments.\290\ Indeed, the Bureau noted 
that some consumers without other transaction accounts depend on 
prepaid cards to meet all of their payment account needs.\291\ As a 
result, the Bureau believed that such products should be considered 
consumer asset accounts subject to EFTA and Regulation E.
---------------------------------------------------------------------------

    \289\ See, e.g., Fed. Deposit Ins. Corp., 2013 FDIC National 
Survey of Unbanked and Underbanked Households, at 55 (Oct. 2014), 
available at https://www.fdic.gov/householdsurvey/2013report.pdf 
(2013 FDIC Survey) (finding that for households that reloaded 
prepaid debit cards in the last 12 months, 17.7 percent of all 
households and 27.7 percent of unbanked households did so via direct 
deposit of a paycheck).
    \290\ See, e.g., id. at 48 (finding that for all households that 
used prepaid debit cards in the last 12 months, 44.5 percent did so 
to pay for everyday purchases or to pay bills and 19.4 percent did 
so to receive payments).
    \291\ See, e.g., id. (finding that for unbanked households that 
used prepaid debit cards in the last 12 months, 65 percent did so to 
pay for everyday purchases or to pay bills and 41.8 percent did so 
to receive payments).
---------------------------------------------------------------------------

    Second, the Bureau concluded that inclusion aligned appropriately 
with the purposes of EFTA. The legislative history of EFTA indicates 
that Congress's primary goal was to protect consumers using EFT 
services. Although, at the time, providers of electronic payment 
services argued that enactment of EFTA was premature and that the 
electronic payment market should be allowed to develop further on its 
own, Congress believed that establishing a framework of rights and 
duties for all parties would benefit both consumers and providers. 
Likewise, in the proposal, the Bureau stated its belief that it was 
appropriate to establish such a framework for prepaid accounts, because 
doing so would benefit both consumers and providers.\292\
---------------------------------------------------------------------------

    \292\ 79 FR 77102, 77127 (Dec. 23, 2014).
---------------------------------------------------------------------------

    In addition, were it to finalize the proposal, the Bureau believed 
that consumers would be better able to assess the risks of using 
prepaid products. Indeed, the Bureau was concerned that because prepaid 
cards could be so similar to credit and debit cards (which are 
protected under Regulations Z and E), consumers may not realize that 
their prepaid cards lack the same benefits and protections as those 
other cards. The Bureau stated its belief that the proposal, if 
finalized, would serve to make those protections more consistent and 
eliminate a regulatory gap.
    With these considerations in mind, the Bureau proposed to bring a 
broad range of prepaid products within the ambit of Regulation E and 
also proposed to modify certain substantive provisions of Regulation E 
as appropriate for different types of prepaid accounts. To facilitate 
this, the Bureau proposed to add a definition of ``prepaid account,'' 
the specifics of which are discussed in greater detail in the section-
by-section analyses that follow, to the existing definition of 
``account'' in Sec.  1005.2(b). In sum, the proposed definition would 
have created a broad general umbrella definition for prepaid accounts 
that are issued on a prepaid basis or loaded with funds thereafter and 
are usable to conduct transactions with merchants or at an ATM, or 
usable to facilitate P2P transfers. The definition would not have 
depended on whether such accounts were reloadable or non-reloadable. 
Payroll card accounts and government benefit accounts would have been 
subsumed within the broader definition, though still enumerated as 
specific subcategories for purposes of tailoring certain substantive 
rules. The Bureau noted that while not all prepaid products covered by 
the proposed definition could or would be used as full and ongoing 
transaction account substitutes, it was concerned that to try to carve 
out very specific types of products that were, or could be, used for 
short-term limited purposes would create substantial complexity and 
could result in consumer confusion as to what protections would apply 
to otherwise indistinguishable products. The proposed definition would 
have excluded accounts that were already subject to Regulation E.\293\
---------------------------------------------------------------------------

    \293\ Id. at 77127-28.
---------------------------------------------------------------------------

Comments Received
    As with the comments the Bureau received in response to the ANPR, 
most commenters to the proposal (industry, consumer advocacy groups, 
and others) did not object to the general concept of bringing prepaid 
products within the ambit of Regulation E.\294\ While there were some 
concerns from industry and others, discussed in more detail below, 
about exactly which types of prepaid products the Bureau might subject 
to Regulation E, most commenters favored inclusion of GPR cards. Among 
other reasons, several industry trade associations noted that insofar 
as many GPR card issuers and program managers already voluntarily 
comply with Regulation E, the Bureau should formalize GPR cards' 
inclusion in Regulation E as a means of standardizing protections for 
consumers.
---------------------------------------------------------------------------

    \294\ A trade association representing credit unions asserted 
that the Bureau lacked the statutory authority to extend Regulation 
E to GPR cards. The commenter argued that, because Congress 
expressly exempted GPR cards from the provisions of the Credit CARD 
Act that apply to gift cards, the Bureau lacks the authority to 
extend the requirements of all of Regulation E to prepaid cards 
absent a statutory amendment to EFTA to define ``account'' to 
include prepaid cards. The Bureau disagrees. The provisions in the 
Credit CARD Act that apply to gift cards were specific requirements 
that Congress mandated for the unique context of gift cards. These 
provisions do not take away from the Bureau's authority and 
discretion to regulate accounts more generally under EFTA as a 
whole, and the Bureau believes that ``account'' is reasonably 
interpreted to include prepaid accounts.
---------------------------------------------------------------------------

    A number of industry commenters, however, took issue with the 
Bureau's proposal to define prepaid account more broadly than just GPR 
cards. A number of these commenters, including program managers, a 
trade association, and a law firm writing on behalf of a coalition of 
prepaid issuers, stated that the scope of the proposal's coverage was a 
significant departure from the Bureau's Prepaid ANPR, which they noted 
focused exclusively on GPR cards and like products. A number of 
commenters, including trade associations and an issuing bank, urged the 
Bureau to focus its rulemaking on products that could be used in the 
same ways as traditional transaction accounts. The commenters 
contrasted such products, which they contended include GPR cards, with 
products that have limitations on use, such as non-reloadable cards or 
so-called reload packs, which are cards that can only be used to load 
funds onto GPR cards. According to the commenters, products that had 
limited uses or functions were generally characterized by a more 
limited relationship between the issuer and consumer, which made these 
types of products inherently riskier--from a fraud-prevention 
perspective--and less profitable to financial institutions than GPR 
cards. The commenters asserted that if these more limited product types 
were covered under the definition of prepaid account, the cost of 
adding Regulation E protections may cause issuers of those products to 
discontinue offering them. A number of trade associations advocated 
that the Bureau specifically exclude non-reloadable cards for these 
reasons. Similarly, these and other commenters urged the Bureau to 
exclude reload packs.
    Other industry commenters objected to the Bureau's decision to 
cover ``innovative'' payment products, such as

[[Page 83967]]

digital wallets capable of storing funds, mobile and electronic 
payments, mobile applications, and other products that were being or 
may one day be developed. A digital wallet provider argued for an 
explicit exemption for digital wallets, which it defined as card, code, 
or other device that is capable of accessing two or more payment 
credentials for purposes of making payment for goods and services at 
multiple unaffiliated merchants. According to the commenter, digital 
wallets and GPR cards should not be encompassed within the same 
regulatory regime because they have fundamentally different consumer 
use cases and functionalities, and as such are not viewed by consumers 
as interchangeable. For example, the commenter asserted, in contrast 
with GPR cards, digital wallets are used primarily to access payment 
credentials, not funds. The commenter further stated that, to the 
extent digital wallets store funds, such funds are almost always loaded 
onto the wallets as a result of a P2P transaction, not because the 
accountholder purposefully loads the wallet with funds for future use. 
In addition, the commenter argued, digital wallets do not present the 
same risks as prepaid accounts--specifically, digital wallets charge 
lower fees than GPR cards and do not offer overdraft features.
    Other commenters, including an issuing bank, several industry trade 
associations, a think tank, and a group of members of Congress, argued 
that if the Bureau's prepaid accounts rule applied to such products, it 
would stifle growth and innovation by imposing a one-size-fits-all 
regime on a diverse and evolving market. These commenters advocated 
that the Bureau take an incremental approach to broadening the 
definition of prepaid account by including GPR cards in this final 
rule, and reevaluating the possible addition of other products at a 
later time.
    A subset of these commenters, joined by a number of additional 
trade associations, a payment network, and an issuing bank, argued that 
the proposed definition was ambiguous and vague. Specifically, these 
commenters argued that the proposed definition did not draw a 
sufficiently clear line between accounts that were already covered by 
Regulation E--namely, demand deposit (checking) accounts, savings 
accounts, and other consumer asset accounts--and accounts that would 
newly be covered as prepaid accounts. These commenters expressed 
concern that under the proposed definition certain accounts could 
qualify as both prepaid accounts subject to the augmented Regulation E 
requirements of the proposal and traditional bank accounts (or other 
consumer asset accounts) subject to existing Regulation E requirements. 
Relatedly, other commenters stated that certain prepaid account issuers 
already considered their products covered under Regulation E as 
consumer asset accounts. As a result, commenters asserted, essentially 
identical products could be subject to different consumer protection 
regimes, resulting in inconsistent consumer protections for similar 
products and heightened compliance risk stemming from industry's 
uncertainty regarding which regime their products fall under. These 
commenters urged the Bureau to create a clearer demarcation between 
prepaid accounts and other types of accounts. Specifically, commenters 
proposed that the Bureau add greater clarity by limiting the definition 
of prepaid account. They had various suggestions for how to limit the 
definition, including, inter alia, limiting it to GPR cards, accounts 
that can only be accessed by a physical card, accounts that are 
marketed and labeled as prepaid accounts, accounts held by a financial 
institution in an omnibus (or pooled) account structure, or accounts 
featuring some combination of these characteristics.
    Consumer groups likewise urged the Bureau to apply Regulation E to 
those prepaid products that consumers can use as transaction account 
substitutes because, in part, consumers do not know that their prepaid 
products lack certain protections offered by other transaction 
accounts. The consumer groups diverged from industry commenters, 
however, by largely supporting the breadth of the Bureau's proposed 
definition. A number of groups agreed with the Bureau's decision to 
include both reloadable and non-reloadable accounts in the proposed 
definition, arguing that the focus of the definition should be on how 
the account is used, not on how it is loaded. A think tank argued that 
consumer usage supported covering non-reloadable cards, noting that 
one-third of prepaid account users in its survey do not reuse their 
account after the initial amount of funds was depleted. A number of 
consumer groups advocated that the Bureau expand the proposed 
definition further to include specific types of non-reloadable cards 
loaded by third parties, such as student loan disbursement cards and 
prison release cards. Other consumer groups argued that a broad 
definition was necessary to accommodate new and changing products. 
These commenters supported the Bureau's decision to cover mobile and 
virtual payment systems, arguing that, as payment systems evolve, it 
was important not to adopt a narrow definition that would permit 
evasion.
    Some commenters also urged the Bureau to expand the scope of the 
definition of government benefit account so that it applied to more 
categories of government benefit programs. Those comments and the 
Bureau's response thereto are discussed in greater detail in the 
section-by-section analysis of Sec.  1005.15(a) below.
The Final Rule
    For the reasons set forth herein, the Bureau is finalizing the rule 
to define the term ``account'' under Regulation E to include a 
``prepaid account,'' while making several revisions to the proposed 
definition of prepaid account, as summarized below and discussed in 
greater detail in the section-by-section analyses that follow. EFTA 
section 903(2) defines an account broadly to be ``a demand deposit, 
savings deposit, or other asset account . . . as described in 
regulations of the Bureau, established primarily for personal, family, 
or household purposes.'' Insofar as the statute defines account broadly 
to include any other asset account and for the other reasons discussed 
below, the Bureau believes it is reasonable to interpret account in 
EFTA to include prepaid accounts. In general, the Bureau declines to 
narrow the scope of the proposed definition to cover, for example, only 
GPR cards, reloadable accounts, or cards that otherwise function as 
transaction account substitutes, as some commenters had requested.
    As it stated in the proposal, the Bureau recognizes that not all 
types of prepaid products lend themselves to permanent use as 
transaction account substitutes. Nevertheless, the Bureau continues to 
believe that the features of non-GPR card prepaid products as well as 
the ways consumers can and do use those products warrant Regulation E 
protection and that the prepaid regime provided in this final rule is 
the most appropriate regime to apply. Consumers can receive significant 
disbursements of funds--such as tax refunds or pay-outs of home 
insurance proceeds--on non-reloadable prepaid cards. They can then use 
such cards for a variety of purposes, including making purchases and 
paying bills, for which error resolution and other Regulation E 
protections could be important.\295\ Indeed, even though some

[[Page 83968]]

types of prepaid cards may not be reloadable, consumers who lack other 
transaction accounts may depend entirely on such cards to meet their 
payment account needs, at least until the cards are spent down.\296\ 
Likewise, consumers increasingly use digital wallets to conduct daily 
financial transactions for which Regulation E protections are 
important. The Bureau is not convinced by the argument that digital 
wallets used in this fashion are fundamentally dissimilar to other 
types of prepaid accounts. Indeed, to the extent that they are used to 
access funds the consumer has deposited into the account in advance, 
the Bureau believes digital wallets operate very much like a prepaid 
account. The Bureau notes that the fact that digital wallets currently 
on the market may not charge usage fees, as one commenter asserted, may 
not hold true in the future, especially if these products become more 
widely used and the features and services offered broaden.\297\
---------------------------------------------------------------------------

    \295\ See, e.g., 2013 FDIC Survey at 34 (finding that for all 
households that used prepaid debit cards in the last 12 months, 47.6 
percent did so to pay for everyday purchases or to pay bills and 
31.8 percent did so to receive payments).
    \296\ See, e.g., id. (finding that for unbanked households that 
used prepaid debit cards in the last 12 months, 65 percent did so to 
pay for everyday purchases or to pay bills and 41.8 percent did so 
to receive payments).
    \297\ The same commenter argued in the alternative that, if 
digital wallets were not explicitly exempted from the definition of 
prepaid account, they be exempted from the pre-acquisition 
disclosure regime. That request, and the Bureau's response to it, 
are discussed in greater detail below.
---------------------------------------------------------------------------

    The Bureau is thus finalizing a definition of prepaid account that 
covers a range of products including GPR cards, as well as other 
products that may not be used as transaction account substitutes, such 
as certain non-reloadable accounts and digital wallets. The Bureau 
recognizes that the scope of the final rule's coverage extends beyond 
the types of accounts that were the primary focus of in the Prepaid 
ANPR, as some commenters remarked. The Bureau notes, however, that the 
ANPR also asked broader questions regarding the potential definitional 
scope for a prepaid rulemaking. While an ANPR is not a required part of 
the rulemaking process under the Administrative Procedures Act, the 
over 220 comments received in response helped inform the scope the 
Bureau's proposal. The Bureau notes in addition, and in response to 
comments from consumer groups, that the final rule's definition is 
broad enough to cover prepaid accounts used by consumers in various 
scenarios and for various purposes, so long as those accounts meet the 
specific provisions of the definition, as set forth below. This would 
include, for example, student loan disbursement cards and prison 
release cards that meet the other criteria set forth in the definition.
    At the same time, the Bureau appreciates commenters' concerns that 
the single broad proposed umbrella definition could have created too 
much uncertainty as to treatment of products that were already subject 
to Regulation E prior to this rulemaking, and their concern that 
certain additional narrow categories of products should be excluded 
from the definition due to various unique circumstances. The Bureau has 
considered various avenues for addressing these concerns, including, as 
suggested by commenters, limiting coverage under the final rule to only 
GPR cards or to accounts held by a financial institution in an omnibus 
(or pooled) structure. As set forth in greater detail below, the Bureau 
has decided to add further clarity to the proposed definition by adding 
a reference to the way the account is marketed or labeled, as well as 
to the account's primary function. The Bureau is not finalizing a 
definition that would limit coverage to only GPR cards, as stated 
above, because it continues to believe that the features of non-GPR 
card prepaid products as well as the ways consumers can and do use 
those products warrant Regulation E protection. In addition, the Bureau 
declines to limit coverage under the definition to accounts held in a 
pooled account structure, because the Bureau believes that the 
characteristics that make an account a prepaid account should not be 
dependent on the product's back-office infrastructure.
    In addition to minor changes to streamline the definition and 
sequence of the regulation, the Bureau has reorganized the structure of 
the definition and added certain wording to the final rule that is 
designed to more cleanly differentiate products that are subject to 
this final rule from those that are subject to general Regulation E. 
First, to streamline the definition and to eliminate redundancies, the 
Bureau is omitting the phrase ``card, code, or other device, not 
otherwise an account under paragraph (b)(1) of this section, which is 
established primarily for personal, family, or household purposes'' 
from final Sec.  1005.2(b)(3)(i). Second, the Bureau is clarifying the 
scope of the definition by adding a reference to the way the account is 
marketed or labeled, as well as to the account's primary function. 
Under the final definition, therefore, an account is a prepaid account 
if it is a payroll card account or government benefit account; or it is 
marketed or labeled as ``prepaid,'' provided it is redeemable upon 
presentation at multiple, unaffiliated merchants for goods or services 
or usable at ATMs; or it meets all of the following criteria: (a) It is 
issued on a prepaid basis in a specified amount or not issued on a 
prepaid basis but capable of being loaded with funds thereafter; (b) 
its primary function is to conduct transactions with multiple, 
unaffiliated merchants for goods or services, or at ATMs, or to conduct 
P2P transfers; and (c) it is not a checking account, share draft 
account, or NOW account.
    The final rule also contains several additional exclusions from the 
definition of prepaid account for: (1) Accounts loaded only with funds 
from a dependent care assistance program or a transit or parking 
reimbursement arrangement; (2) accounts that are directly or indirectly 
established through a third party and loaded only with qualified 
disaster relief payments; and (3) the P2P functionality of accounts 
established by or through the U.S. government whose primary function is 
to conduct closed-loop transactions on U.S. military installations or 
vessels, or similar government facilities. Other than these 
clarifications and exclusions discussed herein, the Bureau does not 
intend the changed language in the final rule to significantly alter 
the scope of the proposed definition of the term prepaid account.
2(b)(3)(i)
    Proposed Sec.  1005.2(b)(3)(i) would have defined the term prepaid 
account as a card, code, or other device, not otherwise an account 
under Sec.  1005.2(b)(1), that was established primarily for personal, 
family, or household purposes, and that satisfied three additional 
criteria as to how the account was loaded and used, as laid out in 
proposed Sec.  1005.2(b)(3)(i)(A) through (C), which are discussed 
separately below. This proposed definition of prepaid account was based 
on the formulation for the definition of general-use prepaid card in 
the Gift Card Rule (Sec.  1005.20). Proposed comment 2(b)(3)(i)-1 would 
have clarified that for purposes of subpart A of Regulation E, except 
for Sec.  1005.17 (requirements for overdraft services), the term 
``debit card'' also included a prepaid card. Proposed comment 
2(b)(3)(i)-2 would have explained that proposed Sec.  1005.2(b)(3) 
applied only to cards, codes, or other devices that were acquired by or 
provided to a consumer primarily for personal, family, or household 
purposes. For further guidance interpreting the phrase ``card, code, or 
other device,'' proposed comment 2(b)(3)(i)-2 would have

[[Page 83969]]

referred to existing comments 20(a)-4 and -5.
    The Bureau received comment from an industry trade association 
asserting that defining a prepaid account as a ``card, code, or other 
device'' may conflate the actual covered account with the access device 
that the consumer can use to transact or withdraw from that account. 
Upon further consideration, the Bureau has revised Sec.  
1005.2(b)(3)(i) to remove the phrase ``card, code, or other device,'' 
so that the definition does not conflate the access device that may be 
used to access the underlying account with the account itself. The 
Bureau intends the definition of prepaid account to cover the account 
itself, not the device used to access it.
    The Bureau has also removed the reference to the prepaid account 
being an account that is ``not otherwise an account under paragraph 
(b)(1) of this section.'' As discussed below, the prepaid account 
definition's interaction with the existing definition of account in 
Regulation E is now addressed in other paragraphs of final Sec.  
1005.2(b)(3)(i)(D). Specifically, excluded from the definition of 
prepaid account by new Sec.  1005.2(b)(3)(i)(D)(3) are checking 
accounts, share draft accounts, and NOW accounts, while commentary to 
final Sec.  1005.2(b)(3)(i) clarifies that other types of accounts, 
such as savings accounts, are excluded from the definition of prepaid 
account because they do not have the same primary functions.
    The Bureau has revised comment 2(b)(3)(i)-1 to state that for 
purposes of subpart A of Regulation E, unless where otherwise 
specified, the term debit card also includes a prepaid card. The Bureau 
has removed the proposed reference to Sec.  1005.17 in this paragraph, 
as the Bureau's revisions to Sec.  1005.17, discussed below, have 
rendered its reference here unnecessary.
    Finally, the Bureau has also removed the phrase ``established 
primarily for personal, family, or household purposes'' from the 
definition of prepaid account. Upon further consideration, the Bureau 
believes that phrase is unnecessary here as it already appears in the 
main definition of account in Sec.  1005.2(b)(1), and prepaid accounts 
are expressly included as a subcategory within that broader definition. 
The Bureau has likewise removed proposed comment 2(b)(3)(i)-2, which 
would have provided guidance with respect to the meaning of 
``established primarily for personal, family, or household purposes.''
2(b)(3)(i)(A)
    As discussed above, the proposed rule would have created a broad 
general definition of prepaid account that hinged in significant part 
on how the account could be loaded and used, as set forth in proposed 
Sec.  1005.2(b)(3)(i)(A) through (C). Rather than relying on a single 
broad umbrella definition, the Bureau has concluded in response to 
commenters' concerns about ambiguity as to the scope of coverage that 
it would provide greater clarity to specify several types of products 
that are included within the general definition of prepaid account, and 
then specify an additional, narrower category for the balance of 
covered products by reference to those products' functionality. 
Accordingly, the final rule has been reorganized to list the specific 
categories of products first. The reorganization is not intended to 
substantively alter the scope of the proposed prepaid account 
definition's coverage.
    Final Sec.  1005.2(b)(3)(i)(A) defines the first such category, 
payroll card accounts. As discussed above, Regulation E currently 
contains provisions specific to payroll card accounts and defines such 
accounts.\298\ Insofar as the Bureau was generally proposing to adapt 
existing payroll card account rules to prepaid accounts in Sec.  
1005.18 (which currently addresses only payroll card accounts), payroll 
card accounts would have been subsumed within the broad general 
definition of prepaid account. Nevertheless, the Bureau believed that 
because there are certain provisions of Regulation E that would remain 
specific to payroll card accounts, it was appropriate to propose to 
maintain the term payroll card account as a standalone sub-definition 
of prepaid account. Specifically, proposed Sec.  1005.2(b)(3)(ii) would 
have provided that the term ``prepaid account'' included a ``payroll 
card account,'' and would have restated the existing payroll card 
account definition.
---------------------------------------------------------------------------

    \298\ See existing Sec.  1005.2(b)(2).
---------------------------------------------------------------------------

    In addition, the Bureau proposed to renumber existing comment 2(b)-
2, which concerns certain employment-related cards not covered as 
payroll card accounts, as comment 2(b)(3)(ii)-1. The Bureau proposed to 
add to comment 2(b)(3)(ii)-1 an explanation that would have clarified 
that, while the existing examples given of cards would not be payroll 
card accounts (i.e., cards used solely to disburse incentive-based 
payments, such as bonuses, disbursements unrelated to compensation, and 
cards used in isolated instances to which an employer typically does 
not make recurring payments, such as when providing final payments or 
in emergency situations where other payment methods are unavailable), 
such cards could constitute prepaid accounts generally, provided the 
other conditions of the definition of that term in proposed Sec.  
1005.2(b)(3) were satisfied. Similar to existing comment 2(b)-2, 
proposed comment 2(b)(3)(ii)-1 would have also stated that all 
transactions involving the transfer of funds to or from a payroll card 
account or prepaid account were covered by the regulation, even if a 
particular transaction involved payment of a bonus, other incentive-
based payment, or reimbursement, or the transaction did not represent a 
transfer of wages, salary, or other employee compensation.
    The Bureau did not receive any comments on this portion of the 
proposal, and as such, is finalizing the regulatory text and commentary 
largely as proposed, with minor modifications in the commentary for 
clarity and consistency with terms used elsewhere in this final 
rule.\299\ To accommodate several substantive changes to the definition 
of prepaid account, however, the Bureau has renumbered several sub-
sections of Sec.  1005.2(b)(3), including Sec.  1005.2(b)(3)(ii) and 
its related commentary. Under the new numbering scheme, proposed Sec.  
1005.2(b)(3)(ii) is now final Sec.  1005.2(b)(3)(i)(A) and proposed 
comment 2(b)(3)(ii)-1 is accordingly renumbered as comment 2(b)(3)(i)-
2.
---------------------------------------------------------------------------

    \299\ The Bureau received several comments from industry 
requesting that the Bureau maintain a separate section for payroll 
card accounts, rather than treat payroll card accounts in Sec.  
1005.18, which, as the Bureau proposed, will become the general 
prepaid account section. Those comments, and the Bureau's response 
to them, are summarized in the section-by-section analysis of Sec.  
1005.18(a) below.
---------------------------------------------------------------------------

2(b)(3)(i)(B)
    As discussed above, Regulation E currently contains provisions in 
Sec.  1005.15 that are specifically applicable to an account 
established by a government agency for distributing government benefits 
to a consumer electronically. While such accounts are currently defined 
only in existing Sec.  1005.15(a)(2), the Bureau stated its belief in 
the proposal that given the other modifications to Regulation E 
proposed therein, it was appropriate to explicitly add such accounts 
used for the distribution of government benefits as a stand-alone sub-
definition of prepaid account as well. Specifically, the Bureau 
proposed to have Sec.  1005.2(b)(3)(iii) state that the term

[[Page 83970]]

prepaid account includes a government benefit account, as defined in 
existing Sec.  1005.15(a)(2).
    The Bureau did not receive any comments on this portion of the 
proposal.\300\ Consistent with its overall approach in specifying 
particular product types that are ``prepaid accounts'' before defining 
an additional, narrower category for the balance of covered accounts, 
the Bureau is finalizing the proposed language concerning government 
benefit accounts as Sec.  1005.2(b)(3)(i)(B) without any other changes. 
Relatedly, as discussed in the section-by-section analysis of Sec.  
1005.2(b)(3)(ii)(E) below, the Bureau has added an exclusion from the 
definition of government benefit accounts for accounts used to 
distribute needs-tested benefits in a program established by under 
State or local law or administered by a State or local agency. That 
exclusion is part of the existing definition of government benefit 
account in Sec.  1005.15(a)(2), and the Bureau believes it should be 
repeated as part of final Sec.  1005.2(b)(3).
---------------------------------------------------------------------------

    \300\ Comments received recommending that the Bureau expand the 
reach of the term government benefit account, and the Bureau's 
response thereto, are discussed in the section-by-section analysis 
of Sec.  1005.15(a) below.
---------------------------------------------------------------------------

2(b)(3)(i)(C)
    As noted above, several commenters requested that the Bureau revise 
the proposed definition of prepaid account to add greater certainty as 
to the scope of coverage. One commenter, a trade association, 
specifically suggested that the Bureau modify the definition to only 
apply to products that are expressly marketed and labeled as 
``prepaid.'' The Bureau agrees that the addition of a provision 
focusing on marketing and labeling would provide greater clarity. The 
Bureau believes that all or most GPR cards are currently marketed or 
labeled as ``prepaid,'' either on the packaging or display of the card 
or in related advertising. As such, the Bureau believes that most, if 
not all, GPR cards will qualify as prepaid accounts under this 
provision of the definition. In addition, the Bureau believes that, in 
order to prevent consumer confusion and conform to consumer 
expectations, accounts that are marketed or labeled as ``prepaid'' 
should be accompanied by the same disclosures and protections that 
consumers will expect prepaid accounts to provide pursuant to this 
final rule.
    The Bureau is thus adopting new Sec.  1005.2(b)(3)(i)(C) to define 
as a prepaid account an account that is marketed or labeled as 
``prepaid.'' The Bureau understands, however, that there are certain 
products that are intended for specific, limited purposes--for example, 
prepaid phone cards--that may use the term ``prepaid'' for marketing or 
labeling purposes, but which the Bureau did not intend to include under 
the definition of prepaid account by function of this prong. The Bureau 
is clarifying, therefore, that in order to qualify as a prepaid account 
under the ``marketed or labeled'' prong, an account must also be 
redeemable upon presentation at multiple, unaffiliated merchants for 
goods or services or usable at ATMs. Accordingly, although products 
such as prepaid phone cards are marketed or labeled as ``prepaid,'' 
they would not qualify as prepaid accounts under this prong because 
they are not redeemable at multiple, unaffiliated merchants or usable 
at ATMs.
    To clarify the meaning of ``marketed or labeled,'' the Bureau is 
also adopting new comment 2(b)(3)(i)-3. That comment, which draws on 
similar existing commentary to Regulation E concerning the marketing 
and labeling of gift cards,\301\ clarifies that the term ``marketed or 
labeled as `prepaid' '' means promoting or advertising an account using 
the term ``prepaid.'' For example, an account is marketed or labeled as 
prepaid if the term ``prepaid'' appears on the access device associated 
with the account or the access device's packaging materials, or on a 
display, advertisement, or other publication to promote purchase or use 
of the account. The comment further clarifies that an account may be 
marketed or labeled as prepaid if the financial institution, its 
service provider, including a program manager, or the payment network 
on which an access device for the account is used, promotes or 
advertises, or contracts with another party to promote or advertise, 
the account using the label ``prepaid.'' Finally, the comment clarifies 
that a product or service that is marketed or labeled as prepaid is not 
a ``prepaid account'' if it does not otherwise meet the definition of 
account in Sec.  1005.2(b)(1).
---------------------------------------------------------------------------

    \301\ See comment 20(b)(2)-2.
---------------------------------------------------------------------------

2(b)(3)(i)(D)
    Final Sec.  1005.2(b)(3)(i)(D) contains a descriptive, general 
definition of the term ``prepaid account'' that largely preserves the 
structure of the proposed definition, with an increased focus on the 
account's functionality for greater clarity. The provision builds on 
elements of proposed Sec.  1005.2(b)(3)(i)(A) and (B), which focused on 
whether an account was issued to a consumer on a prepaid basis or was 
capable of being loaded with funds thereafter and whether the account 
was redeemable upon presentation at multiple, unaffiliated merchants 
for goods or services, usable at ATMs, or usable for P2P transfers. To 
constitute a prepaid account under final Sec.  1005.2(b)(3)(i)(D), an 
account must satisfy all three of the prongs of final Sec.  
1005.2(b)(3)(i)(D)(1) through (3), which are discussed in turn below.
2(b)(3)(i)(D)(1)
The Bureau's Proposal
    Proposed Sec.  1005.2(b)(3)(i)(A) would have defined a prepaid 
account as either issued on a prepaid basis to a consumer in a 
specified amount or not issued on a prepaid basis but capable of being 
loaded with funds thereafter. This portion of the proposed definition 
expanded upon the phrase ``issued on a prepaid basis'' used in the Gift 
Card Rule's definition of general-use prepaid card in Sec.  
1005.20(a)(3),\302\ by also including a prepaid product that was ``not 
issued on a prepaid basis but capable of being loaded with funds 
thereafter.''
---------------------------------------------------------------------------

    \302\ Section 1005.20(a)(3) defines the term general use prepaid 
card as ``a card, code, or other device that is: (i) Issued on a 
prepaid basis primarily for personal, family, or household purposes 
to a consumer in a specified amount, whether or not that amount may 
be increased or reloaded, in exchange for payment; and (ii) 
Redeemable upon presentation at multiple, unaffiliated merchants for 
goods or services, or usable at automated teller machines.''
---------------------------------------------------------------------------

    As it explained in the proposal, the Bureau sought to ensure that 
accounts that are not loaded at acquisition are nonetheless eligible to 
be prepaid accounts. The Bureau proposed this approach to address 
concerns that prepaid providers could restructure existing products to 
avoid coverage by the proposed rule if they were to separate account 
acquisition from initial funding. In addition, the Bureau believed the 
proposed provision would have ensured that consumers who used prepaid 
accounts received the protections in the proposed rule--particularly 
the pre-acquisition disclosures regarding fees and other key terms--
prior to and upon establishment of the account.
    Proposed comment 2(b)(3)(i)-3 would have clarified that to be 
``issued on a prepaid basis,'' a prepaid account had to be loaded with 
funds when it was first provided to the consumer for use. For example, 
if a consumer purchased a prepaid account and provided funds that were 
loaded onto a card at the time of purchase, the prepaid account would 
have been issued on a prepaid basis. A prepaid account offered for sale 
in a

[[Page 83971]]

retail store would not have been issued on a prepaid basis until it was 
purchased by the consumer.
    Proposed comment 2(b)(3)(i)-4 would have explained that a prepaid 
account that was not issued on a prepaid basis but was capable of being 
loaded with funds thereafter included a prepaid card issued to a 
consumer with a zero balance to which funds could be loaded by the 
consumer or a third party subsequent to issuance. This would not have 
included a product that could never store funds, such as a digital 
wallet that only held payment credentials for other accounts.
    Proposed comment 2(b)(3)(i)-5 would have clarified that to satisfy 
proposed Sec.  1005.2(b)(3)(i)(A), a prepaid account would have to 
either be issued on a prepaid basis or be capable of being loaded with 
funds. This would have meant that the prepaid account had to be capable 
of holding funds, rather than merely acting as a pass-through vehicle. 
For example, if a product was only capable of storing a consumer's 
payment credentials for other accounts but was incapable of having 
funds stored on it, such a product would not have been a prepaid 
account. However, if a product allowed a consumer to transfer funds, 
which could be stored before the consumer designated a destination for 
the funds, the product would have satisfied proposed Sec.  
1005.2(b)(3)(i)(A).
    With these examples, the Bureau sought to make clear that it did 
not intend to extend the proposed definition of prepaid account to a 
product that could never store funds. To the extent that a digital 
wallet, for example, merely stores payment credentials (e.g., a 
consumer's bank account or payment card information), rather than 
storing the funds themselves, the digital wallet would not have been 
considered a prepaid account under the proposed rule. If, however, a 
digital wallet allowed a consumer to store funds in it directly, then 
the digital wallet would have been a prepaid account if the other 
criteria of the proposed definition were also met. Finally, proposed 
comment 2(b)(3)(i)-6 would have provided that prepaid accounts did not 
have to be reloadable by the consumer or a third party.
Comments Received
    As discussed above, some industry commenters urged the Bureau to 
limit the final rule to those products that could be reloaded by a 
consumer, arguing that such products were more likely to act as 
transaction account substitutes. Those comments are summarized in the 
section-by-section analysis of Sec.  1005.2(b)(3) above. In short, 
these commenters argued that, to the extent the Bureau was seeking to 
create a uniform regulatory regime for like products, non-reloadable 
products did not function like other accounts already covered by 
Regulation E and thus should be excluded from coverage. They noted, for 
example, that non-reloadable cards were not generally accompanied by an 
expectation of a continued relationship between the financial 
institution and the consumer. In addition, these commenters argued, 
such accounts were largely used as a substitute for cash, such that 
adding disclosure and other substantive requirements to these cards 
would add unnecessary complexity that would far outweigh consumer 
expectations or needs with respect to these products. Commenters also 
noted that with respect to many types of non-reloadable cards, such as 
cards used to disburse insurance claim proceeds or tax refunds, 
consumers did not in fact have a choice with respect to which card they 
received. Comparison shopping in such circumstances, they argued, was 
unhelpful. Finally, with respect to the Bureau's proposed rationale 
that including non-reloadable accounts in the definition of prepaid 
account would help prevent evasion, a trade association stated that 
they believed that such evasion was unlikely, and further argued that 
the Bureau could address this risk through the adoption of an anti-
evasion provision specifically aimed at preventing financial 
institutions from morphing their products to avoid coverage under this 
rule.
    With respect to the clarification in proposed comment 2(b)(3)(i)-5 
that the prepaid account definition only covered accounts that were 
capable of holding funds (rather than just acting as a pass-through), 
several commenters, including issuing banks, a payment network, a 
digital wallet provider, and a consumer group, agreed with the proposed 
approach. These commenters asserted that, to the extent a digital 
wallet was simply acting as a pass-through of credentials for accounts 
that were already protected under Regulation E (or other regulations), 
consumers using those digital wallets were already receiving sufficient 
protections. As stated in the section-by-section analysis of Sec.  
1005.2(b)(3) above, other commenters objected to the Bureau's decision 
to cover digital wallets under the rule in any respect.
The Final Rule
    For the reasons set forth herein, the Bureau is finalizing the 
general content of proposed Sec.  1005.2(b)(3)(i)(A), renumbered as 
Sec.  1005.2(b)(3)(i)(D)(1), with minor edits to streamline the 
language. Specifically, final Sec.  1005.2(b)(3)(i)(D)(1) defines a 
prepaid account, in part, as an account that is issued on a prepaid 
basis in a specified amount or not issued on a prepaid basis but 
capable of being loaded with funds thereafter. In addition, the Bureau 
is finalizing proposed comments 2(b)(3)(i)-3, -4, -5, and -6, 
renumbered as comments 2(b)(3)(i)-4, -5, -6, and -7, largely as 
proposed, with some minor revisions for clarity.
    The Bureau continues to believe that it would be inappropriate to 
exclude a product from the definition of prepaid account based on 
whether it can be reloaded or who can (or cannot) load funds into the 
account. The Bureau notes that products that may limit consumers from 
loading funds include payroll card accounts, which are already subject 
to Regulation E. Other products reloadable only by a third party also 
may hold funds which similarly represent a meaningful portion of a 
consumer's available funds. This may be true, for example, for students 
receiving financial aid disbursements or a consumer receiving worker's 
compensation payments. The Bureau believes that, like consumers relying 
on payroll card accounts,\303\ consumers may use these products as 
transaction account substitutes for a substantial period of time even 
when consumers cannot reload the cards themselves, and thus such 
products should be similarly protected. In addition, while it is true 
that non-reloadable products are distinct from transaction accounts (to 
the extent that the funds will eventually be spent down in their 
entirety and the account abandoned), while the accounts are in use, 
they may be used to conduct a significant portion of a consumer's 
transactions or hold a substantial portion of a consumer's funds, and 
as such the Bureau believes that they warrant the protections of 
Regulation E, including error resolution in particular. Furthermore, 
the Bureau believes that extending protections to all broadly usable 
prepaid accounts is necessary to avoid consumer confusion as to what 
protections apply to similar accounts. Finally, the Bureau remains 
concerned that, if it were to exclude non-reloadable cards from the 
definition of prepaid account, a financial institution could evade the 
Bureau's rulemaking on prepaid accounts by issuing non-reloadable cards 
repeatedly to the same consumer, such as to provide repeated 
disbursements (e.g., providing a new student loan disbursement card 
each semester). The Bureau does not believe

[[Page 83972]]

that an anti-evasion provision is the optimal method for dealing with 
this concern; rather, the Bureau is concerned that, at this time, such 
a provision would in fact cause some uncertainty without addressing all 
other concerns.
---------------------------------------------------------------------------

    \303\ See 71 FR 51437, 51441 (Aug. 30, 2006).
---------------------------------------------------------------------------

    The Bureau also is not persuaded by commenters' objections to the 
Bureau's proposal to cover digital wallets that can hold funds under 
the definition of prepaid account. The Bureau continues to believe that 
digital wallets that can hold funds operate in large part in a similar 
manner to physical or online prepaid accounts--a consumer can load 
funds into the account, spend the funds at multiple, unaffiliated 
merchants (or conduct P2P transfers), and reload the account once the 
funds are depleted. Accordingly, the Bureau believes that consumers who 
transact using digital wallets deserve the same protections as 
consumers who use other prepaid accounts. Indeed, as with other prepaid 
accounts, a consumer's digital wallet could fall victim to erroneous or 
fraudulent transactions. In addition, while the Bureau understands that 
most digital wallets available today do not typically charge many fees 
(with few exceptions, such as, for example, foreign exchange fees in 
certain circumstances or a fee for having funds from the account issued 
to the consumer in the form of a check), it is impossible to rule out 
that existing or new digital wallet providers will charge such fees in 
the future. If fees do become standard in this space, consumers ought 
to know what those fees are and when they will be imposed.
2(b)(3)(i)(D)(2)
The Bureau's Proposal
    The next part of the Bureau's proposed definition of prepaid 
account would have addressed how such products must be able to be used 
to be considered a prepaid account. As the Board noted in adopting the 
Gift Card Rule, a key difference between a general-use prepaid card and 
a store gift card is where the card can be used.\304\ While store gift 
cards and gift certificates can be used at only a single merchant or an 
affiliated group of merchants,\305\ a general-use prepaid card is 
defined in part under the Gift Card Rule as redeemable upon 
presentation at multiple, unaffiliated merchants for goods or services 
or usable at ATMs.\306\ The Bureau proposed to add Sec.  
1005.2(b)(3)(i)(B), which would have stated that to qualify as a 
prepaid account, the card, code or other device had to be redeemable 
upon presentation at multiple, unaffiliated merchants for goods or 
services, usable at ATMs, or usable for P2P transfers. Proposed comment 
2(b)(3)(i)-7 would have referred to existing comments 20(a)(3)-1 and -2 
from the Gift Card Rule for guidance regarding the meaning of the 
phrase multiple, unaffiliated merchants.\307\
---------------------------------------------------------------------------

    \304\ See 75 FR 16580, 16588 (Apr. 1, 2010).
    \305\ See Sec.  1005.20(a)(1)(ii) and (2)(ii).
    \306\ Sec.  1005.20(a)(3)(ii).
    \307\ The Gift Card Rule provides that a card, code, or other 
device is redeemable upon presentation at multiple, unaffiliated 
merchants if, for example, such merchants agree to honor the card, 
code, or device if it bears the mark, logo, or brand of a payment 
network, pursuant to the rules of the payment network. See comment 
20(a)(3)-1.
---------------------------------------------------------------------------

    The Bureau believed it was appropriate to limit the definition of 
prepaid account to those products that consumers could use at multiple, 
unaffiliated merchants for goods or services, at ATMs, or for P2P 
transfers. The Bureau noted in the proposal that a core feature of a 
conventional debit card is that it is usable at multiple, unaffiliated 
merchants and at ATMs. Insofar as a purpose of the Bureau's rulemaking 
on prepaid accounts is to provide comparable coverage for products with 
comparable functionality--in this case traditional debit cards and 
prepaid cards--the Bureau believed it was appropriate to structure the 
proposed definition in a way that products with similar features had 
the protections afforded by Regulation E. Pursuant to the proposed 
definition, therefore, a prepaid account would have been an account 
that was accepted widely at unaffiliated merchants, rather than only a 
single merchant or specific group of merchants, such as those located 
on a college campus or within a mall or defined shopping area.
    Next, the Bureau recognized that prepaid products were also growing 
in popularity as a vehicle for consumers to transmit payments to each 
other or to businesses. The Bureau noted that an increasing number of 
products allowed consumers to make P2P or P2B payments without using a 
third-party branded payment network. These services may not always have 
wide merchant acceptance, but they do allow consumers to send money to 
other consumers and businesses. The Bureau proposed to add new comment 
2(b)(3)(i)-8 to further explain when accounts capable of P2P transfers 
were prepaid accounts. Specifically, the comment would have explained 
that a prepaid account capable of P2P transfers was an account that 
allowed a consumer to send funds to another consumer or business. As 
the comment made clear, an account could qualify as a prepaid account 
if it permitted P2P transfers even if it was neither redeemable upon 
presentation at multiple, unaffiliated merchants for goods or services, 
nor usable at ATMs. A transaction involving a store gift card would not 
have been a P2P transfer if it could have only been used to make 
payments to the merchant or affiliated group of merchants on whose 
behalf the card was issued.
Comments Received
    The only specific aspect of proposed Sec.  1005.2(b)(3)(i)(B) on 
which the Bureau received comment concerned its decision to include 
products that could only be used to facilitate P2P transfers. A number 
of consumer groups and a trade association voiced support for the 
Bureau's decision to include such products in the proposal. Other 
industry commenters who commented on the issue either opposed coverage 
of products usable for P2P transfers or requested that the Bureau adopt 
specific carve-outs from this prong of the definition. A digital wallet 
provider urged the Bureau to exclude P2P products from the definition 
of prepaid account, arguing that P2P functionality is more similar to a 
closed-loop payment system than to open-loop GPR cards. Two industry 
trade associations and a law firm writing on behalf of a coalition of 
prepaid issuers argued that regulation of products used solely to 
facilitate P2P transfers would be premature, and could limit future 
development of innovative products, to the detriment of consumers. An 
issuing bank, a program manager, and a commenter representing non-bank 
money transfer providers noted that products used to facilitate P2P 
transfers could be interpreted to include products or services offered 
by State-licensed money transmitters, which they said are already 
covered under existing regulations. They argued that to avoid 
duplicative and potentially inconsistent regulation, the Bureau should 
specifically exclude any product or service that is subject to State or 
Federal money transmitter laws.
    As described above, the Bureau also received a number of more 
general comments urging greater clarity to distinguish what existing 
products are subject to general Regulation E from those subject to the 
Bureau's final rule governing prepaid accounts.
The Final Rule
    For the reasons set forth herein, the Bureau is finalizing Sec.  
1005.2(b)(3)(i)(B) largely as proposed, but with refinements to limit 
the scope to accounts whose primary function is among those 
specifically listed. To

[[Page 83973]]

accomplish this change, the Bureau has removed the phrase ``is 
redeemable upon presentation at'' and replaced it with ``whose primary 
function is,'' to clarify that, in order to qualify as a prepaid 
account under this portion of the definition, an account must be more 
than merely capable of being used in the ways specified. Finally, as 
part of its overall reordering of Sec.  1005.2(b)(3), the Bureau has 
renumbered proposed Sec.  1005.2(b)(3)(i)(B) as final Sec.  
1005.2(b)(3)(i)(D)(2). Specifically, final Sec.  1005.2(b)(3)(i)(D)(2) 
defines a prepaid account, in part, as an account whose primary 
function is to conduct transactions with multiple, unaffiliated 
merchants for goods or services, or at ATMs, or to conduct P2P 
transfers.
    The Bureau has considered the comments regarding the 
appropriateness of extending the definition of prepaid account to 
products that can only be used for P2P transfers, and has decided to 
finalize its decision to include such products in the definition of 
prepaid account. The Bureau continues to believe that the structure and 
usage of P2P products warrants their inclusion in the final rule. 
Unlike many limited-use prepaid products that have acceptance limited 
to a restricted location (such as at merchants located on a college 
campus or in a mall), P2P products do not have such a limitation. 
Indeed, as the Bureau noted in the proposal, insofar as a P2P product 
could be accepted by anyone that contracts with the P2P provider, the 
model is not very different from a card association that contracts with 
unaffiliated merchants. Further, insofar as consumers could use these 
products to pay anyone with funds stored in the account, the Bureau 
continues to believe that they should be included in the definition of 
prepaid account. Accordingly, the Bureau declines to exclude such 
products from coverage under the final rule. The Bureau is therefore 
finalizing the reference to P2P transfers in Sec.  
1005.2(b)(3)(i)(D)(2), and finalizing proposed comment 2(b)(3)(i)-8, 
renumbered as comment 2(b)(3)(i)-10, largely as proposed.
    The Bureau has also revised proposed Sec.  1005.2(b)(3)(i)(B), 
renumbered as Sec.  1005.2(b)(3)(i)(D)(2), to more clearly delineate 
the distinction between accounts that are covered by existing 
Regulation E and accounts that are covered under the new definition of 
prepaid account. Specifically, the Bureau has refocused the definition 
to apply only to accounts ``whose primary function is to conduct'' 
transactions with multiple, unaffiliated merchants or at ATMs, or P2P 
transfers. (In addition, as discussed below, the Bureau is adding a new 
prong, Sec.  1005.2(b)(3)(i)(D)(3), to explicitly exclude checking 
accounts, share draft accounts, and NOW accounts from the residual 
definition of prepaid accounts.) The Bureau is aware that many types of 
accounts, including accounts already covered by Regulation E, may be 
capable of being used for the above functions. The Bureau is therefore 
concerned that the language used in proposed Sec.  1005.2(b)(3)(i)(B) 
could be over-inclusive, contributing to the uncertainty raised by some 
commenters regarding which accounts are covered under which provisions 
of Regulation E.
    The Bureau intends its change here to narrow the definition of 
prepaid account to focus on products whose primary function for 
consumers is to provide general capability to use loaded funds to 
conduct transactions with merchants, or at ATMs, or to conduct P2P 
transfers, while excluding products that only provide such capability 
incidental to a different primary function. For example, the primary 
function of a traditional brokerage account is to hold funds so that 
the consumer can conduct transactions through a licensed broker or 
firm, not to conduct transactions with multiple, unaffiliated merchants 
for goods or services, or at ATMs, or to conduct P2P transfers. 
Similarly, the primary function of a savings account is to accrue 
interest on funds held in the account; such accounts restrict the 
extent to which the consumer can conduct general transactions and 
withdrawals.\308\
---------------------------------------------------------------------------

    \308\ See, e.g., the Board's Regulation D, 12 CFR 204.2(d) 
(defining a savings deposit as a deposit or account with respect to 
which the depositor may be required by the depository institution to 
give written notice of an intended withdrawal or a deposit or 
account from which the depositor is permitted or authorized to make 
no more than six transfers and withdrawals, or a combination of such 
transfers and withdrawals, per calendar month or statement cycle).
---------------------------------------------------------------------------

    To provide greater clarity about this intended interpretation, the 
Bureau is making minor wording revisions to Sec.  1005.2(b)(3)(i)(D)(2) 
and related commentary to accommodate the ``primary function'' 
approach, and is adding a comment with several illustrative examples of 
when an account satisfies the ``primary function'' prong of final Sec.  
1005.2(b)(3)(i)(D). New comment 2(b)(3)(i)-8 clarifies that, to qualify 
as a prepaid account, an account's primary function must be to provide 
consumers with general transaction capabilities, including by enabling 
consumers to use loaded funds to conduct the transactions enumerated in 
Sec.  1005.2(b)(3)(i)(D)(2), and that accounts that provide such 
capabilities only incidentally are excluded from the definition, and as 
such are not prepaid accounts as defined by final Sec.  1005.2(b)(3). 
The comment provides examples of accounts that provide the enumerated 
transactional capabilities only incidentally--specifically, brokerage 
accounts and savings accounts, where a consumer deposits money, for 
example, with a financial institution for the primary purpose of 
conducting transactions with the institution (e.g., to conduct trades 
in a brokerage account) rather than with third parties. The comment 
then provides several examples for additional guidance. New comment 
2(b)(3)(i)-8.i clarifies that an account's primary function is to 
enable a consumer to conduct transactions with multiple, unaffiliated 
merchants for goods or services, or at ATMs, or to conduct P2P 
transfers, even if it also enables a third party to disburse funds to a 
consumer. For example, a prepaid account that conveys tax refunds or 
insurance proceeds to a consumer meets the primary function test if the 
account can be used, e.g., to purchase goods or services at multiple, 
unaffiliated merchants.
    Next, new comment 2(b)(3)(i)-8.ii clarifies that whether an account 
satisfies final Sec.  1005.2(b)(3)(i)(D) is determined by reference to 
the account, not the access device associated with the account. An 
account satisfies final Sec.  1005.2(b)(3)(i)(D) even if the account's 
access device can be used for other purposes, e.g., as a form of 
identification. Such accounts may include, for example, a prepaid 
account used to disburse student loan proceeds via a card device that 
can be used at unaffiliated merchants or to withdraw cash from an ATM, 
even if that access device also acts as a student identification card.
    New comment 2(b)(3)(i)-8.iii clarifies that, where multiple 
accounts are associated with the same access device, the primary 
function of each account is determined separately. The comment goes on 
to clarify that one or more accounts can satisfy final Sec.  
1005.2(b)(3)(i)(D) even if other accounts associated with the same 
access device do not. This commentary is intended to address situations 
where two or more separate ``wallets'' or ``purses'' are associated 
with the same access device. It provides the specific example of a 
student identification card, which may act as an access device 
associated with two separate accounts: An account used to conduct 
transactions with multiple, unaffiliated merchants for goods or 
services, and an account used to conduct closed-loop

[[Page 83974]]

transactions on campus. The comment clarifies that the account used to 
conduct transactions with multiple, unaffiliated merchants for goods or 
services satisfies final Sec.  1005.2(b)(3)(i)(D), even though the 
account used to conduct closed-loop transactions does not.
    Next, new comment 2(b)(3)(i)-8.iv clarifies that an account 
satisfies final Sec.  1005.2(b)(3)(i)(D) if its primary function is to 
provide general transaction capability, even if an individual consumer 
does not in fact use it to conduct multiple transactions. For example, 
the fact that a consumer may choose to withdraw the entire account 
balance at an ATM or transfer it to another account held by the 
consumer does not change the fact that the account's primary function 
is to provide general transaction capability. The Bureau is including 
this comment to clarify that an account's primary function is not 
determined by how frequently an individual consumer chooses to use the 
account for a given function. This clarification aligns with the 
Bureau's decision, discussed in the section-by-section analysis of 
Sec.  1005.2(b)(3) above, to cover under the final rule as prepaid 
accounts those products that do not necessarily act as transaction 
account substitutes. For example, the Bureau understands that some 
consumers who receive funds from third parties--such as tax refunds or 
insurance proceeds--via prepaid accounts may not always transact with 
the accounts on an ongoing basis, opting instead to withdraw the funds 
from the account in their entirety after acquisition or transfer them 
to another account. Pursuant to new comment 2(b)(3)(i)-8.iv, these 
consumer's accounts would still meet the ``primary function'' prong set 
forth in final Sec.  1005.2(b)(3)(i)(D)(2).
    Finally, new comment 2(b)(3)(i)-8.v states the corollary of the 
general rule set forth in Sec.  1005.2(b)(3)(i)(D)(2). Specifically, it 
explains that an account whose primary function is other than to 
conduct transactions with multiple, unaffiliated merchants for goods or 
services, or at ATMs, or to conduct P2P transfers, does not satisfy 
final Sec.  1005.2(b)(3)(i)(D). The comment goes on to provide the 
example of an account whose only function is to make a one-time 
transfer of funds into a separate prepaid account as an account that 
would not qualify as a prepaid account under this prong of the 
definition. Such accounts could include, for example, so-called reload 
packs, which several industry commenters urged the Bureau to exclude 
from coverage under the final rule. In contrast to non-reloadable 
prepaid cards, which can be used to make purchases or other 
transactions, reload packs can only be used to transfer funds into 
prepaid accounts.
    The Bureau is also adopting proposed comment 2(b)(3)(i)-7, 
renumbered as comment 2(b)(3)(i)-9, which cross-references comments 
20(a)(3)-1 and -2 for guidance on the meaning of the term redeemable 
upon presentation at multiple, unaffiliated merchants.
2(b)(3)(i)(D)(3)
    As discussed in greater detail in the section-by-section analyses 
of Sec.  1005.2(b)(3) and (3)(i)(C) above, the Bureau received several 
comments requesting that it revise the proposed definition of prepaid 
account to provide a clearer line between accounts that were already 
covered by the existing definition of account in Sec.  1005.2(b) and 
accounts that would be covered by the newly created prepaid account 
definition. A number of commenters, including a payment network and an 
industry trade association, noted a specific lack of clarity with 
respect to products that could arguably qualify as both. To illustrate, 
they noted that some prepaid accounts offer preauthorized check-writing 
capability, while some checking accounts allow consumers to transact 
using the ACH routing number or online passcode. These commenters asked 
the Bureau to resolve this ambiguity.
    As set forth in the section-by-section analyses of Sec.  
1005.2(b)(3)(i)(C) and (D)(2) above, the Bureau is finalizing several 
changes to the proposed definition of prepaid account to provide a 
clearer delineation between accounts that are covered by Regulation E 
generally and accounts that will be covered as prepaid accounts. In 
addition to those changes, the Bureau is also adding a third prong to 
Sec.  1005.2(b)(3)(i)(D). Pursuant to final Sec.  
1005.2(b)(3)(i)(D)(3), only accounts that are not otherwise a checking 
account, a share draft account, or a NOW account will qualify as a 
prepaid account. For purposes of this element, the Bureau does not 
consider the capability to issue preauthorized checks to qualify an 
account as checking, share draft, or NOW accounts. The Bureau notes 
that it intended to exclude checking and other demand deposit accounts 
from the proposed definition of prepaid account by including the phrase 
``not otherwise an account under paragraph (b)(1) of this section.'' 
The Bureau acknowledges, however, that its proposed approach did not 
sufficiently resolve the potential ambiguity referenced by commenters. 
The Bureau believes that its express reference in final Sec.  
1005.2(b)(3)(i)(D)(3) to the account not being a checking, share draft, 
or NOW account, together with the primary function test in final Sec.  
1005.2(b)(3)(i)(D)(2), more directly address these concerns.
2(b)(3)(ii)
    The next portion of the final definition of prepaid account 
includes several express exclusions from that definition. In addition 
to the exclusions included in the proposed rule, the Bureau is adding 
exclusions for (1) accounts loaded only with funds from a dependent 
care assistance program or a transit or parking reimbursement 
arrangement; (2) accounts that are directly or indirectly established 
through a third party and loaded only with qualified disaster relief 
payments; and (3) the P2P functionality of accounts established by or 
through the U.S. government whose primary function is to conduct 
closed-loop transactions on U.S. military installations or vessels, or 
similar government facilities. The Bureau notes that, to the extent 
certain accounts were already covered as accounts under existing 
Regulation E generally, these exclusions do not change that, and only 
exclude from the definition of prepaid account.
2(b)(3)(ii)(A)
    Proposed Sec.  1005.2(b)(3)(iv) would have addressed prepaid 
products established in connection with certain health care and 
employee benefit programs. Specifically, the proposed provision would 
have stated that the term prepaid account did not include a health 
savings account, flexible spending account, medical savings account, or 
a health reimbursement arrangement. Proposed comment 2(b)(3)(iv)-1 
would have defined these terms by referencing existing provisions in 
the Internal Revenue Code. Specifically, the Bureau proposed to define 
``health savings account'' as a health savings account as defined in 26 
U.S.C. 223(d); ``flexible spending account'' as a cafeteria plan which 
provides health benefits or a health flexible spending arrangement 
pursuant to 26 U.S.C. 125; ``medical savings account'' as an Archer MSA 
as defined in 26 U.S.C. 220(d); and ``health reimbursement 
arrangement'' as a health reimbursement arrangement which is treated as 
employer-provided coverage under an accident or health plan for 
purposes of 26 U.S.C. 106.
    The Bureau believed that, while these health care and employee 
benefit accounts could, in some ways, be similar to other types of 
prepaid

[[Page 83975]]

accounts, coverage under Regulation E was not necessary at this time. 
Specifically, the Bureau noted that these products typically come with 
limits on the amount of funds that could be loaded on to them, the 
methods for loading, and numerous restrictions on where, when, and how 
those funds could be spent.
    The Bureau received several comments in response to this aspect of 
the proposal. Several consumer groups opposed the exclusion, noting 
that the accounts at issue can hold large amounts of money that 
consumers use over long periods of time. These commenters noted further 
that these types of accounts especially warrant error resolution 
protections since--according to the commenters--healthcare billing is 
notoriously error-prone. In addition, these commenters asserted that 
compliance should not be overly burdensome for issuers of these types 
of accounts, since many of the underlying benefit programs already 
provide consumers with error resolution protections.
    By contrast, industry commenters, including issuing banks and 
credit unions, trade associations representing both financial 
institutions and employers, a payment network, and a program manager, 
expressed support for the proposed exclusions, and urged the Bureau to 
expand them further to include additional categories of similar 
employer-sponsored compensation programs. Specifically, several 
commenters urged the Bureau to add exclusions for accounts used to 
disburse parking, transit, dependent care, and wellness benefits. They 
argued that these programs are similar in several key respects to the 
types of programs the Bureau excluded from the definition of prepaid 
account in the proposal. For example, they explained that these 
accounts are typically funded from the employer's general assets, not 
by consumers, and as such they belong to the employer rather than the 
consumer. They argued further that these accounts do not warrant 
coverage under the rule because they are not consumer asset accounts in 
the sense that their use is highly restricted and, for certain types of 
programs, the funds held in them are notional, rather than actual, in 
nature. A subset of these commenters also urged the Bureau to 
reconsider referring to specific sections of the Internal Revenue Code 
when specifying the types of programs that would qualify for the 
exclusion, noting that the Code's numbering may change in the future.
    For the reasons set forth herein, the Bureau is finalizing 
exclusions for health savings accounts, flexible spending arrangements, 
medical savings accounts, and health reimbursement arrangements in 
proposed Sec.  1005.2(b)(3)(iv), renumbered as Sec.  
1005.2(b)(3)(ii)(A). The Bureau is likewise finalizing proposed comment 
2(b)(3)(iv)-1, renumbered as 2(b)(3)(ii)-1. The Bureau is persuaded 
that accounts used to disburse funds related to these programs are 
fundamentally different from other prepaid accounts covered by the 
final rule. As stated in the proposal, these products are governed by 
the terms of their plans and related regulations, such that, for 
example, health savings accounts and medical savings accounts can 
typically only be used to pay for qualified medical expenses. The 
Bureau believes that the limited use of funds under such arrangements 
distinguish them from consumer transaction accounts. As such, the 
Bureau believes such accounts are appropriately excluded from the rule. 
The Bureau believes that the term account is reasonably interpreted not 
to include these types of products or, in the alternative, to further 
the purposes of EFTA; the Bureau believes it is necessary and proper to 
exercise its authority under EFTA section 904(c) to finalize an express 
exclusion in final Sec.  1005.2(b)(3)(ii)(A).
    The Bureau has also considered the comments requesting that 
additional categories of employer-sponsored compensation be added to 
the exclusion in Sec.  1005.2(b)(3)(ii)(A). The Bureau agrees that, to 
the extent other programs exist that are significantly similar to 
health savings accounts, flexible spending arrangements, medical 
savings accounts, and health reimbursement arrangements, those programs 
should also be excluded from the rule for the same reasons. 
Accordingly, the Bureau is expanding the exclusion to encompass 
accounts associated with other employer-sponsored benefit arrangements, 
namely, accounts used to disburse funds from a dependent care 
assistance program or a transit or parking reimbursement arrangement. 
The Bureau is adding a reference to these additional program types in 
final Sec.  1005.2(b)(3)(ii)(A) and the Internal Revenue Code sections 
that reference them in final comment 2(b)(3)(ii)-1. The Bureau is 
finalizing that comment with references to the relevant Internal 
Revenue Code sections because it believes that specificity will help 
ensure that the exclusions remain limited in scope, and because it 
believes that the clarity provided by such specificity outweighs the 
potential difficulty that may occur in the event the numbering scheme 
of the Internal Revenue Code changes.
    The Bureau is otherwise finalizing Sec.  1005.2(b)(3)(ii)(A) and 
comment 2(b)(3)(ii)-1 as proposed. The Bureau notes, in response to 
commenters that requested that it add an exclusion for employee 
wellness programs, that such programs are likely excluded from the rule 
under the exclusion for loyalty, award, or promotional gift cards. That 
exclusion applies to loyalty, award, or promotional gift cards, as 
defined in Sec.  1005.20(a)(4) and (b). Existing comment 20(a)(4)-1.vi 
lists incentive programs through which an employer provides cards to 
employees to encourage employee wellness as a type of loyalty, award, 
or promotional gift card.
2(b)(3)(ii)(B)
    Several commenters, including a payment network, an issuing bank, 
several industry trade associations, and a national relief 
organization, urged the Bureau to add a separate exclusion for accounts 
used to distribute disaster relief funds. Most notably, the national 
relief organization noted that the accounts used to distribute the 
funds, as well as the funds themselves, are the property of the relief 
organization, not the consumer, which makes these accounts distinct 
from other consumer asset accounts the Bureau proposed to cover. 
Commenters argued that such accounts are different because consumers 
who receive these accounts cannot shop for them, and tend to use them 
for a short period of time without reloading--in most cases, the trade 
association commenter noted, the cards will expire if not used within 
60 days. The payment network argued that the proposed pre-acquisition 
disclosure requirements would delay consumers' receipt of relief funds 
in the wake of tragic events. In addition, commenters noted that these 
accounts rarely feature any of the fees that would be required to be 
disclosed on the proposed short form. Accordingly, these commenters 
asserted, covering these accounts under the Bureau's final rule on 
prepaid accounts would increase the cost of providing them to consumers 
in need for the sake of disclosures that are neither necessary nor 
useful to those consumers. The national relief organization, which uses 
prepaid cards to disburse disaster relief funds in some circumstances, 
noted further that the proposed disclosure requirements in conjunction 
with the packaging replacement requirements in proposed Sec.  
1005.18(h) would render much of its prepaid card inventory useless. A 
consumer group commenter, by

[[Page 83976]]

contrast, argued that disaster relief cards should not be excluded so 
long as they are used in the same way as other prepaid accounts--i.e., 
as open-loop accounts used to make purchases at multiple, unaffiliated 
merchants.
    The Bureau agrees that the nature of these accounts--such as, for 
example, the fact that the underlying funds are owned by the relief 
organization, rather than the consumer--warrant their exclusion from 
the rule. The Bureau believes that such an exclusion is further 
warranted because, on balance, the burden of requiring these accounts 
to comply with the requirements of this final rule outweighs the 
potential utility of those requirements to consumers who have had the 
misfortune of experiencing a disastrous event. The Bureau does not 
believe it would be appropriate at this time to place such additional 
burdens on providers. Accordingly, to further the purposes of EFTA to 
provide a framework to establish the rights, liabilities, and 
responsibilities of prepaid account consumers, the Bureau believes it 
is necessary and proper to exercise its authority under EFTA section 
904(c) to finalize an express exclusion in new Sec.  
1005.2(b)(3)(ii)(B) for accounts that are established directly or 
indirectly by a third party and loaded only with qualified disaster 
relief payments. This express exclusion will protect consumers by 
ensuring that they have quick access to crucial funds provided by 
disaster relief organizations in the wake of tragic events. The Bureau 
is also adding new comment 2(b)(3)(ii)-2 to clarify that the exclusion 
is limited to funds made available through a qualified disaster relief 
program, as that term is defined in the Internal Revenue Code.\309\
---------------------------------------------------------------------------

    \309\ See 26 U.S.C. 139(b) (defining ``qualified disaster relief 
payment'' as, generally, any amount paid to or for the benefit of an 
individual to reimburse or pay reasonable and necessary expenses 
incurred as a result of, or for the repair or rehabilitation of 
property necessitated by, a qualified disaster).
---------------------------------------------------------------------------

2(b)(3)(ii)(C)
    The Bureau received a request through the interagency consultation 
process to expressly exempt from the prepaid account definition certain 
accounts, currently marketed under the brand names Eagle Cash and Navy 
Cash/Marine Cash, that are primarily used by members of the armed 
forces to conduct closed-loop transactions on military property. 
According to the request, these accounts allow servicemembers to 
conduct closed-loop transactions in forward-deployed environments, such 
as an army base or a naval vessel, where cash is inconvenient and other 
commercially available payments technologies are unavailable. These 
accounts sometimes offer a P2P feature that allows users to transfer 
loaded funds to other accountholders from the closed-loop ``purse'' of 
the account, but such functionality, the Bureau understands, is 
incidental to the primary closed-loop function of the account.
    The Bureau agrees that accounts whose primary function is to 
facilitate closed-loop transactions by members of the armed forces in 
forward-deployed environments are sufficiently distinguishable and 
unique to warrant a narrow, express exclusion from the final rule. 
Accordingly, to further the purposes of EFTA to provide a framework to 
establish the rights, liabilities, and responsibilities of prepaid 
account consumers, the Bureau believes it is necessary and proper to 
exercise its authority under EFTA section 904(c) to finalize an express 
exclusion in new Sec.  1005.2(b)(3)(ii)(C) for the P2P transfer 
functionality of an account established or through the United States 
government whose primary function is to conduct closed-loop 
transactions on U.S. military installations or vessels, or similar 
government facilities. This express exclusion will protect 
servicemember consumers by ensuring that they have access to a 
convenient and well-established payment method at a time when alternate 
payment methods such as cash or bank accounts may not be available for 
operational reasons. The Bureau notes that this is a narrow exclusion 
intended to accommodate a specific set of closed-loop products that are 
used in unique circumstances, such as on military vessels or bases, or 
similar government facilities (e.g., embassies or consulates) in remote 
locations. The Bureau notes further that, to the extent that such 
accounts offer an open-loop capability that allows the consumer to 
conduct transactions at multiple, unaffiliated merchants for goods or 
services, that functionality would not be covered by this exclusion.
2(b)(3)(ii)(D)
The Bureau's Proposal
    Regulation E's gift card provisions cover some prepaid products 
that also could fall within the proposed definition of prepaid account. 
In particular, Sec.  1005.20 contains provisions applicable to gift 
certificates, store gift cards, and general-use prepaid cards.\310\ For 
those products marketed and sold as gift cards (and that meet certain 
other qualifications), the Gift Card Rule requires certain disclosures, 
limits the imposition of certain fees, and contains other restrictions. 
The Gift Card Rule is distinct from the rest of subpart A of Regulation 
E, however, and does not provide consumers who use gift cards with the 
other substantive protections of Regulation E, such as limited 
liability and error resolution protections, or periodic statements. The 
Gift Card Rule in Sec.  1005.20(b)(2) expressly excludes those general-
use prepaid cards that are reloadable and not marketed or labeled as 
gift cards or gift certificates, while including general-use prepaid 
cards that are not reloadable as well as those that are marketed or 
labeled as gift cards or gift certificates. The Bureau proposed to add 
Sec.  1005.2(b)(3)(i)(C), which would have provided that a prepaid 
account was not a gift certificate as defined in Sec.  1005.20(a)(1) 
and (b); a store gift card as defined in Sec.  1005.20(a)(2) and (b); a 
loyalty, award, or promotional gift card as defined in Sec.  
1005.20(a)(4) and (b); or a general-use prepaid card as defined in 
Sec.  1005.20(a)(3) and (b) that is both marketed and labeled as a gift 
card or gift certificate.
---------------------------------------------------------------------------

    \310\ The Gift Card Rule defines a general-use prepaid card as 
``a card, code, or other device that is: (i) Issued on a prepaid 
basis primarily for personal, family, or household purposes to a 
consumer in a specified amount, whether or not that amount may be 
increased or reloaded, in exchange for payment; and (ii) Redeemable 
upon presentation at multiple, unaffiliated merchants for goods or 
services, or usable at automated teller machines.'' Sec.  
1005.20(a)(3).
---------------------------------------------------------------------------

    The Bureau believed that having to apply both the existing gift 
card regulatory requirements and the proposed prepaid account 
requirements could adversely impact the gift card market. The Bureau 
further expressed concern that if the requirements of the proposed rule 
were applied to gift cards, it was possible that those requirements, in 
the context of the typical gift card, could confuse consumers. 
Relatedly, the Bureau noted that, because most gift cards are not 
reloadable, not usable at ATMs, and not open loop, consumers were less 
likely to use gift cards as transaction account substitutes. Finally, 
the Bureau was concerned that, were it to impose provisions for access 
to account information and error resolution, and create limits on 
consumers' liability for unauthorized EFTs, the cost structure of gift 
cards could change dramatically, since, unlike other types of prepaid 
products, many gift cards do not typically offer these protections. The 
Bureau noted in the proposal that the exemption in the Gift Card Rule 
for general-use prepaid cards applies to products that are reloadable

[[Page 83977]]

and not marketed or labeled as gift cards or gift certificates.\311\
---------------------------------------------------------------------------

    \311\ See Sec.  1005.20(b)(2).
---------------------------------------------------------------------------

    By contrast, the Bureau proposed to exclude from the definition of 
prepaid account only such general-use prepaid products that were both 
marketed and labeled as gift cards or gift certificates. The Bureau was 
concerned that, absent this approach, some products it intended to 
cover in the proposal may be inadvertently excluded due to occasional 
or incidental marketing activities. For example, comment 20(b)(2)-2 
describes, in part, a network-branded GPR card that is principally 
advertised as a less-costly alternative to a bank account but is 
promoted in a television, radio, newspaper, or internet advertisement, 
or on signage as ``the perfect gift'' during the holiday season. For 
purposes of the Gift Card Rule, such a product would be considered 
marketed as a gift card or gift certificate because of this occasional 
holiday marketing activity. For purposes of proposed Sec.  
1005.2(b)(3)(i)(C), however, such a product would not have been 
considered to be both marketed and labeled as a gift card or gift 
certificate and thus would have been covered by the proposed definition 
of prepaid account. Proposed comment 2(b)(3)(i)-9 would have explained 
this distinction.
Comments Received
    A number of issuing banks, a digital wallet provider, and an 
industry trade association submitted comments in support of the 
proposed exclusion for gift cards. Two trade association commenters 
urged the Bureau to expand the exclusion to also cover rebate or refund 
cards used by retailers or other businesses as part of their 
merchandise return or reimbursement programs. In addition, a program 
manager and a payment network objected to the Bureau's decision to 
exclude only those GPR products that were both marketed and labeled as 
gift cards. These commenters urged the Bureau to exclude any prepaid 
product that was subject to the Gift Card Rule, regardless of how it 
was marketed or labeled. They argued that any card subject to the Gift 
Card Rule was likely to be limited in function and therefore did not 
warrant coverage by a rule aimed at protecting transaction account 
substitutes. In the same vein, they argued that the burden of complying 
with the proposal would far outweigh the benefit to consumers for these 
products, and could effectively remove these products from the 
marketplace. In addition, the payment network noted that the fact that 
some prepaid products could be subject to both the proposal and the 
Gift Card Rule could confuse consumers and create regulatory ambiguity 
for industry.
    Two consumer group commenters, by contrast, opposed this proposed 
exclusion. One group urged the Bureau to cover network-branded, open-
loop reloadable gift cards loaded with at least $500, while the other 
urged the Bureau to cover reloadable gift cards with a balance of at 
least $250, each arguing that a card that is loaded with more than 
those amounts poses a higher consumer risk associated with unauthorized 
transactions.
The Final Rule
    For the reasons set forth herein, the Bureau is finalizing proposed 
Sec.  1005.2(b)(3)(i)(C) and proposed comment 2(b)(3)(i)-9, renumbered 
as Sec.  1005.2(b)(3)(ii)(D) and comment 2(b)(3)(ii)-3, respectively, 
with technical revisions to conform internal references to reordering 
elsewhere in the final rule. Gift certificates and gift cards do not 
meet the Bureau's definition of prepaid accounts, as they typically 
cannot be used with multiple, unaffiliated merchants. With regard to 
general-use prepaid cards that are both marketed and labeled as a gift 
card or gift certificate, the Bureau believes it is necessary and 
proper to finalize this exclusion pursuant to its authority under EFTA 
section 904(c) to further the purposes of EFTA to provide a framework 
to establish the rights, liabilities, and responsibilities of prepaid 
account consumers.
    After consideration of the comments, the Bureau remains convinced 
that subjecting this general category of products to both the Gift Card 
Rule and the requirements of this final rule would place a significant 
burden on industry without a corresponding consumer benefit. On the 
other hand, the Bureau continues to believe that the gift card 
exclusion should not extend to products that consumers may use as or 
confuse with transaction account substitutes, even if such products are 
also covered by the Gift Card Rule. To illustrate, the Bureau 
understands that some consumers may use multiple non-reloadable cards 
as transaction accounts to pay important household expenses like 
utilities and groceries, spending them down and discarding them when 
the funds are depleted. These cards may be subject to the Gift Card 
Rule because they are not reloadable and thus do not qualify for the 
GPR card exclusion in Sec.  1005.20(b)(2). However, if these cards are 
not labeled or marketed as gift cards, it is possible that consumers 
will unwittingly acquire these cards thinking that they carry the same 
protections as other prepaid accounts under this final rule. As 
previously stated, the Bureau believes consumers who use non-reloadable 
prepaid products in this way deserve the same protections as consumers 
who use GPR cards. Further, the Bureau believes that consumers 
generally understand the protections associated with, and limitations 
of, gift cards to the extent they are labeled as such. Accordingly, the 
Bureau declines to expand the proposed exclusion for accounts that are 
both marketed and labeled as gift cards to accounts that are labeled or 
marketed as gift cards, as some industry commenters suggested. The 
Bureau notes that in the gift card provisions of the Credit CARD Act, 
Congress expressly granted to the Board (now to the Bureau) authority 
to determine the extent to which the individual definitions and 
provisions of EFTA or Regulation E should apply to general-use prepaid 
cards, gift certificates, and store gift cards.\312\
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    \312\ Public Law 111-24, 123 Stat. 1734, 1754 (2009); EFTA 
section 915(d)(1)(B); 15 U.S.C. 1693l-1(d)(1)(B).
---------------------------------------------------------------------------

    The Bureau has considered the comments asserting that coverage 
under both the Prepaid and Gift Card Rules will cause consumer 
confusion and regulatory ambiguity. However, the Bureau understands 
that, currently, prepaid issuers consciously avoid marketing and 
labeling their products in such a way as would cause such products to 
be covered under the Gift Card Rule. As such, the Bureau believes that, 
in practice, very few products that are subject to the Gift Card Rule 
will also qualify as prepaid accounts under this final rule.
    Finally, the Bureau declines to expressly expand the exclusion for 
accounts that are both marketed and labeled as gift cards to rebate 
cards, as two commenters suggested. The Bureau believes such an express 
exclusion would be unnecessary, since such programs are generally 
excluded from the rule under the exclusion for loyalty, award, or 
promotional gift cards, as defined in Sec.  1005.20(a)(4) and (b). 
Existing comment 20(a)(4)-1.iii lists rebate programs operated or 
administered by a merchant or product manufacturer that can be redeemed 
for goods or services.
2(b)(3)(ii)(E)
    As discussed above, Regulation E currently contains provisions in 
Sec.  1005.15 that are specifically applicable to an account 
established by a government agency for distributing government benefits 
to a consumer electronically. Existing Sec.  1005.15(a)(2)

[[Page 83978]]

defines a government benefit ``account'' to exclude accounts for 
distributing needs-tested benefits in a program established under State 
or local law or administered by a State or local agency. The Bureau 
proposed to have Sec.  1005.2(b)(3)(iii) state that the term prepaid 
account included a government benefit account, as defined in existing 
Sec.  1005.15(a)(2), but did not repeat the exclusion in Sec.  
1005.15(a)(2) for State and local needs-tested benefit programs as part 
of the definition of prepaid account in proposed Sec.  1005.2(b)(3). To 
make clear that accounts excluded from the definition of government 
benefit account in Sec.  1005.15(a)(2) are also excluded from the 
general definition of prepaid account in Sec.  1005.2(b)(3), and 
pursuant to its authority under EFTA section 904(d) to further the 
purposes of EFTA to provide a framework to establish the rights, 
liabilities, and responsibilities of prepaid account consumers, the 
Bureau is finalizing new Sec.  1005.2(b)(3)(ii)(E) to explicitly 
exclude accounts established for distributing needs-tested benefits in 
a program established under State or local law or administered by a 
State or local agency, as set forth in Sec.  1005.15(a)(2).
Virtual Currency
    As noted in part II.D above, the Bureau received a number of 
comments on whether the Bureau should regulate virtual currency 
products and services under this final rule. Commenters included banks, 
a digital wallet provider, a virtual currency exchange, industry trade 
associations, consumer advocacy groups, a law firm representing a 
coalition of prepaid issuers, and a non-governmental virtual currency 
policy organization.
    Industry commenters had mixed reactions to whether the Bureau 
should regulate virtual currency products and services. Two trade 
association commenters representing banks stated that the proposed 
definition of ``prepaid account'' should be modified to expressly 
include accounts funded or capable of being funded with virtual 
currencies and submitted a definition of virtual currency they urged 
the Bureau to adopt. They asserted that virtual currencies are 
``funds'' under EFTA, and coverage is needed to ensure consumers get 
the kind of protections they would have if they used other comparable 
but closely regulated traditional payment systems and products. They 
further asserted that virtual currency products and systems pose 
greater risks to consumers than traditional payment products and 
systems funded with fiat currency.
    These trade association commenters further asserted their belief 
that, with few exceptions, regulating prepaid accounts funded in 
virtual currencies would be consistent with the Bureau's goal of 
providing comprehensive consumer protections for prepaid products. With 
respect to the exceptions, the commenters suggested that it was 
unnecessary to regulate virtual currencies that can only be used (1) at 
a specific merchant or defined group of affiliated merchants; (2) 
within online gaming platforms with no market or application outside of 
those platforms; or (3) as part of a customer affinity or rewards 
program. They asserted that their suggested carve outs are similar to 
the proposed exclusions for certain store gift cards and for loyalty, 
award, or promotional gift cards, in the proposed definition of prepaid 
account.
    On the other hand, a diverse group of industry commenters and a 
non-governmental virtual currency policy organization commenter urged 
the Bureau to expressly provide in the final rule that it does not 
apply to virtual currency products and services. Commenters expressed 
concern that regulation would be premature, thus potentially stifling 
innovation. Several commenters highlighted the low rate of consumer 
adoption of virtual currency products and services. Commenters also 
asserted that the Bureau has not adequately studied the virtual 
currency industry, and that regulations developed for GPR cards are 
unsuitable to apply to virtual currency products and services because 
of the differences between such products and services and GPR cards.
    A law firm commenting on behalf of a coalition of prepaid issuers 
and a virtual currency trade association commented that they supported 
the Bureau's desire to ensure consumer protection rules are applied 
consistently across different industries that share similar 
functionalities. However, neither commenter supported regulating 
virtual currency products and services in the context of the prepaid 
rulemaking. The law firm commenter asserted that it was premature to 
regulate virtual currency products and services, and that adopting 
regulations to apply to virtual currency products and services would 
impose significant regulatory burden on such products and services and 
also stifle innovation. It further suggested that the Bureau adopt the 
approach the Board took with respect to the regulation of prepaid cards 
generally. It asserted that despite the Board's decision to not extend 
the coverage of its Payroll Card Rule to GPR cards, issuers of GPR 
cards have nonetheless applied consumer protection comparable to those 
established in that rule. The trade association commenter asserted that 
the Bureau should address virtual currencies in a separate rulemaking.
    Consumer group commenters generally urged the Bureau to regulate 
those virtual currency products and services that are used by or 
marketed to consumers. Specifically, two consumer group commenters 
stated that the Bureau was right to develop rules that, they believed, 
anticipated the increasing role of virtual currencies. One urged the 
Bureau to extend the definition of account to include virtual currency 
wallets, stating that such extension would be appropriate because it is 
important for consumer protection rules to be in place before consumer 
adoption of such wallets becomes widespread, and the application of 
Regulation E to virtual currency wallets could incent virtual currency 
wallet providers to ensure that the funds consumers put into virtual 
currency wallets are adequately protected (to the extent they are not 
already doing so). Another consumer group commenter asserted that as 
long as virtual currencies are used for consumer purposes, consumers 
need protection. It observed that current virtual currency systems lack 
such protections and highlighted the lack of protection in the areas of 
limited liability, dispute rights, and error resolution. However, one 
consumer group commenter opposed regulating virtual currency products 
and services as prepaid accounts. The commenter stated that it did not 
believe that accounts that convert fiat money into stored value in a 
form that is not fiat currency should be classified as prepaid 
accounts, because the funds in those accounts would be protected once 
they are converted back into fiat currency.
    As discussed above, the Bureau stated in the proposal that the 
Bureau's analysis is ongoing with respect to virtual currencies and 
related products and services. The proposed rule did not resolve 
specific issues with respect to the application of either existing 
regulations or the proposed rule to virtual currencies and related 
products and services. Accordingly, although the Bureau received some 
comments addressing virtual currency products and services, the Bureau 
reiterates that application of Regulation E and this final rule to such 
products and services is outside of the scope of this rulemaking. 
However, the Bureau notes that as part of its broader administration 
and enforcement of the enumerated consumer financial protection 
statutes and title X of the Dodd-Frank Act, the Bureau continues to 
analyze the nature

[[Page 83979]]

of products or services tied to virtual currencies.
Section 1005.4 General Disclosure Requirements; Jointly Offered 
Services
4(a)(1) Form of Disclosures
    Existing Sec.  1005.4(a)(1) sets forth general requirements for 
disclosures required by Regulation E. Among other things, it provides 
that the disclosures must be clear and readily understandable. Existing 
comment 4(a)-1 explains that there are no particular rules governing 
type size, number of pages, or the relative conspicuousness of various 
terms in the disclosures. As discussed in greater detail below, the 
short form and long form disclosures under final Sec.  1005.18(b) are 
subject to the specific formatting requirements, including prominence 
and size requirements, that are set forth in final Sec.  1005.18(b)(7). 
Similarly, remittance transfers subject to subpart B of Regulation E 
are also subject to specific formatting requirements set forth in 
existing Sec.  1005.31(c). Accordingly, the Bureau is adopting a 
conforming change to comment 4(a)-1 to clarify that Sec. Sec.  
1005.18(b)(7) and 1005.31(c) are exceptions to this general principle 
explained in comment 4(a)-1.
Section 1005.10 Preauthorized Transfers
10(e) Compulsory Use
10(e)(1) Credit
    In the discussion below of the Bureau's final changes to Regulation 
Z, the Bureau explains in detail its approach to the regulation of 
credit offered in connection with prepaid accounts. (That discussion 
provides an overall explanation of the Bureau's approach in this 
rulemaking to credit offered in connection with prepaid accounts, 
including with respect to changes to Regulation E, the details of which 
are set forth below.)
    As discussed in more detail in the section-by-section analysis of 
Regulation Z Sec.  1026.61 below, the Bureau is adopting a new 
definition of ``hybrid prepaid-credit card'' in new Regulation Z Sec.  
1026.61 which sets forth the circumstances in which a prepaid card is a 
credit card under Regulation Z.\313\ A prepaid card that is a hybrid 
prepaid-credit card as defined in new Regulation Z Sec.  1026.61 is a 
credit card under final Regulation Z Sec.  1026.2(a)(15)(i). See also 
new Regulation Z Sec.  1026.61(a)(1) and new Regulation Z comment 
2(a)(15)-2.i.F. As set forth in new Regulation Z Sec.  1026.61(a)(1), a 
prepaid card that is not a ``hybrid prepaid-credit card'' is not a 
credit card for purposes of Regulation Z. See also new Regulation Z 
comment 2(a)(15)-2.ii.D.
---------------------------------------------------------------------------

    \313\ Throughout the section-by-section analyses of Regulations 
E and Z, the term ``hybrid prepaid-credit card'' refers to a hybrid 
prepaid-credit card as defined in new Regulation Z Sec.  1026.61.
---------------------------------------------------------------------------

    As discussed in the Overview of the Final Rule's Amendments to 
Regulation Z section and in more detail in the section-by-section 
analysis of Regulation Z Sec.  1026.61 below, the Bureau generally 
intends to cover under Regulation Z overdraft credit features offered 
in connection with prepaid accounts where the credit features are 
offered by the prepaid account issuer, its affiliates, or business 
partners. New Regulation Z Sec.  1026.61(b) generally requires that 
such credit features be structured as separate sub-accounts or 
accounts, distinct from the prepaid asset account, to facilitate 
transparency and compliance with various Regulation Z requirements. New 
Regulation Z Sec.  1026.61(a)(2)(i) provides that a prepaid card is a 
``hybrid prepaid-credit card'' with respect to a separate credit 
feature if the card meets the following two conditions: (1) The card 
can be used from time to time to access credit from the separate credit 
feature in the course of authorizing, settling, or otherwise completing 
transactions conducted with the card to obtain goods or services, 
obtain cash, or conduct P2P transfers; and (2) the separate credit 
feature is offered by the prepaid account issuer, its affiliate, or its 
business partner. New Regulation Z Sec.  1026.61(a)(2)(i) defines such 
a separate credit feature accessible by a hybrid prepaid-credit credit 
as a ``covered separate credit feature.'' Thus, the hybrid prepaid-
credit card accesses both the covered separate credit feature and the 
asset feature of the prepaid account, and the hybrid prepaid-credit 
card is a credit card under Regulation Z with respect to the covered 
separate credit feature.
    As discussed in the section-by-section analysis of Regulation Z 
Sec.  1026.61 below, the Bureau also has decided to exclude prepaid 
cards from being covered as credit cards under Regulation Z when they 
access certain specified types of credit. First, under new Regulation Z 
Sec.  1026.61(a)(2)(ii), a prepaid card is not a hybrid prepaid-credit 
card with respect to a separate credit feature that does not meet both 
of the conditions above, for example, where the credit feature is 
offered by an unrelated third party that is not the prepaid account 
issuer, its affiliate or its business partner. Such credit features are 
defined as ``non-covered separate credit features,'' as discussed in 
the section-by-section analysis of Regulation Z Sec.  1026.61(a)(2) 
below. Under new Regulation Z Sec.  1026.61(a)(4), a prepaid card also 
is not a hybrid prepaid-credit card when the prepaid card accesses 
incidental credit in the form of a negative balance on the asset 
account where the prepaid account issuer generally does not charge 
credit-related fees for the credit.\314\ A prepaid card is not a hybrid 
prepaid-credit card under new Regulation Z Sec.  1026.61 or a credit 
card under final Regulation Z Sec.  1026.2(a)(15)(i) when it accesses 
credit from these types of credit features. For more detailed 
explanations of when prepaid cards are not credit cards under 
Regulation Z, see the section-by-section analyses of Regulation Z Sec.  
1026.61(a)(2) and (4) below.
---------------------------------------------------------------------------

    \314\ Throughout the section-by-section analyses of Regulations 
E and Z, the term ``incidental credit'' is used to refer to credit 
that meets the conditions of new Regulation Z Sec.  1026.61(a)(4).
---------------------------------------------------------------------------

    As part of the Bureau's approach to the regulation of credit 
offered in connection with prepaid accounts, the Bureau's final rule 
revises the compulsory use provision of Regulation E, existing Sec.  
1005.10(e)(1), to make clear that it applies to covered separate credit 
features accessible by hybrid prepaid-credit cards as defined in new 
Regulation Z Sec.  1026.61. The Bureau also is providing guidance to 
explain that incidental credit described in new Regulation Z Sec.  
1026.61(a)(4) is exempt from the compulsory use provisions in 
Regulation E, similar to checking overdraft services.
    EFTA's compulsory use provision, EFTA section 913(1),\315\ 
prohibits any person from conditioning the extension of credit to a 
consumer on the consumer's repayment by means of preauthorized EFTs. As 
implemented in Regulation E, existing Sec.  1005.10(e)(1) currently 
states that ``[n]o financial institution or other person may condition 
an extension of credit to a consumer on the consumer's repayment by 
preauthorized EFTs, except for credit extended under an overdraft 
credit plan or extended to maintain a specified minimum balance in the 
consumer's account.'' The term ``credit'' is defined in existing Sec.  
1005.2(f) to mean the right granted by a financial institution to a 
consumer to defer payment of debt, incur debt and defer its payment, or 
purchase property or services and defer payment therefor. The term 
preauthorized EFT is defined in existing Sec.  1005.2(k) to mean an EFT 
authorized in advance to recur at substantially regular intervals.
---------------------------------------------------------------------------

    \315\ 15 U.S.C. 1693k(1).
---------------------------------------------------------------------------

    Congress enacted the compulsory use provision to prevent financial

[[Page 83980]]

institutions that are creditors from mandating repayment of credit by 
future preauthorized EFTs. Were the compulsory use provision not to 
exist, creditors could access consumers' available funds at the same 
institution via direct transfers, or at other institutions via 
recurring ACH transfers, to repay the debt. By doing so, consumers 
could lose access to these funds and lose the ability to prioritize 
repayment of debts, as a creditor could compel the consumer to grant 
the creditor preauthorized transfer access to the consumer's asset 
account as a condition for agreeing to provide credit to that consumer.
    In adopting what is now existing Sec.  1005.10(e)(1) in 1981 to 
implement EFTA section 913(1), the Board used its EFTA exception 
authority to exclude overdraft credit plans from the general compulsory 
use rule of EFTA section 913(1).\316\
---------------------------------------------------------------------------

    \316\ See 46 FR 2972, 2973 (Jan. 13, 1981) (``After careful 
consideration of the issues raised, the Board is adopting the 
amendment as proposed. The Board believes that it has the legal 
authority to adopt this exception [for overdraft credit plans] under 
section 904(c) of the act, which expressly authorizes the Board to 
provide adjustments and exceptions for any class of electronic fund 
transfer that in the Board's judgment are necessary or proper to 
carry out the purposes of the act or to facilitate compliance.'').
---------------------------------------------------------------------------

The Bureau's Proposal
    The Bureau proposed certain modifications to the compulsory use 
provision. In particular, the proposal would have provided that the 
provision's exception for overdraft credit plans would not have 
extended to overdraft credit plans accessed by prepaid cards that are 
credit cards under Regulation Z. Specifically, the proposal would have 
amended existing Sec.  1005.10(e)(1) to provide that the exception for 
overdraft plans from the compulsory use provision does not apply to a 
credit plan that is a credit card account accessed by an access device 
for a prepaid account where the access device is a credit card under 
Regulation Z. Thus, under the proposal, the compulsory use provision in 
proposed Sec.  1005.10(e)(1) would have applied to overdraft credit 
plans accessed by prepaid cards that are credit cards under Regulation 
Z.
    Under the proposal, existing comment 10(e)(1)-2 related to the 
exception for overdraft credit plans would have been amended to explain 
that this exception does not apply to credit extended under a credit 
plan that is a credit card account accessed by an access device for a 
prepaid account where the access device is a credit card under 
Regulation Z Sec.  1026.2(a)(15)(i).
    The proposal would have added comment 10(e)(1)-3 to provide 
guidance on how the prohibition in proposed Sec.  1005.10(e)(1) would 
have applied to credit extended under a credit plan that is a credit 
card account accessed by a prepaid card under Regulation Z as discussed 
above. Specifically, proposed comment 10(e)(1)-3 would have explained 
that under proposed Sec.  1005.10(e)(1), creditors must not require by 
electronic means on a preauthorized, recurring basis repayment of 
credit extended under a credit plan that is a credit card account 
accessed by an access device for a prepaid account where the access 
device is a credit card under Regulation Z.
    Proposed comment 10(e)(1)-3 also would have provided that the 
prohibition in proposed Sec.  1005.10(e)(1) would have applied to any 
credit extended under a credit card plan as described above, including 
credit arising from transactions not using the credit card itself but 
taking place under plans that involve credit cards. For example, if the 
consumer writes a check that accesses a credit card plan as discussed 
above, the resulting credit would be subject to the prohibition in 
proposed Sec.  1005.10(e)(1) since it is incurred through a credit card 
plan, even though the consumer did not use an associated credit card.
    Under Regulation Z proposed comment 2(a)(15)-2.i.F, a prepaid card 
would not have been a credit card under Regulation Z where the prepaid 
card only accesses credit that is not subject to any finance charge, as 
defined in Regulation Z Sec.  1026.4, or any fee described in 
Regulation Z Sec.  1026.4(c), and is not payable by written agreement 
in more than four installments. Proposed comment 10(e)(1)-3 would have 
cross-referenced Regulation Z Sec.  1026.2(a)(15)(i), proposed comment 
2(a)(15)-2.i.F to explain that a prepaid card is not a credit card 
under Regulation Z if the access device only accesses credit that is 
not subject to any finance charge, as defined in Regulation Z Sec.  
1026.4, or any fee described in Regulation Z Sec.  1026.4(c), and is 
not payable by written agreement in more than four installments. Thus, 
under the proposal, the prohibition in proposed Sec.  1005.10(e)(1) 
would not have applied to credit extended in connection with a prepaid 
account under an overdraft credit plan that is not a credit card 
account. Under the proposal, an overdraft credit plan would not have 
been a credit card account if it would have been accessed only by a 
prepaid card that only accesses credit that is not subject to any 
finance charge as defined in Regulation Z Sec.  1026.4, or any fee 
described in Regulation Z Sec.  1026.4(c), and is not payable by 
written agreement in more than four installments.
    Proposed comment 10(e)(1)-3.i also would have explained the 
connection between the prohibition in proposed Sec.  1005.10(e)(1) on 
the compulsory use of preauthorized EFT to repay credit extended under 
a credit plan accessed by prepaid cards that are credit cards under 
existing Regulation Z Sec.  1026.2(a)(15)(i) and proposed comment 
2(a)(15)-2.i.F, and the prohibition on offsets by credit card issuers 
in proposed Regulation Z Sec.  1026.12(d). Under existing Regulation Z 
Sec.  1026.12(d)(1), a card issuer may not take any action, either 
before or after termination of credit card privileges, to offset a 
cardholder's indebtedness arising from a consumer credit transaction 
under the relevant credit card plan against funds of the cardholder 
held on deposit with the card issuer.
    Under proposed Regulation Z Sec.  1026.12(d)(3), with respect to 
credit card accounts that are accessed by prepaid cards, a card issuer 
generally would not have been prohibited from periodically deducting 
all or part of the cardholder's credit card debt from a deposit account 
(such as a prepaid account) held with the card issuer under a plan that 
is authorized in writing by the cardholder, so long as the creditor 
does not make such deductions to the plan more frequently than once per 
calendar month. Therefore, a card issuer for such credit card accounts 
would have been prohibited under proposed Regulation Z Sec.  
1026.12(d)(3) from automatically deducting all or part of the 
cardholder's credit card debt from a deposit account (such as a prepaid 
account) held with the card issuer on a daily or weekly basis, or 
whenever deposits are made to the deposit account. Under proposed 
Regulation Z Sec.  1026.12(d)(3), with respect to credit card accounts 
that are accessed by prepaid cards, EFTs pursuant to a plan described 
in Regulation Z Sec.  1026.12(d)(3) would have been preauthorized EFTs 
under existing Sec.  1005.2(k) because such EFTs would be authorized in 
advance to recur periodically (but could not recur more frequently than 
once per calendar month). Proposed comment 10(e)(1)-3.i thus would have 
explained that proposed Sec.  1005.10(e)(1) further restricts the card 
issuer from requiring payment from a deposit account (including a 
prepaid account) of credit card balances by electronic means on a 
preauthorized, recurring basis where the credit card

[[Page 83981]]

account is accessed by an access device for a prepaid account.
    As a technical revision, the proposal also would have moved 
existing guidance in existing comment 10(e)(1)-1 related to when 
financial institutions may provide incentives to consumers to agree to 
automatic repayment plans to a new proposed comment 10(e)(1)-4; no 
substantive changes were intended.
Comments Received
    A trade association and an issuing bank urged the Bureau not to 
adopt the proposed changes to the compulsory use exception in 
Regulation E for overdraft credit plans that are accessed by prepaid 
cards that are credit cards under Regulation Z. These commenters 
asserted that allowing financial institutions to recoup overdraft 
balances from incoming credits to the account is the only way for those 
institutions to mitigate the credit risk caused by overdrafts. These 
commenters suggested that the Bureau's proposed compulsory use and 
offset prohibitions, for example, would effectively deny consumers the 
ability to access short-term credit in connection with prepaid 
accounts. These concerns about the rule's impact on small-dollar credit 
are discussed in more detail below in the Overview of the Final Rule's 
Amendments to Regulation Z section.
    Nonetheless, other industry trade associations representing credit 
unions agreed with the Bureau's proposal not to extend the overdraft 
credit plan exception in the compulsory use provision in existing Sec.  
1005.10(e)(1) to overdraft credit plans accessed by prepaid cards that 
are credit cards under Regulation Z.
    One consumer group likewise supported the Bureau's proposal not to 
exempt from the compulsory use provision in existing Sec.  
1005.10(e)(1) overdraft credit plans that are accessed by prepaid cards 
that are credit cards under Regulation Z. This commenter stated that 
giving consumers control over how and when to repay overdraft credit 
would protect consumers that hold prepaid cards that are credit cards 
under Regulation Z and give creditors incentives to consider whether 
those consumers have the ability to pay credit that will be extended 
under such overdraft credit plans. This commenter also noted that the 
exemption from the compulsory use provision for overdraft credit plans 
is not statutory.
The Final Rule
    Covered separate credit features accessible by hybrid prepaid-
credit cards. For the reasons set forth herein, the Bureau is 
finalizing Sec.  1005.10(e)(1) as proposed with certain revisions to be 
consistent with provisions in new Regulation Z Sec.  1026.61 for when a 
prepaid card is a credit card under Regulation Z.\317\ Specifically, 
the Bureau has modified existing Sec.  1005.10(e)(1) to provide that 
the overdraft credit plan exception in existing Sec.  1005.10(e)(1) 
does not apply to a covered separate credit feature accessible by a 
hybrid prepaid-credit card as defined in new Regulation Z Sec.  
1026.61. As discussed above, under the final rule, a covered separate 
credit feature accessible by a hybrid prepaid-credit card includes an 
overdraft credit feature offered by a prepaid account issuer, its 
affiliate, or its business partner that can be accessed by a prepaid 
card (except as provided in new Regulation Z Sec.  1026.61(a)(4)).
---------------------------------------------------------------------------

    \317\ The Regulation Z proposal would have provided that the 
term ``credit card'' includes an account number that is not a 
prepaid card that may be used from time to time to access a credit 
plan that allows deposits directly only into particular prepaid 
accounts specified by the creditor. Proposed Sec.  1005.10(e)(1) 
would have provided that the compulsory use provision's general 
prohibition against conditioning the extension of credit to a 
consumer on the consumer's repayment by means of preauthorized EFTs 
would have applied to credit card accounts under Regulation Z 
accessed by such account numbers. Proposed comments 10(e)(1)-2 and -
3 would have provided additional guidance on how proposed Sec.  
1005.10(e)(1) would have applied to these credit card plans accessed 
by these account numbers. For the reasons set forth in the section-
by-section analysis of Regulation Z Sec.  1026.2(a)(15)(i) below, 
the final rule does not adopt the provisions related to the account 
numbers that would have made these account numbers into credit cards 
under Regulation Z. Thus, the provisions in proposed Sec.  
1005.10(e)(1) and proposed comments 10(e)(1)-2 and -3 in connection 
with these account numbers have not been adopted.
---------------------------------------------------------------------------

    Consistent with the intent of the proposal, the Bureau has revised 
existing comment 10(e)(1)-2 which relates to the exception for 
overdraft credit plans. The final rule has moved existing comment 
10(e)(1)-2 to new comment 10(e)(1)-2.i and revised it to provide that 
the exception for overdraft credit plans in final Sec.  1005.10(e)(1) 
applies to overdraft credit plans other than for a covered separate 
credit feature accessible by a hybrid prepaid-credit card as defined in 
new Regulation Z Sec.  1026.61. Proposed comment 10(e)(1)-3 would have 
referenced guidance on when a prepaid card would not have been a credit 
card under Regulation Z as proposed, such that the overdraft exception 
in proposed Sec.  1005.10(e)(1) would have still applied to credit 
accessed by those prepaid cards. The final rule moves this guidance to 
final comment 10(e)(1)-2.ii and revises it as discussed below.
    In addition, the Bureau is finalizing the other guidance in 
proposed comment 10(e)(1)-3, renumbered as new comment 10(e)(1)-3.i, 
with revisions to be consistent with new Regulation Z Sec.  1026.61. 
Specifically, final comment 10(e)(1)-3.i explains that under final 
Sec.  1005.10(e)(1), creditors may not require by electronic means on a 
preauthorized, recurring basis repayment of credit extended under a 
covered separate credit feature accessible by a hybrid prepaid-credit 
card as defined in new Regulation Z Sec.  1026.61. Consistent with the 
proposal, final comment 10(e)(1)-3.i also clarifies that the 
prohibition in final Sec.  1005.10(e)(1) applies to any credit extended 
under such a credit feature, including preauthorized checks. Final 
comment 10(e)(1)-3.i also cross-references new Regulation Z Sec.  
1026.61 and new comment 61(a)(1)-3, which provide guidance related to 
the credit extended under a covered separate credit feature by use of a 
preauthorized check on the prepaid account.
    Also, the Bureau has moved the guidance in proposed comment 
10(e)(1)-3.i to new comment 10(e)(1)-3.ii and has revised it to be 
consistent with new Regulation Z Sec.  1026.61. New comment 10(e)(1)-
3.ii explains the connection between the prohibition in final Sec.  
1005.10(e)(1) on the compulsory use of preauthorized EFTs to repay 
credit extended under a covered separate credit feature accessible by a 
hybrid prepaid-credit card, as defined in Regulation Z Sec.  1026.61, 
and the prohibition on offsets by credit card issuers in final 
Regulation Z Sec.  1026.12(d). Specifically, new comment 10(e)(1)-3.ii 
provides that under existing Regulation Z Sec.  1026.12(d)(1), a card 
issuer may not take any action, either before or after termination of 
credit card privileges, to offset a cardholder's indebtedness arising 
from a consumer credit transaction under the relevant credit card plan 
against funds of the cardholder held on deposit with the card issuer.
    Under final Regulation Z Sec.  1026.12(d)(3), with respect to 
covered separate credit features accessible by hybrid prepaid-credit 
cards as defined in new Regulation Z Sec.  1026.61, a card issuer 
generally is not prohibited from periodically deducting all or part of 
the cardholder's credit card debt from a deposit account (such as a 
prepaid account) held with the card issuer under a plan that is 
authorized in writing by the cardholder, so long as the card issuer 
does not make such deductions to the plan more frequently than once per 
calendar month. A card issuer therefore is prohibited under final 
Regulation Z Sec.  1026.12(d)(3) from automatically deducting all or 
part of the cardholder's

[[Page 83982]]

credit card debt from a covered separate credit feature from a deposit 
account (such as a prepaid account) held with the card issuer on a 
daily or weekly basis, or whenever deposits are made to the deposit 
account. In Regulation E, final Sec.  1005.10(e)(1) provides a 
complementary prohibition on the card issuer from requiring payment 
from a deposit account (such as a prepaid account) of credit card 
balances of a covered separate credit feature accessible by a hybrid 
prepaid-credit card by electronic means on a preauthorized, recurring 
basis.
    Consistent with the proposal, as a technical revision, the Bureau 
has moved existing guidance in comment 10(e)(1)-1 related to when 
financial institutions may provide incentives to consumers to agree to 
automatic repayment plans to a new comment 10(e)(1)-4; no substantive 
change is intended.
    Consistent with the statutory text and purposes of EFTA, the Bureau 
is not extending the exception for overdraft credit plans currently in 
Sec.  1005.10(e)(1) to covered separate credit features accessible by 
hybrid prepaid-credit cards as defined in new Regulation Z Sec.  
1026.61. The purposes of EFTA are to establish the rights, liabilities, 
and responsibilities of consumers participating in EFT systems and to 
provide individual consumer rights.\318\ Further, EFTA's legislative 
history states that the EFTA compulsory use provision is designed to 
assure that ``EFT develops in an atmosphere of free choice for the 
consumer.'' \319\ The Bureau believes its final rule, which does not 
extend Regulation E's existing exception for overdraft credit plans to 
covered separate credit features accessible by hybrid prepaid-credit 
cards, should ensure that consumers have choice when deciding whether 
and how to link their prepaid accounts to covered separate credit 
features accessible by hybrid prepaid-credit cards and have control 
over the funds in their prepaid accounts if and when such a link is 
established.
---------------------------------------------------------------------------

    \318\ See EFTA section 902(b); 15 U.S.C. 1693(b).
    \319\ See Senate Report No. 95-915 at 16 (1978).
---------------------------------------------------------------------------

    As discussed in greater detail in the section-by-section analyses 
of Regulation Z Sec. Sec.  1026.5(b)(2)(ii), 1026.7(b)(11), and 
1026.12(d) below, the Bureau also believes that not extending the 
exception for overdraft credit plans to covered separate credit 
features accessible by hybrid prepaid-credit cards is consistent with 
the purposes of and provisions in TILA. In particular, TILA section 169 
prohibits offsets by credit card issuers.\320\ In addition, TILA 
sections 127(b)(12) and (o) require that for credit card accounts under 
an open-end consumer credit plan, payment due dates--which must be the 
same date each month--must be disclosed on the Regulation Z periodic 
statement.\321\ In addition, TILA section 163 provides that, for credit 
card accounts under an open-end consumer credit plan, a card issuer 
must adopt reasonable procedures designed to ensure that: (1) Periodic 
statements for those accounts are mailed or delivered at least 21 days 
prior to the payment due date disclosed on the Regulation Z statement 
as discussed above; and (2) the card issuer does not treat as late for 
any purpose a required minimum periodic payment received by the card 
issuer within 21 days after mailing or delivery of the Regulation Z 
periodic statement disclosing the due date for that payment.\322\
---------------------------------------------------------------------------

    \320\ 15 U.S.C. 1666h(a); see also Regulation Z Sec.  
1026.12(d).
    \321\ 15 U.S.C. 1637(b)(12) and (o); see also Regulation Z Sec.  
1026.7(b)(11)(i)(A).
    \322\ 15 U.S.C. 1666b; see also Regulation Z Sec.  
1026.5(b)(2)(ii)(A).
---------------------------------------------------------------------------

    In particular, the Bureau believes that the revisions to existing 
Sec.  1005.10(e)(1) complement the offset prohibition and the periodic 
statement requirements in Regulation Z by helping to ensure that 
consumers do not lose access to prepaid account funds and lose the 
ability to prioritize repayment of debts, one of the main purposes of 
EFTA section 913(1), as implemented by final Sec.  1005.10(e)(1). The 
Bureau is concerned that absent these protections, with respect to 
covered separate credit features accessible by hybrid prepaid-credit 
cards, some card issuers might attempt to avoid the TILA offset 
prohibition by requiring that all or part of the cardholder's credit 
card debt under the covered separate credit feature be automatically 
deducted from the prepaid account to help ensure that the debt is 
repaid (similar to how overdraft services function today). For example, 
the Bureau believes that without its revisions to the compulsory use 
provision, financial institutions might require that prepaid account 
consumers set up automated payment plans to repay the credit card debt 
under the covered separate credit feature and set the payment due date 
each month to align with the expected date of incoming deposits to the 
prepaid account. The Bureau believes that this type of payment 
arrangement would undermine the purposes of EFTA section 913(1), as 
implemented by final Sec.  1005.10(e)(1), which is designed to help 
ensure that consumers do not lose access to account funds and lose the 
ability to prioritize repayment of debts. Thus, the Bureau does not 
believe that it is appropriate to extend the exception for overdraft 
credit plans to covered separate credit features accessible by hybrid 
prepaid-credit cards.
    To the extent that the Board justified its original treatment of 
overdraft credit plans as providing benefits to consumers from 
automatic payment, the Bureau notes that under this final rule 
consumers would still be allowed to choose to make payments on the 
covered separate credit features on an automatic basis once per month 
if they find it beneficial to do so. The Bureau also believes that 
certain credit card rules in Regulation Z that apply under the final 
rule to covered separate credit features accessible by hybrid prepaid-
credit cards that are credit card accounts under an open-end (not home-
secured) consumer credit plan will help consumers avoid late payments 
and excessive late fees with respect to their covered separate credit 
features. For example, as discussed above, under the final rule, card 
issuers would be required, under final Regulation Z Sec.  
1026.5(b)(2)(ii)(A)(1), to adopt reasonable procedures to ensure that 
Regulation Z periodic statements for covered separate credit features 
accessible by hybrid prepaid-credit cards that are credit card accounts 
under an open-end (not home-secured) consumer credit plan are mailed or 
delivered at least 21 days prior to the payment due date disclosed on 
the periodic statement. The Bureau believes this will help ensure that 
consumers have sufficient time after receiving a periodic statement for 
such a covered separate credit feature accessible by a hybrid prepaid-
credit card to make a payment on that credit feature. Also, as 
discussed in more detail in the section-by-section analyses of 
Regulation Z Sec. Sec.  1026.52(b) and 1026.55 below, with respect to 
covered separate credit features accessible by hybrid prepaid-credit 
cards that are credit card accounts under an open-end (not home-
secured) consumer credit plan, card issuers are limited in the 
circumstances in which they could increase interest rates for late 
payments and are limited in the amount of late fees they could charge 
to consumers who pay late, as set forth in final Regulation Z 
Sec. Sec.  1026.52(b) and 1026.55.
    Credit features not accessible by hybrid prepaid-credit cards. As 
discussed above, the final rule moves existing comment 10(e)(1)-2 to 
new comment 10(e)(1)-2.i and revises it to provide that the exception 
for overdraft

[[Page 83983]]

credit plans in final Sec.  1005.10(e)(1) applies to overdraft credit 
plans other than for a covered separate credit feature accessible by a 
hybrid prepaid-credit card as defined in Regulation Z Sec.  1026.61. 
Proposed comment 10(e)(1)-3 would have referenced guidance on when a 
prepaid card would not have been a credit card under Regulation Z as 
proposed, such that the overdraft exception in proposed Sec.  
1005.10(e)(1) would have still applied to credit accessed by those 
prepaid cards. As explained in more detail below, the final rule moves 
this guidance to final comment 10(e)(1)-2.ii and revises it.
    As discussed in the section-by-section analysis of Regulation Z 
Sec.  1026.61 below, the Bureau has decided to exclude prepaid cards 
from being covered as credit cards under Regulation Z when they access 
certain specified types of credit. First, under new Regulation Z Sec.  
1026.61(a)(2)(ii), a prepaid card is not a hybrid prepaid-credit card 
with respect to a ``non-covered separate credit feature,'' which means 
that the separate credit feature either (1) cannot be accessed in the 
course of a prepaid card transaction to obtain goods or services, 
obtain cash, or conduct P2P transfers, or (2) is offered by an 
unrelated third party that is not the prepaid account issuer, its 
affiliate, or its business partner. Second, under new Regulation Z 
Sec.  1026.61(a)(4), a prepaid card also is not a hybrid prepaid-credit 
card when the prepaid card accesses incidental credit in the form of a 
negative balance on the asset account where the prepaid account issuer 
generally does not charge credit-related fees for the credit. A prepaid 
card is not a hybrid prepaid-credit card under new Regulation Z Sec.  
1026.61 or a credit card under final Regulation Z Sec.  
1026.2(a)(15)(i) when it accesses credit from these types of credit 
features. For more detailed explanations of when prepaid cards are not 
credit cards under Regulation Z, see the section-by-section analyses of 
Regulation Z Sec.  1026.61(a)(2) and (4) below.
    New comment 10(e)(1)-2.i provides that the exception for overdraft 
credit plans in final Sec.  1005.10(e)(1) applies to overdraft credit 
plans other than for a covered separate credit feature accessible by a 
hybrid prepaid-credit card as defined in Regulation Z Sec.  1026.61. 
The final rule also adds new comment 10(e)(1)-2.ii to provide 
additional guidance on the application of the exception in Sec.  
1005.10(e)(1) with respect to the circumstances described above in 
which a prepaid card is not a credit card when the prepaid card 
accesses incidental credit in the form of a negative balance on the 
asset account where the prepaid account issuer generally does not 
charge credit-related fees for the credit. Specifically, new comment 
10(e)(1)-2.ii provides that credit extended through a negative balance 
on the asset feature of a prepaid account that meets the conditions of 
Regulation Z Sec.  1026.61(a)(4) is considered credit extended pursuant 
to an overdraft credit plan for purposes of Sec.  1005.10(e)(1). Thus, 
the exception for overdraft credit plans in Sec.  1005.10(e)(1) applies 
to this credit.
    A credit feature that does not qualify as a covered separate credit 
feature under new Regulation Z Sec.  1026.61 because it cannot be 
accessed in the course of a prepaid card transaction to obtain goods or 
services, obtain cash, or conduct P2P transfers would be subject to the 
compulsory use rule under final Sec.  1005.10(e)(1); the exception to 
final Sec.  1005.10(e)(1) does not apply because such a credit product 
is not an overdraft line of credit or overdraft service. The Bureau 
also does not believe that the exception to Sec.  1005.10(e)(1) would 
be invoked with regard to a credit feature that does not qualify as a 
covered separate credit feature under new Regulation Z Sec.  1026.61 
because it is offered by an unrelated third party, since that unrelated 
third party will typically not be aware that the consumer had chosen to 
link the credit feature to his or her prepaid account.
10(e)(2) Employment or Government Benefit
The Bureau's Proposal
    EFTA section 913(2), as implemented by Sec.  1005.10(e)(2), 
provides that no financial institution or other person may require a 
consumer to establish an account for receipt of EFTs with a particular 
institution as a condition of employment or receipt of a government 
benefit. Existing comment 10(e)(2)-1 explains that an employer 
(including a financial institution) may not require its employees to 
receive their salary by direct deposit to any particular institution. 
These provisions regarding compulsory use precede the addition of the 
Payroll Card Rule to Regulation E.\323\
---------------------------------------------------------------------------

    \323\ In September 2013, the Bureau reiterated the applicability 
of Regulation E's prohibition on compulsory use for payroll card 
accounts. CFPB Bulletin 2013-10, Payroll Card Accounts (Regulation 
E) (Sept. 12, 2013), available at https://files.consumerfinance.gov/f/201309_cfpb_payroll-card-bulletin.pdf. The Bureau explained that, 
among other things, Regulation E's compulsory use provision 
prohibits employers from mandating that employees receive wages only 
on a payroll card of the employer's choosing. Id. at 3.
---------------------------------------------------------------------------

    No parallel comment currently exists with respect to the 
application of the compulsory use provision to the distribution of 
government benefits. In the proposal, the Bureau noted that questions 
had arisen as to whether the compulsory use prohibition applied to 
prepaid cards used to distribute non-needs tested government benefits. 
EFTA and Regulation E clearly apply to the electronic distribution of 
non-needs tested government benefits generally, and EFTA section 913(2) 
prohibits ``requiring a consumer to establish an account for receipt of 
electronic fund transfers with a particular financial institution as a 
condition of . . . receipt of a government benefit.'' To provide 
greater clarity, the Bureau proposed to add comment 10(e)(2)-2, which 
would have stated that a government agency could not require consumers 
to receive government benefits by direct deposit to any particular 
institutions. The comment would have also stated that a government 
agency could, alternatively, require recipients to receive their 
benefits via direct deposit, so long as the recipient could choose 
which institution would receive the deposit, or provide recipients with 
a choice of having their benefits deposited at a particular institution 
or receiving their benefits via another means.
    The Bureau sought comment on whether a financial institution 
complies with the compulsory use prohibition if it provides the first 
payment to a benefit recipient on a government benefit card and, at 
that same time, provides information on how to divert or otherwise 
direct future payments to an account of the consumer's choosing. In 
addition, the Bureau sought comment on whether a similar restriction on 
compulsory use should be extended to other types of prepaid accounts 
(other than payroll card accounts and government benefit accounts), 
such as cards used by post-secondary educational institutions for 
financial aid disbursements or insurance companies to pay out claims.
Comments Received
    Requests to clarify whether certain enrollment methods comply with 
Sec.  1005.10(e)(2). Two commenters--a program manager of government 
benefit cards and a State government agency--generally objected to the 
Bureau's proposal to clarify the application of compulsory use to 
government agencies. They argued that government agencies should be 
allowed to require that consumers receive their benefit payments on a 
prepaid card of the agency's choosing, since doing so allows the 
agencies to save money by outsourcing the disbursement process and 
preventing fraud related to false benefits claims. These commenters

[[Page 83984]]

urged the Bureau to remove proposed comment 10(e)(2)-2. In the 
alternative, the program manager, along with a payment network and 
several other State government agency commenters, urged the Bureau to 
clarify that a covered person complies with Sec.  1005.10(e)(2) by 
providing the first payment to a government benefit recipient on a 
prepaid card and, at that time, providing information to the recipient 
on how to divert or otherwise direct future payments to an account of 
the his or her choosing. According to these commenters, this enrollment 
method would allow the financial institution or other person to adopt a 
single, streamlined on-boarding process for beneficiaries, while still 
providing consumers with a real--if delayed--choice on how to receive 
their payments. One State government agency argued that, if the Bureau 
did not adopt the requested clarification allowing agencies to 
unilaterally disburse funds onto prepaid cards, the Bureau should delay 
the rule's effective date with respect to government benefit accounts 
to allow the agencies to identify and implement the most economical and 
efficient means of complying with the compulsory use prohibition.
    Other commenters, including issuing banks, program managers, trade 
associations, a payment network, and an employer that disburses 
compensation via payroll card accounts, asked the Bureau to address 
situations--for both government benefit accounts and payroll card 
accounts--where the consumer is provided a choice but does not make a 
selection. Specifically, these commenters asked the Bureau to confirm 
in the final rule that a financial institution or other person complies 
with the compulsory use prohibition by providing a consumer with two or 
more alternative methods for receiving funds, and, if the consumer 
fails to affirmatively select from among the available methods within a 
prescribed period of time, disbursing the consumer's payment to a pre-
selected, default enrollment method, such as a payroll card account or 
government benefit account. According to these commenters, this method 
of enrollment is standard practice among many employers and government 
benefit programs, and is in fact permitted under some State laws. 
Mandating changes to these existing practices, they argued, would 
require costly system changes.
    Several consumer group commenters, by contrast, urged the Bureau to 
clarify that a financial institution or other person that unilaterally 
enrolls a consumer in a payroll card account or government benefit 
account program violates the compulsory use prohibition, regardless of 
whether the person only disburses the consumer's initial payment onto 
that card or provides the consumer with information about how to divert 
future payments to an account of the consumer's choosing. In general, 
these commenters argued that an automatic, unilateral disbursement of a 
first payment onto a prepaid card is tantamount to a condition that the 
consumer have an account with a particular institution in order to 
receive his or her salary or government benefit, in violation of the 
compulsory use prohibition. Moreover, these commenters argued, default 
options are ``sticky,'' meaning that once consumers are enrolled in one 
payment method, they are unlikely to go through the effort to un-enroll 
or otherwise direct payments to another account. In other words, the 
commenters asserted, a consumer who continues to receive payments to a 
payroll card account or government benefit account after being 
unilaterally enrolled in that card program has not made an affirmative 
choice to be paid that way. A nonprofit organization representing the 
interests of restaurant workers provided the Bureau with survey results 
showing that more than a quarter of employees at a particular 
restaurant company who responded to the organization's survey reported 
that they were never told that they had options other than a payroll 
card account by which to receive their wages. With regards to the 
possibility of a financial institution's use of a default enrollment 
method where consumers are provided with a choice of payment method but 
fail to communicate a preference after a certain period of time, one 
consumer group indicated that it was not categorically opposed to this 
practice, but suggested that the period the financial institution 
should have to wait before enrolling a non-responsive consumer in a 
default enrollment method should be 30 days or more.
    One consumer group commenter asked the Bureau to go further and 
require that, in order to comply with the compulsory use prohibitions, 
a financial institution or other person obtain a consumer's written 
consent before disbursing the consumer's payment via a payroll card 
account or government benefit account. Another consumer group argued 
that the Bureau should mandate a specific waiting period before a 
consumer was required to make a selection with respect to his or her 
preferred payment method.
    Requests to expand the scope of Sec.  1005.10(e)(2) beyond payment 
of salary or government benefit. Although it did not propose 
alterations to the scope of the compulsory use prohibition, the Bureau 
did seek comment on whether a similar restriction should be extended to 
other types of prepaid accounts, as discussed above. In response, 
numerous consumer group commenters urged the Bureau to expand the 
compulsory use prohibition to other types of prepaid accounts used by 
third parties to disburse funds to consumers, including accounts used 
to disburse student aid or student loans, accounts used to disburse 
insurance or workers' compensation payments, and accounts used by 
correctional facilities to disburse funds to incarcerated or formerly 
incarcerated individuals. The commenters expressed concern that 
consumers in these circumstances could not otherwise avoid the high 
fees or restrictive terms and conditions that they allege often 
accompany such cards, if the consumers must accept the cards to access 
their funds.
    Several commenters, including several members of Congress, pointed 
to prison release cards as a particularly troubling example of a 
prepaid account product that they say comes with high fees and terms 
and conditions that limit consumers' ability to access their own funds. 
Funds disbursed onto prison release cards may include prison job wages 
or public benefits paid to the prisoner while in prison. The commenters 
argued that consumers who receive these prepaid products should have a 
choice with respect to how they get paid. In the alternative, the 
commenters urged the Bureau to limit fees on cards that the consumer 
has to accept, as well as on cards issued on an unsolicited basis. In 
response, a commenter that manages several prison release card 
programs, as well as other ``correction-related'' services submitted a 
comment disputing the consumer groups' allegations with respect to its 
programs. This commenter objected to the suggestion that its prepaid 
products are or should be subject to the compulsory use provision. 
Among other arguments, the commenter noted that prison release cards 
are a superior alternative to checks, which are often accompanied by 
excessive check cashing fees, or cash, which can be mismanaged by 
correctional staff. This commenter also took issue with the suggestion 
that its prepaid account programs are accompanied by particularly high 
fees, noting that State departments of corrections that bid for its 
services look carefully at the fees charged to card users. The 
commenter provided fee schedules for several of its programs that it 
argued show that the

[[Page 83985]]

programs' cardholder fees are not exorbitant.
The Final Rule
    For the reasons set forth herein, the Bureau is adopting comment 
10(e)(2)-2 as proposed with minor modifications for clarity and 
conformity. The Bureau declines to amend regulatory text or adopt 
additional commentary as requested by some commenters. The Bureau 
continues to believe it is important that consumers have a choice with 
respect to how they receive their salary or government benefits. 
Whether a financial institution or other person complies with Sec.  
1005.10(e)(2), therefore, depends on whether the financial institution 
or other person provides the consumer with a choice regarding how to 
receive his or her payment. For example, a financial institution or 
other person that mandates that consumers receive their salary or 
government benefit on a specific prepaid card violates EFTA section 
913(2) and Sec.  1005.10(e)(2), as the statutory and regulatory text 
make clear. Accordingly, the Bureau declines to revise Sec.  
1005.10(e)(2) to allow government agencies to require consumers to 
receive government benefits on a prepaid card of the agency's choosing, 
as some commenters requested.
    Likewise, after considering the comments on this issue, the Bureau 
agrees with consumer group commenters that a financial institution or 
other person that mandates that a consumer receive the first payment of 
salary or government benefits on a prepaid card does not give the 
consumer a choice regarding how to receive the payment, even if the 
consumer can later re-direct the payment to an account of his or her 
choice.\324\ In such a scenario, the consumer does not have a choice 
with respect to how to receive the first payment of salary or 
government benefit; rather, at least with respect to that first 
payment, the consumer was required to establish an account with the 
financial institution that issued the prepaid account as a condition of 
receiving the funds.
---------------------------------------------------------------------------

    \324\ The Bureau likewise declines to grandfather in or provide 
an extended timeframe to amend or rebid existing vendor contracts 
for government benefit accounts beyond the final rule's general 
effective date, as requested by some commenters. See the section-by-
section analysis of Sec.  1005.18(h) below for a more detailed 
discussion of the final rule's effective date.
---------------------------------------------------------------------------

    The Bureau does not at this time and on this record believe it 
would be appropriate to set a bright-line test based solely on amount 
of time or whether the consumer agrees to the preferred payment method 
in writing, as some commenters suggested. As the Bureau noted in the 
proposal, there are many ways a consumer can obtain a prepaid account, 
and the Bureau believes its disclosure regime should be--and is--
adaptable to this variety.\325\ The Bureau notes that how long a 
consumer had to select a preferred payment method may not always be 
indicative of whether the consumer was given a choice regarding how to 
receive his payment. For example, a company's policies and procedures 
may dictate that employees be given at least two weeks to select a 
preferred payment method. However, such a policy may not help an 
employee who is ordered by his direct supervisor to accept wages via a 
payroll card. Likewise, the way a consumer expresses her preferred 
payment method may not be indicative of whether she exercised a choice 
with respect to how to receive her payments. Relatedly, as some 
industry commenters noted, consumers are sometimes given a choice 
between two or more payment alternatives, but may fail to indicate 
their preference. Depending on the facts and circumstances--for 
example, the date by which the consumer has to be paid her wages under 
State law--it may be reasonable for a financial institution or other 
person in this scenario to employ a reasonable default enrollment 
method.
---------------------------------------------------------------------------

    \325\ 79 FR 77102, 77148 (Dec. 23, 2014).
---------------------------------------------------------------------------

    The Bureau also declines to amend existing regulatory text or adopt 
additional commentary concerning which alternative payment methods must 
be made available to a consumer to comply with the compulsory use 
prohibition. In response to requests for clarification from a member of 
Congress and an industry commenter on the one hand, and several 
consumer group commenters on the other, the Bureau notes that the 
compulsory use prohibition does not amount to a requirement that a 
financial institution or other person provide a consumer with any 
particular alternative to a prepaid account. More specifically, Sec.  
1005.10(e)(2) does not mandate that a covered person offer a consumer 
the option of getting paid by paper check (to address concerns from the 
member of Congress and industry commenter), nor require that one of the 
payment options made available to the consumer be direct deposit to an 
account of the consumer's choosing (as the consumer groups requested). 
Rather, the consumer must not be required to establish a particular 
account and must be presented with at least one alternative to the 
prepaid account, which may be a paper check, direct deposit to the 
consumer's bank account or to her own prepaid account, or some other 
payment method.
    With respect to the comments recommending that the Bureau expand 
application of the compulsory use prohibition to other types of prepaid 
accounts, the Bureau has concluded that it would not be appropriate to 
take such a step at this time. The compulsory use prohibition has been 
in place and largely unchanged since its adoption in 1978 in EFTA.\326\ 
The Bureau believes it would be inappropriate to alter the application 
of the prohibition in the manner suggested by commenters in this final 
rule without additional public participation and information gathering 
about the specific product types at issue. The Bureau notes that to the 
extent that student, insurance, or prison release cards are used to 
disburse consumers' salaries or government benefits, as defined under 
applicable law, such accounts are already covered by Sec.  
1005.10(e)(2) and will continue to be so under this final rule. The 
Bureau notes further that it is continuing to monitor financial 
institutions' and other persons' practices relating to consumers' lack 
of choice (including with respect to prepaid accounts that are not 
subject to the compulsory use prohibitions). Depending on the facts and 
circumstances, the Bureau may consider whether exercise of the Bureau's 
authority under title X of the Dodd-Frank Act, including its authority 
over unfair, deceptive, or abusive acts or practices, would be 
appropriate.
---------------------------------------------------------------------------

    \326\ EFTA section 913; Public Law 95-630, 92 Stat. 3737 (1978) 
(codified at 15 U.S.C. 1693k).
---------------------------------------------------------------------------

Section 1005.11 Procedures for Resolving Errors
11(c) Time Limits and Extent of Investigation
    The Bureau is making a conforming change to Sec.  1005.11 to except 
unverified accounts from the provisional credit requirements therein, 
in conformance with changes to the error resolution requirements for 
prepaid accounts in revised Sec.  1005.18(e) below.
    EFTA section 908 governs the timing and other requirements for 
consumers and financial institutions pertaining to error resolution, 
including provisional credit, and is implemented for accounts under 
Regulation E generally, including payroll card accounts, in Sec.  
1005.11. Section 1005.11(c)(1) and (3)(i) require that a financial 
institution, after receiving notice that a consumer believes an EFT 
from the consumer's account was not authorized, must investigate 
promptly and determine whether an error occurred (i.e., whether

[[Page 83986]]

the transfer was unauthorized), within 10 business days (20 business 
days if the EFT occurred within 30 days of the first deposit to the 
account). Existing Sec.  1005.11(c)(2) provides that if the financial 
institution is unable to complete the investigation within 10 business 
days, its investigation may take up to 45 days if it provisionally 
credits the amount of the alleged error back to the consumer's account 
within 10 business days of receiving the error notice.\327\ Provisional 
credit is not required if the financial institution requests but does 
not receive written confirmation within 10 business days of an oral 
notice by the consumer, or if the alleged error involves an account 
that is subject to Regulation T of the Board of Governors of the 
Federal Reserve System (Securities Credit by Brokers and Dealers, 12 
CFR part 220).\328\
---------------------------------------------------------------------------

    \327\ The financial institution has 90 days (instead of 45) to 
investigate if the claimed unauthorized EFT was not initiated in a 
state, resulted from a point-of-sale debit card transaction, or 
occurred within 30 days after the first deposit to the account was 
made. Sec.  1005.11(c)(3)(ii).
    \328\ Sec.  1005.11(c)(2)(i)(A) and (B).
---------------------------------------------------------------------------

    The Bureau proposed in Sec.  1005.18(e)(2) to extend to all prepaid 
accounts the error resolution provisions of Regulation E, including 
provisional credit, with modifications to the Sec.  1005.11 timing 
requirements in proposed Sec.  1005.18(e)(2) for financial institutions 
following the periodic statement alternative in proposed Sec.  
1005.18(c)(1). In addition, the Bureau proposed to use its exception 
authority under EFTA section 904(c) to propose Sec.  1005.18(e)(3); 
that provision would have provided that for prepaid accounts that are 
not payroll card accounts or government benefit accounts, if a 
financial institution disclosed to the consumer the risks of not 
registering a prepaid account using a notice that is substantially 
similar to the proposed notice contained in paragraph (c) of appendix 
A-7, a financial institution would not have been required to comply 
with the liability limits and error resolution requirements under 
Sec. Sec.  1005.6 and 1005.11 for any prepaid account for which it had 
not completed its collection of consumer identifying information and 
identity verification.
    As discussed in greater detail in the section-by-section analysis 
of Sec.  1005.18(e)(3) below, the Bureau is revising the limitation on 
financial institutions' obligations to provide limited liability and 
error resolution protections for prepaid accounts that have not 
completed the consumer identification and verification process. Rather 
than allow financial institutions to forego providing all of the 
limited liability and error resolution protections for such unverified 
accounts, as the Bureau proposed, the final rule allows financial 
institutions to forego extending provisional credit to such accounts as 
part of the error resolution process--under the final rule, therefore, 
financial institutions may take up to 45 days (or 90 days, where 
applicable) to investigate an error claim without provisionally 
crediting the account in the amount at issue for prepaid accounts with 
respect to which the financial institution has not completed its 
consumer identification and verification process. To implement this 
revision, the Bureau is adopting an exception to the general 
requirement in Sec.  1005.11(c)(2) that a financial institution must 
provide provisional credit if it takes longer than 10 business days to 
investigate and determine whether an error occurred. As stated above, 
there are two existing exceptions listed in Sec.  1005.11(c)(2)(i)(A) 
(no provisional credit where institution required, but did not receive, 
written confirmation of the oral notice of error within 10 business 
days) and Sec.  1005.11(c)(2)(i)(B) (no provisional credit where error 
involves an account subject to the Board's Regulation T). The Bureau is 
adding a third exception in new Sec.  1005.11(c)(2)(i)(C), which, 
together with Sec.  1005.11(c)(2)(i), provides that a financial 
institution does not have to provisionally credit a consumer's account 
if the alleged error involves a prepaid account, other than a payroll 
card account or government benefit account, for which the financial 
institution has not completed its consumer identification and 
verification process, as set forth in Sec.  1005.18(e)(3)(ii).\329\ The 
Bureau believes it is necessary and proper to finalize this exclusion 
pursuant to its authority under EFTA section 904(c) to further the 
purposes of EFTA to provide a framework to establish the rights, 
liabilities, and responsibilities of prepaid account consumers.
---------------------------------------------------------------------------

    \329\ Pursuant to Sec.  1005.18(e)(3)(ii), a financial 
institution has not completed its consumer identification and 
verification process where it has not concluded its consumer 
identification and verification process; it has concluded its 
consumer identification and verification process, but could not 
verify the identity of the consumer; or it does not have a consumer 
identification and verification process by which the consumer can 
register the prepaid account. See the section-by-section analysis of 
Sec.  1005.18(e)(3) below for a detailed explanation of these 
provisions and related commentary.
---------------------------------------------------------------------------

    By adding an exception for unverified accounts to the provisional 
credit requirement set forth in Sec.  1005.11(c)(2)(i), the Bureau 
intends to clarify the scope of the revised exception in final Sec.  
1005.18(e)(3). Specifically, although the Bureau is finalizing a 
provision that would allow financial institutions not to extend 
provisional credit to prepaid accounts for which the financial 
institution has not completed its consumer identification and 
verification process, all other timing and related requirements set 
forth in Sec.  1005.11(c), as modified by final Sec.  1005.18(e)(2), 
will apply to both verified and unverified accounts. The addition of 
new Sec.  1005.11(c)(2)(i)(C), therefore, is intended to make clear 
that accounts referenced in that provision are only exempted from the 
provisional credit requirement in Sec.  1005.11(c)(2)(i), and not from 
any other provisions of Sec.  1005.11(c). Final Sec. Sec.  
1005.11(c)(2)(i)(C) and 1005.18(e)(3) reference each other for added 
clarity.
    A full discussion of the Bureau's revisions to the limited 
liability and error resolution requirements for prepaid accounts in 
this final rule can be found in the section-by-section analysis of 
Sec.  1005.18(e) below.
Section 1005.12 Relation to Other Laws
12(a) Relation to Truth in Lending
    Existing Sec.  1005.12(a) provides guidance on whether the issuance 
provisions in existing Regulation E Sec.  1005.5 or the unsolicited 
issuance provisions in existing Regulations Z Sec.  1026.12(a) apply 
where access devices under Regulation E also are credit cards under 
Regulation Z. (For discussion of when this may occur, see Regulation Z 
below.) In addition, existing Sec.  1005.12(a) also provides guidance 
on how the provisions on liability for unauthorized use and for 
resolving errors in existing Regulation E Sec. Sec.  1005.6 and 1005.11 
and existing Regulation Z Sec. Sec.  1026.12(b) and 1026.13 interact 
where a credit transaction is incidental to an EFT.
Issuance Rules
The Bureau's Proposal
    Consistent with EFTA section 911(a),\330\ existing Sec.  1005.5(a) 
provides that a financial institution generally may issue an access 
device for an account that is subject to Regulation E to a consumer 
only: (1) In response to an oral or written request for the device; or 
(2) as a renewal of, or in substitution for, an accepted access device, 
whether issued by the institution or a successor. Nonetheless, 
consistent with EFTA section 911(b),\331\ existing Sec.  1005.5(b) 
provides that a financial institution may distribute an access device 
to a

[[Page 83987]]

consumer on an unsolicited basis if four enumerated situations are met. 
These exceptions are particularly important to issuance of debit cards 
to access checking accounts for which the consumer is eligible for 
overdraft services or has opened an overdraft line of credit.
---------------------------------------------------------------------------

    \330\ 15 U.S.C. 1693i(a).
    \331\ 15 U.S.C. 1693i(b).
---------------------------------------------------------------------------

    In contrast, the issuance rules for a credit card under Regulation 
Z are more restrictive. Consistent with TILA section 132,\332\ existing 
Regulation Z Sec.  1026.12(a) provides that regardless of the purpose 
for which a credit card is to be used, including business, commercial, 
or agricultural use, no credit card shall be issued to any person 
except (1) in response to an oral or written request or application for 
the card; or (2) as a renewal of, or substitute for, an accepted credit 
card.
---------------------------------------------------------------------------

    \332\ 15 U.S.C. 1642.
---------------------------------------------------------------------------

    Existing Sec.  1005.12(a) provides guidance on whether the issuance 
provisions in Regulation E or the unsolicited issuance provisions in 
Regulations Z apply where access devices under Regulation E also are 
credit cards under Regulation Z. Specifically, existing Sec.  
1005.12(a)(1) currently provides that EFTA and Regulation E govern: (1) 
The addition to an accepted credit card, as defined in Regulation Z 
(existing Sec.  1026.12, comment 12-2), of the capability to initiate 
EFTs; (2) the issuance of an access device that permits credit 
extensions pursuant to an overdraft line of credit (involving a 
preexisting agreement between a consumer and a financial institution to 
extend credit only when the consumer's account is overdrawn or to 
maintain a specified minimum balance in the consumer's account), or 
under an overdraft service (as defined in existing Sec.  1005.17(a)); 
and (3) the addition of an overdraft service, as defined in existing 
Sec.  1005.17(a), to an accepted access device.
    On the other hand, existing Sec.  1005.12(a)(2) provides that TILA 
and Regulation Z apply to (1) the addition of a credit feature to an 
accepted access device; and (2) the issuance of a credit card that is 
also an access device, except the issuance of an access device that 
permits credit extensions pursuant to a preexisting overdraft line of 
credit or under an overdraft service as discussed above. The 
application of these various provisions to prepaid accounts and 
revisions to the relevant prongs of existing Sec.  1005.12 are 
discussed below. The proposal would have amended provisions in existing 
Sec.  1005.12(a)(1)(ii) so that the rules in TILA and Regulation Z 
would govern whether a prepaid card could be a credit card when it is 
issued. Proposed Regulation Z Sec.  1026.12(h) (renumbered as new Sec.  
1026.61(c) in the final rule) would have required a credit card issuer 
to wait at least 30 days from prepaid account registration before 
opening a credit card account for a holder of a prepaid account, or 
providing a solicitation or application to the holder of the prepaid 
account to open a credit card account that would be accessed by the 
access device for a prepaid account that is a credit card. Thus, 
proposed Regulation Z Sec.  1026.12(h) would have prevented a prepaid 
card from being a credit card at the time it was issued if it was 
issued before the expiration of the 30-day period set forth in proposed 
Regulation Z Sec.  1026.12(h). Under the proposal, because a prepaid 
card could not have been a credit card at the time it was issued if it 
was issued before the expiration of the 30-day period discussed above, 
the issuance of such a prepaid card would have been governed under the 
issuance rules in EFTA and Regulation E.
    Existing Sec.  1005.12(a)(2)(ii) currently provides that TILA and 
Regulation Z apply to the issuance of a credit card that is also an 
access device, except the issuance of an access device that permits 
credit extensions pursuant to a preexisting overdraft line of credit or 
under an overdraft service as discussed in existing Sec.  
1005.12(a)(1)(ii). Existing Sec.  1005.12(a)(1)(ii) provides that the 
issuance rules of EFTA and Regulation E govern the issuance of an 
access device that permits credit extensions under a preexisting 
agreement between a consumer and a financial institution only when the 
consumer's account is overdrawn or to maintain a specified minimum 
balance in the consumer's account, or under an overdraft service as 
defined in existing Sec.  1005.17(a).
    For checking accounts, a consumer may have a preexisting agreement 
with the financial institution to cover checks that overdraft the 
account. This overdraft line of credit would be subject to Regulation 
Z. If a debit card is then added to access this overdraft line of 
credit under the preexisting agreement, existing Sec.  
1005.12(a)(1)(ii) provides that the debit card (which would also be a 
credit card under Regulation Z) may be issued under the issuance rules 
in Regulation E, instead of the issuance rules in Regulation Z. In 
contrast, Regulation Z's issuance rules apply if the access device can 
access another type of credit feature when it is issued; for example, 
one permitting direct extensions of credit that do not involve the 
asset account. Existing comment 12(a)-2 provides that for access 
devices that also constitute credit cards, the issuance rules of 
Regulation E apply if the only credit feature is a preexisting credit 
line attached to the asset account to cover overdrafts (or to maintain 
a specified minimum balance) or an overdraft service, as defined in 
existing Sec.  1005.17(a). Regulation Z rules apply if there is another 
type of credit feature; for example, one permitting direct extensions 
of credit that do not involve the asset account.
    The proposal would have amended existing Sec.  1005.12(a)(1)(ii) to 
provide that this provision relating to preexisting overdraft lines of 
credit and overdraft services does not apply to access devices for 
prepaid accounts. The proposal also would have moved existing comment 
12(a)-2 related to preexisting overdraft lines of credit and overdraft 
services to proposed comment 12(a)-1 and would have revised the comment 
to explain that it does not apply to access devices for prepaid 
accounts. Thus, under the proposal, because the existing exception for 
preexisting overdraft line of credit and overdraft services would not 
have applied to an access device for a prepaid account, the issuance 
rules in TILA and Regulation Z would have applied to the issuance of a 
prepaid card that also a credit card at the time it is issued.
    Nonetheless, under the proposal, in proposed Regulation Z Sec.  
1026.12(h) (renumbered as new Sec.  1026.61(c) in the final rule), a 
prepaid card could not have been a credit card when it was issued if it 
was issued before the expiration of the 30-day period set forth in 
proposed Sec.  1026.12(h). Proposed Regulation Z Sec.  1026.12(h) would 
have required a credit card issuer to wait at least 30 days from 
prepaid account registration before opening a credit card account for a 
holder of a prepaid account, or providing a solicitation or application 
to the holder of the prepaid account to open a credit card account, 
that would be accessed by the access device for a prepaid account that 
is a credit card. The Bureau proposed to comment 12(a)-3 to explain 
that an access device for a prepaid account may not access a credit 
card account when the access device is issued and would have cross 
referenced proposed Regulation Z Sec.  1026.12(h). Under the proposal, 
because a prepaid card could not have been a credit card when it was 
issued if it was issued before the expiration of the 30-day period set 
forth in proposed Regulation Z Sec.  1026.12(h), the issuance of such a 
prepaid card would have been governed under the issuance rules in EFTA 
and Regulation E.
    The proposal also would have amended existing Sec.  
1005.12(a)(1)(iii)

[[Page 83988]]

and (2)(i) to address whether Regulation E or Regulation Z governs the 
addition of a credit feature or plan (including an overdraft credit 
plan) to a previously issued access device for a prepaid account where 
the credit feature or plan would have made the access device into a 
credit card under Regulation Z. Existing Sec.  1005.12(a)(1)(iii) 
provides that the issuance rules of EFTA and Regulation E govern the 
addition of an overdraft service, as defined in existing Sec.  
1005.17(a), to an accepted access device. The proposal would have 
amended existing Sec.  1005.12(a)(1)(iii) to provide that this 
provision does not apply to access devices for prepaid accounts. The 
proposal also would have moved comment 12(a)-3 which discussed 
overdraft services as defined in existing Sec.  1005.17(a) to proposed 
comment 12(a)-2 and revised the comment to indicate that this comment 
does not apply to access devices for prepaid accounts. As discussed in 
more detail in the section-by-section analysis of Sec.  1005.17 below, 
the proposal would have revised the term ``overdraft service'' as 
defined in existing Sec.  1005.17(a) to exclude a credit plan that is 
accessed by an access device for a prepaid account where the access 
device is a credit card under Regulation Z, because these credit plans 
would have been subject to the provisions in Regulation Z.
    The proposal also would have amended existing Sec.  
1005.12(a)(2)(i) to provide that the unsolicited issuance rules in TILA 
and existing Regulation Z Sec.  1026.12(a) would have applied to the 
addition of a credit feature or plan to an accepted access device, 
including an access device for a prepaid account, that would make the 
access device into a credit card under Regulation Z. The proposal would 
have added proposed comment 12(a)-4 that would have explained that 
Regulation Z governs the addition of any credit feature or plan to an 
access device for a prepaid account where the access device also would 
be a credit card under Regulation Z. Proposed comment 12(a)-4 also 
would have stated that Regulation Z (existing Sec.  1026.2(a)(20), 
proposed comment 2(a)(20)-2.ii) would have provided guidance on whether 
a program constitutes a credit plan, and that Regulation Z (existing 
Sec.  1026.2(a)(15)(i), proposed comment 2(a)(15)-2) would have defined 
the term credit card and provided examples of cards or devices that are 
and are not credit cards.
Comments Received and the Final Rule
    The Bureau did not receive any specific comments on its proposal to 
amend existing Sec.  1005.12(a) and related commentary with respect to 
the issuance rules, other than those related to general comments from 
industry not to cover overdraft plans offered on prepaid accounts under 
Regulation Z. See the Overview of the Final Rule's Amendments to 
Regulation Z section for a discussion of those comments.
    As explained in more detail below, with respect to the issuance 
rules, the Bureau is amending existing Sec.  1005.12(a) and related 
commentary consistent with the proposal, with revisions to clarify the 
intent of the provisions and to be consistent with new Regulation Z 
Sec.  1026.61.
    Issuance of a prepaid card. As discussed above, existing Sec.  
1005.12(a)(2)(ii) generally provides that the unsolicited issuance 
rules in TILA and Regulation Z, which prohibit the unsolicited issuance 
of credit cards, govern the issuance of a credit card that is also an 
access device. Existing Sec.  1005.12(a)(1)(ii) provides that the 
issuance rules of EFTA and Regulation E govern the issuance of an 
access device that permits credit extensions under a preexisting 
agreement between a consumer and a financial institution only when the 
consumer's account is overdrawn or to maintain a specified minimum 
balance in the consumer's account, or under an overdraft service, as 
defined in existing Sec.  1005.17(a). Existing comment 12(a)-2 provides 
that for access devices that also constitute credit cards, the issuance 
rules of Regulation E apply if the only credit feature is a preexisting 
overdraft line of credit attached to the asset account to cover 
overdrafts (or to maintain a specified minimum balance) or an overdraft 
service, as defined in existing Sec.  1005.17(a). Regulation Z rules 
apply if there is another type of credit feature; for example, one 
permitting direct extensions of credit that do not involve the asset 
account.
    Consistent with the proposal, the Bureau is amending existing Sec.  
1005.12(a)(1)(ii) to provide that this provision does not apply to 
access devices for prepaid accounts. Consistent with the proposal, the 
final rule moves existing comment 12(a)-2 related to preexisting 
overdraft lines of credit and overdraft services to final comment 
12(a)-1 and revises it to explain that it does not apply to access 
devices for prepaid accounts. Thus, under the final rule, the existing 
exception in Sec.  1005.12(a)(1)(ii) for credit extended under a 
preexisting overdraft line of credit or under an overdraft service does 
not apply to an access device that accesses a prepaid account. Thus, 
under the final rule, Sec.  1005.12(a)(2)(ii) provides that the 
issuance rules in TILA and Regulation Z govern the issuance of an 
access device for a prepaid account that is a credit card at the time 
it is issued.
    Nonetheless, under new Regulation Z Sec.  1026.61(c), a prepaid 
card may not be a credit card under Regulation Z when it is issued if 
the prepaid card is issued prior to expiration of the 30-day period set 
forth in new Sec.  1026.61(c). New Regulation Z Sec.  1026.61(c) 
provides that with respect to a covered separate credit feature that 
could be accessible by a hybrid prepaid-credit card at any point, a 
card issuer must not do any of the following until 30 days after the 
prepaid account has been registered: (1) Open a covered separate credit 
feature accessible by the hybrid prepaid-credit card; (2) make a 
solicitation or provide an application to open a covered separate 
credit feature accessible by the hybrid prepaid-credit card; or (3) 
allow an existing credit feature that was opened prior to the consumer 
obtaining the prepaid account to become a covered separate credit 
feature accessible by the hybrid prepaid-credit card. As discussed in 
more detail in the section-by-section analysis of Regulation Z Sec.  
1026.61(a)(2) below, a covered separate credit feature accessible by a 
hybrid prepaid-credit card includes an overdraft credit feature offered 
by a prepaid account issuer, its affiliate, or its business partner 
that can be accessed by a prepaid card (except as provided in new 
Regulation Z Sec.  1026.61(a)(4)). The prepaid card is a hybrid 
prepaid-credit card under new Regulation Z Sec.  1026.61 and a credit 
card under final Regulation Z Sec.  1026.2(a)(15)(i) with respect to 
the covered separate credit feature.
    As discussed above, the proposal would have added comment 12(a)-3 
to explain that an access device for a prepaid account may not access a 
credit card account when the access device is issued and would have 
cross referenced proposed Regulation Z Sec.  1026.12(h). Consistent 
with the proposal, the Bureau is adopting new comment 12(a)-3, with 
revisions to clarify the intent of the provision and to be consistent 
with new Regulation Z Sec.  1026.61. New comment 12(a)-3 provides that 
an access device for a prepaid account cannot access a covered separate 
credit feature as defined in new Regulation Z Sec.  1026.61 when the 
access device is issued if the access device is issued prior to the 
expiration of the 30-day period set forth in new Regulation Z Sec.  
1026.61(c). New comment 12(a)-3 also explains that an access device for 
a prepaid account that is not a hybrid prepaid-credit card as that term 
is defined in new Regulation Z Sec.  1026.61

[[Page 83989]]

is subject to the issuance rules in Regulation E. Because a prepaid 
access device cannot access a covered separate credit feature that 
would make the access device into a credit card when the access device 
is issued if the access device is issued prior to the expiration of the 
30-day period set forth in new Regulation Z Sec.  1026.61(c), the 
issuance rules in EFTA and Regulation E will apply to the issuance of 
the prepaid access device that does not access a covered separate 
credit feature as defined in new Regulation Z Sec.  1026.61.
    As discussed in the section-by-section analysis of Regulation Z 
Sec.  1026.61 below, the Bureau has decided to exclude prepaid cards 
from being covered as credit cards under Regulation Z when they access 
certain specified types of credit. First, under new Regulation Z Sec.  
1026.61(a)(2)(ii), a prepaid card is not a hybrid prepaid-credit card 
with respect to a ``non-covered separate credit feature,'' which means 
that the separate credit feature either (1) cannot be accessed in the 
course of a prepaid card transaction to obtain goods or services, 
obtain cash, or conduct P2P transfers, or (2) is offered by an 
unrelated third party that is not the prepaid account issuer, its 
affiliate, or its business partner. Second, under new Regulation Z 
Sec.  1026.61(a)(4), a prepaid card also is not a hybrid prepaid-credit 
card when the prepaid card accesses incidental credit in the form of a 
negative balance on the asset account where the prepaid account issuer 
generally does not charge credit-related fees for the credit. A prepaid 
card is not a hybrid prepaid-credit card under new Regulation Z Sec.  
1026.61 or a credit card under final Regulation Z Sec.  
1026.2(a)(15)(i) when it accesses credit from these types of credit 
features. For more detailed explanations of when prepaid cards are not 
credit cards under Regulation Z, see the section-by-section analyses of 
Regulation Z Sec.  1026.61(a)(2) and (4) below.
    The issuance rules in EFTA and Regulation E apply to those prepaid 
cards that are not hybrid prepaid-credit cards even though the prepaid 
card accesses the credit feature at the time the prepaid card is 
issued.
    Addition of a covered separate credit feature to an existing access 
device for a prepaid account. The Bureau is amending existing Sec.  
1005.12(a)(2)(i) as proposed to provide that the issuance rules in TILA 
and Regulation Z govern the addition of a credit feature or plan to an 
accepted access device, including an access device for a prepaid 
account, that would make the access device into a credit card under 
Regulation Z.
    The proposal would have added comment 12(a)-4 that would have 
explained that Regulation Z governs the addition of any credit feature 
or plan to an access device for a prepaid account where the access 
device also would be a credit card under Regulation Z. Proposed comment 
12(a)-4 also would have stated that Regulation Z (existing Sec.  
1026.2(a)(20), proposed comment 2(a)(20)-2.ii) would have provided 
guidance on whether a program constitutes a credit plan, and that 
Regulation Z (existing Sec.  1026.2(a)(15)(i), proposed comment 
2(a)(15)-2) would have defined the term credit card and provided 
examples of cards or devices that are and are not credit cards. 
Consistent with the proposal, the Bureau is finalizing new comment 
12(a)-4, with revisions to be consistent with new Regulation Z Sec.  
1026.61. New comment 12(a)-4 provides that Regulation Z governs the 
addition of a covered separate credit feature as that term is defined 
in new Regulation Z Sec.  1026.61 to an existing access device for a 
prepaid account. In this case, the access device becomes a hybrid 
prepaid-credit card under Regulation Z. A credit card feature may be 
added to a previously issued access device for a prepaid account only 
upon the consumer's application or specific request as described in 
final Regulation Z Sec.  1026.12(a)(1) and only in compliance with new 
Regulation Z Sec.  1026.61(c), as discussed above. As discussed in more 
detail in the section-by-section analysis of Regulation Z Sec.  
1026.61(a)(2) below, a covered separate credit feature accessible by a 
hybrid prepaid-credit card includes an overdraft credit feature offered 
by a prepaid account issuer, its affiliate, or its business partner 
that can be accessed by a prepaid card (except as provided in new 
Regulation Z Sec.  1026.61(a)(4)). The prepaid card is a hybrid 
prepaid-credit card under new Regulation Z Sec.  1026.61 and a credit 
card under final Regulation Z Sec.  1026.2(a)(15)(i) with respect to 
the covered separate credit feature.
    For the reasons set forth in the Overview of the Final Rule's 
Amendments to Regulation Z section, the Bureau believes that credit 
card rules in Regulation Z, including the unsolicited issuance rules in 
final Regulation Z Sec.  1026.12(a), should apply to hybrid prepaid-
credit cards that access covered separate credit features. The Bureau 
believes that the more restrictive issuance rules in Regulation Z for 
issuance of a credit card are appropriate in this context. As discussed 
above, consistent with TILA section 132, final Regulation Z Sec.  
1026.12(a) provides that no credit card generally may be issued to any 
person on an unsolicited basis. This is in contrast to Regulation E 
which allows an access device to be provided to a consumer on an 
unsolicited basis if four enumerated situations are met.
    The Bureau believes in particular that the addition of a covered 
separate credit feature to an accepted prepaid access device that would 
make the prepaid card into a hybrid prepaid-credit card causes a 
significant transformation with respect to a prepaid account. The 
Bureau believes that applying the Regulation Z unsolicited issuance 
rules to the addition of such a credit feature to a prepaid access 
device will help ensure that consumers must take affirmative steps to 
effect such a transformation by permitting financial institutions to 
link covered separate credit features to prepaid cards only in response 
to consumers' applications or requests that the credit features be 
linked. A card issuer also must comply with new Regulation Z Sec.  
1026.61(c) with respect to linking the covered separate credit feature 
to the prepaid card, as discussed above and in the section-by-section 
analysis of Regulation Z Sec.  1026.61(c) below. New Regulation Z Sec.  
1026.61(c) will help ensure that consumers are fully aware of the 
implications of their decisions to link covered separate credit 
features to prepaid cards by prohibiting card issuers from linking a 
covered separate credit feature to a prepaid card until 30 days after 
the prepaid account has been registered.
    Overdraft credit services defined in Sec.  1005.17. Existing Sec.  
1005.12(a)(1)(iii) provides that the issuance rules of EFTA and 
Regulation E govern the addition of an overdraft service, as defined in 
existing Sec.  1005.17(a), to an accepted access device. Existing 
comment 12(a)-3 provides that the addition of an overdraft service, as 
that term is defined in existing Sec.  1005.17(a), to an accepted 
access device does not constitute the addition of a credit feature 
subject to Regulation Z. Instead, the provisions of Regulation E apply, 
including the liability limitations (existing Sec.  1005.6) and the 
requirement to obtain consumer consent to the service before any fees 
or charges for paying an overdraft may be assessed on the account 
(existing Sec.  1005.17). The proposal would have provided that 
existing Sec.  1005.12(a)(1)(iii) would not have applied to access 
devices for prepaid accounts. The proposal would have moved existing 
comment 12(a)-3 to proposed comment 12(a)-2 and would have revised it 
to provide that the

[[Page 83990]]

comment does not apply to access devices for prepaid accounts.
    The final rule does not adopt the proposed changes to existing 
Sec.  1005.12(a)(1)(iii). The final rule moves existing comment 12(a)-3 
to new comment 12(a)-2 for organizational purposes, but does not amend 
the comment as proposed. The Bureau has not adopted the proposed 
amendments to existing Sec.  1005.12(a)(1)(iii) and new comment 12(a)-2 
because the Bureau believes such revisions are unnecessary in light of 
changes in other parts of the rule. As discussed in the section-by-
section analysis of Sec.  1005.17 below, the Bureau is adding Sec.  
1005.17(a)(4) to provide that an overdraft service does not include any 
payment of overdrafts pursuant to (1) a credit feature that is a 
covered separate credit feature accessible by a hybrid prepaid-credit 
card as defined in new Regulation Z Sec.  1026.61; or (2) credit 
extended through a negative balance on the asset feature of the prepaid 
account that meets the conditions of new Sec.  1026.61(a)(4). Thus, 
because a covered separate credit feature accessible by a hybrid 
prepaid-credit card is not an overdraft service under final Sec.  
1005.17(a), existing Sec.  1005.12(a)(1)(iii) and new comment 12(a)-2 
related to the addition of an overdraft service as defined in final 
Sec.  1005.17(a) to an access device are not applicable to a covered 
separate credit feature accessible by a hybrid prepaid-credit card.
Rules Applicable to Limits on Liability for Unauthorized Use and to 
Billing Errors Procedures
The Bureau's Proposal
    Current Sec.  1005.6 generally sets forth provisions for when a 
consumer may be held liable, within the limitations described in 
existing Sec.  1005.6(b), for an unauthorized EFT involving the 
consumer's account. Current Sec.  1005.11 generally sets forth the 
procedures for resolving errors relating to EFTs involving a consumer's 
account. The Bureau is adding new Sec.  1005.18(e) to set forth a 
consumer's liability for unauthorized EFTs and the procedures for 
investigating errors related to EFTs involving prepaid accounts. See 
generally the section-by-section analysis of Sec.  1005.18(e) below.
    Relatedly, current Regulation Z Sec.  1026.12(b) sets forth limits 
on the amount of liability that a credit card issuer may impose on a 
consumer for unauthorized use of a credit card. Current Regulation Z 
Sec.  1026.13 generally sets forth error resolution procedures for 
billing errors that relate to extensions of credit that are made in 
connection with open-end credit plans or credit card accounts.
    Existing Regulation E Sec.  1005.12(a)(1)(iv) currently provides 
guidance on how the provisions on limits on liability for unauthorized 
use and the provisions setting forth error resolution procedures under 
Regulations E and Z apply when credit is extended incident to an EFT. 
Specifically, current Sec.  1005.12(a)(1)(iv) provides that EFTA and 
Regulation E govern a consumer's liability for an unauthorized EFT and 
the investigation of errors involving an extension of credit that 
occurs pursuant to an overdraft line of credit (under an agreement 
between the consumer and a financial institution to extend credit when 
the consumer's account is overdrawn or to maintain a specified minimum 
balance in the consumer's account), or under an overdraft service, as 
defined in existing Sec.  1005.17(a).
    Current comment 12(a)-1.i provides that for transactions involving 
access devices that also function as credit cards, whether Regulation E 
or Regulation Z applies depends on the nature of the transaction. For 
example, if the transaction solely involves an extension of credit, and 
does not include a debit to a checking account (or other consumer asset 
account), the liability limitations and error resolution requirements 
of Regulation Z apply. If the transaction debits a checking account 
only (with no credit extended), the provisions of Regulation E apply. 
If the transaction debits a checking account but also draws on an 
overdraft line of credit attached to the account, Regulation E's 
liability limitations apply, in addition to existing Regulation Z Sec.  
1026.13(d) and (g) (which apply because of the extension of credit 
associated with the overdraft feature on the checking account).\333\ If 
a consumer's access device is also a credit card and the device is used 
to make unauthorized withdrawals from a checking account, but also is 
used to obtain unauthorized cash advances directly from a line of 
credit that is separate from the checking account, both Regulation E 
and Regulation Z apply. Current comment 12(a)-1.ii sets forth examples 
that illustrate these principles.
---------------------------------------------------------------------------

    \333\ Existing Regulation Z Sec.  1026.13(d) sets forth certain 
requirements that apply until a billing error is resolved. For 
example, existing Regulation Z Sec.  1026.13(d)(1) provides that a 
consumer need not pay (and the creditor may not try to collect) any 
portion of any required payment that the consumer believes is 
related to a disputed amount reflected on the consumer's credit card 
bill. It also provides that if the cardholder has enrolled in an 
automatic payment plan, the card issuer shall not deduct any part of 
the disputed amount or related finance or other charges from the 
consumer's asset account if the consumer provides to the card issuer 
a billing error notice that the card issuer receives any time up to 
3 business days before the scheduled payment date. Existing 
Regulation Z Sec.  1026.13(g) sets forth requirements governing what 
a creditor must do if it determines that a consumer owes all or part 
of the disputed amount and related finance or other charges.
---------------------------------------------------------------------------

    With respect to limits on consumer liability for unauthorized use, 
existing Sec.  1005.12(a) and comment 12(a)-1 are consistent with EFTA 
section 909(c), which applies EFTA's limits on liability for 
unauthorized use to transactions which involve both an unauthorized EFT 
and an extension of credit pursuant to an agreement between the 
consumer and the financial institution to extend such credit to the 
consumer in the event the consumer's account is overdrawn.\334\ In 
adopting rules in 1980 to implement EFTA, the Board generally applied 
Regulation E's error resolution procedures to credit transactions that 
are incident to an EFT involving an extension of credit that occurs 
under an agreement between the consumer and a financial institution to 
extend credit when the consumer's account is overdrawn or to maintain a 
specified minimum balance in the consumer's account.\335\ In proposing 
these rules, the Board stated that the proposed rule would simplify 
procedures for financial institutions where an EFT results in both a 
debit to a consumer's account and a credit extension.\336\
---------------------------------------------------------------------------

    \334\ 15 U.S.C. 1693g(c).
    \335\ 45 FR 8249, 8266 (Feb. 6, 1980).
    \336\ 44 FR 25850, 25857 (May 3, 1979).
---------------------------------------------------------------------------

    For the reasons discussed in more detail in the section by section 
analysis of Regulation Z Sec.  1026.13(i) below, the Bureau proposed to 
amend existing Sec.  1005.12(a)(1)(iv) by moving the current language 
to proposed Sec.  1005.12(a)(1)(iv)(A) and applying it to accounts 
other than prepaid accounts. The Bureau also proposed to add Sec.  
1005.12(a)(1)(iv)(B) to provide that with respect to a prepaid account, 
EFTA and Regulation E govern a consumer's liability for an unauthorized 
EFT and the investigation of errors involving an extension of credit, 
under a credit plan subject to Regulation Z subpart B, that is incident 
to an EFT when the consumer's prepaid account is overdrawn.
    Proposed Sec.  1005.12(a)(1)(iv)(B) that would have applied to 
credit in connection with a prepaid account was similar but not the 
same as proposed Sec.  1005.12(a)(1)(iv)(A) that would have applied to 
accounts other than prepaid accounts. Like proposed Sec.  
1005.12(a)(1)(iv)(A), proposed Sec.  1005.12(a)(1)(iv)(B) generally 
would have applied Regulation E's limits on

[[Page 83991]]

liability for unauthorized use and error resolution procedures to 
transactions that are partially funded through an EFT using an access 
device and partially funded through credit under a plan that is 
accessed by an access device when the consumer's prepaid account is 
overdrawn.
    However, unlike proposed Sec.  1005.12(a)(1)(iv)(A), proposed Sec.  
1005.12(a)(1)(iv)(B) would not have focused on whether there is an 
agreement between a consumer and a financial institution to extend 
credit when the consumer's prepaid account is overdrawn or to maintain 
a specified minimum balance in the consumer's prepaid account. Instead, 
proposed Sec.  1005.12(a)(1)(iv)(B) would have focused on whether 
credit is extended under a ``plan'' when the consumer's prepaid account 
does not have sufficient funds to complete a transaction and the plan 
is subject to the provisions in Regulation Z subpart B. For example, 
under the proposal, a credit plan that is accessed by a prepaid card 
that is a credit card would have been subject to the provisions of 
subpart B. Under the proposal, a prepaid card would have been a credit 
card under Regulation Z even if the creditor retains discretion not to 
pay the credit transactions. Thus, proposed Sec.  1005.12(a)(1)(iv)(B) 
would have focused on whether credit is extended under an ``plan'' that 
is subject to the provisions of subpart B, rather than whether there is 
an agreement between a consumer and a financial institution to extend 
credit when the consumer's account is overdrawn or to maintain a 
specified minimum balance in the consumer's account.
    The proposal would have added comment 12(a)-5.i to provide that for 
an account other than a prepaid account where credit is extended 
incident to an EFT under an agreement to extend overdraft credit 
between the consumer and the financial institution, Regulation E's 
liability limitations and error resolution provisions would have 
applied, in addition to Sec.  1026.13(d) and (g) of Regulation Z (which 
apply because of the extension of credit associated with the overdraft 
feature on the asset account). With respect to an account other than a 
prepaid account, credit that is incident to an EFT that is not extended 
under an agreement between the consumer and the financial institution 
where the financial institution agrees to extend credit is governed 
solely by the error resolution procedures in Regulation E and 
Regulation Z Sec.  1026.13(d) and (g) do not apply. With respect to a 
prepaid account where credit is extended under a credit plan that is 
subject to Regulation Z subpart B, Regulation E's liability limitations 
and error resolution provisions would have applied, in addition to 
Regulation Z Sec.  1026.13(d) and (g) (which apply because of the 
extension of credit associated with the overdraft feature on the asset 
account). In addition, proposed comment 12(a)-5.i would have provided 
that a credit plan is subject to Regulation Z subpart B if it is 
accessed by an access device that is a credit card under Regulation Z 
or if it is open-end credit under Regulation Z. An access device for a 
prepaid account would not have been a credit card if the access device 
only accesses credit that is not subject to any finance charge, as 
defined in Regulation Z Sec.  1026.4, or any fee described in 
Regulation Z Sec.  1026.4(c), and is not payable by written agreement 
in more than four installments. Proposed comment 12(a)-5.i also would 
have provided that credit incident to an EFT under a credit plan that 
only can be accessed by an access device for a prepaid account that is 
not a credit card is not subject to Regulation Z subpart B and is 
governed solely by the error resolution procedures in Regulation E 
because the credit plan would not have accessed by a credit card and 
the plan would not have been open-end credit. In this case, Regulation 
Z Sec.  1026.13(d) and (g) would not have applied.
    As discussed above, existing comment 12(a)-1.i provides guidance on 
how the principles in existing Sec.  1005.12(a)(1)(iv) apply to 
transactions involving access devices that are credit cards under 
Regulation Z. The proposal would have moved existing comment 12(a)-1.i 
to proposed comment 12(a)-5.ii and made revisions to make clear that 
this guidance applies to prepaid cards that would have been credit 
cards under the proposal. The proposal also would have made technical 
revisions to proposed comment 12(a)-5.ii for clarity.
    Existing comment 12(a)-1.ii.A through D provide examples of how the 
principles described in existing comment 12(a)-1.i relate to 
transactions involving access devices that also function as credit 
cards under Regulation Z. Specifically, these examples describe 
different types of transactions that involve a debit card that also is 
a credit card and discuss whether Regulation E or Regulation Z's 
liability limitations and error resolution requirements apply to those 
transactions. The proposal would have moved existing comment 12(a)-
1.ii.A through D to proposed comment 12(a)-5.iii.A through D 
respectively. The proposal also would have revised the examples in 
proposed comment 12(a)-5.iii.A through D to clarify that these examples 
relate to a credit card that also is an access device that draws on a 
consumer's checking account, and would have made technical revisions to 
clarify the intent of the examples. No substantive changes would have 
been intended with these revisions. The proposal also would have added 
proposed comment 12(a)-5.iii.E that would have provided that the same 
principles in proposed comment 12(a)-5.iii.A through D apply to prepaid 
cards that would have been credit cards under the proposal.
Comment Received and the Final Rule
    The Bureau did not receive any specific comments on this proposal 
to amend existing Sec.  1005.12(a)(1)(iv) related to applicability of 
limits on liability for unauthorized use and error resolution 
provisions under Regulations E and Z.
    The Bureau is amending existing Sec.  1005.12(a)(1)(iv) and adding 
new Sec.  1005.12(a)(2)(iii) to be consistent with new Regulation Z 
Sec.  1026.61.
    For the reasons discussed in more detail in the section-by-section 
analysis of Regulation Z Sec.  1026.13(i) below, consistent with the 
proposal, the Bureau is amending existing Sec.  1005.12(a)(1)(iv) by 
moving the current language to Sec.  1005.12(a)(1)(iv)(A) and applying 
it to transactions that do not involve prepaid accounts. The Bureau 
also is adding new Sec.  1005.12(a)(1)(iv)(B) to provide that with 
respect to transactions that involve a covered separate credit feature 
and an asset feature on a prepaid account that are both accessible by a 
hybrid prepaid-credit card as those terms are defined in new Regulation 
Z Sec.  1026.61, EFTA and Regulation E govern a consumer's liability 
for an unauthorized EFT and the investigation of errors involving an 
extension of credit that is incident to an EFT that occurs when the 
hybrid prepaid-credit card accesses both funds in the asset feature of 
the prepaid account and a credit extension from the credit feature with 
respect to a particular transaction. As discussed in more detail in the 
section-by-section analysis of Regulation Z Sec.  1026.61(a)(2) below, 
a covered separate credit feature accessible by a hybrid prepaid-credit 
card includes an overdraft credit feature offered by a prepaid account 
issuer, its affiliate, or its business partner that can be accessed by 
a prepaid card (except as provided in new Regulation Z Sec.  
1026.61(a)(4)). The prepaid card is a hybrid prepaid-credit card under 
new Regulation Z Sec.  1026.61 and a credit card under final Regulation 
Z Sec.  1026.2(a)(15)(i) with respect to the covered separate credit 
feature.

[[Page 83992]]

    As discussed below, the final rule also adds new Sec.  
1005.12(a)(1)(iv)(C), and (D), and (2)(iii) to provide guidance on 
whether Regulation E or Regulation Z governs the consumer's liability 
for unauthorized use and the investigation of errors with respect to 
transactions made by prepaid cards that are not hybrid prepaid-credit 
cards as defined in new Regulation Z Sec.  1026.61.
    Proposed comment 12(a)-5.i would have provided guidance on the 
provisions in both proposed Sec.  1005.12(a)(1)(iv)(A) and (B). As 
discussed in more detail below, the final rule retains the guidance 
related to credit extended in connection with prepaid accounts in new 
comment 12(a)-5.i with revisions to be consistent with new Regulation Z 
Sec.  1026.61. As discussed in more detail below, the final rule moves 
guidance related to other types of credit from proposed comment 12(a)-
5.i to new comment 12(a)-5.ii and revises it to be consistent with new 
Regulation Z Sec.  1026.61. Consistent with the proposal, the final 
rule also moves current comment 12(a)-1.i and ii to new comment 12(a)-
5.iii and iv and revises this comment to be consistent with new 
Regulation Z Sec.  1026.61.
    Consistent with the proposal, with respect to transactions that 
involve a covered separate credit feature and an asset feature on a 
prepaid account that are both accessible by a hybrid prepaid-credit 
card as those terms are defined in new Regulation Z Sec.  1026.61, new 
Sec.  1005.12(a)(1)(iv)(B) does not focus on whether there is an 
agreement between a consumer and a financial institution to extend 
credit when the consumer's prepaid account is overdrawn or to maintain 
a specified minimum balance in the consumer's prepaid account. Under 
the final rule, whether a prepaid card is a hybrid prepaid-credit card 
does not depend on whether there is an agreement between a consumer and 
a financial institution to extend credit when the consumer's prepaid 
account is overdrawn or to maintain a specified minimum balance in the 
consumer's prepaid account. Instead, under the final rule, a prepaid 
card is a credit card under Regulation Z when it is a ``hybrid prepaid-
credit card'' as defined in Regulation Z. In particular, new Regulation 
Z comment 61(a)(1)-1 provides that a prepaid card is a hybrid prepaid-
credit card if the prepaid card can access credit from a covered 
separate credit feature even if, for example: (1) The person that can 
extend the credit does not agree in writing to extend the credit; (2) 
the person retains discretion not to extend the credit; or (3) the 
person does not extend the credit once the consumer has exceeded a 
certain amount of credit.
    Thus, consistent with the proposal, new Sec.  1005.12(a)(1)(iv)(B) 
focuses on transactions that involve a covered separate credit feature 
and an asset feature on a prepaid account that are both accessible by a 
hybrid prepaid-credit card as those terms are defined in new Regulation 
Z Sec.  1026.61, where an extension of credit that is incident to an 
EFT occurs when the hybrid prepaid-credit card accesses both funds in 
the asset feature of the prepaid account and a credit extension from 
the credit feature with respect to a particular transaction. These are 
the situations in which Regulations Z and E would overlap with respect 
to covered separate credit features accessible by hybrid prepaid-credit 
cards. New Sec.  1005.12(a)(1)(iv)(B) provides that in these 
circumstances, EFTA and Regulation E generally govern a consumer's 
liability for an unauthorized EFT and the investigation of errors with 
respect to these transactions. Regulation Z's provisions related to a 
consumer's liability for unauthorized transactions and error resolution 
procedures generally do not apply, except for existing Regulation Z 
Sec.  1026.13(d) and (g) that apply to the credit portion of the 
transaction.
    New Sec.  1005.12(a)(1)(iv)(B) and new comment 12(a)-5.i and iii 
through iv are discussed first. New Sec.  1005.12(a)(1)(iv)(C) and (D), 
and (2)(iii) are discussed second. New Sec.  1005.12(a)(1)(iv)(A) and 
new comment 12(a)-5.ii are discussed third.
    Transactions involving covered separate credit features accessible 
by hybrid prepaid-credit cards. As discussed above, new Sec.  
1005.12(a)(1)(iv)(B) provides that with respect to transactions that 
involve a covered separate credit feature and an asset feature on a 
prepaid account that are both accessible by a hybrid prepaid-credit 
card as those terms are defined in new Regulation Z Sec.  1026.61, EFTA 
and Regulation E govern a consumer's liability for an unauthorized EFT 
and the investigation of errors involving an extension of credit 
incident to an EFT that occurs when the hybrid prepaid-credit card 
accesses both funds in the asset feature of the prepaid account and a 
credit extension from the credit feature with respect to a particular 
transaction.
    Proposed comment 12(a)-5.i would have provided guidance on the 
provisions in both proposed Sec.  1005.12(a)(1)(iv)(A) and (B). In the 
final rule, the guidance related to credit extended in connection with 
prepaid accounts is retained in new comment 12(a)-5.i with revisions to 
be consistent with new Regulation Z Sec.  1026.61. As discussed in more 
detail below, the final rule moves guidance related to other types of 
credit from proposed comment 12(a)-5.i to new comment 12(a)-5.ii with 
revisions.
    Under the final rule, new comment 12(a)-5.i provides that with 
respect to a transaction that involves a covered separate credit 
feature and an asset feature on a prepaid account that are both 
accessible by a hybrid prepaid-credit card as those terms are defined 
in new Regulation Z Sec.  1026.61, where credit is extended under a 
covered separate credit feature accessible by a hybrid prepaid-credit 
card that is incident to an EFT when the hybrid prepaid-credit card 
accesses both funds in the asset feature of a prepaid account and 
credit extensions from the credit feature with respect to a particular 
transaction, Regulation E's liability limitations and error resolution 
provisions apply to the transaction, in addition to existing Regulation 
Z Sec.  1026.13(d) and (g) (which apply because of the extension of 
credit associated with the covered separate credit feature).
    As discussed above, existing comment 12(a)-1.i provides guidance on 
how the principles in existing Sec.  1005.12(a)(1)(iv) apply to 
transactions involving access devices that are credit cards under 
Regulation Z. The proposal would have moved existing comment 12(a)-1.i 
to proposed comment 12(a)-5.ii and made revisions to make clear that 
this guidance applies to prepaid cards that would have been credit 
cards under the proposal. The proposal also would have made technical 
revisions to proposed comment 12(a)-5.ii for clarity; no substantive 
changes were intended. The final rule moves current comment 12(a)-1.i 
to new comment 12(a)-5.iii and adopts this comment consistent with the 
proposal, with additional technical revisions for clarity. New comment 
12(a)-5.iii provides guidance on how the principles in final Sec.  
1005.12(a)(1)(iv) apply to transactions involving access devices that 
are credit cards under Regulation Z, including hybrid prepaid-credit 
cards that access covered separate credit features. New comment 12(a)-
5.iii provides that for transactions involving access devices that also 
function as credit cards under Regulation Z, whether Regulation E or 
Regulation Z applies depends on the nature of the transaction. For 
example, if the transaction solely involves an extension of credit, and 
does not access funds in a consumer asset account, such as a checking 
account or prepaid account, the liability limitations and

[[Page 83993]]

error resolution requirements of Regulation Z apply. If the transaction 
accesses funds in an asset account only (with no credit extended), the 
provisions of Regulation E apply. If the transaction access funds in an 
asset account but also involves an extension of credit under an 
overdraft credit feature subject to Regulation Z attached to the 
account, Regulation E's liability limitations and error resolution 
provisions apply, in addition to existing Regulation Z Sec.  1026.13(d) 
and (g) (which apply because of the extension of credit associated with 
the overdraft feature on the asset account). If a consumer's access 
device is also a credit card and the device is used to make 
unauthorized withdrawals from an asset account, but also is used to 
obtain unauthorized cash advances directly from a credit feature that 
is subject to Regulation Z that is separate from the asset account, 
both Regulation E and Regulation Z apply.
    Existing examples in comment 12(a)-1.ii.A through D provide 
examples of how the principles in existing comment 12(a)-1.i relate to 
transactions involving access devices that also function as credit 
cards under Regulation Z. Specifically, these examples describe 
different types of transactions that involve a debit card that also is 
a credit card and discuss whether Regulation E or Regulation Z's 
liability limitations and error resolution requirements apply to those 
transactions. The proposal would have moved existing comment 12(a)-
1.ii.A through D to proposed comment 12(a)-5.iii.A through D 
respectively and would have made several revisions as discussed above.
    The final rule moves the existing examples from existing comment 
12(a)-1.ii.A through D to new comment 12(a)-5.iv.A through D 
respectively. Consistent with the proposal, the final rule also revises 
the examples in new comment 12(a)-5.iv.A through D to clarify that 
these examples relate to a credit card that also is an access device 
that draws on a consumer's checking account, and makes technical 
revisions to clarify the intent of the examples. No substantive changes 
are intended with these revisions. Consistent with the proposal, the 
final rule also adds new comment 12(a)-5.iv.E that provides that the 
same principles in new comment 12(a)-5.iv.A through D apply to an 
access device for a prepaid account that also is a hybrid prepaid-
credit card with respect to a covered separate credit feature under 
Regulation Z Sec.  1026.61. New comment 12(a)-5.iv.E also provides a 
cross-reference to final Regulation Z Sec.  1026.13(i)(2) and new 
comment 13(i)-4 that deals with the interaction between Regulations E 
and Z with respect to billing error resolution for transactions that 
involve covered separate credit features accessible by hybrid prepaid-
credit cards.
    Prepaid cards that are not hybrid prepaid-credit cards. As 
discussed in the section-by-section analysis of Regulation Z Sec.  
1026.61 below, the Bureau has decided to exclude prepaid cards from 
being covered as credit cards under Regulation Z when they access 
certain specified types of credit. First, under new Regulation Z Sec.  
1026.61(a)(2)(ii), a prepaid card is not a hybrid prepaid-credit card 
with respect to a ``non-covered separate credit feature,'' which means 
that the separate credit feature either (1) cannot be accessed in the 
course of a prepaid card transaction to obtain goods or services, 
obtain cash, or conduct P2P transfers, or (2) is offered by an 
unrelated third party that is not the prepaid account issuer, its 
affiliate, or its business partner. Second, under new Regulation Z 
Sec.  1026.61(a)(4), a prepaid card also is not a hybrid prepaid-credit 
card when the prepaid card accesses incidental credit in the form of a 
negative balance on the asset account where the prepaid account issuer 
generally does not charge credit-related fees for the credit. A prepaid 
card is not a hybrid prepaid-credit card under new Regulation Z Sec.  
1026.61 or a credit card under final Regulation Z Sec.  
1026.2(a)(15)(i) when it accesses credit from these types of credit 
features. For more detailed explanations of when prepaid cards are not 
credit cards under Regulation Z, see the section-by-section analyses of 
Regulation Z Sec.  1026.61(a)(2) and (4) below.
    As discussed above, the final rule adds new Sec.  
1005.12(a)(1)(iv)(C), (D), and (2)(iii) to provide guidance on whether 
Regulation E or Regulation Z governs the consumer's liability for 
unauthorized use and the investigation of errors with respect to 
transactions made by prepaid cards that are not hybrid prepaid-credit 
cards as defined in Regulation Z Sec.  1026.61. New Sec.  
1005.12(a)(1)(iv)(C) provides that Regulation E governs the consumer's 
liability for an unauthorized EFT and the investigation of errors with 
respect to transactions that involves credit extended through a 
negative balance to the asset feature of a prepaid account that meets 
the conditions set forth in Regulation Z Sec.  1026.61(a)(4). New 
comment 12(a)-5.i clarifies that Sec.  1005.12(a)(1)(iv)(C) provides 
that with respect to transactions that involves credit extended through 
a negative balance to the asset feature of a prepaid account that meets 
the conditions set forth in Regulation Z Sec.  1026.61(a)(4), these 
transactions are governed solely by the liability limitations and error 
resolution procedures in Regulation E, and Regulation Z does not apply.
    New Sec.  1005.12(a)(1)(iv)(D) provides that with respect to 
transactions involving a prepaid account and a non-covered separate 
credit feature as defined in Regulation Z Sec.  1026.61, Regulation E 
governs the consumer's liability for an unauthorized EFT and the 
investigation of errors with respect to transactions that access the 
prepaid account, as applicable. New Sec.  1005.12(a)(2)(iii) provides 
that with respect to transactions involving a prepaid account and a 
non-covered separate credit feature as defined in Regulation Z Sec.  
1026.61, Regulation Z governs the consumer's liability for unauthorized 
use and the investigation of errors with respect to transactions that 
access the non-covered separate credit feature, as applicable. New 
comment 12(a)-5.i clarifies that Sec.  1005.12(a)(1)(iv)(D) and 
(2)(iii), taken together, provide that with respect to transactions 
involving a prepaid account and a non-covered separate credit feature 
as defined in Regulation Z Sec.  1026.61, a financial institution must 
comply with Regulation E's liability limitations and error resolution 
procedures with respect to transactions that access the prepaid account 
as applicable, and the creditor must comply with Regulation Z's 
liability limitations and error resolution procedures with respect to 
transactions that access the non-covered separate credit feature, as 
applicable.
    As discussed above, EFTA section 909(c) provides that EFTA's limits 
on liability for unauthorized use apply to transactions which involve 
both an unauthorized EFT and an extension of credit pursuant to an 
agreement between the consumer and the financial institution to extend 
such credit to the consumer in the event the consumer's account is 
overdrawn.\337\ The Bureau believes, however, that EFTA section 909(c) 
does not apply to transactions that access a non-covered separate 
credit feature. Non-covered separate credit features only include 
overdraft credit features with respect to prepaid accounts provided by 
unrelated third-party creditors other than the prepaid account issuer, 
its affiliates, or its business partners. Thus, a non-covered separate 
credit feature could not be offered by a financial institution that is 
offering overdraft on the prepaid account. For purposes of EFTA section 
909(c), the Bureau believes extending

[[Page 83994]]

credit is reasonably interpreted only to apply where the financial 
institution is itself the creditor, and thus would not encompass a 
situation where the financial institution who is the prepaid account 
issuer would be accessing credit, pursuant to an agreement with the 
consumer, from the consumer's non-covered separate credit feature. 
Thus, as explained in new comment 12(a)-5.i, new Sec.  
1005.12(a)(1)(iv)(D) and (2)(iii), taken together, provide that with 
respect to transactions involving a prepaid account and a non-covered 
separate credit feature as defined in Regulation Z Sec.  1026.61, a 
financial institution must comply with Regulation E's liability 
limitations and error resolution procedures with respect to 
transactions that access the prepaid account as applicable, and the 
creditor must comply with Regulation Z's liability limitations and 
error resolution procedures with respect to transactions that access 
the non-covered separate credit feature, as applicable. See also the 
section-by-section analysis of Regulation Z Sec.  1026.13(i) below.
---------------------------------------------------------------------------

    \337\ 15 U.S.C. 1693g(c).
---------------------------------------------------------------------------

    Transactions that do not involve prepaid accounts. As discussed 
above, final Sec.  1005.12(a)(1)(iv)(A) provides that EFTA and 
Regulation E generally govern a consumer's liability for an 
unauthorized EFT and the investigation of errors with respect to 
transactions that (1) do not involve a prepaid account; and (2) involve 
an extension of credit that is incident to an EFT that occurs under an 
agreement between the consumer and a financial institution to extend 
credit when the consumer's account is overdrawn or to maintain a 
specified minimum balance in the consumer's account, or under an 
overdraft service, as defined in final Sec.  1005.17(a).
    As discussed above, proposed comment 12(a)-5.i would have provided 
guidance on the provisions in both proposed Sec.  1005.12(a)(1)(iv)(A) 
and (B). In the final rule, the proposed guidance related to credit 
extended in connection with prepaid accounts is retained in new comment 
12(a)-5.i with revisions. The final rule moves guidance related to 
other types of credit from proposed comment 12(a)-5.i to new comment 
12(a)-5.ii and revises it to be consistent with new Regulation Z Sec.  
1026.61.
    The final rule adds new comment 12(a)-5.ii to provide guidance with 
respect to accounts other than prepaid accounts. Specifically, new 
comment 12(a)-5.ii provides that with respect to an account (other than 
a prepaid account) where credit is extended incident to an EFT under an 
agreement to extend overdraft credit between the consumer and the 
financial institution, Regulation E's liability limitations and error 
resolution provisions apply to the transaction, in addition to existing 
Regulation Z Sec.  1026.13(d) and (g) (which apply because of the 
extension of credit associated with the overdraft feature on the asset 
account). Access devices that access accounts other than prepaid 
accounts are credit cards under Regulation Z when there is an agreement 
by the financial institution to extend credit. See final Regulation Z 
Sec.  1026.2(a)(15)(iv) and existing Regulation Z comments 2(a)(15)-
2.i.B and ii.A. As discussed above, new comments 12(a)-5.iii and iv 
provide guidance on, and examples of, how the principles in final Sec.  
1005.12(a)(1)(iv) apply to transactions involving access devices that 
are credit cards under Regulation Z.
12(b) Preemption of Inconsistent State Laws
The Bureau's Proposal
    In 2013, the Bureau published a final determination as to whether 
certain laws of Maine and Tennessee relating to unclaimed gift cards 
are inconsistent with and preempted by EFTA and Regulation E.\338\ The 
Bureau stated that it had no basis for concluding that the provisions 
at issue in Maine's unclaimed property law relating to gift cards are 
inconsistent with, or therefore preempted by, Federal law. The Bureau 
did determine, however, that one provision in Tennessee's unclaimed 
property law relating to gift cards is inconsistent with, and therefore 
preempted by, Federal law. The Bureau's final determination stated that 
the determination would also be reflected in the commentary 
accompanying Regulation E.
---------------------------------------------------------------------------

    \338\ 78 FR 24386, 24391 (Apr. 25, 2013).
---------------------------------------------------------------------------

    The Bureau proposed to add a summary of its preemption 
determination with respect to Tennessee's unclaimed property law as 
comment 12(b)-4. Proposed comment 12(b)-4 would have stated that the 
Bureau had determined that a provision in the State law of Tennessee is 
preempted by the Federal law, effective April 25, 2013. It would have 
further stated that, specifically, section 66-29-116 of Tennessee's 
Uniform Disposition of Unclaimed (Personal) Property Act is preempted 
to the extent that it permits gift certificates, store gift cards, and 
stored-value cards, as defined in Sec.  1005.20(a), to be declined at 
the point-of-sale sooner than the gift certificates, store gift cards, 
or stored value cards and their underlying funds are permitted to 
expire under Sec.  1005.20(e).
    Existing comment 12(b)-2 states that the Bureau recognizes State 
law preemption determinations made by the Board prior to July 21, 2011, 
unless and until the Bureau makes and publishes any contrary 
determination. The Bureau proposed to make this statement into a 
standalone comment in proposed comment 12(b)-2 under the heading 
Preemption determinations generally. The Bureau proposed to renumber 
the remainder of existing comment 12(b)-2 as proposed comment 12(b)-3, 
to make the heading for that comment Preemption determination--Michigan 
for clarity, and to update proposed comments 12(b)-3.i through iv to 
provide full citations to the preempted Michigan law at issue therein, 
which appear in chapter 488 of the Michigan Compiled Laws. 
Additionally, the Bureau proposed adding language in proposed comment 
12(b)-3.iv to clarify that the preemption of sections 488.17 and 488.18 
of Michigan law does not apply to transfers of $15 or less, which, 
pursuant to existing Sec.  1005.9(e), are not subject to Sec.  1005.9. 
Section 1005.9(e) (then Sec.  205.9(e)) was added by the Board in 2007 
to eliminate the requirement to provide terminal receipts for 
transactions of $15 or less.\339\
---------------------------------------------------------------------------

    \339\ See 72 FR 36589 (July 5, 2007).
---------------------------------------------------------------------------

Comments Received
    The Bureau received no comments regarding the proposed revisions to 
the commentary for Sec.  1005.12(b). The Bureau did, however, receive 
comments from a consumer group and the office of a State Attorney 
General urging the Bureau to clarify that this final rule does not 
preempt stronger State laws with respect to payroll, student, prison, 
and government benefit accounts and to acknowledge that State laws may 
require additional disclosures and obligations not required by this 
final rule. These commenters specifically referenced the Illinois 
payroll card law, which they stated provides certain employee 
protections that are not contemplated by this rule, and recommended 
that the Bureau emphasize that employers may have additional 
obligations and restrictions under State law.
    The Bureau also received a comment from a payment network, urging 
the Bureau to expressly provide that all State law requirements that 
are inconsistent with the requirements of the Bureau's final rule 
governing prepaid accounts are preempted. The commenter stated that 
inconsistent State requirements would detract from any required Federal 
disclosures and add costs to prepaid programs that

[[Page 83995]]

ultimately will be borne by consumers. The commenter specifically 
expressed concern regarding State laws governing disclosures of fees or 
terms because, it said, such laws will frustrate the goals of 
consistent disclosure and comparison shopping.
The Final Rule
    The Bureau is finalizing comments 12(b)-2 and -3 generally as 
proposed, with several minor modifications for clarity. The Bureau is 
also finalizing comment 12(b)-4 as proposed, but in lieu of the 
proposed reference to ``stored value cards,'' the Bureau is using 
``general-use prepaid cards'' in final comment 12(b)-4.i for 
consistency with Sec.  1005.20(a). The Bureau considered the comments 
discussed above from the consumer group, the office of a State Attorney 
General, and the payment network, but does not believe that a revision 
to the regulatory text or commentary is necessary. EFTA section 922 
makes clear that it does not preempt State laws except to the extent 
those laws are inconsistent with EFTA (and then only to the extent of 
that inconsistency). It further provides that ``[a] State law is not 
inconsistent with [EFTA] if the protection such law affords any 
consumer is greater than the protection afforded by [EFTA].'' The 
Bureau acknowledges that State laws may require additional disclosures 
and obligations not required by this final rule, and agrees that 
financial institutions and other persons involved in prepaid account 
programs, including employers, should be aware of additional 
obligations and restrictions under State law.
Section 1005.15 Electronic Fund Transfer of Government Benefits
    Section 1005.15 of Regulation E currently contains provisions 
specific to certain accounts established by government agencies for 
distributing government benefits to consumers electronically, such as 
through ATMs or POS terminals. In 1997, the Board modified Regulation E 
to exempt ``needs-tested'' EBT programs established or administered 
under State or local law in response to a 1996 change to EFTA made by 
the Personal Responsibility and Work Opportunity Reconciliation Act of 
1996.\340\ All accounts used to distribute benefits for Federally 
administered programs (including needs-tested EBT programs) and non-
needs tested State and local programs, such as those used to distribute 
unemployment insurance payments, pensions, and child support, are 
currently covered by Sec.  1005.15.\341\
---------------------------------------------------------------------------

    \340\ Public Law 104-193, 110 Stat. 2105 (1996).
    \341\ See, e.g., 62 FR 43467 (Aug. 14, 1997).
---------------------------------------------------------------------------

    The Bureau proposed to modify existing Sec.  1005.15 to address the 
proposed revisions for government benefit accounts, rather than 
subsuming the rules for such accounts into proposed Sec.  1005.18 (as 
the Bureau proposed to do with respect to payroll card accounts). The 
Bureau sought general comment on whether it should subsume all 
requirements for government benefit accounts into Sec.  1005.18, as 
well. The majority of industry commenters who commented on this issue 
supported maintaining a separate section for requirements specifically 
applicable to government benefit accounts, arguing that government 
benefit accounts had unique legal and functional characteristics that 
warranted separate treatment. No commenter opposed maintaining a 
separate section for government benefit cards. After considering the 
comments and reading no reasons to the contrary, the Bureau is 
maintaining the government benefit account provisions in a separate 
section (Sec.  1005.15) as proposed.
15(a) Government Agency Subject to Regulation
    Existing Sec.  1005.15(a)(1) provides, inter alia, that a 
government agency shall comply with all applicable requirements of EFTA 
and Regulation E, except as provided in Sec.  1005.15. Existing Sec.  
1005.15(a)(2), in turn, defines the term ``account'' to mean an account 
established by a government agency for distributing government benefits 
to a consumer electronically, such as through ATMs or POS terminals 
(not including an account for distributing needs-tested benefits in a 
program established under State or local law or administered by a State 
or local agency). The Bureau proposed to adjust the final sentence of 
Sec.  1005.15(a)(1) to reflect that proposed Sec.  1005.15 would 
include substantive requirements, and not just exceptions to Regulation 
E requirements. In addition, for ease of reference, the Bureau proposed 
to define an account under Sec.  1005.15(a)(2) as a ``government 
benefit account.''
    As it stated in the proposal, the Bureau did not intend for the 
proposed revisions to impact the existing scope of Sec.  1005.15(a). 
Numerous commenters asked the Bureau to clarify that government benefit 
accounts would continue to be covered under the existing requirements 
of Regulation E, rather than under the new requirements applying to 
prepaid accounts. One industry commenter, for example, argued that the 
final rule should exempt from coverage all cards used to distribute 
government benefits, regardless of whether such benefits are needs-
tested. Other industry commenters asked the Bureau to exempt cards used 
to disburse certain types of benefits--for example, child support, 
unemployment insurance, and workers' compensation benefits. Currently, 
these commenters noted, the issuers of these cards administer the 
programs at no cost to the government agency disbursing the benefit, 
and at little cost to consumers. If saddled with the costs of complying 
with the various requirements of the proposed rule, they argued, these 
issuers may increase their fees or stop issuing government benefit 
cards altogether.
    Consumer group commenters, by contrast, advocated that the Bureau 
expand the scope of the ``government benefit account'' definition to 
include additional account types, including accounts that are expressly 
exempted from Regulation E now. A significant number of consumer group 
commenters argued that the Bureau should clarify that the exemption for 
needs-tested government benefit programs established or administered 
under State or local law does not apply to prepaid accounts. According 
to these commenters, the rationales for the exemption were either 
outdated or should not apply to prepaid cards. For example, one 
consumer group commenter noted that the exemption was intended to 
relieve regulatory burden for State and local governments, whereas the 
vast majority of government benefit accounts today are administered by 
financial institutions that are well-equipped to handle Regulation E 
compliance. Commenters argued additionally that the recipients of 
needs-tested benefits are, by definition, the neediest of all prepaid 
consumers, and thus should be entitled to the full protections of the 
Bureau's final rule governing prepaid accounts.
    The Bureau has considered the comments but believes that changes to 
the scope of the government benefit account definition are not 
warranted at this time. As discussed above, the Bureau did not intend 
its proposed changes to the definition of government benefit account to 
affect the scope of Sec.  1005.15's coverage, nor did it contemplate or 
seek comment on whether or how it should narrow or expand the scope of 
the definition in the final rule. The Bureau understands that the 
existing scope of the definition, which has been in place since 1997, 
is well-established and forms the basis of

[[Page 83996]]

current industry, government, and consumer practices, and it is not 
persuaded that the policy rationales presented by the commenters 
warrant unsettling the status quo with respect to the scope of coverage 
for government benefit accounts. The Bureau likewise declines to exempt 
government benefit accounts from the new requirements of this final 
rule, as some industry commenters requested. As detailed in the 
following sections, the Bureau believes that this final rule's 
revisions to existing government benefit account requirements, such as 
the requirements for pre-acquisition disclosures and enhanced access to 
account information, will substantially benefit consumers by providing 
them with a full, accurate, and timely disclosure of all of their 
account's terms and fees, and by helping them gain a more complete 
picture of their account activity. Accordingly, the Bureau is adopting 
the revisions to Sec.  1005.15(a) as proposed.
15(b) Issuance of Access Devices
    The Bureau did not propose to modify Sec.  1005.15(b). Accordingly, 
the Bureau is finalizing that provision unchanged.
15(c) Pre-Acquisition Disclosure Requirements
The Bureau's Proposal
    The Bureau proposed new disclosure requirements for government 
benefit accounts that would be provided before a consumer acquired a 
government benefit account. The requirements in proposed Sec.  
1005.15(c) would have been in addition to the initial disclosure 
requirements in existing Sec.  1005.7(b) and corresponded to the 
requirements in proposed Sec.  1005.18(b) for prepaid accounts 
generally.\342\ EFTA section 905(a) sets forth disclosure requirements 
for accounts subject to the Act.\343\ In addition to these disclosures, 
the Bureau proposed to use its authority under EFTA sections 904(a) and 
(c), and 905(a), and section 1032(a) of the Dodd-Frank Act to require 
government agencies to provide disclosures prior to the time a consumer 
acquires a government benefit account. As discussed in more detail in 
the section-by-section analysis of Sec.  1005.18(b)(1)(i) below for 
prepaid accounts, the Bureau believed that adjustment of the timing 
requirement was necessary and proper to effectuate the purposes of EFTA 
to provide a framework to establish the rights, liabilities, and 
responsibilities of government benefit account consumers, because the 
proposed revision would have assisted consumers' understanding of the 
terms and conditions of their government benefit accounts.
---------------------------------------------------------------------------

    \342\ The Bureau also proposed, for purposes of government 
benefit accounts, to expand the requirement in existing Sec.  
1005.7(b)(5) to disclose fees related to EFTs to cover all fees 
related to the government benefit account, as discussed in the 
section-by-section analysis of Sec.  1005.15(f)(1) below. See also 
Sec.  1005.18(f)(1) (finalizing the same requirement for prepaid 
accounts).
    \343\ Specifically, EFTA section 905(a) states that ``[t]he 
terms and conditions of electronic fund transfers involving a 
consumer's account shall be disclosed at the time the consumer 
contracts for an electronic fund transfer service, in accordance 
with regulations of the Bureau.'' 15 U.S.C. 1693c(a).
---------------------------------------------------------------------------

    The Bureau proposed new Sec.  1005.15(c) to extend to government 
benefit accounts the same pre-acquisition disclosure requirements the 
Bureau proposed for prepaid accounts, as discussed in detail in the 
section-by-section analysis of Sec.  1005.18(b) below. Specifically, 
proposed Sec.  1005.15(c)(1) would have stated that before a consumer 
acquired a government benefit account, a government agency must comply 
with the pre-acquisition disclosure requirements applicable to prepaid 
accounts as set forth in proposed Sec.  1005.18(b), in accordance with 
the timing requirements of proposed Sec.  1005.18(h).
    To address issues of compulsory use (see existing Sec.  
1005.10(e)(2) and new comment 10(e)(2)-2)), the Bureau proposed that a 
notice be provided at the top of the short form disclosure to highlight 
for consumers that they were not required to accept the government 
benefit account. As it noted in the proposal, the Bureau believed it 
was important for consumers to realize they had the option of not 
accepting a government benefit account before they acquired the 
account, and that receiving such notice at the top of the short form 
would help to ensure consumers were aware of this right. To that end, 
proposed Sec.  1005.15(c)(2) would have stated that before a consumer 
acquired a government benefit account, the agency must provide a 
statement pursuant to proposed Sec.  1005.18(b)(2)(i)(A) that the 
consumer did not have to accept the government benefit account and that 
the consumer could ask about other ways to get their benefit payments 
from the agency instead of receiving them through the account, in a 
form substantially similar to proposed Model Form A-10(a).
    Proposed comment 15(c)-1 would have explained that proposed Model 
Form A-10(a) contained a model form for the pre-acquisition short form 
disclosure requirements for government benefit accounts pursuant to 
proposed Sec.  1005.15(c), and that government agencies could use 
Sample Form A-10(e) to comply with the pre-acquisition long form 
disclosure requirements of proposed Sec.  1005.15(c)(1). Proposed 
comment 15(c)-2 would have reiterated that proposed Sec.  
1005.18(b)(1)(i) generally required delivery of both the short form and 
long form disclosures before a consumer acquired a prepaid account, and 
provided, in comment 15(c)-2.i, an example illustrating when a consumer 
received disclosures before acquisition of an account for purposes of 
proposed Sec.  1005.15(c)(1). Proposed comment 15(c)-3 would have 
explained that the disclosures and notice required by proposed Sec.  
1005.15(c)(1) and (2) could be given in the same process or appointment 
during which the consumer acquired or agreed to acquire a government 
benefit account. When a consumer received benefits eligibility 
information and signed up or enrolled to receive benefits during the 
same process or appointment, a government agency that gave the 
disclosures and notice required by proposed Sec.  1005.15(c)(1) and (2) 
before issuing a government benefit account would have complied with 
the timing requirements of proposed Sec.  1005.15(c).
Comments Received
    Several industry and government commenters objected to the 
wholesale application of the proposed pre-acquisition disclosures to 
government benefit accounts. Specifically, several trade associations, 
a program manager for government benefit accounts, and two State 
government agencies urged the Bureau to exempt government benefit 
accounts from the proposed disclosure regime altogether, or to exempt 
them from the requirement to provide the short form disclosure. These 
commenters argued that the timing requirements proposed by the Bureau 
were too difficult to implement and unnecessary, since consumers could 
not in fact shop for alternative government benefit cards. One State 
government agency commenter argued that the application of the proposal 
to its program could necessitate revisions to its vendor contracts. In 
addition, commenters argued that most of the information that would be 
required by the proposed disclosures is already disclosed to consumers 
of government benefit accounts in the initial disclosures required by 
existing Sec.  1005.7(b)(5) or would be disclosed via the proposed long 
form disclosure. Receiving duplicative information in the short form 
and long form disclosures, these commenters asserted, would lead to 
consumer confusion and information overload.
    Other industry and government commenters did not object to the 
general application of the pre-acquisition disclosure requirements to

[[Page 83997]]

government benefit accounts, but urged the Bureau to modify the 
requirements to better suit the government benefit account context. For 
example, several industry trade associations, a law firm writing on 
behalf of a coalition of prepaid issuers, a program manager for 
government benefit card programs, and State government agencies argued 
that consumers would be confused if they saw certain fees listed on the 
government benefit account disclosures that did not in fact apply to 
their government benefit account program. These commenters urged the 
Bureau to allow agencies and financial institutions to omit such fees 
rather than disclose them with a corresponding ``N/A'' or ``$0,'' as 
required under proposed Sec.  1005.18(b)(2)(i) and comment 18(b)(2)(i)-
1. Likewise, certain commenters objected to the proposed requirement 
that the disclosures for government benefit account programs disclose 
the maximum amount that could be charged for each fee, since such a 
disclosure would in some cases misinform consumers as to the actual fee 
charged in connection with their account.
    The program manager commenter and a State government agency 
commenter argued that government benefit accounts should be exempt from 
the proposed incidence-based fee disclosure requirements. They argued 
that the calculation required by proposed Sec.  1005.18(b)(2)(i)(B)(8) 
would be too difficult to complete for government benefit accounts, 
especially since it was unclear whether the calculation must include 
every distinct program the issuer offers (of which there could be 
dozens), or only different types of programs. Oftentimes, the 
commenters noted, issuers offer only one type of program, but that 
program is customized for individual government agency clients. The 
commenters argued in addition that government benefit accounts should 
be exempted from the segregation requirement in proposed Sec.  
1005.18(b)(4), so that the short form disclosure accompanying them can 
include additional information about how consumers can use their 
accounts with minimal fee charges.
    A large number of commenters, including payment networks, issuing 
banks, program managers, industry trade associations, a member of 
Congress, and several government agencies, urged the Bureau to revise 
the language of the notice requirement in proposed Sec.  1005.15(c)(2) 
to inform a consumer that he or she was not required to accept the 
government benefit account. They argued that the proposed language was 
overly negative in tone and would dissuade consumers from choosing 
prepaid accounts by giving them the impression that prepaid products 
were unsafe or less preferable than other payment options. A program 
manager for government benefit accounts and a State government agency 
also urged the Bureau to remove the requirement that the banner notice 
for government benefit accounts include a sentence encouraging 
consumers to ``ask about other ways to get'' their payments. These 
commenters argued that this language would lead consumers to contact 
the government agency or their individual caseworkers to get 
information about the prepaid account program. Such outreach by 
consumers would place a further burden on already strained resources 
without aiding consumers, since agencies or caseworkers were unlikely 
to have the information the consumer is seeking. Consumer group 
commenters also asked the Bureau to revise the notice language to 
include information about what alternative payment methods the consumer 
could choose, arguing that the onus should not be on the consumer to 
seek out information about what other payment options are available.
    The Bureau also received numerous comments, from both industry and 
consumer groups, regarding the timing requirements of the pre-
acquisition disclosures and their application in the government benefit 
context. As stated above, the Bureau proposed comments 15(c)-2 and -3 
to clarify when a consumer enrolling to receive government benefits via 
a prepaid account received the disclosures in compliance with the 
timing requirements of Sec.  1005.18(b)(1)(i). An industry trade 
association, two issuing banks, a program manager for government 
benefit accounts, and a State government agency, argued that the 
proposed comments did not provide sufficient clarity. Specifically, 
they were concerned that proposed comment 15(c)-2.i suggested that 
``acquisition'' in the government benefit context meant the consumer's 
physical acquisition of the card. According to these commenters, 
entities charged with administering government benefit account programs 
often distribute inactive government benefit cards to consumers at the 
same time as they distribute accompanying disclosures and other 
paperwork. The commenters were concerned that, as proposed, the 
commentary would disrupt current practices and place additional 
implementation burdens on government agencies. Further, they argued 
that the practice of providing consumers with an inactive card does not 
harm consumers, since consumers do not accrue any fees or undertake any 
obligations until the card is activated. Instead, the industry and 
government commenters urged the Bureau to clarify in revised commentary 
that acquisition for purposes of government benefit accounts was the 
point at which the consumer agreed or elected to be paid via a 
government benefit card. One trade association argued instead that the 
Bureau should define acquisition in this context as the point at which 
the consumer activates the government benefit account.
    Several consumer group commenters agreed that the Bureau should 
provide greater clarity regarding what it meant to ``acquire'' a 
government benefit account, but argued that the point of acquisition 
should be defined as earlier in the enrollment process. Two consumer 
groups specified further that the disclosures should be provided before 
the consumer acquired the physical (if un-activated) card.
    Finally, an industry trade association and an issuing bank argued 
that the Bureau should exempt government benefit accounts from the 
requirement in proposed Sec.  1005.18(b)(2)(i)(B)(12) that the short 
form disclosure include a statement communicating to the consumer that 
a prepaid account must register with a financial institution or service 
provider in order for the funds loaded onto it to be protected. As 
stated in the proposal, the Bureau believed this disclosure was 
necessary because many consumer protections set forth in the proposal 
would not have taken effect until the consumer registered the account. 
The Bureau acknowledged, however, that the disclosure would be less 
useful for government benefit account recipients, since consumers have 
to register with the agency in any event in order to receive their 
benefits. Commenters noted in addition that the notice was not 
necessary for government benefit accounts because, as discussed in 
greater detail in the section-by-section analysis of Sec.  
1005.18(e)(3) below, government agencies are required to provide error 
resolution and limited liability protections to government benefit 
account consumers regardless of whether those consumers have registered 
their accounts.
The Final Rule
    For the reasons set forth herein, the Bureau is finalizing the 
general requirement in Sec.  1005.15(c) that government agencies comply 
with the pre-acquisition disclosure requirements in final Sec.  
1005.18(b), with a number of revisions, as explained below. The Bureau 
is finalizing this provision

[[Page 83998]]

pursuant to its authority under EFTA sections 904(a) and (c), and 
905(a), and section 1032(a) of the Dodd-Frank Act. The Bureau believes 
that extending the disclosure requirements in Sec.  1005.18(b) is 
necessary and proper to effectuate the purposes of EFTA to provide a 
framework to establish the rights, liabilities, and responsibilities of 
government benefit account consumers, by assisting consumers' 
understanding of the terms and conditions of their government benefit 
accounts.
    Largely similar to proposed Sec.  1005.15(c), final Sec.  
1005.15(c)(1) states that before a consumer acquires a government 
benefit account, a government agency shall comply with the pre-
acquisition disclosure requirements applicable to prepaid accounts as 
set forth in Sec.  1005.18(b). As discussed in more detail below, the 
Bureau is adopting new Sec.  1005.15(c)(2)(i) and (ii), which largely 
mirror final Sec.  1005.18(b)(2)(i)(xiv)(A) and (B). Section 
1005.15(c)(2)(i) reflects several changes to the proposed requirement 
to inform consumers that they are not required to accept the government 
benefit account, while Sec.  1005.15(c)(2)(ii) provides that agencies 
may include additional information about how consumers can access their 
government benefit account funds or balance information for free or for 
a reduced fee. The Bureau is also adopting new Sec.  1005.15(c)(3) to 
address the form of the pre-acquisition disclosures required for 
government benefit accounts pursuant to final Sec.  1005.15(c). Second, 
the Bureau is not finalizing proposed comment 15(c)-1; accordingly, it 
has renumbered proposed comments 15(c)-2 and -3 as final comments 
15(c)-1 and -2, respectively. Third, the Bureau is adopting new comment 
15(c)-3. Finally, the Bureau is finalizing certain revisions to those 
comments to provide further guidance on when a consumer acquires a 
government benefit account for purposes of the pre-acquisition 
disclosure requirements.
    Although the Bureau understands that government benefit accounts 
are distinguishable from other prepaid accounts in several material 
respects, including the way they are distributed and marketed and the 
fees associated with them, the Bureau declines to exempt government 
benefit accounts from the general requirement to provide both a short 
form and long form disclosure before the consumer acquires the account. 
The Bureau notes that, pursuant to final Sec.  1005.18(h) and as 
discussed in the section-by-section analysis thereof, agencies are not 
required to pull and replace prepaid account packaging materials with 
non-compliant disclosures that were produced in the normal course of 
business prior to October 1, 2017.
    The Bureau continues to believe that consumers who use these 
accounts will benefit from the ability to review a set of uniform 
disclosures regarding their accounts. First, the disclosures provide a 
clear and conspicuous disclosure of consumers' right under Sec.  
1005.10(e)(2) to receive their payment in some other form. The Bureau 
believes that this important disclosure may be less conspicuous, and 
therefore potentially less effective, if it were disclosed on the long 
form disclosure, since the long form disclosure contains far more 
information in a format that is less hierarchical than the short form 
disclosure. Second, the new disclosures highlight information that, 
according to the Bureau's consumer testing, was the most important 
information consumers needed to inform their decision-making with 
respect to their preferred payment method.\344\ Third, although 
consumers may not be able to shop for alternative government benefit 
cards, the short form disclosure facilitates comparison shopping 
between the government benefit card and, for example, the consumer's 
own prepaid card or a prepaid card sold at retail. With respect to the 
comments that the pre-acquisition timing requirements would be 
particularly difficult to implement in the government benefit context, 
the Bureau notes that the revisions it is making to proposed comment 
15(c)-2 (re-numbered as comment 15(c)-1) in the final rule, as 
discussed below, will provide government agencies and financial 
institutions with more flexibility to design efficient and practical 
enrollment procedures that comply with Sec.  1005.15(c).
---------------------------------------------------------------------------

    \344\ See ICF Report I at 7.
---------------------------------------------------------------------------

    The Bureau likewise disagrees with industry commenters' suggestion 
that the statement regarding benefit payment options is negative and 
implies that government benefit accounts are inferior products, thereby 
discouraging consumers from using them. As discussed in greater detail 
in the section-by-section analysis of Sec.  1005.18(b)(2)(xiv) below, 
the Bureau examined this issue in its post-proposal consumer testing 
and found that participants did not construe the language negatively, 
confirming the Bureau's original understanding from the proposal.\345\ 
Nonetheless, the Bureau has decided to include in the final rule an 
alternative version of the statement language which the Bureau believes 
would address commenters' concerns. Moreover, unlike the proposed 
statement, this added alternative has the advantage of providing 
concrete options to consumers regarding other ways to receive their 
funds. The Bureau is thus finalizing Sec.  1005.15(c)(2)(i), which 
mirrors final Sec.  1005.18(b)(2)(xiv)(A), and provides that as part of 
its short form pre-acquisition disclosures, the agency must provide a 
statement that the consumer does not have to accept the government 
benefit account and directing the consumer to ask about other ways to 
receive their benefit payments from the agency instead of receiving 
them via the account, using the following clause or a substantially 
similar clause: ``You do not have to accept this benefits card. Ask 
about other ways to receive your benefits.'' Alternatively, an agency 
may provide a statement that the consumer has several options to 
receive benefit payments, followed by a list of the options available 
to the consumer, and directing the consumer to indicate which option 
the consumer chooses using the following clause or a substantially 
similar clause: ``You have several options to receive your payments: 
[list of options available to the consumer]; or this benefits card. 
Tell the benefits office which option you choose.'' Final Sec.  
1005.15(c)(2)(i) also provides that this statement must be located 
above the information required by final Sec.  1005.18(b)(2)(i) through 
(iv). This statement must appear in a minimum type size of eight points 
(or 11 pixels) and appear in no larger a type size than what is used 
for the fee headings required by final Sec.  1005.18(b)(2)(i) through 
(iv).
---------------------------------------------------------------------------

    \345\ See ICF Report II at 16-17 and 27.
---------------------------------------------------------------------------

    To address comments arguing that agencies should be permitted to 
include additional information on the short form disclosure for 
government benefit accounts about how consumers can use their accounts 
with minimal fee charges, the Bureau is adopting new Sec.  
1005.15(c)(2)(ii), which states that an agency may, but is not required 
to, include a statement in one additional line of text in the short 
form disclosure directing the consumer to a particular location outside 
the short form disclosure for information on ways the consumer may 
access government benefit account funds and balance information for 
free or for a reduced fee. This statement must be located directly 
below any statements disclosed pursuant to final Sec.  1005.18(b)(3)(i) 
and (ii), or, if no such statements are disclosed, above the statement 
required by final Sec.  1005.18(b)(2)(x). This

[[Page 83999]]

statement must appear in the same type size used to disclose variable 
fee information pursuant to Sec.  1005.18(b)(3)(i) and (ii), or, if 
none, the same type size used for the information required by Sec.  
1005.18(b)(2)(x) through (xiii).
    To provide greater clarity and additional guidance on the specific 
form and formatting requirements that must apply to government benefit 
account disclosures, the Bureau is moving the reference to Model Form 
A-10(a) to new Sec.  1005.15(c)(3). New Sec.  1005.15(c)(3) mirrors 
several form and formatting requirements in final Sec.  1005.18(b). 
Specifically, it states that when a short form disclosure required by 
final Sec.  1005.15(c) is provided in writing or electronically, the 
information required by final Sec.  1005.18(b)(2)(i) through (ix) shall 
be provided in the form of a table. Except as provided in final Sec.  
1005.18(b)(6)(iii)(B), the short form disclosure required by final 
Sec.  1005.18(b)(2) shall be provided in a form substantially similar 
to final Model Form A-10(a). Final Sample Form A-10(f) provides an 
example of the long form disclosure required by final Sec.  
1005.18(b)(4) when the agency does not offer multiple service plans.
    Because the Bureau has added format requirements for government 
benefit account disclosures in new Sec.  1005.15(c)(3), proposed 
comment 15(c)-1 is now superfluous; accordingly, the Bureau is not 
finalizing that comment. The Bureau has therefore renumbered proposed 
comments 15(c)-2 and -3 as final comments 15(c)-1 and -2, respectively.
    With respect to comments regarding the timing of acquisition 
requirements in Sec.  1005.15(c), the Bureau agrees that the final rule 
should provide greater clarity with respect to when a consumer acquires 
a government benefit account. The Bureau believes that, in providing 
such clarity, the rule should strike a balance between avoiding 
significant disruption of current benefit enrollment practices and 
ensuring that consumers receive the new disclosures early enough in the 
enrollment process to inform their decision of how to receive their 
payments, thereby furthering the goals of the compulsory use provision 
in Sec.  1005.10(e)(2). Accordingly, the Bureau declines to define 
acquisition as, for example, the point at which the consumer obtains 
physical possession of a government benefit card, or the point at which 
a consumer signs an enrollment form, because such a rule could be 
overly prescriptive and could disrupt current practices and delay 
benefit disbursement. On the other hand, the Bureau also declines to 
define acquisition as the point at which a consumer receives his or her 
first payment on the government benefit card, because it believes that 
by the time a consumer receives funds via a particular payment method, 
he or she is less likely to consider alternative options for how to get 
paid, thereby reducing the value of the pre-acquisition disclosures. 
Furthermore, the Bureau notes that, pursuant to the compulsory use 
prohibition in Sec.  1005.10(e)(2), discussed above, consumers cannot 
be required to receive government benefits by direct deposit to any 
particular institutions, including a specific prepaid account. In other 
words, consumers who have the option to receive their government 
benefits via a government benefit account must be provided with at 
least one alternative payment method. The Bureau believes that, 
particularly in such scenarios, the proposed disclosures should be 
provided in time to help a consumer decide between the alternative 
payment methods available to him or her.
    Accordingly, and in consideration of the comments above, the Bureau 
is finalizing revisions to proposed comments 15(c)-2 and -3 (re-
numbered as comments 15(c)-1 and -2, respectively) to clarify that a 
consumer acquires a government benefit account when he or she chooses 
to receive benefits via the government benefit account. Specifically, 
final comment 15(c)-1 has been revised to state that, for purposes of 
final Sec.  1005.15(c), a consumer is deemed to have received the 
disclosures required by Sec.  1005.18(b) prior to acquisition when the 
consumer receives the disclosures before choosing to receive benefits 
via the government benefit account. The Bureau recognizes that 
consumers may indicate their choice to be paid via a government benefit 
card in various ways, including, for example, by signing or filling out 
an enrollment form or by calling the financial institution to activate 
the card. The final rule does not specify what actions manifest a 
consumer's choice regarding how to get paid.
    The Bureau is finalizing the first example in comment 15(c)-1.i 
generally as proposed. The second example in final comment 15(c)-1.i 
(which as proposed would have stated that the short form and long form 
disclosures are provided post-acquisition if a consumer receives them 
after receiving the government benefit card) has been revised to state 
that if the consumer does not receive the disclosures required by final 
Sec.  1005.18(b) to review until the time at which the consumer 
received the first benefit payment deposited into the government 
benefit account, these disclosures were provided to the consumer post-
acquisition, and were not provided in compliance with final Sec.  
1005.15(c). Under the final rule, therefore, a government agency can 
provide the short form and long form disclosures in the same package as 
the physical prepaid card and still comply with the requirement in 
final Sec.  1005.15(c) that the forms be provided prior to acquisition. 
Likewise, a government agency can provide the pre-acquisition 
disclosures at the same appointment during which the consumer acquires 
the government benefit account so long as the disclosures are provided 
before the consumer actually chooses to receive payments via the 
account.
    Final comment 15(c)-2 also reflects certain other technical 
revisions for clarity and consistency with the above changes. 
Specifically, this comment states that the disclosures and notice 
required by final Sec.  1005.15(c) may be given in the same process or 
appointment during which the consumer receives a government benefit 
card. When a consumer receives benefits eligibility information and 
enrolls to receive benefits during the same process or appointment, a 
government agency that gives the disclosures and notice required by 
final Sec.  1005.15(c) before the consumer chooses to receive the first 
benefit payment on the card complies with the timing requirements of 
final Sec.  1005.15(c).
    The Bureau has added new comment 15(c)-3 to provide clarification 
regarding the form and formatting requirements for government benefit 
account disclosures. This comment explains that the requirements in 
Sec.  1005.15(c) correspond to those for payroll card accounts set 
forth in Sec.  1005.18(b). The comment also cross-references final 
comments 18(b)(2)(xiv)(A)-1 and 18(b)(2)(xiv)(B)-1 for additional 
guidance regarding the requirements set forth in final Sec.  
1005.15(c)(2)(i) and (ii), respectively. The Bureau has also added new 
comment 15(c)-4 to clarify the application of the requirement in Sec.  
1005.18(b)(5) that the name of the financial institution be disclosed 
outside the short form disclosure for government benefit accounts. 
Pursuant to new comment 15(c)-4, the financial institution whose name 
must be disclosed pursuant to the requirement in Sec.  1005.18(b)(5) is 
the financial institution that directly holds the account or issues the 
account's access device. Also pursuant to comment 15(c)-4, the 
disclosure provided outside the short form may, but is not required

[[Page 84000]]

to, include the name of the government agency that established the 
government benefit account.
    Finally, the Bureau agrees with commenters that the notice 
regarding registration of the prepaid account that would have been 
required by proposed Sec.  1005.18(b)(2)(i)(B)(12) is likely not 
necessary for government benefit accounts, as the registration process 
is typically completed before the account is opened. As discussed in 
the section-by-section analysis of Sec.  1005.18(b)(2)(xi) below, the 
final rule does not require the statement regarding registration where 
customer identification and verification occurs for all prepaid 
accounts within the prepaid program before the account is opened.
15(d) Access to Account Information
15(d)(1) Periodic Statement Alternative
The Bureau's Proposal
    Section 1005.9(b), which implements EFTA section 906(c), generally 
requires a periodic statement for each monthly cycle in which an EFT 
occurred or, if there are no such transfers, a periodic statement at 
least quarterly.\346\ Existing Sec.  1005.15(c) explains that 
government agencies can provide periodic statements that comply with 
the general provisions in Regulation E, or alternatively, the agency 
must make available to the consumer: (1) The account balance, through a 
readily available telephone line and at a terminal (such as by 
providing balance information at a balance-inquiry terminal, or 
providing it, routinely or upon request, on a terminal receipt at the 
time of an EFT); and (2) a written history of account transactions that 
is provided promptly in response to an oral or written request and that 
covers at least 60 days.
---------------------------------------------------------------------------

    \346\ The periodic statement must include transaction 
information for each EFT, the account number, the amount of any fees 
assessed, the beginning and ending account balance, the financial 
institution's address and telephone number for inquiries, and a 
telephone number for preauthorized transfers. See Sec.  1005.9(b).
---------------------------------------------------------------------------

    The Bureau proposed to revise existing Sec.  1005.15(c), renumbered 
as Sec.  1005.15(d)(1), which would have allowed government agencies to 
instead provide access to account balance by telephone and at a 
terminal, 18 months of transaction history online, and 18 months 
written transaction history upon request. The Bureau believed that, to 
further the purposes of EFTA to provide a framework to establish the 
rights, liabilities, and responsibilities of prepaid account consumers 
(including government benefit account consumers), it was necessary and 
proper to exercise its authority under EFTA section 904(c) to continue 
the exception to the periodic statement requirements of EFTA section 
906(c) for government benefit accounts and to modify that exception in 
Regulation E to more closely align it with the proposed requirements 
for prepaid accounts generally. See also the section-by-section 
analysis of Sec.  1005.18(c)(1) below.
    Proposed Sec.  1005.15(d)(1) and (1)(i) would have stated that a 
government agency need not furnish periodic statements required by 
Sec.  1005.9(b) if the agency made available to the consumer the 
consumer's account balance, through a readily available telephone line 
and at a terminal (such as by providing balance information at a 
balance-inquiry terminal or providing it, routinely or upon request, on 
a terminal receipt at the time of an EFT). This language was unchanged 
from existing Sec.  1005.15(c)(1). Existing Sec.  1005.18(b)(1)(i) for 
payroll card accounts and proposed Sec.  1005.18(c)(1)(i) for prepaid 
accounts, however, did not include the requirement to provide balance 
information at a terminal. As discussed in the section-by-section 
analysis of Sec.  1005.18(c)(1)(i) below, the Bureau sought comment on 
whether a similar requirement to provide balance information at a 
terminal should be added to the requirements of proposed Sec.  
1005.18(c) for prepaid accounts generally, or whether, alternatively, 
the requirement should be eliminated from Sec.  1005.15 given the other 
proposed enhancements and for parity with proposed Sec.  1005.18.
    Second, proposed Sec.  1005.15(d)(1)(ii) would have required 
government agencies to provide an electronic history of the consumer's 
account transactions, such as through a Web site, that covered at least 
18 months preceding the date the consumer electronically accessed the 
account. As noted above, the requirement to provide an electronic 
history of a consumer's account transactions was new for government 
benefit accounts. The Bureau did not believe that the proposed 
requirement would have imposed significant burden on government 
agencies, as the Bureau believed that many government benefit account 
programs already provided electronic access to account information.
    Third, proposed Sec.  1005.15(d)(1)(iii) would have required 
government agencies to provide a written history of the consumer's 
account transactions promptly in response to an oral or written request 
and that covered at least 18 months preceding the date the agency 
received the consumer's request. This provision was similar to existing 
Sec.  1005.15(c)(2), but was modified to change the time period covered 
by the written history from 60 days to 18 months, and to otherwise 
mirror the language used in proposed Sec.  1005.18(c)(1)(iii) for 
prepaid accounts generally.
Comments Received
    A consumer group commenter supported the Bureau's decision to apply 
the requirement to provide consumers access to a longer account history 
period to government agencies. A think tank commenter, on the other 
hand, objected to the decision, arguing that it would be difficult for 
government agencies to manage beneficiaries' account histories for 18 
months. In addition, an industry trade association and an issuing bank 
opposed the Bureau's decision to maintain the requirement that 
government agencies wishing to take advantage of the periodic statement 
alternative provide consumers' account balance information at a 
terminal, arguing that terminal access was outdated and has been 
replaced by text or online account access. Two consumer groups, by 
contrast, supported the continued requirement for balance information 
at a terminal for government benefit accounts and urged the Bureau to 
expand the requirement to all prepaid accounts. They argued that ATMs 
are easy to use and that all consumers have access to ATM terminals, 
while not all consumers may have access to online account information.
The Final Rule
    For the reasons set forth herein, the Bureau is adopting Sec.  
1005.15(d)(1) and comment 15(d)-1 largely as proposed, with minor 
revisions for consistency with final Sec.  1005.18(c). To further the 
purposes of EFTA to provide a framework to establish the rights, 
liabilities, and responsibilities of prepaid account consumers 
(including government benefit account consumers), the Bureau believes 
it is necessary and proper to exercise its authority under EFTA section 
904(c) to continue the exception to the periodic statement requirements 
of EFTA section 906(c) for government benefit accounts and to modify 
that exception in Regulation E to more closely align it with the 
proposed requirements for prepaid accounts generally. As discussed in 
the section-by-section analysis of Sec.  1005.18(c)(1) below, the 
Bureau has modified proposed Sec.  1005.18(c)(1) to require 12 months 
of electronic account transaction history and 24 months of

[[Page 84001]]

written account transaction history instead of 18 months for both as 
proposed. The Bureau has therefore modified Sec.  1005.15(d)(1) 
accordingly. The Bureau believes that this revision strikes the 
appropriate balance between the burden imposed on industry overall 
while, in conjunction with final Sec.  1005.18(c)(1)(iii) discussed 
below, ensuring that additional transaction history will be available 
for consumers who need it. Final comment 15(d)-1 cross-references final 
comments 18(c)-1 through -3 and -5 through -9 for further guidance on 
the access to account information requirements.
    In response to the comment that the proposed 18-month access to 
account information requirements should not be extended to government 
benefit accounts, the Bureau is not convinced that there is a 
significant difference between the burden these requirements place on 
prepaid account issuers as financial institutions and the burden they 
place on government agencies, since, as the Bureau noted in the 
proposal, government benefit account programs are typically 
administered by financial institutions pursuant to a contract between 
the institution and the agency.\347\ With respect to the requirement 
that government agencies continue to provide account balances at 
terminal locations, the Bureau has considered the comments and is 
adopting Sec.  1005.15(d)(1)(i) as proposed. The requirement is 
unchanged from existing Sec.  1005.15(c)(1); recipients of government 
benefits may have come to rely on the ATM as a source of account 
information, and the Bureau does not see a need to remove this 
provision from the final rule. Relatedly, the Bureau notes that ATMs 
are still in wide use by consumers of various financial services 
products, and as such, it disagrees with commenters who argued that 
ATMs are an obsolete method of providing balance information to 
consumers. Furthermore, the Bureau understands that recipients of 
government benefits may be among the neediest consumers of prepaid 
accounts, and as such, may be less likely to have access to a mobile 
phone when they need it, such as prior to withdrawing money at the ATM. 
Having access to their balance at an ATM could help consumers in this 
scenario avoid costly fees. Finally, the Bureau notes that government 
agencies and financial institutions remain free under the final rule to 
recommend or encourage consumers to use particular modes of accessing 
their account balances.
---------------------------------------------------------------------------

    \347\ 79 FR 77102, 77141 (Dec. 23, 2014). As it noted in the 
proposal, the Bureau has found that all the government benefit card 
programs included in its Study of Prepaid Account Agreements already 
provide online access to account information (see Study of Prepaid 
Account Agreements at 18 tbl.5), and, in most cases, electronic 
periodic statements as well (see id. at 20 tbl.7).
---------------------------------------------------------------------------

15(d)(2) Additional Access to Account Information Requirements
    The Bureau proposed Sec.  1005.15(d)(2), which would have required 
that a government agency comply with the account information 
requirements as set forth in proposed Sec.  1005.18(c)(2), (3), and 
(4). As discussed in more detail below, proposed Sec.  1005.18(c)(2) 
would have required that the electronic and written histories in the 
periodic statement alternative include the information set forth in 
Sec.  1005.9(b). This provision currently exists for payroll card 
accounts in existing Sec.  1005.18(b)(2), but does not presently appear 
in Sec.  1005.15 for government benefit accounts. Proposed Sec.  
1005.18(c)(3) would have required disclosure of all fees assessed 
against the account, in both the history of account transactions 
provided as periodic statement alternatives, as well as in any periodic 
statement. Proposed Sec.  1005.18(c)(4) would have required disclosure, 
in both the history of account transactions provided as periodic 
statement alternatives, as well as in any periodic statement, monthly 
and annual summary totals of fees imposed on and the total amount of 
deposits and debits made to a prepaid account. Proposed comment 15(d)-1 
would have referred to proposed comments 18(c)-1 through -5 for 
guidance on access to account information requirements.
    The Bureau did not receive any comments specifically addressing 
Sec.  1005.15(d)(2)'s application of the account information 
requirements in Sec.  1005.18(c)(2) through (4) to government benefit 
accounts. Accordingly, the Bureau is finalizing Sec.  1005.15(d)(2) as 
proposed with revised cross-references to reflect changes in the 
numbering of provisions within final Sec.  1005.18(c). To further the 
purposes of EFTA to provide a framework to establish the rights, 
liabilities, and responsibilities of prepaid account consumers 
(including government benefit account consumers), the Bureau believes 
that it is necessary and proper to exercise its authority under EFTA 
section 904(c) to modify the periodic statement requirements of EFTA 
section 906(c) to require inclusion of all fees charged and summary 
totals of both monthly and annual fees. The Bureau believes that these 
revisions will assist consumers' understanding of the account activity 
on their government benefit accounts. In addition, the Bureau is also 
using its disclosure authority pursuant to section 1032(a) of the Dodd-
Frank Act because it believes that disclosure of all fees and account 
activity summaries will ensure that the features of government benefit 
accounts, over the term of the account, are fully, accurately, and 
effectively disclosed to consumers in a manner that permits consumers 
to understand the costs, benefits, and risks associated with government 
benefit accounts.
    The Bureau notes, however, that it is finalizing certain revisions 
to proposed Sec.  1005.18(c)(2) through (4), renumbered as final Sec.  
1005.18(c)(3) through (5). Most significantly, the Bureau has removed 
the requirement that financial institutions provide summary totals of 
all deposits to and debits from a consumer's prepaid account from the 
final rule. The specific revisions and their respective rationales are 
discussed in the section-by-section analyses of Sec.  1005.18(c)(3) 
through (5) below.
15(e) Modified Disclosure, Limitations on Liability, and Error 
Resolution Requirements
    Because the Bureau proposed to modify the periodic statement 
alternative for government benefit accounts in proposed Sec.  
1005.15(d)(1), the Bureau proposed to modify the requirements in 
existing Sec.  1005.15(d), renumbered as Sec.  1005.15(e), to adjust 
the corresponding timing provisions therein and to align with the 
requirements of proposed Sec.  1005.18(d) for prepaid accounts 
generally. For the reasons set forth below, the Bureau is finalizing 
the various provisions of Sec.  1005.15(e) as proposed. As specified in 
final Sec.  1005.15(e), these requirements apply to government agencies 
that provide access to account information under the periodic statement 
alternative in final Sec.  1005.15(d)(1). The Bureau has also revised 
the heading for final Sec.  1005.15(e) to reflect that the section 
contains modified requirements regarding limitations on liability and 
error resolution, as well as disclosures.
15(e)(1) Initial Disclosures
15(e)(1)(i) Access to Account Information
    Proposed Sec.  1005.15(e)(1)(i) would have required a government 
agency to modify the disclosures required under Sec.  1005.7(b) by 
disclosing a telephone number that the consumer could call to obtain 
the account balance, the means by which the consumer could obtain an 
electronic account history, such as the address of a Web site, and a 
summary of the consumer's right to receive a written account history 
upon request (in

[[Page 84002]]

place of the a periodic statement required by Sec.  1005.7(b)(6)), 
including a telephone number to call to request a history. The 
disclosure required by proposed Sec.  1005.15(e)(1)(i) could have been 
made by providing a notice substantially similar to the notice 
contained in proposed appendix A-5. The Bureau did not receive any 
comments in response to this portion of the proposal. As such, it is 
finalizing Sec.  1005.15(e)(1)(i) as proposed.
15(e)(1)(ii) Error Resolution
    Mirroring existing Sec.  1005.15(d)(1)(iii), proposed Sec.  
1005.15(e)(1)(ii) would have required a government agency to modify the 
disclosures required under Sec.  1005.7(b) by providing a notice 
concerning error resolution that was substantially similar to the 
notice contained in proposed appendix A-5, in place of the notice 
required by Sec.  1005.7(b)(10). Those proposed modifications are 
discussed below in the section-by-section analysis of appendix A-5. The 
Bureau did not receive any comments on proposed Sec.  
1005.15(e)(1)(ii); accordingly, the Bureau is adopting Sec.  
1005.15(e)(1)(ii) as proposed.
15(e)(2) Annual Error Resolution Notice
    Mirroring existing Sec.  1005.15(d)(2), proposed Sec.  
1005.15(e)(2) would have required that an agency provide an annual 
notice concerning error resolution that was substantially similar to 
the notice contained in proposed appendix A-5, in place of the notice 
required by Sec.  1005.8(b). The Bureau proposed to add that, 
alternatively, the agency could include on or with each electronic or 
written history provided in accordance with proposed Sec.  
1005.15(d)(1), a notice substantially similar to the abbreviated notice 
for periodic statements contained in paragraph (b) of appendix A-3, 
modified as necessary to reflect the error resolution provisions set 
forth in proposed Sec.  1005.15. The Bureau proposed to allow each 
electronic and written history to include an abbreviated error 
resolution notice, in lieu of an annual notice, for parity with 
proposed Sec.  1005.18(d)(2) for prepaid accounts generally. The Bureau 
sought comment, however, on whether to continue to require annual error 
resolution notices for government benefit accounts in certain 
circumstances, such as when a consumer has not accessed an electronic 
history or requested a written history in an entire calendar year.
    One consumer group commenter urged the Bureau to maintain the 
requirement that government agencies send annual error resolution 
notices in connection with government benefit accounts in all 
instances, regardless of whether the consumer had recently accessed the 
account. Several industry commenters, including a program manager, an 
issuing bank, and a trade association, supported the Bureau's decision 
to allow government agencies to provide an abbreviated error resolution 
notice on each electronic or written history in lieu of the annual 
notice. These commenters argued that providing an annual notice is 
costly, that many such notices get returned to the sender without being 
opened, and that consumers with dormant accounts who receive these 
notices may be confused and led to believe that their government 
benefits were being affected in some way.
    The Bureau has considered the above comments. To further the 
purposes of EFTA to provide a framework to establish the rights, 
liabilities, and responsibilities of prepaid account users and pursuant 
to its authority under EFTA section 904(c) to adopt an adjustment to 
the error resolution notice requirement of EFTA section 905(a)(7), the 
Bureau is finalizing the annual error resolution notice requirement in 
Sec.  1005.15(e)(2) as proposed. As stated in the section-by-section 
analysis of Sec.  1005.18(d) below, the Bureau continues to believe 
that its regime for error resolution notices strikes an appropriate 
balance by providing consumers with enough information to know about 
and exercise their rights without overwhelming them with more 
information than they can process or put to use.
15(e)(3) Modified Limitations on Liability Requirements
    For accounts under Regulation E generally, Sec.  1005.6(a) provides 
that a consumer may be held liable for an unauthorized EFT resulting 
from the loss or theft of an access device only if the financial 
institution has provided certain required disclosures and other 
conditions are met.\348\ If the consumer provides timely notice to the 
financial institution within two business days of learning of the loss 
or theft of the access device, the consumer's liability is the lesser 
of $50 or the amount of unauthorized transfers made before giving 
notice.\349\ If timely notice is not given, the consumer's liability is 
the lesser of $500 or the sum of (1) the lesser of $50 or the amount of 
unauthorized transfers occurring within two business days of learning 
of the loss/theft and (2) the amount of unauthorized transfers that 
occur after two business days but before notice is given to the 
financial institution.\350\ Section 1005.6(b)(3) provides, in part, 
that a consumer must report an unauthorized EFT that appears on a 
periodic statement within 60 days of the financial institution's 
transmittal of the statement in order to avoid liability for subsequent 
transfers.
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    \348\ The required disclosures for this purpose include a 
summary of the consumer's liability under Sec.  1005.6, or under 
State law or other applicable law or agreement, for unauthorized 
EFTs; the telephone number and address of the person or office to be 
notified when the consumer believes an unauthorized transfer has 
been or may be made; and the financial institution's business days. 
Sec. Sec.  1005.6(a) and 1005.7(b)(1) through (3).
    \349\ Sec.  1005.6(b)(1).
    \350\ Sec.  1005.6(b)(2).
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    For government agencies that follow the periodic statement 
alternative in existing Sec.  1005.15(c), existing Sec.  1005.15(d)(3) 
provides that for purposes of Sec.  1005.6(b)(3), the 60-day period 
shall being with the transmittal of a written account history or other 
account information provided to the consumer under existing Sec.  
1005.15(c). Proposed Sec.  1005.15(e)(3) would have modified existing 
Sec.  1005.15(d)(3) to adjust the timing requirements for reporting 
unauthorized transfers based on the proposed requirement to provide 
consumers with electronic account history under proposed Sec.  
1005.15(d)(1)(ii), as well as written history upon request. 
Specifically, proposed Sec.  1005.15(e)(3)(i) would have provided that 
for purposes of existing Sec.  1005.6(b)(3), the 60-day period for 
reporting any unauthorized transfer began on the earlier of the date 
the consumer electronically accessed the consumer's account under 
proposed Sec.  1005.15(d)(1)(ii), provided that the electronic history 
made available to the consumer reflected the unauthorized transfer, or 
the date the agency sent a written history of the consumer's account 
transactions requested by the consumer under proposed Sec.  
1005.15(d)(1)(iii) in which the unauthorized transfer was first 
reflected.
    Proposed Sec.  1005.15(e)(3)(ii), which mirrored existing Sec.  
1005.18(c)(3)(ii) and proposed Sec.  1005.18(e)(1)(ii), would have 
provided that an agency could comply with proposed Sec.  
1005.15(e)(3)(i) by limiting the consumer's liability for an 
unauthorized transfer as provided under existing Sec.  1005.6(b)(3) for 
any transfer reported by the consumer within 120 days after the 
transfer was credited or debited to the consumer's account.
    The Bureau did not receive any comments on this portion of the 
proposal. To further the purposes of

[[Page 84003]]

EFTA to provide a framework to establish the rights, liabilities, and 
responsibilities of prepaid account users and to facilitate compliance 
with its provisions, the Bureau believes it is necessary and proper to 
exercise its authority under EFTA 904(c) to modify the timing 
requirements of EFTA 909(a). As such, it is finalizing Sec.  
1005.15(e)(3)(i) and (ii) as proposed. The Bureau did receive comments 
on Sec.  1005.18(e)(1)(ii), which are discussed in the section-by-
section analysis of that provision below. The Bureau notes that nothing 
in this final rule modifies the requirement to comply with existing 
Sec.  1005.6(b)(4) regarding an extension of time limits if a 
consumer's delay in notifying the agency was due to extenuating 
circumstances, nor any other provisions of existing Sec.  1005.6.
15(e)(4) Modified Error Resolution Requirements
    Section 1005.11(c)(1) and (3)(i) requires that a financial 
institution, after receiving notice that a consumer believes an EFT 
from the consumer's account was not authorized, must investigate 
promptly and determine whether an error occurred (i.e., whether the 
transfer was unauthorized), within 10 business days (20 business days 
if the EFT occurred within 30 days of the first deposit to the 
account). Upon completion of the investigation, the financial 
institution must report the investigation's results to the consumer 
within three business days. After determining that an error occurred, 
the financial institution must correct an error within one business 
day.\351\ Under EFTA section 909(b), the burden of proof is on the 
financial institution to show that an alleged error was in fact an 
authorized transaction; if the financial institution cannot establish 
proof of valid authorization, the financial institution must credit the 
consumer's account.
---------------------------------------------------------------------------

    \351\ See Sec.  1005.11(c)(1).
---------------------------------------------------------------------------

    Existing Sec.  1005.11(c)(2) provides that if the financial 
institution is unable to complete the investigation within 10 business 
days, its investigation may take up to 45 days if it provisionally 
credits the amount of the alleged error back to the consumer's account 
within 10 business days of receiving the error notice.\352\ Provisional 
credit is not required if the financial institution requires but does 
not receive written confirmation within 10 business days of an oral 
notice by the consumer.\353\ If the investigation establishes proof 
that the transaction was, in fact, authorized, the financial 
institution may reverse any provisional credit previously extended 
(assuming there are still available funds in the account).\354\
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    \352\ The financial institution has 90 days (instead of 45) if 
the claimed unauthorized EFT was not initiated in a state, resulted 
from a point-of-sale debit card transaction, or occurred within 30 
days after the first deposit to the account was made. See Sec.  
1005.11(c)(3)(ii).
    \353\ See Sec.  1005.11(c)(2)(i)(A).
    \354\ See Sec.  1005.11(d)(2).
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    For government agencies that follow the periodic statement 
alternative in existing Sec.  1005.15(c), existing Sec.  1005.15(d)(4) 
provides that an agency shall comply with the requirements of existing 
Sec.  1005.11 in response to an oral or written notice of an error from 
the consumer that is received no later than 60 days after the consumer 
obtains the written account history or other account information under 
existing Sec.  1005.15(c) in which the error is first reflected. The 
Bureau noted in the proposal that this provision only modified the 60-
day period for consumers to report an error and did not alter any other 
provision of Sec.  1005.11.
    Proposed Sec.  1005.15(e)(4) would have modified existing Sec.  
1005.15(d)(3) to adjust the timing requirements for reporting errors 
based on the proposed requirement to provide consumers with electronic 
account history under proposed Sec.  1005.15(d)(1)(ii), as well as 
written history upon request. Specifically, proposed Sec.  
1005.15(e)(4)(i) would have provided that an agency shall comply with 
the requirements of existing Sec.  1005.11 in response to an oral or 
written notice of an error from the consumer that is received by the 
earlier of 60 days after the date the consumer electronically accessed 
the consumer's account under proposed Sec.  1005.15(d)(1)(ii), provided 
that the electronic history made available to the consumer reflected 
the alleged error, or 60 days after the date the agency sent a written 
history of the consumer's account transactions requested by the 
consumer under proposed Sec.  1005.15(d)(1)(iii) in which the alleged 
error was first reflected.
    Proposed Sec.  1005.15(e)(4)(ii) would have provide that in lieu of 
following the procedures in proposed Sec.  1005.15(e)(4)(i), an agency 
complied with the requirements for resolving errors in existing Sec.  
1005.11 if it investigated any oral or written notice of an error from 
the consumer that was received by the agency within 120 days after the 
transfer allegedly in error was credited or debited to the consumer's 
account.
    Proposed comment 15(e)-1 would have cross-referenced proposed 
comments 18(d)-1 through -3 for guidance on modified limited liability 
and error resolution requirements.
    The Bureau did not receive any comments with respect to proposed 
Sec.  1005.15(e)(4) or comment 15(e)-1. Accordingly, it is finalizing 
those provisions as proposed. The Bureau is finalizing the proposed 
provisions to further the purposes of EFTA to provide a framework to 
establish the rights, liabilities, and responsibilities of prepaid 
account users and to facilitate compliance with its provisions, and 
because it believes it is necessary and proper to exercise its 
authority pursuant to EFTA section 904(c) to modify the timing 
requirements of EFTA section 909(a).
    As explained in greater detail in the section-by-section analysis 
of Sec.  1005.18(e) below, the Bureau has revised its proposed error 
resolution requirements for prepaid accounts generally in several key 
respects in the final rule. Specifically, under the final rule, 
financial institutions that have not completed their consumer 
identification and verification process with respect to a particular 
account will still have to investigate and resolve errors reported with 
respect to that account. However, pursuant to new Sec.  1005.18(e)(3), 
financial institutions that have not completed the consumer 
identification and verification process, that completed the process but 
were not able to verify the account holder's identity, or that do not 
have a process by which consumers can register their accounts, can take 
up to the maximum length of time permitted under Sec.  1005.11(c)(2)(i) 
or (3)(ii), as applicable, to investigate and resolve the error without 
having to provisionally credit the consumer's account, as required by 
Sec.  1005.11(c)(2).
    The exclusion set forth in final Sec.  1005.18(e)(3) from certain 
aspects of existing Sec.  1005.11(c)(2) does not apply to government 
benefit accounts. This is to retain the current application of these 
rules to government benefit accounts. As the Bureau explained in the 
proposal, the Bureau understands that the consumer identifying 
information associated with a government benefit account is collected 
and verified by the government agency, another financial institution, 
or a service provider prior to the account's distribution. Therefore, 
under the final rule, and as discussed in greater detail in the 
section-by-section analysis of Sec.  1005.18(e)(3) below, government 
agencies and other financial institutions must provide full error 
resolution protections for government benefit accounts, including 
provisional credit for accounts when investigations of errors take 
longer than 10 business days, regardless of whether the

[[Page 84004]]

government benefit account had been registered or the consumer's 
identity had been verified.
15(f) Initial Disclosure of Fees and Other Information
    The Bureau proposed Sec.  1005.15(f) to provide that for government 
benefit accounts, a government agency would have to comply with the 
requirements governing initial disclosure of fees and other key 
information applicable to prepaid accounts as set forth in proposed 
Sec.  1005.18(f), in accordance with the timing requirements of 
proposed Sec.  1005.18(h). EFTA section 905(a)(4), as implemented by 
existing Sec.  1005.7(b)(5), requires financial institutions to 
disclose to consumers, as part of an account's terms and conditions, 
any charges for EFTs or for the right to make such transfers. The 
Bureau believed that for prepaid accounts (including government benefit 
accounts), it was important that the initial account disclosures 
provided to consumers listed all fees that may be imposed in connection 
with the account, not just those fees related to EFTs.
    Specifically, the Bureau proposed Sec.  1005.15(f), which would 
have cross-referenced proposed Sec.  1005.18(f) to require that, in 
addition to disclosing any fees imposed by a government agency for EFTs 
or the right to make such transfers, the agency would have also had to 
provide in its initial disclosures given pursuant to Sec.  1005.7(b)(5) 
all other fees imposed by the agency in connection with a government 
benefit account. For each fee, an agency would have had to disclose the 
amount of the fee, the conditions, if any, under which the fee may have 
been imposed, waived, or reduced, and, to the extent known, whether any 
third-party fees would have been applied. These disclosures pursuant to 
proposed Sec. Sec.  1005.15(f) and 1005.18(f) would have had to include 
all of the information required to be disclosed pursuant to proposed 
Sec.  1005.18(b)(2)(ii)(B) and would have needed to be provided in a 
form substantially similar to proposed Sample Form A-10(e). Further, 
for consistency purposes and to facilitate consumer understanding of a 
government benefit account's terms, the fee disclosure provided 
pursuant to Sec.  1005.7(b)(5), as modified by proposed Sec.  
1005.18(f), would have to be in the same format of the long form 
disclosure requirement of proposed Sec.  1005.18(b)(2)(ii)(A).
    The Bureau did not receive any comments regarding this portion of 
the proposal. Thus, to further the purposes of EFTA to provide a 
framework to establish the rights, liabilities, and responsibilities of 
prepaid account users, the Bureau believes it is necessary and proper 
to exercise its authority under EFTA section 904(c) to finalize an 
adjustment of the requirement implemented in existing Sec.  
1005.7(b)(5) for government benefit accounts. Accordingly, it is 
adopting Sec.  1005.15(f) largely as proposed to cross-reference the 
requirements set forth in final Sec.  1005.18(f), with revisions for 
parity with the final text of Sec.  1005.18(f).
    The Bureau notes that it is also finalizing certain revisions to 
proposed Sec.  1005.18(f). The specific revisions and their respective 
rationales are discussed in detail the section-by-section analyses of 
Sec.  1005.18(f) and (f)(3) below. In summary, the Bureau has revised 
proposed Sec.  1005.18(f), renumbered as Sec.  1005.18(f)(1), to 
require that a financial institution include, as part of the initial 
disclosures given pursuant to Sec.  1005.7, all of the information 
required to be disclosed in its pre-acquisition long form disclosure 
pursuant to final Sec.  1005.18(b). The Bureau has added new Sec.  
1005.18(f)(2) to make clear that a financial institution must provide a 
change-in-terms notice, pursuant to Sec.  1005.8(a), for any change in 
a term or condition required to be disclosed under Sec. Sec.  1005.7 or 
1005.18(f)(1). Finally, Sec.  1005.18(f)(3) sets forth the required 
disclosures that must appear on prepaid account access devices (in the 
proposal, these requirements would have been set forth in proposed 
Sec.  1005.18(b)(7)). To clarify the application of the requirement in 
Sec.  1005.18(f)(3) that the name, Web site URL, and telephone number 
of the financial institution be disclosed on the prepaid account access 
device to government benefit accounts, the Bureau is adding new comment 
15(f)-1. Pursuant to new comment 15(f)-1, the financial institution 
whose name must be disclosed pursuant to the requirement in Sec.  
1005.18(f)(3) is the financial institution that directly holds the 
account or issues the account's access device.
15(g) Government Benefit Accounts Accessible by Hybrid Prepaid-Credit 
Cards
    The Bureau proposed Sec.  1005.15(g), which would have required 
that for credit plans linked to government benefit accounts, a 
government agency would have to comply with prohibitions and 
requirements applicable to prepaid accounts as set forth in proposed 
Sec.  1005.18(g). The Bureau did not receive any comments regarding 
this portion of the proposal, and is finalizing Sec.  1005.15(g) 
largely as proposed with minor modifications to incorporate the term 
hybrid prepaid-credit card that this final rule is adopting under new 
Regulation Z Sec.  1026.61. The Bureau has made changes, however, to 
certain of the underlying requirements in proposed Sec.  1005.18(g). 
See the section-by-section analysis of Sec.  1005.18(g) below for 
additional information on those requirements.
Section 1005.17 Requirements for Overdraft Services
17(a) Definition
The Bureau's Proposal
    Existing Sec.  1005.17 sets forth requirements that financial 
institutions must follow in order to provide an ``overdraft service'' 
to consumers related to consumers' accounts. Under existing Sec.  
1005.17, financial institutions must provide consumers with a notice 
describing the institution's overdraft service for ATM and one-time 
debit card transactions, and obtain the consumer's affirmative consent, 
before fees or charges may be assessed on the consumer's account for 
paying such overdrafts.
    Existing Sec.  1005.17(a) currently defines ``overdraft service'' 
to mean a service under which a financial institution assesses a fee or 
charge on a consumer's account held by the institution for paying a 
transaction (including a check or other item) when the consumer has 
insufficient or unavailable funds in the account. Existing Sec.  
1005.17(a) also provides that the term ``overdraft service'' does not 
include any payment of overdrafts pursuant to: (1) A line of credit 
subject to Regulation Z, including transfers from a credit card 
account, home equity line of credit, or overdraft line of credit; (2) a 
service that transfers funds from another account held individually or 
jointly by a consumer, such as a savings account; or (3) a line of 
credit or other transaction exempt from Regulation Z pursuant to 
existing Regulation Z Sec.  1026.3(d). In adopting the provisions in 
what is now existing Sec.  1005.17, the Board indicated that these 
methods of covering overdrafts were excluded because they require the 
express agreement of the consumer.\355\
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    \355\ 74 FR 59033, 59040 (Nov. 17, 2009).
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    As discussed in the Overview of the Final Rule's Amendments to 
Regulation Z section, in the proposal, the Bureau declined to extend 
the current regulatory scheme governing overdraft services on checking 
accounts to prepaid accounts, and instead proposed to regulate these 
types of services generally under Regulation Z (as well as

[[Page 84005]]

Regulation E's compulsory use provision). The proposal would have 
amended existing Sec.  1005.17(a)(1) to explain that the term 
``overdraft service'' does not include credit plans that are accessed 
by prepaid cards that are credit cards under Regulation Z. 
Specifically, the proposal would have amended existing Sec.  
1005.17(a)(1) to provide that the term ``overdraft service'' does not 
include any payments of overdrafts pursuant to a line of credit or 
credit plan subject to Regulation Z, including transfers from a credit 
card account, home equity line of credit, overdraft line of credit, or 
a credit plan that is accessed by an access device for a prepaid 
account where the access device is a credit card under Regulation Z. 
Similar to the other exemptions from the definition of ``overdraft 
service,'' under proposed Regulation Z Sec.  1026.12(a)(1) and proposed 
comment 12(a)(1)-7, credit card plans in connection with prepaid 
accounts would have required the express agreement of consumers in 
that, under the proposal, such plans could be added to previously 
issued prepaid accounts only upon a consumer's application or request. 
In addition, under proposed Sec.  1005.18(g)(1) and proposed Regulation 
Z Sec.  1026.12(h), a credit card account could not have been added to 
a previously issued prepaid account until 30 days after the prepaid 
account has been registered.
    In the proposal, the Bureau also noted that the opt-in provision in 
existing Sec.  1005.17 would not have applied to credit accessed by a 
prepaid card that would not have been a credit card under the proposal 
because the card could have only accessed credit that is not subject to 
any finance charge, as defined in Regulation Z Sec.  1026.4, or any fee 
described in Regulation Z Sec.  1026.4(c), and is not payable by 
written agreement in more than four installments. Specifically, 
existing Sec.  1005.17(a) applies only to overdraft services where a 
financial institution assessed a fee or charge for the overdraft. For 
prepaid accounts under the proposal, any fees or charges for ATM or 
one-time ``debit card'' transactions (as that term is used in existing 
Sec.  1005.17) that access an institution's overdraft service would 
have been considered ``finance charges'' under the proposal. Thus, 
under the proposal, a prepaid card that is not a credit card could not 
be charging any fees or charges for ATM or one-time ``debit card'' 
transactions (as that term is used in existing Sec.  1005.17) for 
accessing the overdraft service, such that the opt-in provision in 
existing Sec.  1005.17 would apply. Under the proposal, if a prepaid 
card were charging any fees or charges for ATM or one-time ``debit 
card'' transactions (as that term is used in existing Sec.  1005.17) 
that accessed the overdraft service, the prepaid card would have been a 
credit card under Regulation Z. In that case, the prepaid card would 
not have been subject to the opt-in requirement in existing Sec.  
1005.17, but would be subject to provisions of Regulation Z, as 
discussed above.
Comments Received and the Final Rule
    The Bureau did not receive specific comment on the proposed changes 
to existing Sec.  1005.17(a)(1), other than those related to general 
comments from industry not to cover overdraft plans offered on prepaid 
accounts under Regulation Z and instead cover these overdraft plans 
under Regulation E Sec.  1005.17. See the Overview of the Final Rule's 
Amendments to Regulation Z section for a discussion of those comments.
    As discussed in more detail below, the final rule moves the 
language in proposed Sec.  1005.17(a)(1) that specifically would have 
provided that credit plans accessed by prepaid cards that are credit 
cards are exempt from the definition of ``overdraft service'' to new 
Sec.  1005.17(a)(4) and revises it to be consistent with new Regulation 
Z Sec.  1026.61. New Sec.  1005.17(a)(4) provides that a covered 
separate credit feature accessible by a hybrid prepaid-credit card as 
defined in new Regulation Z Sec.  1026.61 is not a ``overdraft 
service'' under final Sec.  1005.17(a).
    In addition, as discussed in more detail below, consistent with the 
proposal, new Sec.  1005.17(a)(4) also provides that credit extended 
through a negative balance on the asset feature of a prepaid account 
that meets the conditions of new Regulation Z Sec.  1026.61(a)(4) is 
not an ``overdraft service'' under final Sec.  1005.17(a). As discussed 
below, a prepaid card that accesses such credit is not a hybrid 
prepaid-credit card under new Regulation Z Sec.  1026.61.
    Covered separate credit features accessible by a hybrid prepaid-
credit card. Consistent with the proposal, the opt-in provisions in 
final Sec.  1005.17 will not apply to the payment of overdrafts 
pursuant to a credit feature that is accessible by a prepaid card that 
is a credit card. The final rule moves the language in proposed Sec.  
1005.17(a)(1) that specifically would have provided that credit plans 
accessed by prepaid cards that are credit cards are exempt from the 
definition of ``overdraft service'' to new Sec.  1005.17(a)(4) and 
revises it to be consistent with new Regulation Z Sec.  1026.61. New 
Sec.  1005.17(a)(4) provides that a covered separate credit feature 
accessible by a hybrid prepaid-credit card as defined in new Regulation 
Z Sec.  1026.61 is not a ``overdraft service'' under final Sec.  
1005.17(a). This exception is consistent with existing Sec.  
1005.17(a)(1) which exempts from the term ``overdraft service'' under 
existing Sec.  1005.17(a) any payment of overdrafts pursuant to a line 
of credit subject to Regulation Z Sec.  1026, including transfers from 
a credit card account, home equity line of credit, or overdraft line of 
credit. As discussed in more detail in the section-by-section analysis 
of Regulation Z Sec.  1026.61(a)(2) below, a covered separate credit 
feature accessible by a hybrid prepaid-credit card includes an 
overdraft credit feature offered by a prepaid account issuer, its 
affiliate, or its business partner that can be accessed by a prepaid 
card (except as provided in Regulation Z Sec.  1026.61(a)(4)). The 
prepaid card is a hybrid prepaid-credit card under new Regulation Z 
Sec.  1026.61 and a credit card under final Regulation Z Sec.  
1026.2(a)(15)(i) with respect to the covered separate credit feature. 
Thus, a covered separate credit feature accessible by a hybrid prepaid-
credit card is a credit card account subject to Regulation Z.
    Credit features on prepaid accounts not accessible by a hybrid 
prepaid-credit card. As discussed above, in the proposal, the Bureau 
also noted that the opt-in provision in existing Sec.  1005.17 would 
not have applied to credit accessed by a prepaid card that would not 
have been a credit card under the proposal because the card only 
accesses credit that is not subject to any finance charge, as defined 
in Regulation Z Sec.  1026.4, or any fee described in Regulation Z 
Sec.  1026.4(c), and is not payable by written agreement in more than 
four installments.
    As discussed in the section-by-section analysis of Regulation Z 
Sec.  1026.61 below, the Bureau has decided to exclude prepaid cards 
from being covered as credit cards under Regulation Z when they access 
certain specified types of credit. First, under new Regulation Z Sec.  
1026.61(a)(2)(ii), a prepaid card is not a hybrid prepaid-credit card 
with respect to a ``non-covered separate credit feature,'' which means 
that the separate credit feature either (1) cannot be accessed in the 
course of a prepaid card transaction to obtain goods or services, 
obtain cash, or conduct P2P transfers, or (2) is offered by an 
unrelated third party that is not the prepaid account issuer, its 
affiliate, or its business partner. Second, under new Regulation Z 
Sec.  1026.61(a)(4), a prepaid card also is not a hybrid

[[Page 84006]]

prepaid-credit card when the prepaid card accesses incidental credit in 
the form of a negative balance on the asset account where the prepaid 
account issuer generally does not charge credit-related fees for the 
credit. A prepaid card is not a hybrid prepaid-credit card under new 
Regulation Z Sec.  1026.61 or a credit card under final Regulation Z 
Sec.  1026.2(a)(15)(i) when it accesses credit from these types of 
credit features. For more detailed explanations of when prepaid cards 
are not credit cards under Regulation Z, see the section-by-section 
analyses of Regulation Z Sec.  1026.61(a)(2) and (4) below.
    Consistent with the proposal, the Bureau is adding new Sec.  
1005.17(a)(4) to provide that the term ``overdraft service'' does not 
include any payment of overdrafts pursuant to credit extended through a 
negative balance on the asset feature of a prepaid account that meets 
the conditions set forth in new Regulation Z Sec.  1026.61(a)(4). As 
discussed above, a prepaid card would not be a hybrid prepaid-card when 
it accesses this credit. With respect to such an overdraft credit that 
meets the conditions for the exception in new Regulation Z Sec.  
1026.61(a)(4), a prepaid account issuer could still qualify for this 
exemption if the issuer is charging a per transaction fee for paying a 
transaction on the prepaid account, so long as the amount of the per 
transaction fee is not higher based on whether the transaction only 
accesses asset funds in the prepaid account or also accesses credit. 
For example, assume a $1.50 transaction charge is imposed on the 
prepaid account for each paid transaction that is made with the prepaid 
card, including transactions that only access asset funds, transactions 
that take the account balance negative, and transactions that occur 
when the account balance is already negative. A prepaid account issuer 
could still qualify for the exception under new Regulation Z Sec.  
1026.61(a)(4) even if it was charging this $1.50 transaction fee, so 
long as the prepaid account issuer meets the conditions of new 
Regulation Z Sec.  1026.61(a)(4).
    The Bureau is adding new Sec.  1005.17(a)(4) to provide that credit 
which is exempt from Regulation Z under new Regulation Z Sec.  
1026.61(a)(4) is not an overdraft service under final Sec.  1005.17(a) 
and thus would not be subject to the opt-in requirements in final Sec.  
1005.17. This is true even though the prepaid account issuer may be 
charging a per transaction fee as described above on the prepaid 
account, including for transactions that access incidental credit as 
described above. The Bureau believes that the opt-in requirements in 
final Sec.  1005.17 are not necessary for this types of overdraft 
credit given that the per transaction fee is the same amount regardless 
of whether the transaction is only accessing funds in the prepaid 
account or is also accessing credit.
    The Bureau notes that a prepaid account issuer does not satisfy the 
exception in new Regulation Z Sec.  1026.61(a)(4) from the definition 
of ``hybrid prepaid-credit card'' if it charges on a prepaid account 
transaction fees for credit extensions on the prepaid account where the 
amount of the fee is higher based on whether the transaction accesses 
asset funds in the prepaid account or accesses credit. For example, 
assume a $15 transaction charge is imposed on the prepaid account each 
time a transaction is authorized or paid when there are insufficient or 
unavailable funds in the asset balance of the prepaid account at the 
time of the authorization or settlement. Also assume, a $1.50 fee is 
imposed each time a transaction on the prepaid account only accesses 
funds in the asset balance of the prepaid account. The $15 charge would 
disqualify the prepaid account issuer for the exception under new 
Regulation Z Sec.  1026.61(a)(4) and the prepaid card would be a 
``hybrid prepaid-credit card'' with respect to that prepaid account. In 
that case, the prepaid account issuer still would not be subject to 
final Sec.  1005.17, but would be subject to Regulation Z. In that 
case, under final Regulation Z Sec.  1026.61(b), the credit feature 
accessible by a hybrid prepaid-credit card must be structured as a 
``covered separate credit feature'' as discussed above.
    While overdraft credit described in new Regulation Z Sec.  
1026.61(a)(4) is exempt from final Sec.  1005.17, this incidental 
credit generally is covered under Regulation E. For example, as 
discussed in more detail in the section-by-section analysis of Sec.  
1005.12(a) above, Regulation E's provisions in final Sec. Sec.  1005.11 
and 1005.18(e) regarding error resolution would apply to extensions of 
this credit. In addition, such credit extensions would be disclosed on 
Regulation E periodic statements under final Sec.  1005.18(c)(1) or, if 
the financial institution follows the periodic statement alternative in 
final Sec.  1005.18(c)(1), on the electronic and written histories of 
the consumer's prepaid account transactions. This overdraft credit, 
however, is exempt from the compulsory use provision in final Sec.  
1005.10(e)(1). See the section-by-section analysis of Sec.  
1005.10(e)(1) above.
    Non-covered separate credit features that are functioning as an 
overdraft credit features with respect to prepaid accounts also 
typically will not be subject to final Sec.  1005.17 because these 
credit features typically will be lines of credit that are subject to 
Regulation Z, which are expressly exempt from the definition of 
``overdraft service'' under final Sec.  1005.17(a)(1).
Section 1005.18 Requirements for Financial Institutions Offering 
Prepaid Accounts
    Currently, Sec.  1005.18 contains provisions specific to payroll 
card accounts. Because payroll card accounts would be largely subsumed 
into the proposed definition of prepaid account, the Bureau proposed to 
revise Sec.  1005.18 by replacing it with provisions governing prepaid 
accounts, which the Bureau proposed to apply to payroll card accounts 
as well. Each of the provisions of Sec.  1005.18 is discussed in turn 
below.
    Regarding the Bureau's proposed approach to Sec.  1005.18, several 
commenters, including industry trade associations, program managers, 
and issuing banks, argued that payroll card accounts should not be 
treated the same as other prepaid accounts, because they are already 
heavily regulated by State laws, and, unlike prepaid accounts sold at 
retail, are not distributed or marketed to the general public. These 
commenters thus urged the Bureau to finalize the provisions related to 
payroll card accounts specifically in a separate section, rather than 
to subsume those provisions into proposed Sec.  1005.18. They argued 
that maintaining two separate sections would ease compliance and 
provide regulatory clarity and certainty for issuers and employers. One 
issuing bank, however, took the opposite position, arguing that there 
was no reason to treat payroll card accounts distinctly from other 
prepaid accounts.
    As discussed in more detail in the Overview of the Bureau's 
Approach to Regulation E section and the section-by-section analysis of 
Sec.  1005.2(b)(3)(i)(A) above, the Bureau believes that there is 
substantial value to both consumers and financial institutions in 
promoting consistent treatment across products. In addition, the Bureau 
believes that, to the extent many GPR cards already comply with 
existing regulations for payroll card accounts, financial institutions 
already treat payroll card accounts and GPR cards similarly. Similarly, 
the Bureau believes that maintaining the current numbering system that 
financial institutions already complying with Regulation E have come to 
rely on--i.e., keeping provisions related to government benefit 
accounts in

[[Page 84007]]

Sec.  1005.15 and provisions related to payroll card accounts in Sec.  
1005.18--will enhance compliance by preventing unnecessary confusion. 
Thus, although there are several provisions in final Sec.  1005.18 that 
distinguish payroll card accounts (and government benefit accounts) 
from other types of prepaid accounts, the Bureau believes it is 
appropriate to subsume the requirements for payroll card accounts into 
the requirements for prepaid accounts generally in final Sec.  1005.18. 
The Bureau is finalizing Sec.  1005.15 separately for government 
benefit accounts, however, because of the unique complexities 
surrounding who constitutes a financial institution for purposes of 
that section (and Regulation E generally) with respect to government 
benefit accounts.
18(a) Coverage
    The Bureau proposed to modify Sec.  1005.18(a) to state that a 
financial institution shall comply with all applicable requirements of 
EFTA and Regulation E with respect to prepaid accounts except as 
modified by proposed Sec.  1005.18. Proposed Sec.  1005.18(a) would 
have also referred to proposed Sec.  1005.15 for rules governing 
government benefit accounts.
    Existing comment 18(a)-1 addresses issuance of access devices under 
Sec.  1005.5 and explains that a consumer is deemed to request an 
access device for a payroll card account when the consumer chooses to 
receive salary or other compensation through a payroll card account. 
The Bureau proposed to add a cross-reference to Sec.  1005.5(b) 
(regarding unsolicited issuance of access devices) in comment 18(a)-1 
and to add additional guidance that would have explained that a 
consumer was deemed to request an access device for a prepaid account 
when, for example, the consumer acquired a prepaid account offered for 
sale at a retail store or acquired a prepaid account by making a 
request or submitting an application by telephone or online. The Bureau 
also proposed to revise existing comment 18(a)-2 regarding application 
of Regulation E to employers and services providers to refer to prepaid 
accounts in addition to payroll card accounts, but otherwise the 
proposal would have left current comment 18(a)-2 unchanged.
    One program manager commenter asked the Bureau to clarify in 
existing comment 18(a)-1 that the distribution of an un-activated 
payroll card to a new employee did not constitute unsolicited issuance 
of a payroll card account. A number of other industry commenters, 
including a trade association and two issuing banks, requested that the 
Bureau make the same clarification with respect to other account types, 
including disaster relief cards and student ID cards that also function 
as prepaid accounts. With respect to the first comment, the Bureau did 
not intend the proposal to alter the application of Sec.  1005.5 to 
payroll card accounts, nor is this final rule making such a change. As 
such, the Bureau declines to revise comment 18(a)-1 in the final rule 
to change the existing guidance with respect to when a consumer 
solicits a payroll card account.
    With respect to the request for similar clarification regarding 
other types of cards, the Bureau does not believe that such a 
clarification is warranted.\356\ The Bureau understands from the 
comments received that most issuers of student prepaid accounts already 
comply with most, if not all, of the requirements of existing Sec.  
1005.5(b) with respect to such cards. Specifically, the Bureau 
understands that, when students receive access devices they did not 
specifically request, the devices are inactive and need to be validated 
before they can be used to access a prepaid account; further, the 
Bureau understands the devices already come accompanied by most, if not 
all, of the disclosures required by Sec.  1005.7. The Bureau believes 
that the remaining requirements of Sec.  1005.5(b)--that the access 
devices be accompanied by an explanation that it is not validated, as 
well as an explanation of how the consumer may dispose of the card--
should not place an additional ongoing burden on issuers of student 
prepaid accounts.\357\ At the same time, the Bureau is aware of reports 
of students incurring ``confusing'' or ``unreasonably high fees'' for 
using their student cards.\358\ The Bureau believes that, consistent 
with Sec.  1005.5(b), students who receive ID cards with a prepaid 
functionality they did not request should know that they are receiving 
a financial product, and should be aware that they have the right to 
decline that product's functionality if they so wish.
---------------------------------------------------------------------------

    \356\ See Sec.  1005.5(b)(1), (3), and (4). As discussed in part 
II.B above, ED recently finalized a rule ``intended to ensure that 
students have convenient access to their title IV, HEA program 
funds,\[]\ do not incur unreasonable and uncommon financial account 
fees on their title IV funds, and are not led to believe they must 
open a particular financial account to receive their Federal student 
aid.'' 80 FR 67126 (Oct. 30, 2015). ED considered, but did not 
adopt, limitations on schools or financial institutions sending 
students ID cards that can act as access devices to a student's 
account. Id. at 67159. In stating its decision, however, ED noted 
that distribution of such ID cards would constitute an unsolicited 
issuance under Sec.  1005.5(b); accordingly, financial institutions 
must still comply with consumer protection rules regarding 
unsolicited access device issuance. Id.
    \357\ See Sec.  1005.5(b)(2).
    \358\ See 80 FR 67126, 67128 (Oct. 30, 2015).
---------------------------------------------------------------------------

    In sum, the Bureau believes there are significant consumer 
protection benefits in requiring student ID cards with prepaid 
functionality to comply with the unsolicited issuance provisions in 
Sec.  1005.5(b), even in light of any the potential burden to industry. 
The Bureau therefore declines to add an exception to the unsolicited 
issuance provisions in Sec.  1005.5(b) for student ID cards, and, 
likewise, is not adopting any additional guidance with respect to when 
a student ID card is distributed on an unsolicited basis in Sec.  
1005.18. Accordingly, student ID cards with prepaid functionality that 
are distributed without a consumer's request, and not as a renewal or 
substitution for an existing access device, are unsolicited and must 
comply with the requirements of Sec.  1005.5(b).
    The Bureau did not receive any additional comments on its proposed 
revisions to Sec.  1005.18(a). Accordingly, the Bureau is adopting 
Sec.  1005.18(a) and related commentary as proposed, with certain 
technical revisions to comment 18(a)-1 for clarity and consistency with 
the Bureau's changes to Sec.  1005.18(b)(1)(ii), discussed below.
18(b) Pre-Acquisition Disclosure Requirements
Overview of the Final Rule's Pre-Acquisition Disclosure Regime for 
Prepaid Accounts
    The final rule requires that new disclosures for prepaid accounts 
be provided to consumers before they acquire a prepaid account. The 
Bureau believes that providing these disclosures pre-acquisition will 
ensure that all consumers, regardless of the type of prepaid account 
they are acquiring, receive relevant information to better inform their 
decision before they have committed themselves to a particular account.
    The new disclosure regime for prepaid accounts requires a financial 
institution to provide a consumer with both a ``short form'' and a 
``long form'' disclosure pre-acquisition. The short form sets forth the 
prepaid account's most important fees and certain other information to 
facilitate consumer understanding of the account's key terms and aid 
comparison shopping among prepaid account programs.\359\ The long form 
disclosure, on the other hand, provides the consumer with a 
comprehensive list of all of the fees

[[Page 84008]]

associated with the prepaid account and detailed information on how 
those fees are assessed, as well as certain other information about the 
prepaid account program. The long form provides consumers an 
opportunity to review all fee information about a prepaid account 
before acquiring it. In sum, the short form provides a snapshot of key 
fees and information, while its companion disclosure, the long form, 
provides an unabridged, straightforward list of fees and greater detail 
regarding use of the prepaid account.
---------------------------------------------------------------------------

    \359\ The final rule also requires pre-acquisition disclosure of 
certain information outside but in close proximity to the short form 
disclosure. See final Sec.  1005.18(b)(5).
---------------------------------------------------------------------------

    The Bureau understands that there are many methods through which a 
consumer can acquire a prepaid account, and it has designed the final 
rule's disclosure regime to be adaptable to all these methods. For 
example, a consumer might purchase a prepaid account at retail, online 
through a financial institution's Web site (or the Web site of a 
service provider such as a program manager), or by telephoning the 
financial institution (or program manager). An employee might receive a 
payroll card account from an employer, or a student might receive a 
prepaid account from his or her university in connection with the 
disbursement of financial aid. A government benefit recipient might 
receive benefit payments on a government benefit card distributed by 
the agency responsible for administering those benefits, or an 
insurance company might distribute prepaid cards to consumers to 
disburse property or casualty insurance proceeds.
    The Bureau has tailored the final rule to accommodate these varied 
methods while maintaining the overall integrity of the required 
disclosures. This tailoring includes permitting special formatting for 
prepaid disclosures delivered electronically; permitting disclosure of 
discounts and waivers for the periodic fee; permitting information 
within the short form disclosure for payroll card accounts (and 
government benefit accounts) directing consumers to sources of 
information regarding State-required information and other fee 
discounts and waivers; and accommodating disclosure of fees for 
optional services as well as those charged on non-traditional prepaid 
accounts, such as digital wallets, via a requirement to disclose 
certain information about additional types of fees not otherwise 
disclosed on the short form. The Bureau believes that creating a 
generally consistent and comprehensive disclosure regime that applies 
before the consumer's acquisition of a prepaid account will ensure that 
any consumer who obtains a prepaid account, regardless of the type of 
prepaid account or its method of acquisition, will receive relevant 
information at an opportune time in the acquisition sequence to better 
inform his or her purchase and use decisions.
    The content and structure of the short form and long form 
disclosures set forth in the final rule largely mirror that of the 
proposed rule, although the Bureau has refined various elements and 
reorganized the disclosure provisions in the final rule to simplify the 
structure and aid compliance. See the individual section-by-section 
analyses below under this Sec.  1005.18(b) for a more detailed 
discussion of each aspect of the final pre-acquisition disclosure 
regime. The following provides a summary of the key provisions in the 
final rule's pre-acquisition disclosure regime.
    The short form disclosure. The short form disclosure, designed to 
provide a snapshot of key fees and information for a prepaid account, 
features a section for fees and a section for certain other 
information. The fee section must appear in the form of a table, and 
consists of two parts. The first part contains ``static'' fees, setting 
forth standardized fee disclosures that must be provided for all 
prepaid account programs, even if such fees are $0 or if they relate to 
features not offered by a particular program. The second part provides 
information about some additional types of fees that may be charged for 
that prepaid account program.
    Specifically, the static portion of the short form fee disclosures 
features a ``top line'' component highlighting four types of fees at 
the top of the form: The periodic fee, the per purchase fee, ATM 
withdrawal fees (parsed out for both in- and out-of-network withdrawals 
in the United States), and the cash reload fee. As discussed in more 
detail in part III.A above, the Bureau believes these fees are the most 
important to consumers when shopping for a prepaid account. For this 
reason, the top line is designed to quickly draw the attention of 
consumers through its dominant location and use of larger and more 
prominent type than that used for the remainder of the disclosures on 
the short form. Located just below the top line are disclosures for 
three other types of fees: ATM balance inquiry fees (parsed out for 
both in- and out-of-network balance inquiries in the United States), 
customer service fees (parsed out for both live and automated customer 
service), and the inactivity fee. While the final rule generally 
prohibits disclosure of third-party fees, the final rule requires that 
the cash reload fee disclosed in the top line include third-party fees.
    The static fees are followed by a portion of the disclosure that 
addresses additional types of fees specific to that prepaid account 
program. For the final rule, the Bureau has brought together the 
proposed statement disclosing the number of ``other fees'' not listed 
on the short form disclosure and the proposed disclosure of 
``incidence-based fees'' into a common category referred to as 
``additional fee types'' and located these disclosures together on the 
short form immediately following the static fee disclosures. First, the 
final rule requires a statement disclosing the number of additional fee 
types the financial institution may charge consumers with respect to 
the prepaid account (the proposal would have required disclosure of the 
total number of individual fees rather than fee types). Second, the 
final rule requires a statement explaining to consumers that what 
follows are examples of some of those additional fee types.
    Next, the two additional fee types that generate the highest 
revenue from consumers above a de minimis threshold must be disclosed. 
These fee types must be calculated for the prepaid account program or 
across prepaid account programs that share the same fee schedule. In 
general, financial institutions must assess their additional fee types 
every 24 months and, if necessary, update their disclosures. There is 
an exception to this requirement, however, such that financial 
institutions are not required to pull and replace disclosures provided 
on, in, or with prepaid account packaging material if there is a change 
in the additional fee types required to be listed. (Under the proposal, 
this disclosure would have been based on incidence rather than revenue, 
would have been three fees rather than two, and updating would have 
been required every 12 rather than 24 months. The de minimis threshold 
and assessment across programs that share the same fee schedule are 
also new to the final rule.) The final rule also contains additional 
flexibility regarding the timing for reassessments, voluntary 
disclosures of additional fee types in certain circumstances, and 
disclosure of fee variations within additional fee types.
    The final, non-fee section of the short form is comprised of a 
series of statements containing certain other key information regarding 
the prepaid account. The final rule generally requires disclosure of 
the highest fee when the price of a service or feature may vary and 
permits use of a symbol, such as an asterisk, to indicate that those 
fees may vary; the statement linked to that asterisk must appear below 
the fee disclosures. The final rule also permits use of a different 
symbol,

[[Page 84009]]

such as a dagger, to provide specific information about waivers or 
discounts for the periodic fee only. Next is a statement indicating 
whether an overdraft credit feature may be offered in connection with 
the prepaid account and, if so, an explanation that the feature may be 
offered after a certain number of days and that fees would apply. In 
contrast to the proposal, the final rule requires disclosure both when 
a prepaid account is set up to be eligible for FDIC or NCUA insurance 
and when it is not, and combines this statement with the call to action 
for the consumer to register the account, if applicable. The final rule 
requires disclosure of the URL for a Bureau Web site from which 
consumers can obtain general information on prepaid accounts. The short 
form disclosure concludes with a statement directing consumers to where 
they can obtain information on all fees and services for that 
particular prepaid account program. The Bureau has incorporated into 
the regulatory text of the final rule specific language for each of 
these statements rather than referencing the model forms for such 
language.
    Short form disclosures for payroll card accounts (and government 
benefit accounts). The final rule contains an additional requirement 
and an additional accommodation for short form disclosures for payroll 
card accounts (and government benefit accounts). For these accounts, 
like in the proposal, financial institutions are required to include a 
statement regarding alternate wage (or benefits) payment options above 
the top-line fee disclosures. The final rule permits financial 
institutions to choose between two different statements to make this 
disclosure. The first statement simply informs consumers that they do 
not have to accept the card and directs them to ask about other ways to 
receive their wages. The alternative statement informs consumers that 
they have several options to receive their wages, followed by a list of 
those options, and directs them to tell their employer which option 
they choose. The final rule also permits financial institutions to 
include an optional line in the informational statements portion of the 
short form disclosure for these accounts directing consumers to a 
particular location outside the short form for State-required 
information and other fee discounts and waivers.
    Short form disclosures for multiple service plans. The final rule 
permits financial institutions offering prepaid account programs with 
multiple service plans to use a short form disclosure specifically 
tailored for these products. The Bureau has redesigned the multiple 
service plan short form to be more simple and clear, incorporating a 
multi-columned structure for displaying all short form fees across all 
plans.
    Additional disclosures outside the short form. The final rule 
requires that the following information be disclosed outside but in 
close proximity to the short form: The name of the financial 
institution; the name of the prepaid account program; and the purchase 
price and activation fee, if any.
    The long form disclosure. The long form disclosure is the second 
part of the pre-acquisition disclosure regime for prepaid accounts and 
complements the short form disclosure. It sets forth in a table all of 
the prepaid account's fees and their qualifying conditions as well as 
other information about the prepaid account program. Similar to the 
short form, the long form also contains a series of statements 
following the fee table containing certain other key information 
regarding the prepaid account. First is a statement regarding 
registration and FDIC or NCUA insurance eligibility that mirrors the 
statement required for the short form, together with an explanation of 
the benefit of FDIC or NCUA insurance coverage or the consequence of 
the lack of such coverage. Next is a statement indicating whether an 
overdraft credit feature may be offered in connection with the prepaid 
account and, if so, an explanation that the feature may be offered 
after a certain number of days and that fees would apply; this 
statement also mirrors the one required in the short form disclosure. 
The final rule also requires contact information for the financial 
institution; the URL of a Bureau Web site where the consumer can obtain 
general information on prepaid accounts; and the Bureau Web site URL 
and telephone number to submit a complaint about a prepaid account. 
Finally, the long form must include certain Regulation Z disclosures 
if, at any point, a covered separate credit feature accessible by a 
hybrid prepaid-credit card as defined in Regulation Z Sec.  1026.61 may 
be offered in connection with the prepaid account. The final rule 
provides a safe harbor for financial institutions from having to 
reprint the long form disclosure due to changes in third-party fees or 
the Regulation Z disclosures.
    Form and format of the disclosures. The final rule contains 
detailed provisions addressing the form and formatting of the short 
form and long form disclosures. These provisions reflect the changes to 
the multiple service plan short form design, discussed above, as well 
as several additional exceptions to the general retainability 
requirement for the pre-acquisition disclosures and clarification 
regarding how certain requirements apply to electronic disclosures 
(including how to comply with the requirement that electronic 
disclosures be viewable across all screen sizes). The final rule 
contains additional formatting requirements to address new disclosure 
elements added to the final rule, including several optional elements 
discussed above. The final rule also contains a provision requiring 
that fee names and other terms be used consistently within and across 
the short form and long form disclosures.
    Model and sample disclosure forms. The final rule contains five 
model form variations for the short form disclosure: Two iterations of 
the short form disclosures generally, one for payroll card accounts, 
one for government benefit accounts, and one for prepaid account 
programs with multiple service plans. See Model Forms A-10(a) through 
(e). The final rule also contains a sample long form disclosure. See 
Sample Form A-10(f). The model forms provide a safe harbor to financial 
institutions that use them (provided that the model forms are used 
accurately and appropriately), unlike the sample form which serves only 
as an example. Whether a financial institution chooses to use a model 
form for its short form disclosure or design its long form disclosure 
based on the long form, the financial institution must of course tailor 
its disclosures for the specific prepaid account program in order to 
comply with the requirements of Sec.  1005.18(b).
    For the convenience of the prepaid industry and to help reduce 
development costs, the Bureau is also providing native design files for 
print and source code for Web-based disclosures for all of the model 
and sample forms included in the final rule. These files are available 
at www.consumerfinance.gov/prepaid-disclosure-files.
    Timing requirements for pre-acquisition disclosures generally and 
the alternative timing regime for prepaid accounts acquired at retail 
locations and orally by telephone. The final rule generally requires 
that the disclosures required by Sec.  1005.18(b) be provided before a 
consumer acquires a prepaid account. Commentary to the final rule 
explains that a consumer acquires a prepaid account by purchasing, 
opening, or choosing to be paid via a prepaid account, and includes 
several examples.
    Consistent with the proposal, the final rule also provides special 
rules for

[[Page 84010]]

situations in which a consumer acquires a prepaid account at retail or 
orally by telephone. In these situations, a financial institution must 
provide the short form disclosure to the consumer prior to acquisition 
and must provide methods for consumers to access the long form by 
telephone and via a Web site prior to acquisition. If these conditions 
are met, the financial institution does not need to provide the long 
form in writing until after acquisition. The Bureau has expanded this 
exception in the final rule to cover all retail locations (rather than 
just retail stores) that sell prepaid accounts in person, without 
regard to whether the location is operated by a financial institution's 
agent. A financial institution selling its own prepaid accounts in its 
own branches does not qualify for the retail location exception with 
respect to those prepaid accounts.
    Prepaid accounts acquired in foreign languages. A financial 
institution must provide the pre-acquisition disclosures in a foreign 
language if the financial institution uses that same foreign language 
in connection with the acquisition of a prepaid account in certain 
circumstances. Unlike the proposal, the final rule does not require a 
financial institution to provide pre-acquisition disclosures in a 
foreign language if an employee of the financial institution or a third 
party uses that foreign language in person with the consumer. The 
financial institution also must provide the long form disclosure in 
English upon a consumer's request and on its Web site.
Background and the Bureau's Proposed Pre-Acquisition Disclosure Regime 
for Prepaid Accounts
    EFTA section 905(a) sets forth disclosure requirements for accounts 
subject to the Act. The relevant portion of EFTA section 905 states 
that the terms and conditions of EFTs involving a consumer's account 
shall be disclosed at the time the consumer contracts for an EFT 
service, in accordance with regulations of the Bureau. Section 905(a) 
further states that the disclosures must include, among other things 
and to the extent applicable, any charges for EFTs or for the right to 
make such transfers,\360\ that a fee may be imposed for use of certain 
ATMs,\361\ information regarding the type and nature of EFTs that the 
consumer can initiate,\362\ and details regarding the consumer's 
liability for unauthorized transactions and whom to contact in the 
event an unauthorized transaction has occurred.\363\ The implementing 
regulation for this provision, Sec.  1005.7, further elaborates that 
the required disclosures must be provided to a consumer at the time a 
consumer contracts for an EFT or before the first EFT is made involving 
the consumer's account. However, while EFTA section 905(a) and Sec.  
1005.7(b) mandate the inclusion of several specific items, they do not 
specify a particular format for the disclosures.\364\ At various 
points, these general provisions in Sec.  1005.7 have been modified for 
use with other types of accounts or in other contexts.\365\
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    \360\ EFTA section 905(a)(4).
    \361\ EFTA section 905(a)(10).
    \362\ EFTA section 905(a)(3).
    \363\ EFTA section 905(a)(1) and (2).
    \364\ Specifically, section 905(a) and Sec.  1005.7(b) generally 
require disclosure of details regarding the types of EFTs that the 
consumer may make (including limitations on the frequency and dollar 
amount of the transfers), any fees imposed by the financial 
institution for EFTs or for the right to make transfers, and a 
notice that a fee may be imposed by an ATM operator when the 
consumer initiates an EFT or makes a balance inquiry, among other 
requirements.
    In addition, TISA contains disclosure requirements for accounts 
issued by depository institutions. Specifically, Regulation DD, 12 
CFR part 1030, which implements TISA, requires disclosure of the 
amount of any fee that may be imposed in connection with the account 
(or an explanation of how the fee will be determined) and the 
conditions under which the fee may be imposed. Regulation DD Sec.  
1030.4(b)(4).
    \365\ See generally Sec.  1005.14(b)(1) (disclosures provided by 
certain service providers), 61 FR 19662, 19674 (May 2, 1996); 
existing Sec.  1005.15(d) (disclosures related to the EFT of 
government benefits), 61 FR 19662, 19670 (May 2, 1996); Sec.  
1005.16 (disclosures at ATMs), 78 FR 18221, 18224 (Mar. 26, 2013); 
Sec.  1005.17(d) (overdraft disclosures), 74 FR 59033, 59053 (Nov. 
17, 2009); existing Sec.  1005.18(c)(1) (payroll card account 
disclosures), 71 FR 51437, 51449 (Aug. 30, 2006); and Sec.  1005.31 
(disclosures related to remittance transfers), 77 FR 50244, 50285 
(Aug. 20, 2012).
---------------------------------------------------------------------------

    Section 1005.18(b) of the final rule implements, in part, EFTA 
section 905(a) for prepaid accounts. In addition, pursuant to its 
authority under EFTA sections 904(a), (b), and (c) and 905(a), and 
section 1032(a) of the Dodd-Frank Act, the Bureau is requiring 
financial institutions to provide disclosures prior to the time a 
consumer acquires a prepaid account and for disclosures to include all 
fees that may be charged for the prepaid account. Also, the Bureau is 
requiring that in certain circumstances financial institutions provide 
disclosures in languages other than English.
    The Bureau proposed a new pre-acquisition disclosure regime for 
prepaid accounts, separate from the general requirements under Sec.  
1005.7, for several reasons. First, the Bureau was concerned that 
providing core pricing and usage information at the time the contract 
is formed or prior to the first EFT would be too late for many 
consumers to make informed acquisition decisions. As the Bureau 
explained in the proposal, for instance, the Bureau understood based on 
its outreach that many financial institutions were providing only 
limited fee information on the outside of packaging for GPR cards, so 
that consumers would have to purchase the card to access comprehensive 
information about the card's fees and terms. Similarly, the Bureau was 
concerned about the acquisition process for payroll card accounts, 
where new employees often receive account terms and conditions 
documents at the same time they received large quantities of other 
benefits-related paperwork, and about the sequencing of account 
disclosures in an online environment.
    Second, the Bureau believed that it was important to provide 
specific formatting information that would ensure substantial 
consistency to facilitate consumers' comparison and selection process 
across a range of acquisition channels and carefully balance concerns 
about information overload. The Bureau therefore designed and developed 
its proposed pre-acquisition disclosures for prepaid accounts over the 
course of several years through a process that included consumer 
testing conducted both prior to and after the publication of the 
proposal and feedback from stakeholders in direct meetings, comments 
responding to the Prepaid ANPR, and follow up to a blog post of 
prototype disclosure designs.\366\
---------------------------------------------------------------------------

    \366\ Eric Goldberg, Prepaid cards: Help design a new 
disclosure, CFPB Blog Post, (Mar. 18, 2014), https://www.consumerfinance.gov/blog/prepaid-cards-help-design-a-new-disclosure/.
---------------------------------------------------------------------------

    The majority of both industry and consumer groups agreed that it 
was important for consumers to receive disclosures before they purchase 
a prepaid account. Industry and consumer groups encouraged the Bureau 
to develop disclosures to accommodate the variety of distribution 
channels through which prepaid products are distributed and sold, while 
also considering how distribution may evolve in the future. The 
majority also strongly supported standardized disclosures, instead of a 
more general rule requiring only that fees be disclosed clearly and 
conspicuously without providing specific instructions or model forms. 
However, industry mostly advocated that on-package disclosures should 
include only the fees that a consumer would most commonly incur while 
using a prepaid account, in order to increase the likelihood that 
consumers would understand and use the disclosures. On the other hand, 
many

[[Page 84011]]

consumer groups urged provision of a full disclosure to the consumer of 
all fees associated with a GPR card, voicing concern that consumers 
would not get a full understanding of a prepaid account's true costs 
without comprehensive fee information and that providers could subvert 
a limited scope disclosure by adjusting fee schedules to increase or 
add fees not required to be disclosed on a shorter disclosure.
    To balance such concerns, the Bureau proposed to require financial 
institutions to provide both a short form and a long form disclosure, 
as generally described above, prior to the time the consumer acquires a 
prepaid account. The proposed short form focused on the fees charged 
most frequently across most types of prepaid account programs, as well 
as providing limited information about the three fees incurred most 
frequently by users of the particular program. The short form thus 
would have provided largely consistent information for purposes of 
comparison, while also providing certain unique information about other 
fees that were charged most frequently to consumers (so-called 
``incidence-based fees'') and other cues encouraging the consumer to 
consult the long form for more detailed and comprehensive information. 
The Bureau also proposed to require that financial institutions provide 
the disclosures in languages other than English in certain 
circumstances.
    Specifically, proposed Sec.  1005.18(b)(2) would have set forth the 
substantive requirements for the Bureau's proposed prepaid account pre-
acquisition disclosure regime, with content requirements for the short 
form disclosures addressed by proposed Sec.  1005.18(b)(2)(i), content 
requirements for the long form disclosure addressed by proposed Sec.  
1005.18(b)(2)(ii), and form and formatting requirements for both 
disclosures addressed by proposed Sec.  1005.18(b)(3) and (4), 
respectively.\367\
---------------------------------------------------------------------------

    \367\ As discussed in detail below, the final rule addresses 
these requirements in Sec.  1005.18(b)(2) and (4) and Sec.  
1005.18(b)(6) and (7), respectively.
---------------------------------------------------------------------------

    Depending on the structure of a particular prepaid account, 
however, the Bureau recognized that the proposed short form may not 
capture all of a particular prepaid account's fees or explain the 
conditions under which a financial institution might impose those fees. 
The Bureau's pre-proposal consumer testing indicated that when 
participants were shown prototype short forms, most understood that 
they represented only a subset of fee information and that they could 
potentially be charged fees not shown on the form.\368\ Further, except 
in certain retail stores or with respect to accounts acquired orally by 
telephone, under the proposed pre-acquisition disclosure regime, a 
consumer would have received a long form disclosure simultaneously with 
the short form and therefore have the opportunity to see all fees 
associated with a prepaid account and any relevant conditions before 
acquiring a prepaid account. In addition, in pre-proposal testing, most 
participants did not identify any additional fees that they would have 
wanted to see listed in a short form.\369\ The Bureau believed that the 
proposed short form contained most fees that might be charged in 
connection with a prepaid account and the fees listed are those that 
are most important for a consumer to know in advance of acquiring a 
prepaid account.
---------------------------------------------------------------------------

    \368\ See ICF Report I at 9.
    \369\ See id. at 6-8.
---------------------------------------------------------------------------

    The Bureau also recognized that disclosing even this proposed 
subset of fee information on the short form ran the same risk of 
information overload that the Bureau believed could occur if all fees 
were disclosed to a consumer instead of just a subset of fees. The 
Bureau believed, however, based on its pre-proposal consumer testing 
and other research, that incorporating elements of visual hierarchy 
would mitigate these risks. Most importantly, the fee types that would 
have been disclosed pursuant to proposed Sec.  1005.18(b)(2)(i)(B)(1) 
through (4) in the top line of the short form would have used font size 
and other elements to promote readability.
General Comments Received
    The Bureau sought comment on its proposed overall approach to the 
pre-acquisition disclosure regime. Discussed in this section are the 
comments provided in response as well as certain other general comments 
received. Comments regarding particular aspects of the proposed pre-
acquisition disclosure regime are addressed in the applicable section-
by-section analyses below.
    Several State government agencies, a majority of consumer groups, 
and a substantial number of industry commenters (including trade 
associations, a credit union, and a program manager) expressed general 
support for the proposed pre-acquisition regime, although most also 
offered criticisms and recommendations for change of some individual 
elements. The credit union and industry trade associations complimented 
the Bureau on the proposed pre-acquisition disclosures, with some 
commenters calling the short form disclosure an elegant and smart 
solution that would give consumers a clear, simple, and consumer 
friendly way to review critical data when shopping for prepaid 
accounts. Consumer groups and individual consumers who submitted 
comments as part of a comment submission campaign organized by a 
national consumer advocacy group also strongly supported the design and 
content of the proposed short form and long form disclosures as 
essential to protecting consumers. In particular, the consumer groups 
praised the short form disclosure's clear standardized form, saying it 
provides a good balance between simplicity and completeness.
    Most industry commenters offered specific criticisms of or 
recommended changes to specific elements of the proposed pre-
acquisition disclosure regime. Industry commenters' more general 
criticisms of the proposed disclosures included both that the amount of 
information in the short form disclosure would be overwhelming to 
consumers (and thus certain aspects should be eliminated, such as the 
disclosure of the number of additional fees, incidence-based fees, or 
any incidental fees that are excluded from the disclosure requirements 
of Regulation DD) and that the short form failed to provide certain 
information that the commenters believed to be meaningful to consumers' 
purchase decisions (such as disclosure of fee waivers and discounts 
instead of disclosure of the highest fee as proposed) and thus that 
additional information should be added.
    More globally, one academic group and several industry commenters 
(including program managers, a credit union, and a regional credit 
union trade association) urged the Bureau to eliminate both the short 
form and long form disclosures. These commenters said variously that 
the proposed disclosures would overwhelm consumers, burden industry 
without commensurate benefits to consumers, or duplicate the initial 
disclosures already required by Regulation E. They also asserted that 
research by the Bureau and others indicated that few consumers engage 
in formal comparison shopping among prepaid accounts or that consumers 
lack the financial literacy or inclination to read disclosures (and 
thus, the Bureau's efforts to facilitate comparison shopping are 
unnecessary). One of the program managers and the academic group 
asserted that the highly competitive prepaid marketplace, which in 
their view had already produced lower fees and simpler fee structures,

[[Page 84012]]

was sufficient to meet the evolving needs of consumers. Industry 
commenters expressed concern regarding the burden they felt the 
proposed disclosures would impose; the program manager elaborated that 
the proposed disclosure regime would require expensive and time-
consuming redesign of disclosures and changes in packaging, 
manufacturing processes, and distribution.
    A number of other industry commenters and a group of members of 
Congress opposed one, but not both, of the proposed pre-acquisition 
disclosures. A few industry commenters (including an issuing credit 
union, a credit union association, and a program manager) recommended 
eliminating the short form disclosure in favor of the long form 
disclosure. A larger group (including trade associations, issuing 
banks, credit unions, program managers, a law firm writing on behalf of 
a coalition of prepaid issuers, and the group of members of Congress) 
recommended eliminating the long form disclosure in favor of the short 
form--or at least that the long form not be required to be provided 
pre-acquisition or only be required to be provided online, over the 
telephone, or upon request. As a whole, both groups of commenters 
asserted that requiring both of the proposed disclosures would result 
in too many disclosures (the short form and long form, prepaid account 
agreement containing initial disclosures, and State-required 
disclosures for payroll card accounts), resulting in high compliance 
costs and disclosure fatigue for consumers.
    The industry commenters recommending elimination of the short form 
asserted that it was redundant of the long form, which they argued 
would be sufficient alone by virtue of it providing a complete 
disclosure of fees. The program manager recommended combining the short 
form and the long form to create a single comprehensive pre-acquisition 
disclosure. The industry commenters critical of the long form variously 
asserted that it was redundant of the short form and other disclosures 
required by Regulation E before a consumer can use the prepaid card 
(i.e., initial disclosures) and State-required disclosures for some 
payroll card accounts; inferior to the short form, which would provide 
the most pertinent and common fees; and would overload and confuse 
consumers with its comprehensive information and therefore not 
contribute to consumer purchase decisions. An issuing bank, a program 
manager, a trade association, and a group of members of Congress 
recommended against requiring the long form, arguing that the Bureau's 
pre-proposal consumer testing indicated consumers would not use it to 
make pre-acquisition decisions. Several industry commenters opposed 
required disclosure of optional incidental services that are not 
available at the time of purchase; rather, they suggested those fees 
should not have to be disclosed until such services are accepted by the 
consumer.
    A number of industry commenters and a State government agency 
recommended that the Bureau eliminate the proposed short form 
disclosure requirement for payroll card accounts and government benefit 
accounts or, alternatively, treat the short form disclosure for these 
accounts differently from those for GPR cards. Some of these commenters 
said otherwise these disclosures would be burdensome for financial 
institutions providing payroll (and government benefit) cards for a 
number of reasons. They said the proposed disclosures were, in their 
opinion, duplicative of the initial disclosures required by Sec.  
1005.7(b) and that the differences between payroll card accounts (and 
government benefit accounts) and GPR cards militate against requiring a 
short form disclosure for the former. They said that, compared to GPR 
cards, these accounts have fewer fees, features, and conditions, and 
the statement regarding registration and many specific fees listed in 
the static portion of the proposed short form are inapplicable. They 
also pointed to State-required disclosure of certain fee discounts and 
waivers for these accounts as another distinguishing factor from GPR 
cards. Some commenters said the proposed disclosures were inapt for 
payroll card accounts (and government benefit accounts) as there are 
not the same space constraints as there are for GPR cards sold at 
retail and, further, consumers cannot comparison shop for these kinds 
of accounts. Finally, some commenters requested that the Bureau 
eliminate the long form disclosure for these types of accounts as they 
said it would be redundant of the short form disclosure and the prepaid 
account agreement; they also suggested that the long form disclosure 
could be provided post-acquisition or at the time of registration or 
activation in the payroll (and government benefit) context.
    Rather than eliminating the short form disclosure altogether for 
payroll card accounts (and government benefit accounts), some industry 
commenters recommended that the Bureau eliminate certain short form 
requirements, such as the registration statement which would be 
inapplicable for these products.\370\ On the other hand, other industry 
commenters recommended permitting additional disclosures on the short 
form, such as disclosure of State-required methods to access wages 
without incurring fees. Some recommended requiring disclosure of all 
fees on the payroll card account (and government benefit account) short 
form disclosure as these accounts generally have fewer fees, thereby 
allowing room for full fee disclosure.
---------------------------------------------------------------------------

    \370\ See the section-by-section analysis of Sec.  
1005.18(b)(2)(xiv) below for a discussion of elements that 
commenters suggested the Bureau remove from the short form 
disclosure in the payroll (and government benefit) context.
---------------------------------------------------------------------------

    Similarly, some industry commenters argued that differences in 
other types of prepaid accounts necessitated greater flexibility in the 
content and delivery requirements for the short form disclosure. For 
example, some industry commenters, including issuing banks, program 
managers, and a trade association, recommended that the Bureau exclude 
non-reloadable prepaid products from the proposed disclosure regime, or 
at least from certain disclosure requirements such as those regarding 
registration and eligibility for FDIC insurance. Some industry 
commenters suggested that requiring standardized disclosures for these 
products would be of limited use to consumers given how the products 
are meant to be used, and would come at a prohibitively high cost for 
issuers; several suggested the burden of complying with the proposed 
disclosure requirements--for example, the requirement to calculate 
incidence-based fees--may lead to the removal of certain of these 
products from market. These commenters suggested instead that the 
Bureau create a separate disclosure regime for non-reloadable cards, 
similar to the treatment of loyalty, award, and promotional gift card 
products under the Gift Card Rule.\371\
---------------------------------------------------------------------------

    \371\ See Sec.  1005.20(a)(4)(iii) (exempting loyalty, award, or 
promotional gift cards from general coverage of the Gift Card Rule 
provided that they satisfy certain specific disclosure 
requirements).
---------------------------------------------------------------------------

    Likewise, several trade associations and a provider of digital 
wallets urged the Bureau not to sweep innovative financial services, 
such as digital wallets, into a disclosure regime they felt was 
designed for a specific type of product (i.e., GPR cards sold at 
retail) based on how it functioned at a fixed point in time. 
Specifically, the digital wallet provider argued that disclosures 
cannot be standardized effectively across industries as diverse as 
digital wallets and GPR cards. In addition, the commenter stated that 
current digital

[[Page 84013]]

wallet models do not charge any fees for general usage. As such, the 
proposed short form disclosure's top-line fees would all be disclosed 
as $0 or N/A, which it said could potentially confuse consumers and 
cause them to abandon the digital wallet sign-up process. The commenter 
also noted that, because consumers are not likely to comparison shop 
between digital wallets and GPR cards, it believed the comparison 
shopping benefit of the short form disclosure would be inapplicable to 
digital wallets.
    A payment network and a law firm writing on behalf of a coalition 
of prepaid issuers criticized the proposal for not providing a method 
for updating or curing outdated pricing, which it said issuers may 
typically accomplish through disclosures and consumer consent at 
registration, or at a later point in the customer relationship through 
a Regulation E change-in-terms notice. The payment network suggested 
that the Bureau grant a safe harbor and allow financial institutions to 
keep existing physical cards stocked at retail locations and notify 
consumers of any changes either by sending change-in-terms notices or 
by obtaining consumer consent upon registration. This commenter added 
that this approach would both cure outdated pricing on card packaging 
and also allow financial institutions to introduce new features that 
have a fee.
    While consumer groups generally supported the proposed disclosures, 
they also asserted some criticisms focused primarily on requesting that 
the Bureau prohibit certain fees, add certain information to either or 
both the short form and long form disclosures, and eliminate the 
proposed short form disclosure for multiple service plans. A few 
consumer groups also recommended enhancing the disclosures with visual 
aids, such as an image of a piggy bank to denote that an account offers 
a savings feature.
The Bureau's General Approach to the Final Rule
    For the reasons set forth herein, the Bureau is adopting a 
disclosure regime in final Sec.  1005.18(b), under which financial 
institutions must generally provide both a short form and a long form 
disclosure before consumers acquire prepaid accounts. The final rule 
generally retains the content, formatting, and delivery requirements of 
the short form and long form disclosures as proposed, but includes 
substantial refinements to some individual elements and numerous 
smaller changes in response to information received through comments 
received on the proposal, the interagency consultation process, further 
consumer testing, and other research and analysis. The Bureau believes 
the final rule's disclosure requirements will achieve the desired 
results of providing consumers with a succinct and engaging overview of 
crucial information in the short form disclosure and an unabridged 
reference for all fees and other crucial information in the long form 
disclosure.
    The Bureau has also made substantial organizational changes to the 
structure of the final rule to facilitate understanding and compliance. 
The Bureau also has incorporated certain burden-reducing measures to 
address various concerns raised by commenters about the burden on 
industry they asserted would result from the proposed pre-acquisition 
disclosure regime. The analysis of costs and benefits in part VII.E.1 
as well as the section-by-section analyses below both contain 
discussion of provisions adopted in this final rule that are aimed at 
reducing burden on industry relative to the proposal. These burden-
alleviating modifications include the various changes to the additional 
fee types disclosures, including disclosure of two fees rather than 
three; a de minimis threshold; and reassessment and updating required 
every 24 months rather than 12. Other measures in the final rule that 
reduce burden include permitting reference in the short form disclosure 
for payroll card accounts (and government benefit accounts) to State-
required information and other fee discounts and waivers pursuant to 
final Sec.  1005.18(b)(2)(xiv)(B); permitting disclosure of the long 
form within other disclosures required by Regulation E pursuant to 
final Sec.  1005.18(b)(7)(iii); and flexible updating of third-party 
fees pursuant to Sec.  1005.18(b)(4)(vii).
    Although some industry commenters suggested that the competitive 
nature of the prepaid market forecloses the need for disclosure 
regulation, the Bureau believes both consumers and industry are better 
served by disclosure regulations carefully calibrated to balance the 
needs and concerns of all parties.
    The Bureau is issuing the final rule pursuant to EFTA section 
904(a), (b), and (c), and 905(a) and 913(2), and section 1032 of the 
Dodd-Frank Act. As discussed further below in the section-by-section 
analyses of Sec.  1005.18(b)(1)(i), (b)(2)(xiv), (b)(4)(ii), and 
(b)(9), the Bureau believes that adjustment of the timing and fee 
requirements and the disclosure language is necessary and proper to 
effectuate the purposes of EFTA to provide a framework to establish the 
rights, liabilities, and responsibilities of prepaid account consumers 
because the revision will assist consumers' understanding of the terms 
and conditions of their prepaid accounts. In addition, the Bureau 
believes that pre-acquisition disclosures of all fees for prepaid 
accounts as well as certain foreign language disclosures will, 
consistent with section 1032(a) of the Dodd-Frank Act, ensure that the 
features of the prepaid accounts are fully, accurately, and effectively 
disclosed to consumers in a manner that permits consumers to understand 
the costs, benefits, and risks associated with the account.
    Short form and long form disclosures generally. As discussed in the 
proposal, the Bureau believes the short form and long form disclosures 
both play crucial but distinct roles. Eliminating one or both would 
defeat the overall purpose of the pre-acquisition disclosure regime to 
provide consumers with comprehensible information to make reasoned 
purchase and use decisions with regard to their prepaid accounts. The 
short form discloses key fees and information to consumers in a 
standardized visual hierarchy that lends itself to comparison shopping 
prior to purchase and provides a handy summary post-purchase; the long 
form provides a comprehensive location for all fees and other 
information that a consumer may consult both prior to and after 
purchase. In the absence of such a disclosure regime, consumers have 
scant opportunity to see all fees prior to purchase or to quickly 
assess the relative benefits of one prepaid account over another.
    Specifically, the Bureau believes that by prominently displaying 
key fees with limited explanatory text, the short form enhances 
consumers' ability to notice these key fees and enables them to use the 
disclosure to inform their acquisition choice. The Bureau also believes 
that the short form's design, and in particular the emphasized top-line 
portion of the disclosure, creates a visual hierarchy of information 
that will more effectively draw consumers' attention to a prepaid 
account's key terms. The Bureau also believes the general visual 
hierarchy as well as the relatively spare content of the short form 
increases the likelihood that consumers will engage with the 
disclosure.
    The Bureau understands that, faced with the disclosures in the 
current marketplace, consumers may spend little time reviewing fee 
disclosures, particularly when shopping for prepaid accounts in person. 
The Bureau believes it is therefore important to provide a disclosure 
that quickly draws

[[Page 84014]]

consumers' attention to the most important information regarding that 
particular account with minimal clutter on the form. For this reason, 
the Bureau designed and developed the short form as a concise snapshot 
of a prepaid account's key fees and features that is both easily 
noticeable and digestible by consumers. Relatedly, the Bureau also 
believes that the overall standardization of the short form disclosure 
will facilitate consumers' ability to comparison shop among prepaid 
account programs. The standardization of the static fee components of 
the short form disclosure ensures that consumers will be provided 
certain key fee information about prepaid accounts in a consistent 
manner regardless of how or where they shop for or obtain prepaid 
accounts. For example, under the final rule, a consumer who takes a 
package containing a prepaid account access device off of a J-hook in a 
retail location would see the same fee disclosures in the static 
portion of the short form as that consumer would see if shopping online 
for a prepaid account. Similarly, the standardization of the 
informational statements at the bottom of the short form permits that 
consumer to easily compare, for example, whether the prepaid accounts 
are eligible for FDIC or NCUA insurance.
    The Bureau believes that consumers offered payroll card accounts at 
their place of employment can also benefit from this standardization 
because, even though they cannot comparison shop among payroll card 
accounts, they can make meaningful comparisons with a prepaid account 
they may already have or with one they may choose to acquire in lieu of 
the payroll card account. Moreover, the straightforward standardized 
format of the short form can enhance consumers' comprehension of the 
key terms of the payroll card account if they do choose to acquire it. 
In sum, the Bureau believes that standardizing the short form 
disclosure across all possible acquisition channels will enhance 
consumer understanding of the terms of all prepaid accounts and make it 
easier for consumers to choose the prepaid account that best meets 
their needs.
    The Bureau recognizes that providing only a subset of a prepaid 
account program's fee information on the short form might not provide 
all consumers with the information they need to make fully-informed 
acquisition decisions. For this reason, the new disclosure regime also 
requires the long form disclosure to be provided as a companion 
disclosure to the short form, offering a comprehensive repository of 
all of a prepaid account's fees and the conditions under which those 
fees could be imposed. The long form disclosure also provides detailed 
explanations to consumers about conditions that may cause fees to vary, 
such as the impact of crossing a threshold number of transactions or 
specific waivers and discounts. Such explanations are generally not 
permitted on the short form to preserve its simplicity, but may be 
relevant to some consumers' acquisition decisions.
    The Bureau expects that consumers will use the long form if they 
want to review a comprehensive list of fees before choosing to acquire 
a prepaid account and learn details about the fees listed on the short 
form. In sum, the short form and the long form used alone or in tandem 
provide consumers with either or both an overview of the key 
information about the prepaid account and an unabridged list of fees 
and conditions and other important information.
    The Bureau believes that providing both disclosures is more 
beneficial than either form standing alone, and the Bureau does not 
believe that providing only the long form would be satisfactory. The 
Bureau understands that the potential size and complexity of the long 
form could lead consumers to disregard the disclosure in some settings, 
such as in retail locations where consumers are shopping while standing 
up, and not use it to comparison shop across products or even to 
evaluate a single product. However, in the Bureau's pre-proposal 
testing of a simulated purchase environment, some participants 
indicated they would use information found only in the long form 
disclosure, i.e., information absent from the short form disclosure, in 
making their purchase decisions.\372\ Thus, insofar as the subset of 
fee information on the short form disclosure may be incomplete or 
insufficient for some consumers, the Bureau believes that providing 
both the short form and long form disclosures will strike the right 
balance between giving consumers key information about a prepaid 
account to aid understanding and comparison shopping, while also 
providing them with the opportunity to review all of a prepaid 
account's fee information pre-acquisition.
---------------------------------------------------------------------------

    \372\ See ICF Report I at 32-33.
---------------------------------------------------------------------------

    Disclosures for payroll card accounts and government benefit 
accounts. The Bureau declines, as requested by some commenters, to 
eliminate the proposed short form disclosure requirement for payroll 
card accounts and government benefit accounts or, alternatively, create 
a short form disclosure specifically for these accounts, for several 
reasons. First, the short form disclosure provides an opportunity to 
clearly and conspicuously inform consumers of their wage and benefit 
payment rights under the compulsory use prohibition in EFTA section 913 
and Sec.  1005.10(e)(2), which the Bureau believes is key information 
for consumers. If the short form disclosure were eliminated and this 
statement was moved to the long form disclosure, for example, the 
Bureau believes it likely this information would be obscured by the 
relatively increased length and complexity of the long form disclosure 
and thereby deprive consumers of an opportunity to be informed of this 
crucial statutory right.
    Second, the short form disclosure is important because consumers 
may be more likely to view it than the long form disclosure. The short 
form disclosure was designed to showcase information the Bureau 
believes is most important to consumers in their general prepaid 
account purchase and use decisions and such information is intended to 
complement the information disclosed in the more detailed long form. 
Pre-proposal testing indicated that consumers would prefer the short 
form over the long form when shopping for a prepaid card in certain 
environments, such as at retail while standing up.\373\ The Bureau 
believes that consumers will benefit from receiving the short form 
disclosure for payroll card accounts and government benefit accounts in 
that consumers may receive multiple pieces of written information at 
the beginning of a new job or when applying for government benefits, 
that may compete for the consumer's attention. Thus, even if consumers 
do not look at the long form disclosure before choosing to receive 
wages or benefits via the account, they may at least see information 
about key fees and features of the account on the short form 
disclosure.
---------------------------------------------------------------------------

    \373\ See ICF Report I at 34.
---------------------------------------------------------------------------

    Third, while employees cannot comparison shop among payroll card 
accounts or government benefit accounts, the short form disclosure 
provides a convenient way to compare key fees and features with the 
consumer's own prepaid account (if they have one) and, perhaps at a 
later time, with other prepaid accounts. Consumers may also use the 
short form disclosure to quickly assess the relative advantage of 
receiving their wages (or benefits) via the account versus other 
payment methods, such as direct deposit to a bank account or by check.

[[Page 84015]]

In sum, while the consumer may not comparison shop among payroll card 
accounts (or government benefit accounts), the short form disclosure 
nevertheless provides important comparison opportunities for consumers 
offered payroll card accounts (and government benefit accounts).
    Finally, while the Bureau understands that some payroll card 
accounts (and government benefit accounts) currently charge fewer fees 
and offer fewer features than GPR cards, requiring the short form 
disclosure in this context ensures that consumers know that certain 
features and services are free or unavailable and further, it ensures 
they will be apprised of the charges for any new fees the payroll (or 
government benefit) industry may impose on such accounts in the future.
    Disclosures for non-reloadable cards and digital wallets. The 
Bureau also considered the comments requesting exemption from the short 
form disclosure requirements for non-reloadable cards and digital 
wallets, but declines such exemption in the final rule. The Bureau 
believes consumers who buy these product types will benefit from the 
short form disclosure. As discussed above with respect to payroll card 
accounts and government benefit accounts, the short form disclosure was 
designed to showcase information participants identified in the 
Bureau's pre-proposal consumer testing as key to their general prepaid 
account purchase and use decision-making; such information is intended 
to complement the information disclosed in the more detailed long form. 
In addition, the Bureau is concerned that creating an individualized 
disclosure regime for different types of prepaid accounts could create 
a patchwork regulatory regime, which is one of the results this rule 
seeks to prevent.
    With respect to the request to exempt digital wallets from the pre-
acquisition disclosure requirements (particularly the short form), the 
Bureau believes consumers of digital wallets should have the same 
opportunity to review fees (or lack thereof) in the short form 
disclosure as consumers of other prepaid accounts. While the majority 
of digital wallet models currently on the market may not charge usage 
fees, as one commenter asserted, this may not hold true in the future, 
especially if these products become more widely used and the features 
and services offered broaden. The Bureau is also not persuaded that 
there are sufficient factors distinguishing digital wallets from other 
types of prepaid accounts that are marketed or available for 
acquisition electronically. The Bureau is skeptical that the technical 
and other constraints suggested by commenters would impact the ability 
of digital wallets to provide pre-acquisition disclosures. The Bureau 
is not persuaded, therefore, that a convincing policy rationale exists 
for treating digital wallets differently than other prepaid accounts 
with regard to pre-acquisition disclosures.
    Changes in terms and addition of new EFT services. The Bureau 
understands financial institutions do not change the fee schedules for 
most prepaid accounts often, especially for prepaid products 
distributed in person, such as GPR cards and similar products sold at 
retail, because a financial institution may need to pull and replace 
outdated card packaging when making changes to those programs' 
disclosed fee structures. Financial institutions' reasons for pulling 
and replacing may include compliance with legal requirements under 
operative State consumer protection and contract laws, difficulties 
that may arise in attempting to provide notice of changed terms to 
consumers, as well as financial institutions' concerns about being 
accused of deceptive advertising practices by selling products with 
inaccurate disclosures. The Bureau encourages the practice of pulling 
and replacing when making significant changes to prepaid account 
programs, as it believes that doing so will facilitate consumer 
understanding of the products they are purchasing and reduce risk to 
the financial institution of litigation or regulatory claims of 
deception.
    Two industry commenters, however, stated that financial 
institutions also sometimes make changes either through disclosures and 
consumer consent at registration, or at a later point in the customer 
relationship through a Regulation E change-in-terms notice. The Bureau 
recognizes that Regulation E provides a system for notifying existing 
customers of changes in terms to existing accounts, set forth in Sec.  
1005.8(a). The Bureau believes that in some circumstances, such 
procedures may also provide an appropriate means to notify new 
customers of changes to recently acquired prepaid accounts.
    The Bureau also notes that Regulation E also provides a means, 
separate from a change-in-terms notice, for financial institutions to 
notify consumers of terms associated with a new EFT service that is 
added to a consumer's account, in Sec.  1005.7(c).\374\ The Bureau 
believes that such procedures are appropriate in circumstances where a 
financial institution is, for example, making available a new optional 
service for all prepaid accounts in a particular prepaid account 
program. In such a circumstance, financial institutions do not need to 
pull and replace card packaging that does not disclose that new 
optional feature, even though a long form disclosure that may be 
provided inside the card packaging pursuant to Sec.  
1005.18(b)(1)(ii)(A), the number of additional fee types pursuant to 
Sec.  1005.18(b)(2)(viii), and the listing of additional fee types 
pursuant to Sec.  1005.18(b)(2)(ix) may be incomplete or inaccurate due 
to the addition of that service. Instead, a financial institution may 
provide to new customers disclosures for the addition of the new 
service in accordance with Sec.  1005.7(c) post-acquisition. The Bureau 
expects, however, that financial institutions will keep their other 
disclosures up to date (including those provided electronically and 
orally, as well as disclosures provided in writing that are not a part 
of pre-printed packaging materials, such as those printed by a 
financial institution upon a consumer's request).
---------------------------------------------------------------------------

    \374\ See also final Sec.  1005.18(f)(1), which extends the 
requirements of Sec.  1005.7 to all fees, not just fees for EFTs or 
the right to make EFTs.
---------------------------------------------------------------------------

    Other requests by commenters. In response to the consumer groups 
requesting the addition of visual aids to the disclosures, the Bureau 
believes that there is insufficient space in the short form to 
accommodate such visuals and that the length and detail of the 
information in the long form disclosure obviate the need for such 
additional requirements there.
    With regard to comments from some consumer group commenters and the 
office of a State Attorney General recommending prohibition of certain 
fees, such requests are outside of the scope of this rulemaking. 
However, the Bureau intends to monitor compliance with this rule as 
well as developments in the prepaid market in general, and will 
consider additional action in future rulemakings if necessary.
Alternative Approaches Considered by the Bureau
    Before proposing the pre-acquisition disclosure regime that the 
Bureau is adopting in this final rule, the Bureau considered and 
rejected two alternative approaches. As discussed in the proposal, an 
``all-in'' approach would have disclosed a single monthly cost for 
using a particular prepaid account.\375\ Proponents of this approach 
said it would provide a quick and understandable reference point and, 
as compared to a disclosure listing several different numbers with line 
items for

[[Page 84016]]

each fee type, could also allow for easier comparisons among prepaid 
account programs. The Bureau also considered the ``category heading'' 
approach which would have featured a short form disclosure with 
category headings based on the function for which a consumer would use 
the service associated with each fee, a format that many prepaid 
account providers have already adopted, in lieu of the top-line fee 
type format the Bureau is adopting in this final rule.\376\ The 
proposal included a discussion of the justification for the Bureau's 
rejection of these two alternative approaches in favor of the pre-
acquisition disclosure regime that the Bureau proposed and is now 
adopting in this final rule.
---------------------------------------------------------------------------

    \375\ See 79 FR 77102, 77150-51 (Dec. 23, 2014).
    \376\ See ICF Report I at app. C, 2A. As listed in that 
prototype short form disclosure, an ``Add and withdraw money'' 
category, for example, would list the various ways the consumer 
could withdraw money from a prepaid account, such as through a 
withdrawal from an ATM.
---------------------------------------------------------------------------

    The Bureau received few comments regarding these rejected 
alternatives. Two program managers expressed their support for the 
Bureau's decision to reject both the ``all-in'' and ``category 
heading'' approaches for the reasons the Bureau set forth in the 
proposal and an issuing bank supported the Bureau's reasoning for 
avoiding the all-in approach. One of the program managers noted that 
use of payroll cards varies significantly both by individual consumer 
and the specific employer's payroll card account program. On the other 
hand, two consumer group commenters recommended that the Bureau 
reconsider the feasibility of the ``all-in'' approach. While 
acknowledging the Bureau's valid concerns about determining typical 
usage costs given the wide variety of consumer use, they said that 
providing through the short form disclosure the estimated cost of 
typical use of a specific prepaid account would help the minority of 
consumers who are ``intensive users'' of prepaid accounts and use them 
essentially as a substitute for checking accounts. They recommended 
that the Bureau require financial institutions to analyze the 
distribution of accountholders' actual total expenses and identify 
total expenses at the 25th and 75th percentiles of distribution. They 
said this analysis would show that consumers who use a specific prepaid 
account product frequently for routine financial transactions would be 
likely to incur costs within a concrete range.
    For the reasons the Bureau declined to embrace the ``all-in'' and 
``category heading'' approaches in the proposal, the Bureau also has 
rejected these approaches in the final rule in favor of the pre-
acquisition disclosure regime described above and throughout this final 
rule. As discussed in more detail in the proposal \377\ and 
acknowledged by the consumer groups recommending the ``all-in'' 
approach, the Bureau continues to question the viability of developing 
a single formula that accurately reflects typical consumer use of a 
particular prepaid account program, including how to decide which fee 
types to include in such a formula and in view of studies indicating 
there are numerous use cases for prepaid accounts, particularly GPR 
cards.\378\ Moreover, a prepaid account that might have a higher cost 
under such a formula adopted by the Bureau may actually be less costly 
for certain consumers, depending on how they use the prepaid account. 
For example, a formula that included ATM withdrawal fees would disclose 
an ``all-in'' fee not germane to consumers who do not withdraw cash via 
an ATM. The Bureau is concerned that such a result may be confusing to 
consumers. The Bureau also believes that an explanation of the 
methodology used to calculate the ``all-in'' disclosure would disturb 
the balance in the short form of the most important information for 
consumers and the brevity and clarity necessary for optimal consumer 
comprehension. Thus, the Bureau has concluded that an ``all-in'' 
disclosure would be of limited utility and could even mislead 
consumers, and declines to adopt such a disclosure in this final rule.
---------------------------------------------------------------------------

    \377\ See 79 FR 77102, 77150 (Dec. 23, 2014).
    \378\ See, e.g., 2014 Pew Study at 13.
---------------------------------------------------------------------------

    The Bureau also continues to believe the use of the ``category 
heading'' approach would not be appropriate because the headings would 
take up valuable space in the short form disclosure that would limit 
disclosure of other, more important information, particularly for 
headings under which there would only be disclosed one fee. Also, as 
discussed above, the Bureau's pre-proposal consumer testing indicated 
that the top-line approach embraced in the proposed and final rules 
proved effective with consumers and the Bureau does not believe that 
the short form disclosure could effectively accommodate both approaches 
together. Finally, pre-proposal testing revealed that participant 
comprehension of fees and their purposes did not improve with the use 
of category headings. The Bureau also notes that the less space-
restricted long form disclosure, pursuant to Sec.  1005.18(b)(7)(i)(B), 
requires the use of subheadings by the categories of function for which 
a financial institution may impose fees, as illustrated by Sample Form 
A-10(e). The Bureau thus declines to adopt a ``category heading'' 
approach for the short form disclosure in this final rule.
18(b) Pre-Acquisition Disclosure Requirements--Commentary
    The Bureau is adopting two comments to accompany Sec.  1005.18(b), 
as described below.
    Written and electronic pre-acquisition disclosures. The final rule 
includes certain specific requirements for pre-acquisition disclosures 
depending on whether they are provided in written, electronic, or oral 
form. See, e.g., Sec.  1005.18(b)(1)(iii) and (6). The Bureau is adding 
new comment 18(b)-1 to provide additional guidance as to the 
interaction of these Sec.  1005.18(b) disclosure requirements with the 
E-Sign Act and with other existing provisions within Regulation E. 
Specifically, comment 18(b)-1 explains that existing Sec.  1005.4(a)(1) 
generally requires that disclosures be made in writing; written 
disclosures may be provided in electronic form in accordance with the 
E-Sign Act. The comment goes on to say that, because final Sec.  
1005.18(b)(6)(i)(B) provides that electronic disclosures required by 
final Sec.  1005.18(b) need not meet the consumer consent or other 
applicable provisions of the E-Sign Act, Sec.  1005.18(b) addresses 
certain requirements for written and electronic pre-acquisition 
disclosures separately. Final Sec.  1005.18(b) also addresses specific 
requirements for pre-acquisition disclosures provided orally.
    Disclosures in foreign currencies. A payment network commenter 
recommended that the Bureau permit disclosure of fees in a foreign 
currency for prepaid cards denominated in that currency. The commenter 
gave the example of permitting disclosures in pound sterling for 
prepaid accounts sold in U.S. airports for intended use in England. The 
Bureau is adding comment 18(b)-2 to clarify that such disclosures are 
permitted. Specifically, comment 18(b)-2 explains that fee amounts 
required to be disclosed by Sec.  1005.18(b) may be disclosed in a 
foreign currency for a prepaid account denominated in that foreign 
currency, other than the fee for the purchase price required by Sec.  
1005.18(b)(5). The comment gives an example that a prepaid account sold 
in a U.S. airport intended for use in England may disclose in pound 
sterling ([pound]) the fees required to be disclosed in the short form 
and long form disclosures and outside the short form disclosure, except 
for the purchase price.

[[Page 84017]]

18(b)(1) Timing of Disclosures
18(b)(1)(i) General
The Bureau's Proposal
    As discussed above, Sec.  1005.7(b) currently requires financial 
institutions to provide certain initial disclosures when a consumer 
contracts for an EFT service or before the first EFT is made involving 
a consumer's account. The Bureau proposed in revised Sec.  
1005.18(b)(1)(i) that, in addition to the initial disclosures that are 
usually provided in an account's terms and conditions document pursuant 
to existing Sec.  1005.7(b), a financial institution would also have to 
provide a consumer with certain fee-related disclosures before a 
consumer acquired a prepaid account. In the proposal, the Bureau 
explained its concerns as noted above that while some financial 
institutions were already providing limited disclosures to consumers 
prior to acquisition, consumers across a range of acquisition channels 
did not always have access to consistent and comprehensive information 
before selecting a prepaid account.
    Based on its outreach and research, the Bureau explained in the 
proposal its understanding that some financial institutions were not 
disclosing the fees that consumers may find relevant to their 
acquisition decision until the account was purchased (or otherwise 
acquired), the packaging material was opened, and the consumer reviewed 
the enclosed account agreement document. To take just one example, one 
prepaid product the Bureau looked at imposed an inactivity fee after 90 
days of no transactions, but this fee was not disclosed on an outward-
facing external surface of the prepaid account access device's 
packaging material that was visible before purchase. Further, the 
Bureau expressed concern that new employees might have been receiving 
terms and conditions documents regarding payroll card accounts at the 
same time they received substantial other benefits-related paperwork, 
making the fees difficult for employees to comprehend while sorting 
through other important and time-sensitive documents. Similarly, 
certain providers of prepaid accounts online may have been presenting 
disclosures on their Web sites in a way that made it difficult for 
consumers to have the chance to review them prior to acquisition.
    In the proposal, the Bureau stated its belief that, for several 
reasons, consumers in all acquisition scenarios would benefit from 
receiving these new pre-acquisition disclosures prior to contracting 
for an EFT service or before the first EFT was made involving the 
account, at which point they would receive the initial disclosures that 
Sec.  1005.7(b) already requires.
    First, the Bureau believed that pre-acquisition disclosures could 
limit the ability of financial institutions to obscure key fees. For 
example, many participants in the Bureau's consumer pre-proposal 
consumer testing reported incurring fees that they did not become aware 
of until after they purchased their prepaid account.\379\ Several 
participants also admitted to having difficulty understanding the 
disclosures they received with their current prepaid accounts and were 
very unsure as to whether key fees had been disclosed before they 
acquired the accounts.\380\ The Bureau believes that its pre-
acquisition disclosure regime will reduce the likelihood that these 
problems recur.
---------------------------------------------------------------------------

    \379\ See ICF Report I at 7.
    \380\ See id.
---------------------------------------------------------------------------

    Second, the Bureau believed that, in order to comparison shop among 
products, it is helpful for consumers to be able to review disclosures 
setting forth key terms in like ways before choosing a product. The 
Bureau recognized that consumers offered prepaid products by third 
parties like employers or educational institutions may be unable to 
easily comparison shop. For example, at the time students are offered a 
student card from their university, such as when registering for 
school, they might be unable to compare that card with other products. 
The Bureau believed, however, that even in this scenario, students 
benefit from receiving the short form and the long form disclosure so 
that they can better understand the product's terms before deciding to 
accept it. Additionally, the Bureau believed that both the short and 
long form disclosures could inform the way in which these consumers 
decide to use the product once they acquired it.
    Third, the Bureau believed that consumers could use their prepaid 
account for an extended period of time and potentially incur 
substantial fees over that time. For example, the Bureau noted that, 
during its pre-proposal consumer testing, participants indicated that 
they tend to use a given prepaid account, even one they do not like, at 
least until they spend the entirety of the initial load amount, which 
could be as much as $500, paying whatever fees are incurred in the 
course of doing so. Other research is consistent. Specifically, the 
Bureau cited to one study that indicated that prepaid accounts 
receiving direct deposit of government benefits might have life spans 
of as long as three years, and consumers who receive non-government 
direct deposit on their accounts use them on average for longer than 
one year.\381\ Thus, the Bureau believed that whatever disclosure 
information a consumer used when selecting a prepaid account could have 
a significant and potentially long-term impact, especially if a 
consumer chooses to receive direct deposit into a prepaid account.
---------------------------------------------------------------------------

    \381\ 2012 FRB Kansas City Study at 40.
---------------------------------------------------------------------------

    Regulation E, however, currently only provides for initial 
disclosures to be delivered at the time a consumer contracts for an EFT 
service or before the first EFT is made involving a consumer's account. 
The Bureau was concerned that, in the prepaid account context, this 
might sometimes be too late. With prepaid accounts, consumers often 
contract for an EFT service when acquiring the prepaid account and 
completing an initial load. The Bureau was concerned that, under the 
timing requirements for initial disclosures in Sec.  1005.7, consumers 
were receiving fee-related disclosures too late to use them in their 
decision-making and comparison-shopping. The Bureau therefore proposed 
Sec.  1005.18(b)(1)(i), which would have required a financial 
institution, in most cases, to provide the short form and long form 
disclosures before a consumer acquired a prepaid account.
    The Bureau also proposed to add comment 18(b)(1)(i)-1, which would 
have provided examples of what would and would not qualify as providing 
disclosures pre-acquisition in the bank branch and payroll contexts. 
Proposed comment 18(b)(1)(i)-2 would have provided further explanation 
regarding circumstances when short form and long form disclosures would 
have been considered to have been delivered after a consumer acquires a 
prepaid account, and thus in violation of the timing requirement in 
proposed Sec.  1005.18(b)(1)(i).
Comments Received
    As with the timing of acquisition of a government benefit account, 
discussed in the section-by-section analysis of Sec.  1005.15(c) above, 
the Bureau received numerous comments requesting that it provide 
further clarification on the meaning of the term acquisition in the 
payroll card context.
    A number of commenters urged that, as with government benefit 
accounts, acquisition in the payroll card account context should be 
defined as the point at which the consumer chooses to receive wages via 
a payroll card account. These commenters included

[[Page 84018]]

issuers, program managers, employers that use payroll card accounts, a 
think tank, and trade associations representing the prepaid industry 
and payroll and human resource professionals. The commenters argued in 
support of defining acquisition as the point of consumer choice because 
it has already been adopted in several states' wage and hour laws, 
emphasizing that those laws have the same purpose as this rule: to 
ensure that employees are aware that they have options with regard to 
how they get paid. The commenters argued that alternative approaches--
for example, defining acquisition as the point at which an employee 
takes physical possession of a payroll card--could cause significant 
disruption to current industry practice. Under current practice, they 
asserted, an employee may arrive on the first day of work and receive a 
package containing an inactive payroll card account, disclosures 
related to that account, and additional information regarding payroll, 
benefits, and other work-related issues. According to commenters, this 
practice is beneficial to employees, as an employee is more likely to 
be engaged in the on-boarding process and to ask questions about the 
payroll card on that first day than at some later time, so distributing 
the card and disclosures together in that circumstance maximizes the 
chances that the employee will review the disclosures and ask related 
questions. Further, these commenters asserted, an employee who 
possesses a physical payroll card has at least one way of receiving his 
pay. If he chooses the payroll card, they argued, he will be paid 
quickly and without much hassle, in contrast to paper checks, which can 
take time to clear and cost money to cash or deposit, or direct 
deposit, which requires the employee to submit additional information 
to the employer in order to set up.
    One employer that uses payroll card accounts to distribute wages to 
its employees argued that acquisition should mean either the point at 
which a consumer affirmatively chooses to receive wages via a payroll 
card account, or the point at which a consumer fails to make a choice 
from among a previously-presented list of available payment options. 
According to this commenter, some employers provide payroll cards as 
the default payment option if an employee fails to affirmatively elect 
a payment option. This practice, the commenter maintained, should be 
allowed to continue so long as the employee is notified (and where 
permitted by State law).
    On the other hand, a number of consumer groups stated that under 
current payroll card disbursement processes, there have been continuing 
reports of employers steering employees to select payroll card accounts 
as their payment method. Such reports, they maintained, show that 
current methods for distributing payroll cards or disclosures do not 
sufficiently ensure that employees have the time and information they 
need to evaluate or choose an alternative payment method. Relatedly, 
two consumer groups also argued that employees should be given a 
minimum number of days (seven, according to one commenter, and 30, 
according to the other) before they are required to select a method of 
payment. Other commenters did not suggest a specific point in time for 
defining acquisition. Rather, they urged the Bureau to define 
acquisition in a way that ensures employees receive the pre-acquisition 
disclosures earlier than they currently receive the initial account 
opening disclosures pursuant to Sec.  1005.7.
    With respect to online acquisition, a digital wallet provider 
argued that the point of acquisition for a digital wallet should be the 
point at which the consumer's account first holds a balance, not the 
point at which the consumer sets up or opens the account. Prior to the 
point at which the account holds a balance, the commenter argued, the 
pre-acquisition disclosures are irrelevant and may confuse consumers 
and cause them to abandon the online sign-up process. In addition, the 
commenter urged the Bureau to revise proposed comment 18(b)(1)(i)-2 to 
allow digital wallet providers to collect personally identifiable 
information before providing the disclosures. The commenter noted that 
these providers have to collect certain information in order to open 
the account. In a similar vein, a program manager asked the Bureau to 
clarify that the collection of certain personally identifiable 
information from a consumer does not by itself constitute 
``acquisition.'' The commenter provided the example of an individual 
who goes online and submits her name and address in order to receive 
more information about a prepaid product by mail. The commenter was 
concerned that proposed comment 18(b)(1)(i)-2 could be read to require 
the financial institution to provide the short and long form 
disclosures before the consumer submitted this information, even if the 
consumer was providing the information on a third-party Web site while 
seeking information about multiple prepaid account products.
    Also with respect to online acquisition of accounts, a consumer 
group commenter asked the Bureau to clarify that consumers must be 
shown both the short form and long form prior to acquiring the account, 
not just provided a link to them. The commenter argued that there was a 
lack of clarity in proposed comment 18(b)(1)(i)-2 around this point, 
since the comment both states that the consumer should not be able to 
easily bypass the disclosures, and that the financial institution can 
include a link to the long form on the same Web page as it discloses 
the short form.
The Final Rule
    For the reasons set forth herein, the Bureau is adopting Sec.  
1005.18(b)(1)(i) largely as proposed, with a technical revision. The 
Bureau is also adopting proposed comments 18(b)(1)(i)-1 and -2 with 
several revisions. First, the Bureau has added guidance in comment 
18(b)(1)(i)-1 to clarify that for purposes of Sec.  1005.18(b)(1)(i), a 
consumer acquires a prepaid account by purchasing, opening, or choosing 
to be paid via a prepaid card. Second, the Bureau has added 
clarification to comment 18(b)(1)(i)-1.ii to explain that, in the 
context of payroll card accounts, short form and long form disclosures 
are provided pre-acquisition if they were provided before a consumer 
chose to receive wages via a payroll card. Third, the Bureau has 
revised comment 18(b)(1)(i)-2 to clarify that a consumer who goes 
online to obtain more information about a prepaid account does not 
acquire a prepaid account by providing personally identifiable 
information in the process. The comment also provides additional 
examples of when a consumer who acquires a prepaid account 
electronically receives the short form and long comments for clarity 
and consistency.
    The Bureau is adopting Sec.  1005.18(b)(1)(i), as well as Sec.  
1005.18(b)(1)(ii) and (iii) discussed below, pursuant to its authority 
under EFTA sections 904(a) and (c), and 905(a), and section 1032(a) of 
the Dodd-Frank Act. As discussed above, the Bureau believes that 
adjustment of the timing and fee requirements and the disclosure 
language is necessary and proper to effectuate the purposes of EFTA to 
provide a framework to establish the rights, liabilities, and 
responsibilities of prepaid account users because the revision will 
assist consumers' understanding of the terms

[[Page 84019]]

and conditions of their prepaid accounts.
    Specifically, the Bureau has added language to comment 18(b)(1)(i)-
1 stating that a consumer acquires a prepaid account by purchasing, 
opening, or choosing to be paid via a prepaid account. The Bureau 
agrees with commenters that additional clarity was needed around the 
use of the term acquisition in circumstances where the consumer does 
not purchase the prepaid account. Accordingly, the Bureau has included 
such terms as ``opening'' or ``choosing to be paid'' in the commentary 
to clarify the point in time at which consumers acquire a prepaid 
account in circumstances other than the retail scenario. The Bureau is 
finalizing comment 18(b)(1)(i)-1.i, which includes an example of the 
acquisition timing requirements in the context of a bank branch, 
largely as proposed, with minor revisions for conformity with changes 
elsewhere in Sec.  1005.18(b).
    For similar reasons, the Bureau has revised comment 18(b)(1)(i)-
1.ii to clarify that, in the payroll card account context, a consumer 
who is provided with a payroll card and the disclosures required by 
Sec.  1005.18(b) at the time he or she learns that he or she can 
receive wages via a payroll card account, but before the consumer 
chooses to receive wages via a payroll card account, is provided with 
the disclosures prior to acquisition. The final comment explains that, 
if a consumer receives the disclosures after the consumer receives the 
first payroll payment on the payroll card, those disclosures were 
provided post-acquisition, in violation of Sec.  1005.18(b)(1)(i).
    As above with respect to the timing of acquisition of a government 
benefit card, the Bureau has attempted to strike a balance that ensures 
that employees receive the new disclosures early enough to inform their 
payment choices, thereby furthering the goals of the compulsory use 
prohibition in Sec.  1005.10(e)(2), while minimizing the potential 
disruption to current employer practices. Further, as discussed in the 
section-by-section analysis of Sec.  1005.10(e)(2) above, the Bureau 
believes it is important that consumers have a choice with respect to 
how they receive their wages or salary. Accordingly, the Bureau 
believes it is appropriate to adopt a rule requiring financial 
institutions to provide their new disclosures before the consumer 
chooses a method of payment. Under the final rule, therefore, consumers 
must receive both the short form and long form disclosures (which 
include on the short form disclosure a notice informing consumers they 
have other options besides the payroll card account to receive their 
wages) before they choose the payment method that is best for them.
    The Bureau declines to require a mandatory waiting period between 
the time consumers receive the disclosures and the time they are 
required to elect a payment method, for the reasons set forth in the 
section-by-section analyses of Sec. Sec.  1005.10(e)(2) and 1005.15(c) 
above. Specifically, the Bureau does not believe that it is necessary 
at this time to specify a single time period that would apply in all 
enrollment scenarios.
    Further, the Bureau is aware that, as noted by an employer 
commenter and as discussed in the section-by-section analysis of Sec.  
1005.10(e)(2) above, consumers are sometimes given a choice between two 
or more payment alternatives, but may fail to indicate their 
preference. Depending on the facts and circumstances--for example, the 
date by which the consumer has to be paid her wages under State law--it 
may be reasonable for a financial institution or other person in this 
scenario to employ a reasonable default enrollment method. However, the 
Bureau is concerned about reports from consumer group commenters of 
employees being coerced to accept payroll card accounts as their 
default method of receiving wages and intends to monitor the payroll 
card account market for compliance with the compulsory use prohibition 
and will consider further action in a future rulemaking if necessary. 
As stated above, the Bureau also believes that by requiring the 
disclosures to be provided before a consumer acquires a prepaid 
account, the final rule will help ensure that all prepaid consumers, 
including employees receiving payroll card accounts, have the 
information they need to evaluate the prepaid account option (or 
options) available to them.
    With respect to proposed comment 18(b)(1)(i)-2, regarding the 
timing for delivery of disclosures provided electronically, the Bureau 
understands that the digital wallet acquisition process may in some 
respects be different than the acquisition process for other prepaid 
accounts. However, the Bureau does not believe that this warrants 
different treatment for purposes of the timing requirement for delivery 
of pre-acquisition disclosures. In particular, the Bureau notes that 
the fact that a digital wallet consumer could receive the disclosures 
before the wallet holds any funds is not unique to digital wallets. 
Indeed, to qualify as a prepaid account, an account must be issued on a 
prepaid basis or be capable of being loaded with funds after 
acquisition.\382\ The Bureau believes that it is important that 
consumers are informed of the fees and other key terms that will apply 
to their prepaid account before they open or purchase that account, 
whether that account is accessed by a physical prepaid card, a digital 
wallet, or through some other means. Furthermore, the Bureau 
understands that digital wallet providers presently provide some 
disclosures (for instance, user agreements and privacy policies) prior 
to a consumer opening an account. Thus, the Bureau does not believe 
that requiring digital wallet providers to provide the short form and 
long form disclosures before the consumer opens the account should be 
problematic for financial institutions or confusing to consumers.
---------------------------------------------------------------------------

    \382\ See final Sec.  1005.2(b)(3)(i)(D)(1).
---------------------------------------------------------------------------

    Next, the Bureau has removed the reference in proposed comment 
18(b)(1)(i)-2 to a consumer's provision of personally identifiable 
information. The Bureau understands that there may be scenarios in 
which a consumer provides personal information, such as name or 
address, in order to obtain more information about a particular 
product. Likewise, there could be instances where a consumer provides 
personal information for one purpose online, and that information is 
then used for other purposes, such as to market a prepaid account to 
the consumer. In either scenario, the consumer did not provide the 
personal information in order to acquire the prepaid account. Final 
comment 18(b)(1)(i)-2, therefore, no longer states that a consumer who 
receives the disclosures after the consumer provides personally 
identifiable information has received the disclosures post-acquisition. 
Instead, the comment states that the disclosures required by Sec.  
1005.18(b) may be provided before or after a consumer has initiated the 
acquisition process. If the disclosures are presented after a consumer 
initiates the acquisition process such disclosures are made pre-
acquisition if the consumer receives them before choosing to accept the 
prepaid account.
    Finally, with respect to consumer groups' requests that the Bureau 
clarify that a consumer must be shown both the short form and long form 
disclosures prior to a consumer's acquisition of a prepaid account 
through electronic means, the Bureau has added several examples in 
final comment 18(b)(1)(i)-2 to illustrate disclosure methods that would 
comply with final Sec.  1005.18(b)(1)(i). In the first example, set 
forth in new paragraph i, the

[[Page 84020]]

financial institution presents the short form, long form, and Sec.  
1005.18(b)(5) disclosures on the same Web page, which the consumer must 
view before choosing to accept the prepaid account. In the second 
example, set forth in new paragraph ii, the financial institution 
presents the short form and Sec.  1005.18(b)(5) disclosures on one Web 
page, together with a link that directs the consumer to a separate Web 
page containing the long form disclosure, which the consumer must also 
view before choosing to accept the prepaid account. Finally, in the 
third example, set forth in new paragraph iii, the financial 
institution presents on a Web page the short form and Sec.  
1005.18(b)(5) disclosures, followed by the initial disclosures required 
by Sec.  1005.7(b) containing the long form disclosure in accordance 
with final Sec.  1005.18(f)(1), on the same Web page. The financial 
institution includes a link, after the short form disclosure or as part 
of the statement required by Sec.  1005.18(b)(2)(xiii), that directs 
the consumer to the section of the initial disclosures containing the 
long form disclosure. The consumer must view this Web page containing 
the two disclosures prior to choosing to accept the prepaid account.
    These comments are intended to clarify that a consumer does not 
receive electronic disclosures prior to acquisition if the consumer is 
able to bypass some or all of the Sec.  1005.18(b) disclosures before 
choosing to accept the prepaid account. The Bureau agrees with the 
consumer group commenter that language in the proposed comment 
regarding whether or not the consumer could review unrelated 
information before reviewing the long form disclosure on a separate Web 
page potentially contradicted this general principle. Accordingly, the 
Bureau has removed that language from the commentary to the final rule.
    In addition to the revisions discussed above, the Bureau is 
finalizing certain other minor changes to comments 18(b)(1)(i)-1 and -2 
for clarity and consistency.
18(b)(1)(ii) Disclosures for Prepaid Accounts Acquired in Retail 
Locations
The Bureau's Proposal
    The Bureau proposed an adjustment to the general pre-acquisition 
timing requirement where consumers acquired prepaid accounts in retail 
stores. Proposed Sec.  1005.18(b)(1)(ii) would have permitted financial 
institutions to employ an alternative method of delivering the long 
form disclosure. Under this alternative timing regime, a financial 
institution would have been permitted to provide the long form 
disclosure in writing after the consumer acquired a prepaid account as 
long as three conditions were met, as discussed below.
    In the proposal, the Bureau stated its belief that in many cases it 
was not feasible for financial institutions that offered prepaid 
accounts in retail stores to provide printed long form disclosures 
prior to acquisition. For example, due to size and space limitations on 
standard J-hook display racks, the Bureau believed that many financial 
institutions would not have been able to present both the short form 
and long form disclosures required by proposed Sec.  1005.18(b)(2)(i) 
and (ii) on the packaging without overhauling the packaging's design or 
otherwise adjusting the relevant retail space.
    Nevertheless, the Bureau believed it was important that consumers 
be provided an opportunity to review both the short form and long form 
disclosures before acquisition. Thus, proposed Sec.  1005.18(b)(1)(ii) 
would have permitted a financial institution to provide the long form 
disclosure after a consumer acquired a prepaid account in person in a 
retail store, as long as three conditions were met. Proposed Sec.  
1005.18(b)(1)(ii)(A) would have set forth the first condition: That the 
access device for the prepaid account available for sale in a retail 
store had to be inside of a packaging material. This condition would 
have applied even if the product, when sold, was only a temporary 
access device. Proposed Sec.  1005.18(b)(1)(ii)(B) would have set forth 
the second condition: That the short form disclosures required by 
proposed Sec.  1005.18(b)(2)(i) had to be provided on or be visible 
through an outward-facing, external surface of a prepaid account access 
device's packaging material in the tabular format described in proposed 
Sec.  1005.18(b)(3)(iii). The Bureau believed that financial 
institutions offering the majority of current prepaid accounts at 
retail would be able to satisfy this condition without altering the 
structure of the existing packaging.
    The third condition, set forth in proposed Sec.  
1005.18(b)(1)(ii)(C), would have required that a financial institution 
include the telephone number and URL a consumer could use to access the 
long form disclosure while in a retail store on the short form 
disclosure, as required by proposed Sec.  1005.18(b)(2)(i)(B)(11). The 
Bureau believed that consumers should at least be able to access the 
long form disclosure by telephone or via a Web site, should they want 
to obtain comprehensive fee information. The Bureau believed that many 
consumers had the ability to access a Web site through the URL that 
would be listed on the short form disclosure when shopping for a 
prepaid account, but nonetheless also proposed that when a financial 
institution did not disclose the long form disclosure before a consumer 
acquired a prepaid account, the financial institution had to also make 
the long form disclosure available to a consumer by telephone. The 
Bureau acknowledged that it might be complicated for financial 
institutions to provide the long form disclosure by telephone. Further, 
the Bureau acknowledged that it may be harder for a consumer to 
understand the information in the long form disclosure when delivered 
orally. Nevertheless, the Bureau believed that if a consumer took the 
affirmative step to request additional information about a prepaid 
account by telephone when shopping in a retail store, it may have been 
more likely that the consumer was seeking out specific information not 
included on the short form disclosure, and that such a consumer would 
therefore be less likely to suffer from information overload.
    Proposed comment 18(b)(1)(ii)-1 would have provided guidance on the 
definition of retail store. Specifically, proposed comment 
18(b)(1)(ii)-1 would have explained that, for purposes of the proposed 
requirements of Sec.  1005.18(b)(1)(ii), a retail store was a location 
where a consumer could obtain a prepaid account in person and that was 
operated by an entity other than a financial institution or an agent of 
the financial institution. Proposed comment 18(b)(1)(ii)-1 would have 
further clarified that a bank or credit union branch was not a retail 
store, but that drug stores and grocery stores at which a consumer can 
acquire a prepaid account could be retail stores. Proposed comment 
18(b)(1)(ii)-1 would have also clarified that a retail store that 
offered one financial institution's prepaid account products 
exclusively would be considered an agent of the financial institution, 
and, thus, both the short form and the long form disclosure would need 
to be provided pre-acquisition pursuant to proposed Sec.  
1005.18(b)(1)(i) in such settings.
    The Bureau believed that if a financial institution was the sole 
provider of prepaid accounts in a given retail store, or was otherwise 
an agent of the financial institution, then it would be easier for the 
financial institution to manage the distribution of disclosures to 
consumers. The Bureau believed that financial institutions with such 
exclusive relationships should have fewer hurdles to providing both the

[[Page 84021]]

short form and long form disclosures to a consumer before acquisition. 
Nevertheless, the Bureau sought comment on whether agents of the 
financial institution faced space constraints in retail stores that 
would have made it difficult to provide the short form and long form 
disclosures pre-acquisition.
    Proposed comment 18(b)(1)(ii)-2 would have explained that 
disclosures were considered to have been provided post-acquisition if 
they were inside the packaging material accompanying a prepaid account 
access device that a consumer could not see or access before acquiring 
the prepaid account, or if it was not readily apparent to a consumer 
that he or she had the ability to access the disclosures inside of the 
packaging material. Proposed comment 18(b)(1)(ii)-2 would also provide 
the example that if the packaging material is presented in a way that 
consumers would assume they must purchase the prepaid account before 
they can open the packaging material, the financial institution would 
be deemed to have provided disclosures post-acquisition.
    Proposed comment 18(b)(1)(ii)-3 would have explained that a payroll 
card account offered to and accepted by consumers working in retail 
stores would not have been considered a prepaid account acquired in a 
retail store for purposes of proposed Sec.  1005.18(b)(1)(ii), and 
thus, a consumer would have had to receive the short form and long form 
disclosures pre-acquisition pursuant to the timing requirement set 
forth in proposed Sec.  1005.18(b)(1)(i). The Bureau explained that it 
did not believe that there were space constraints involved in offering 
payroll card accounts to retail store employees. Finally, proposed 
comment 18(b)(1)(ii)-4 would have clarified that pursuant to proposed 
Sec.  1005.18(b)(1)(ii)(C), a financial institution could make the long 
form accessible to a consumer by telephone and by a Web site by, for 
example, providing the long form disclosure by telephone using an 
interactive voice response system or by using a customer service agent.
Comments Received
    Industry commenters overwhelmingly supported the proposed retail 
store exception. Despite this general support, however, a large number 
of industry commenters, including issuing banks, program managers, 
trade associations, a payment network, and an advocacy organization 
advocating on behalf of business interests, generally opposed the 
proposition that neither financial institutions nor their agents could 
qualify for the proposed retail store exception. These commenters 
argued that the exclusion of financial institutions and their agents 
was unnecessary and did not reflect compliance and market realities. 
Specifically, the commenters asserted that the location of acquisition 
should not dictate the type of disclosure the consumer receive since, 
they said, the constraints of providing the long form disclosure in any 
in-person environment are the same. Thus, they argued, there is no 
basis for distinguishing between large retailers that carry multiple 
prepaid account programs and small retailers, who may have no choice 
but to carry only one financial institution's products, nor between 
retail stores and bank and credit union branches who may also sell 
prepaid accounts on J-hooks or in J-hook-style packaging. One program 
manager argued that the Bureau's failure to distinguish in this context 
between banks that issue prepaid accounts and smaller financial 
institutions, like credit unions or smaller banks, that only sell 
prepaid accounts issued by others, is inequitable in that it places a 
greater compliance burden on smaller institutions than comparable 
retailers would face. These commenters urged the Bureau to expand the 
application of the retail store exception to more or all in-person 
sales of prepaid accounts.
    A subset of these commenters objected specifically to the proposed 
commentary stating that an entity is an agent of the financial 
institution for purposes of proposed Sec.  1005.18(b)(1)(ii) if it 
exclusively sells one financial institution's prepaid account products. 
These commenters argued that agency status should be an issue 
determined under State law. They explained that, under several States' 
laws, a financial institution must appoint any store that sells its 
products as its agent, which would make such store ineligible for the 
retail store exception as proposed. Commenters also argued that the 
exclusive retailer exclusion would be difficult to enforce. For 
example, they noted that retailers may not be aware that they were 
selling prepaid accounts from only one financial institution, 
especially as retailers often deal with a program manager rather than 
directly with the financial institution itself. The commenters also 
listed several circumstances under which a retail store could 
unwittingly become disqualified from the proposed retail store 
exception by inadvertently offering only that financial institution's 
prepaid accounts, including, for example, if a retail store offers two 
financial institutions' prepaid accounts, but the supply of one 
financial institution's products runs out.
    Few consumer groups commented on this issue, but those that did, 
along with the office of a State Attorney General, opposed the retail 
store exception generally. They urged the Bureau to instead require 
that the long form disclosure be provided prior to acquisition in all 
scenarios because, they argued, consumers are more likely to pay 
attention to information disclosed on a physical form than on a Web 
site. They further noted that financial institutions could develop 
viable alternative disclosure methods that would allow them to disclose 
physical copies of both the short form and the long form prior to 
acquisition as part of the prepaid card package--for example, the long 
form could be disclosed under a flap that could be secured to the 
package with a Velcro tab. These commenters did not comment, however, 
on the types of entities that should qualify for the retail store 
exception if the Bureau were to adopt such a regime in the final rule.
The Final Rule
    For the reasons set forth herein, the Bureau is adopting Sec.  
1005.18(b)(1)(ii) with modifications to the situations that qualify for 
the alternative timing regime for delivery of the long form disclosure 
for prepaid accounts sold at retail. In general, under the final rule, 
the alternative timing regime applies when a consumer acquires a 
prepaid account in person at a retail location, without regard to 
whether the location is operated by an agent of the financial 
institution. The final rule also clarifies, however, that financial 
institutions selling prepaid accounts in their own branches qualify for 
the exception only with respect to prepaid accounts that they do not 
themselves issue. Finally, the Bureau has made several minor revisions 
to Sec.  1005.18(b)(1)(ii) and its commentary for clarity and 
consistency.
    The Bureau has considered whether, as some consumer group 
commenters suggested, it might be more beneficial for consumers to see 
all of a prepaid account's fees pre-acquisition for prepaid accounts in 
all acquisition scenarios including at retail to avoid putting the 
burden on consumers to seek out additional information. The Bureau 
declines, however, to revise the proposed alternative timing regime for 
prepaid accounts sold at retail in this way, for the reasons discussed 
below. The Bureau also declines to permit post-acquisition disclosure 
of the long form in all in-person acquisition scenarios, as some 
industry commenters requested.

[[Page 84022]]

    The Bureau continues to believe that consumers benefit from 
receiving both the short form and the long form disclosures in writing 
prior to acquisition, because the disclosures serve different but 
complementary goals. See the section-by-section analysis of Sec.  
1005.18(b) above for a detailed discussion of the reasons the Bureau is 
generally requiring that financial institutions provide both the short 
form and the long form disclosures pre-acquisition.
    However, the Bureau is cognizant of the potentially significant 
cost to industry of providing the long form disclosure prior to 
acquisition at retail and the packaging adjustments that including such 
a disclosure would likely require based on the space constraints for 
products sold at retail. Specifically, commenters have confirmed the 
Bureau's understanding that, if it were to finalize a requirement that 
the long form disclosure be provided in writing prior to acquisition of 
a prepaid account in a retail environment, financial institutions would 
have to undertake a significant overhaul of current packaging 
designs.\383\ As such, the Bureau continues to believe that such 
packaging adjustments would result in significant expense to industry 
and would likely increase the cost of prepaid accounts and limit the 
diversity of options available to consumers shopping for prepaid 
accounts at retail (assuming retailers maintain the same overall space 
for the display and sale of all prepaid accounts that they have now).
---------------------------------------------------------------------------

    \383\ As some consumer group commenters recognized, the only way 
a printed long form could be incorporated into the current packaging 
design is by adding additional material and functionality to the 
package. As the Bureau noted in the proposal, adding material to 
prepaid card packaging could limit the number of packages retailers 
could sell on J-hook displays. See 79 FR 77102, 77153 (Dec. 23, 
2014).
---------------------------------------------------------------------------

    To balance these considerations, the Bureau has revised Sec.  
1005.18(b)(1)(ii) and its commentary to broaden in certain respects the 
type of entity that qualifies for the retail location exception set 
forth in Sec.  1005.18(b)(1)(ii). Under final Sec.  1005.18(b)(1)(ii), 
therefore, a financial institution is not required to provide the long 
form disclosures before a consumer acquires a prepaid account in person 
at a retail location; provided the following conditions are met: (A) 
The prepaid account access device is contained inside the packaging 
material; (B) the short form disclosures are provided on or are visible 
through an outward-facing, external surface of a prepaid account access 
device's packaging material; (C) the short form disclosures include the 
information set forth in final Sec.  1005.18(b)(2)(xiii) that allows a 
consumer to access the long form disclosure by telephone and via a Web 
site; and (D) the long form disclosures are provided after the consumer 
acquires the prepaid account.
    The Bureau is persuaded that, in certain cases, the constraints 
that apply in retail stores--limited space, distribution of disclosures 
by someone other than the financial institution that issues the prepaid 
account--could also apply in the context of other in-person acquisition 
scenarios, such as in the branches of banks and credit unions that sell 
another financial institution's prepaid accounts. Accordingly, the 
Bureau is revising Sec.  1005.18(b)(1)(ii) and its commentary to 
broaden the scope of the retail exception by referring to a retail 
location rather than a retail store. The Bureau does not believe that 
this shift in approach undermines the consumer protections offered by 
the Bureau's pre-acquisition disclosure regime generally. Rather, the 
Bureau continues to believe that its alternative timing regime, with 
certain modifications described below, strikes an appropriate balance 
by providing consumers with--or with access to--important disclosures 
before acquiring a prepaid account while recognizing the packaging and 
other constraints faced by financial institutions when selling prepaid 
accounts at retail. Further, the Bureau notes that the conditions 
placed on a financial institution's ability to use the exemption--
including that the short form disclosure appear on the outside of the 
packaging containing the card and list a telephone number and Web site 
URL the consumer can use to access the long form disclosure \384\--
should ensure that most consumers have access to comprehensive fee 
information while they shop.
---------------------------------------------------------------------------

    \384\ See final Sec.  1005.18(b)(1)(ii)(A) through (D).
---------------------------------------------------------------------------

    The Bureau has revised comment 18(b)(1)(ii)-1 to remove the 
commentary stating that a retail store must be operated by an entity 
other than a financial institution or a financial institution's agent, 
and giving specific examples of what type of entities would or would 
not qualify as retail stores. Instead, final comment 18(b)(1)(ii)-1 
states that, for purposes of final Sec.  1005.18(b)(1)(ii), a retail 
location is a store or other physical site where a consumer can 
purchase a prepaid account in person and that is operated by an entity 
other than the financial institution that issues the prepaid account.
    The Bureau continues to believe, however, that a financial 
institution selling its own prepaid accounts does not face the same 
challenges as in other retail locations, and in particular that it is 
far less difficult for such a financial institution to manage the 
distribution of disclosures to consumers. In addition, the Bureau 
believes it is unlikely that any financial institution selling its own 
prepaid accounts in its own branches also offers prepaid accounts 
issued by other financial institutions. The Bureau also understands, as 
stated in the proposal, that financial institutions selling their own 
prepaid accounts may be less dependent on the J-hook infrastructure to 
market their products to consumers. Thus, the Bureau believes it is 
still appropriate to exclude from the retail location exception 
financial institutions that sell their own prepaid accounts. 
Accordingly, the Bureau has revised comment 18(b)(1)(ii)-1 to clarify 
that a branch of a financial institution that offers its own prepaid 
accounts is not a retail location with respect to those accounts and, 
thus, both the short form and the long form disclosure must be provided 
pre-acquisition pursuant to the timing requirements set forth in final 
Sec.  1005.18(b)(1)(i).
    Next, the Bureau is adopting new Sec.  1005.18(b)(1)(ii)(D) to make 
clear that, to qualify for the retail location exception, the financial 
institution must provide the long form disclosure after the consumer 
acquires the prepaid account. Proposed Sec.  1005.18(b)(1)(ii) would 
have permitted a financial institution, under certain conditions, to 
provide the long form disclosure after acquisition, but left open a 
possible interpretation that the financial institution could forego 
delivering the long form disclosure altogether, which was not the 
Bureau's intent. For clarity, therefore, the Bureau is adopting Sec.  
1005.18(b)(1)(ii)(D) to make delivery of the long form disclosure after 
acquisition an explicit requirement in Sec.  1005.18(b)(1)(ii). The new 
provision does not set forth a specific time by which the long form 
disclosure must be provided after acquisition. In practice, however, 
the Bureau expects that compliance with final Sec.  
1005.18(b)(1)(ii)(D) will typically be accomplished in conjunction with 
compliance with final Sec.  1005.18(f)(1), which provides that a 
financial institution must include, as part of the initial disclosures 
given pursuant to Sec.  1005.7, all of the disclosures required by 
Sec.  1005.18(b)(4). The initial disclosures required by Sec.  1005.7 
must be provided prior to a consumer contracting for an EFT service or 
before the first EFT involving the account.
    Relatedly, the Bureau has removed the portion of proposed comment

[[Page 84023]]

18(b)(1)(ii)-2 that would have provided an example of when prepaid 
disclosures provided inside packaging material are provided post-
acquisition, because it believes the other provisions of the rule make 
clear that, other than as set forth in the retail location exception in 
Sec.  1005.18(b)(1)(ii), the short form and long form disclosures must 
both be provided to a consumer prior to acquiring the prepaid account. 
The Bureau is otherwise finalizing comment 18(b)(1)(ii)-2, as well as 
comments 18(b)(1)(ii)-3 and -4, generally as proposed with minor 
modifications for clarity and consistency, as well as conforming 
changes to reflect the numbering changes elsewhere in Sec.  1005.18(b).
18(b)(1)(iii) Disclosures for Prepaid Accounts Acquired Orally by 
Telephone
    Similar to the proposed alternative for retail stores, the Bureau 
proposed Sec.  1005.18(b)(1)(iii) to provide that before a consumer 
acquired a prepaid account orally by telephone, a financial institution 
would have to disclose orally the short form information that would 
have been required by proposed Sec.  1005.18(b)(2)(i). Proposed Sec.  
1005.18(b)(1)(iii) would have further stated that a financial 
institution could provide a written or electronic long form disclosure 
required by proposed Sec.  1005.18(b)(2)(ii) after a consumer acquired 
a prepaid account orally by telephone if the financial institution 
communicated to a consumer orally, before a consumer acquired the 
prepaid account, that the information required to be disclosed by Sec.  
1005.18(b)(2)(ii) was available orally by telephone and on a Web site. 
The Bureau believed that as long as consumers were made aware of their 
ability to access the information contained in the long form 
disclosure, they would be able to get enough information to make an 
informed acquisition decision. Those who wished to learn more about the 
prepaid account could do so, and financial institutions would not be 
unduly burdened by having to provide the long form disclosure orally to 
all consumers who acquire prepaid accounts by telephone. A version of 
the long form disclosure, however, would have still been required to be 
provided after acquisition in the prepaid account's initial 
disclosures, pursuant to proposed Sec.  1005.18(f).
    Proposed comment 18(b)(1)(iii)-1 would have explained that, for 
purposes of proposed Sec.  1005.18(b)(1)(iii), a prepaid account was 
considered to have been acquired orally by telephone when a consumer 
spoke to a customer service agent or communicated with an automated 
system, such as an interactive voice response system, to provide 
personally identifiable payment information to acquire a prepaid 
account, but would have clarified that prepaid accounts acquired using 
a mobile device without speaking to a customer service agent or 
communicating with an automated system were not considered to have been 
acquired orally by telephone. The Bureau believed that, if a consumer 
used a smartphone to access a mobile application to acquire a prepaid 
account, and did not receive disclosures about the prepaid account 
orally, the disclosures could be provided electronically pursuant to 
proposed Sec.  1005.18(b)(3)(i)(B). The Bureau believed that in such a 
scenario the logistical challenges justifying an alternative timing 
requirement for accounts acquired orally by telephone were not present.
    Proposed comment 18(b)(1)(iii)-2 would have explained how 
disclosures provided orally could comply with the pre-acquisition 
timing requirement in proposed Sec.  1005.18(b)(2)(i). Specifically, 
proposed comment 18(b)(1)(iii)-2 would have clarified that to comply 
with the pre-acquisition requirement set forth in proposed Sec.  
1005.18(b)(1)(i) for prepaid accounts acquired orally by telephone, a 
financial institution may, for example, read the disclosures required 
under proposed Sec.  1005.18(b)(2)(i) over the telephone after a 
consumer had initiated the purchase of a prepaid account by calling the 
financial institution, but before a consumer agreed to acquire the 
prepaid account. Proposed comment 18(b)(1)(iii)-2 would have also 
explained that although the disclosure required by proposed Sec.  
1005.18(b)(2)(ii) was not required to be given pre-acquisition when a 
consumer acquired a prepaid account orally by telephone, a financial 
institution would still have to communicate to a consumer that the long 
form disclosure was available upon request, either orally by telephone 
or on a Web site. Finally, the proposed comment would have clarified 
that a financial institution must provide information on all fees in 
the terms and conditions as required by existing Sec.  1005.7(b)(5), as 
modified by proposed Sec.  1005.18(f), before the first EFT was made 
from a consumer's prepaid account.
    One consumer group commenter urged the Bureau to provide consumers 
who acquire a prepaid account by telephone or electronically the option 
of receiving written disclosures by mail upon request. The Bureau notes 
that consumers acquiring prepaid accounts through these methods must 
still receive the initial disclosures required by Sec.  1005.7, which, 
as modified by final Sec.  1005.18(f)(1), must include all of the 
information required to be disclosed in its pre-acquisition long form 
disclosure pursuant to Sec.  1005.18(b)(4). Accordingly, the Bureau 
does not believe it is necessary to separately provide consumers the 
right to request a written copy of information they are already 
required to receive under existing Sec.  1005.7 and final Sec.  
1005.18(f)(1).
    The Bureau is therefore adopting Sec.  1005.18(b)(1)(iii) and its 
related commentary largely as proposed, with a few minor revisions. 
Under final Sec.  1005.18(b)(1)(iii), a financial institution is not 
required to provide the long form disclosure required by Sec.  
1005.18(b)(4) before a consumer acquires a prepaid account orally by 
telephone if the following conditions are met: (A) The financial 
institution communicates to the consumer orally, before the consumer 
acquires the prepaid account, that the long form disclosure is 
available both by telephone and on a Web site; (B) the financial 
institution makes the long form disclosure available both by telephone 
and on a Web site; and (C) the long form disclosures are provided after 
the consumer acquires the prepaid account.
    The Bureau continues to believe that it is appropriate to modify 
the proposed general pre-acquisition disclosure requirements when a 
consumer acquires a prepaid account orally by telephone, and that 
requiring disclosure of only limited information by telephone will 
increase the likelihood that a consumer will understand any information 
about the prepaid account when acquiring it orally by telephone. The 
Bureau believes that, since the final rule mandates that consumers be 
made aware of their ability to access the information contained in the 
long form disclosure, consumers will have access to enough information 
to make an informed acquisition decision.
    As stated above, the Bureau is finalizing several modifications to 
Sec.  1005.18(b)(1)(iii) and its commentary. First, the Bureau has 
added language to comment 18(b)(1)(iii)-2 to clarify that a financial 
institution can meet the requirements of final Sec.  1005.18(b)(1)(iii) 
by providing the required disclosures over the telephone using an 
interactive voice response or similar system. Second, for the same 
reason the Bureau is adopting new Sec.  1005.18(b)(1)(ii)(D) above, the 
Bureau is adopting new Sec.  1005.18(b)(1)(iii)(C) to clarify that, to 
qualify for the telephone exception, the financial institution would 
have to provide the long form disclosure after

[[Page 84024]]

the consumer acquires the prepaid account. Again, while this new 
provision does not set forth a specific time by which the long form 
disclosure must be provided after acquisition, the Bureau expects that 
compliance with Sec.  1005.18(b)(1)(iii)(C) will typically be 
accomplished through delivery of the long form disclosure as part of 
the initial disclosures required by Sec.  1005.7, in accordance with 
final Sec.  1005.18(f)(1). Finally, the Bureau has made certain other 
revisions to Sec.  1005.18(b)(1)(iii) and its commentary to streamline 
and clarify the language therein.
18(b)(2) Short Form Disclosure Content
    Proposed Sec.  1005.18(b)(2) would have consisted solely of a 
heading, with the substantive content requirements for the Bureau's 
proposed prepaid account pre-acquisition disclosure regime located 
under proposed Sec.  1005.18(b)(2)(i) for the short form disclosure and 
proposed Sec.  1005.18(b)(2)(ii) for the long form disclosure. The 
regulatory text of proposed Sec.  1005.18(b)(2)(i) would have consisted 
of a general statement that would have required that the fees, 
information, and notices that would have been set forth in the 
regulatory provisions under proposed Sec.  1005.18(b)(2)(i) be provided 
in the short form disclosure.
    The Bureau has relocated the regulatory text and commentary from 
proposed Sec.  1005.18(b)(2)(i) to the final rule in Sec.  
1005.18(b)(2) (with certain modifications as discussed below).\385\ In 
keeping with this relocation, the discussion of the Bureau's proposal 
and comments received regarding the regulatory text and comments of 
proposed Sec.  1005.18(b)(2)(i) are incorporated into this section-by-
section analysis of Sec.  1005.18(b)(2) (except the overall description 
of the proposed short form disclosure, which can be found in the 
section-by-section analysis of Sec.  1005.18(b) above).
---------------------------------------------------------------------------

    \385\ See the section-by-section analysis of Sec.  1005.18(b) 
above for a general discussion of the reorganization of the final 
rule.
---------------------------------------------------------------------------

The Bureau's Proposal
    Proposed Sec.  1005.18(b)(2)(i) would have required that, before a 
consumer acquires a prepaid account, a financial institution provide a 
short form disclosure containing specific information about the prepaid 
account, including certain notices, fees, and other information, as 
applicable.
    Proposed comment 18(b)(2)(i)-1 would have explained what a provider 
should disclose on the short form when fees are inapplicable to a 
particular prepaid account product or are $0. Specifically, the 
proposed comment would have said that the disclosures required by 
proposed Sec.  1005.18(b)(2)(i) must always be provided prior to 
prepaid account acquisition, even when a particular disclosure is not 
applicable to a specific prepaid account. The proposed comment would 
have also provided an example that if a financial institution does not 
charge a fee to a consumer for withdrawing money at an ATM in the 
financial institution's network or an affiliated network, which is a 
type of fee that would have been required to be disclosed pursuant to 
proposed Sec.  1005.18(b)(2)(i)(B)(3), the financial institution should 
list ``ATM withdrawal (in network)'' on the short form disclosure and 
list ``$0'' as the fee. Proposed comment 18(b)(2)(i)-1 would have 
further clarified, however, that if the financial institution does not 
allow a consumer to withdraw money from ATMs that are in the financial 
institution's network or from those in an affiliated network, it should 
still list ``ATM withdrawal (in-network)'' and ``ATM withdrawal (out-
of-network)'' on the short form disclosure and state ``not offered'' or 
``N/A.'' The Bureau believed it important that the static portion of 
the short form disclosure list identical account features and fee types 
across all prepaid account products, to create standardization in order 
to enable consumers to quickly determine and compare the potential cost 
of certain offered features.
    The Bureau also proposed comment 18(b)(2)(i)-2 to further explain 
how to disclose fees and features on the short form disclosure. 
Specifically, the proposed comment would have explained that no more 
than two fees may be disclosed for each fee type required to be listed 
by proposed Sec.  1005.18(b)(2)(i)(B)(2), (3), and (5) in the short 
form disclosure (that is, the per purchase fee, the ATM withdrawal fee, 
and the ATM balance inquiry fee), and that only one fee may be 
disclosed for each fee type required to be disclosed by proposed Sec.  
1005.18(b)(2)(i)(B)(1), (4), (6), (7), and (8) (that is, the periodic 
fee, the cash reload fee, the customer service fee, the inactivity fee, 
and the incidence-based fees). The proposed comment would have 
clarified, however, that proposed Sec.  1005.18(b)(2)(i)(B)(8) would 
have required the disclosure of up to three additional fee types. 
Finally, the proposed comment would have provided the example that, if 
a financial institution offers more than one method for loading cash 
into a prepaid account, only the fee for the method that will charge 
the highest fee should be disclosed, and the financial institution may 
use an asterisk or other symbol next to the cash reload fee disclosed 
to indicate that the fee may be lower. Finally, the proposed comment 
would have provided a cross-reference to proposed comment 
18(b)(2)(i)(C)-1.
    As the Bureau explained in the proposal, the Bureau believed that 
simplicity and clarity are important goals for the short form 
disclosure, particularly in light of the space constraints imposed in 
retail settings. Insofar as allowing complicated explanations and 
multiple different fees to be disclosed for a particular feature could 
disrupt those goals, the Bureau thus proposed that for most fees on the 
short form, a financial institution only be permitted to list one fee--
the highest fee a consumer could incur for a particular activity. The 
Bureau noted that these limitations would only apply to the short form 
disclosure; the financial institution could use any other portion of 
the packaging material or Web site to disclose other relevant fees at 
its discretion, and would be required to disclose the other variations 
on the long form.
    The Bureau also believed there was particular value in maintaining 
simplicity on the short form by limiting the top-line portion of the 
form in order to encourage consumer engagement with the disclosure. 
Thus, the Bureau proposed to require only four fee types in the top 
line. For two of those fee types--per purchase fees and ATM withdrawal 
fees--the Bureau also proposed to require disclosure of two fee values. 
The Bureau believed that it is important to include two per purchase 
fees--a per purchase fee when a consumer uses a signature and a per 
purchase fee when a consumer uses a PIN--because consumers could 
potentially incur these fees every time they use their prepaid 
accounts, and the fee could vary depending on how a consumer completes 
the transaction. The Bureau believed including two per purchase fees 
would highlight for consumers that the fees for completing a 
transaction using a PIN versus the fee for using a signature could 
differ. Similarly, the Bureau believed that it is important to include 
two ATM withdrawal fees in order to highlight that fees for in-network 
and out-of-network transactions may differ and to signal to consumers 
that the product's ATM network may have an impact on the fee incurred, 
which could lead a consumer to seek out more information about the 
relevant network. The Bureau noted that in its pre-proposal consumer 
testing, some participants were

[[Page 84025]]

confused about the meaning of an ATM network.
    By contrast, the Bureau proposed to allow only one periodic fee and 
one cash reload fee to be listed in the top line of the short form. The 
Bureau acknowledged that both of these fees might also vary based, for 
example, on how often a consumer uses a prepaid account or the method 
used to reload cash into a prepaid account. Despite this possibility 
for variation, however, the Bureau believed consumers would benefit 
more from immediately seeing the two ways the per purchase and ATM 
withdrawal fees may vary.
Comments Received
    Comments received regarding the Bureau's proposed pre-acquisition 
disclosing regime generally, including those regarding the short form 
disclosure as a whole, are addressed in the section-by-section analysis 
of Sec.  1005.18(b) above. Comments received that address specific 
disclosure requirements in the short form disclosure are addressed in 
the section-by-section analysis that corresponds to each specific 
disclosure requirement. Comments received regarding proposed comment 
18(b)(2)(i)-1 (regarding how to disclose features that are inapplicable 
or free) are discussed below.
    Several industry commenters, including program managers, an issuing 
credit union, a payment network, and an industry trade association, 
recommended against requiring disclosure of inapplicable fees. They 
said such disclosures would take up valuable space on the short form 
and it would confuse consumers to inform them about fees and services 
that are not offered, especially for non-reloadable prepaid products 
and government benefits prepaid cards which, the commenters said, do 
not charge monthly, per purchase, or cash reload fees. Conversely, two 
consumer groups, a program manager, and an issuing bank supported the 
disclosure of inapplicable fees as providing a quick and accurate basis 
for comparison across prepaid accounts. Another program manager and 
issuing bank both supported the disclosure of inapplicable fees but 
recommended requiring ``not applicable'' instead of ``N/A'' to clarify 
to consumers that the service itself, not the fee, is inapplicable. One 
of the consumer groups said ``N/A'' was confusing and recommended 
disclosing ``not offered'' instead.
    One issuing bank and an industry trade association recommended 
against disclosing when no fee is charged. The bank recommended this 
specifically for the fees that do not appear in the top line because it 
said they are not commonly charged and the space in the short form 
could be used for more commonly-charged fees. The bank recommended 
listing the required fees if there is a charge but, if there is no 
charge, permitting the issuer to decide what fee to display. A program 
manager recommended eliminating the ``$0'' fee requirement for 
government benefit accounts for fees that do not apply to such 
accounts.\386\
---------------------------------------------------------------------------

    \386\ The Bureau notes that for fees for features that are not 
available for such accounts, the disclosure made in the short form 
would be ``N/A'' not ``$0.''
---------------------------------------------------------------------------

The Final Rule
    As noted above, to simplify the structure of the final rule, the 
Bureau has modified proposed Sec.  1005.18(b)(2) and (2)(i), to locate 
the content requirements for the short form disclosure in the final 
rule under Sec.  1005.18(b)(2). Also, for reasons set forth below, the 
Bureau is adopting revisions to proposed comment 18(b)(2)(i)-1, 
renumbered as comment 18(b)(2)-1. Second, the Bureau is not finalizing 
proposed comment 18(b)(2)(i)-2 regarding the number of fees to 
disclose, as this comment would have repeated information found 
elsewhere in the final regulatory text and commentary. Finally, the 
Bureau is adopting new comment 18(b)(2)-2 regarding the prohibition on 
disclosure of finance charges in the short form.
    The Bureau has made both substantive and technical modifications to 
comment 18(b)(2)-1 to clarify the explanation and examples in the 
proposed comment that required fees must always be disclosed in the 
short form--even when the financial institution does not charge a fee 
or does not offer the feature, in which case the financial institution 
would disclose ``$0'' or ``N/A,'' respectively, as applicable. Although 
some commenters opposed a requirement to disclose a fee when there is 
no charge or the feature is not offered, the Bureau is adopting this 
requirement in the final rule to preserve standardization among short 
forms such that consumers can see when a feature is offered for free or 
is not offered at all to better compare prepaid accounts and inform 
consumer purchase and use decisions. The Bureau recognizes that many 
payroll card accounts and government benefit accounts do not currently 
charge certain fees or offer certain features required to be disclosed 
in the short form, but is finalizing the rule as proposed to allow 
consumers to compare payroll card accounts or government benefit 
accounts with their own prepaid accounts or prepaid accounts they may 
acquire to receive their benefits or wages.
    The Bureau's post-proposal consumer testing revealed that nearly 
all participants understood both ``N/A'' and ``not offered'' when 
disclosed in place of a required fee for features not offered by a 
financial institution.\387\ However, in order to achieve a greater 
degree of standardization across short form disclosures, the Bureau is 
finalizing the rule to require disclosure of ``N/A,'' but not ``not 
offered,'' when a financial institution does not offer a feature for 
which a fee is required to be disclosed in the short form. The Bureau 
believes this single standardized approach is shorter, simpler, and 
clearer for consumers to use to compare fees and information in the 
short form across prepaid accounts. Thus, final comment 18(b)(2)-1 
clarifies that ``N/A'' is the required disclosure when a financial 
institution does not offer a feature for which a fee is required to be 
disclosed in the short form.
---------------------------------------------------------------------------

    \387\ See ICF Report II at 17 and 27.
---------------------------------------------------------------------------

    The Bureau is adopting new comment 18(b)(2)-2, which clarifies that 
pursuant to new Sec.  1005.18(b)(3)(vi), a financial institution may 
not include in the short form disclosure finance charges as described 
in Regulation Z Sec.  1026.4(b)(11) imposed in connection with a 
covered separate credit feature accessible by a hybrid prepaid-credit 
card as defined in Sec.  1026.61. The comment also cross-references new 
comment 18(b)(3)(vi)-1.
18(b)(2)(i) Periodic Fee
The Bureau's Proposal
    Proposed Sec.  1005.18(b)(2)(i)(B)(1) would have required 
disclosure of a periodic fee charged for holding a prepaid account, 
assessed on a monthly or other periodic basis, using the term ``Monthly 
fee,'' ``Annual fee,'' or a substantially similar term. The proposal 
stated the provision was intended to capture regular maintenance fees 
that a financial institution levies on a consumer solely for having a 
prepaid account for a period of time, whether the fee is charged 
monthly, annually, or for some other period of time. A financial 
institution could choose a label for this fee that accurately reflects 
the relevant periodic interval. Pursuant to the formatting requirements 
in proposed Sec.  1005.18(b)(4), a financial institution would have 
been required to disclose this fee in the top line of the short form 
disclosure.
    The proposal set forth the following reasons for the Bureau's 
proposed

[[Page 84026]]

requirement that financial institutions disclose the presence or 
absence of a periodic fee as the first item in the short form. First, 
the Bureau's analysis of fee data indicated that many prepaid accounts 
charge a recurring fee, typically on a monthly basis. Second, the 
Bureau believed a periodic fee is one that consumers will likely pay no 
matter what other fees they incur because it is imposed for maintaining 
the prepaid account, unless a financial institution offers a way for a 
consumer to avoid that fee (e.g., through the receipt of a regular 
direct deposit or maintaining a certain average daily account balance). 
Those prepaid accounts that do not assess a periodic fee often charge 
other fees instead, typically per purchase fees.\388\ The Bureau 
therefore believed that the lack of a periodic fee is also an important 
feature of a prepaid account that should be included in the top line to 
allow consumers to more easily identify this trade-off between periodic 
fees and per purchase fees. Third, the Bureau believed that the 
existence of a monthly fee (or lack thereof) is typically a key factor 
in a consumer's decision about whether to acquire a particular prepaid 
account. Additionally, the Bureau's pre-proposal consumer testing 
showed that participants frequently cited periodic fees as one of the 
most important factors influencing their decision about which prepaid 
account to acquire.
---------------------------------------------------------------------------

    \388\ The Bureau also proposed to require the disclosure of per 
purchase fees on the top line of the short form. As discussed in 
greater detail below, the Bureau is finalizing the per purchase fee 
disclosure mostly as proposed, including locating it in the top line 
of the short form. See the section-by-section analysis of Sec.  
1005.18(b)(2)(ii) below.
---------------------------------------------------------------------------

Comments Received
    No commenter opposed disclosure of the periodic fee, though an 
issuing bank requested that the Bureau permit disclosure in the short 
form of the conditions under which a financial institution may waive 
the periodic fee and many other commenters urged more generally to 
provide latitude to financial institutions to disclose conditions for 
waiver or reduction of all listed fees.\389\ An office of a State 
Attorney General recommended that the Bureau ban periodic fees for 
payroll card accounts, but otherwise supported the disclosure required 
by proposed Sec.  1005.18(b)(2)(i)(B)(1).
---------------------------------------------------------------------------

    \389\ These comments are addressed in the section-by-section 
analysis of Sec.  1005.18(b)(3) below.
---------------------------------------------------------------------------

The Final Rule
    For the reasons set forth herein, the Bureau is adopting proposed 
Sec.  1005.18(b)(2)(i)(B)(1), renumbered as Sec.  1005.18(b)(2)(i), 
with minor technical modifications for conformity and clarity. Also, 
for the reasons set forth below, the Bureau is adopting comment 
18(b)(2)(i)-1.
    The Bureau is finalizing the requirement that financial 
institutions disclose the periodic fee as the first fee on the short 
form disclosure because it is a virtually universal charge and, even if 
a per purchase fee is incurred instead of the periodic fee, the Bureau 
continues to believe that consumers should be apprised of the trade-off 
between the two pricing schemes.
    The Bureau agrees that it may be particularly important for 
consumers to be aware of waivers and discounts of the periodic fee, and 
thus is adopting a new provision in the final rule that permits 
financial institutions to disclose, in addition to the highest fee, 
conditions under which the periodic fee may vary. While final Sec.  
1005.18(b)(3)(i) requires disclosure of the highest fee when a fee can 
vary, final Sec.  1005.18(b)(3)(ii) permits a financial institution to 
disclose a waiver of or reduction in the fee amount for the periodic 
fee in language lower down in the short form disclosure. See the 
section-by-section analysis of Sec.  1005.18(b)(3) below for a 
discussion of the comments received and analysis leading to the 
adoption of this alternative for the periodic fee.
    To clarify the specific applicability of final Sec.  
1005.18(b)(3)(i) and (ii) to the periodic fee disclosure required by 
final Sec.  1005.18(b)(2)(i), the Bureau is adopting new comment 
18(b)(2)(i)-1. Comment 18(b)(2)(i)-1 states that, if the amount of a 
fee disclosed on the short form could vary, the financial institution 
must disclose in the short form the information required by final Sec.  
1005.18(b)(3)(i). If the amount of the periodic fee could vary, the 
financial institution may opt instead to use an alternative disclosure 
pursuant to final Sec.  1005.18(b)(3)(ii). The Bureau is adopting this 
comment to direct attention to the alternative disclosure of the 
periodic fee in the short form permitted by Sec.  1005.18(b)(3)(ii).
    With regard to the comment recommending that the Bureau ban the 
periodic fee for payroll card accounts, such a request is outside the 
scope of this rulemaking.
18(b)(2)(ii) Per Purchase Fee
    Proposed Sec.  1005.18(b)(2)(i)(B)(2) would have required 
disclosure of two fees for making a purchase using a prepaid account, 
both for when a consumer uses a PIN and when a consumer provides a 
signature, including at point-of-sale terminals, by telephone, on a Web 
site, or by any other means, using the term ``Per purchase fee'' or a 
substantially similar term, and ``with PIN'' or ``with sig.,'' or 
substantially similar terms.
    The proposal explained that, although the Bureau understands that 
most prepaid accounts do not charge per transaction fees for purchases 
of goods or services from a merchant, some do. The Bureau said that the 
impact of these fees could be substantial for consumers who make 
multiple purchases. Often these fees are charged when periodic fees are 
not, and thus a consumer may be choosing between a prepaid account that 
has no monthly fee but charges for each purchase and a prepaid account 
that has a monthly fee but no per purchase charge. Therefore, the 
Bureau believed it appropriate for all prepaid accounts to disclose on 
the short form both whether there is a per purchase fee and, if so, the 
fee for making those purchases. Proposed Model Forms A-10(a) through 
(d) would have disclosed the per purchase fees on the top line of the 
short form.
    The Bureau's proposed rule further recognized that a handful of 
prepaid accounts charge a different per purchase fee depending on 
whether the purchase is processed as a signature or PIN transaction. 
While PIN debit transactions require input of the accountholder's PIN 
code at the time of authorization of the transaction, for a signature 
transaction, the accountholder may sign for the transaction but does 
not need to enter his or her PIN code. The Bureau therefore proposed 
model forms for prepaid accounts that disclose both fees for these two 
authorization methods.
    No commenters objected to inclusion of per purchase fees generally 
in the short form disclosure. An industry trade association, an issuing 
bank, and a program manager commented on the relevance of requiring the 
separate disclosure of per purchase fees for PIN and signature. These 
commenters said that such methods may become obsolete with the 
evolution of new cardholder verification methods (CVMs) and that many 
current transactions do not technically require either PIN or 
signature, such as online purchases. These commenters, plus another 
industry trade association and the office of a State Attorney General, 
suggested permitting disclosure of one per purchase fee if the PIN and 
signature fees are the same. The office of a State Attorney General 
also urged the Bureau to ban per purchase fees for payroll card 
accounts.
    For the reasons set forth herein, the Bureau is adopting proposed 
Sec.  1005.18(b)(2)(i)(B)(2), renumbered as

[[Page 84027]]

Sec.  1005.18(b)(2)(ii), with certain modifications as described below. 
Because a per purchase fee could be significant for consumers who make 
multiple purchases with their prepaid card, the Bureau continues to 
believe it appropriate for all prepaid accounts to disclose on the 
short form whether there is a per purchase fee and, if so, the fee for 
making a purchase. However, the Bureau understands that most prepaid 
accounts do not charge fees for each purchase transaction and, for 
those that do, the Bureau believes that distinguishing between PIN and 
signature when other methods of cardholder verification may now or in 
the future be available may be confusing to consumers. The Bureau 
further understands that new cardholder verification methods are 
rapidly evolving. For these reasons, the Bureau believes disclosure of 
the breakdown of specific per purchase fees has less consumer benefit 
than disclosure of one per purchase fee, i.e., the highest fee charged 
for making a purchase as required pursuant to final Sec.  
1005.18(b)(3)(i), which is discussed in detail below. Thus, the Bureau 
is finalizing this provision as proposed, except it is requiring 
disclosure of only a single fee for making a purchase using the prepaid 
account instead of requiring disclosure of two fees (both for when a 
consumer uses a PIN and when a consumer uses a signature to verify the 
purchase). The Bureau has also made other technical revisions to this 
provision for clarity.
    With regard to the comment recommending that the Bureau ban per 
purchase fees for payroll card accounts, such a request is outside the 
scope of this rulemaking.
18(b)(2)(iii) ATM Withdrawal Fees
The Bureau's Proposal
    Proposed Sec.  1005.18(b)(2)(i)(B)(3) would have addressed 
disclosure on the short form of ATM fees for withdrawing cash. 
Specifically, proposed Sec.  1005.18(b)(2)(i)(B)(3) would have required 
disclosure of two fees for using an ATM to initiate a withdrawal of 
cash in the United States from a prepaid account, both within and 
outside of the financial institution's network or a network affiliated 
with the financial institution, using the term ``ATM withdrawal fee'' 
or a substantially similar term, and ``in-network'' or ``out-of-
network,'' or substantially similar terms. Proposed Model Forms A-10(a) 
through (d) would have disclosed these ATM withdrawal fees on the top 
line of the short form.
    The Bureau understood that the ATM fees for most prepaid accounts 
differ depending on whether the ATM is in a network of which the 
financial institution that issued the card is a member or an affiliate. 
Insofar as accessing ATM networks of which the issuing financial 
institution is not a member or an affiliate often costs the financial 
institution more, it typically charges a higher fee to a consumer for 
using that out-of-network ATM. Given that such potential variances are 
common, the Bureau believed that disclosure of fees for both in- and 
out-of-network ATMs withdrawals is important. Although the Bureau noted 
in the proposal that many participants during its pre-proposal consumer 
testing were unfamiliar with the difference between ``in-network'' and 
``out-of-network'' ATMs, the Bureau believed the inclusion of these two 
fees on the top line of the proposed short form would highlight for 
consumers that such fee variations can occur and the importance of 
understanding the ATM network associated with a particular prepaid 
account program.
    Proposed comment 18(b)(2)(i)(B)(3)-1 would have clarified that, if 
the fee imposed on the consumer for using an ATM in a foreign country 
to initiate a withdrawal of cash is different from the fee charged for 
using an ATM in the United States within or outside the financial 
institution's network or a network affiliated with the financial 
institution, a financial institution must not disclose the foreign ATM 
fee pursuant to proposed Sec.  1005.18(b)(2)(i)(B)(3), but may be 
required to do so pursuant to proposed Sec.  1005.18(b)(2)(i)(B)(8) as 
part of the proposed incidence-based fee disclosure.
Comments Received
    Several industry and consumer group commenters and one office of a 
State Attorney General commented on the Bureau's proposed ATM 
withdrawal fee disclosure. In response to the Bureau's question 
regarding whether additional information is needed on the short form to 
explain the distinction between in-network versus out-of-network ATMs, 
a prepaid program manager, an issuing bank, and an industry trade 
association commented that it was unnecessary to require such an 
explanation, asserting that consumers generally understand the 
terminology and if not, consumers could direct their questions to the 
prepaid issuer or to the Bureau. The program manager also suggested 
permitting disclosure of a single ATM fee if the fees for both in- and 
out-of-network withdrawals are the same, as well as disclosing when ATM 
withdrawals are not available.
    The office of a State Attorney General and an industry trade 
association specifically addressed payroll card accounts. The office of 
the State Attorney General said that its research revealed that ATMs 
were the most common way for payroll card accountholders in its State 
to access their wages and that accountholders regularly incurred fees 
for ATM transactions. It recommended that all payroll card account 
programs be required to provide free and unlimited withdrawal of wages 
via ATMs with no third-party fees. The trade association recommended 
permitting disclosure in the short form of the number of free ATM 
withdrawals available to payroll card accountholders.
    Two consumer groups and the office of the State Attorney General 
recommended additional ATM-related disclosures, such as the name of the 
ATM network and whether the prepaid account is affiliated with the 
network, the full extent of the network, whether third-party fees 
apply, whether there are limits on in-network ATM withdrawals, and the 
cost of international ATM transactions.
    No commenters objected to the inclusion of ATM withdrawal fees in 
the short form, or generally regarding distinguishing between in- and 
out-of-network ATM withdrawal fees.
The Final Rule
    For the reasons set forth herein, the Bureau is adopting Sec.  
1005.18(b)(2)(i)(B)(3), renumbered as Sec.  1005.18(b)(2)(iii), as 
proposed with minor technical modifications for clarity. The Bureau 
continues to believe it is important for consumers to know how much 
they will be charged to withdraw funds at an ATM and to know the 
difference, if any, for conducting the withdrawal at an in-network 
versus out-of-network ATM. The Bureau is also adopting proposed comment 
18(b)(2)(i)(B)(3)-1, renumbered as comment 18(b)(2)(iii)-1, explaining 
that a financial institution may not disclose its fee (if any) for 
using an ATM to initiate a withdrawal of cash in a foreign country in 
the disclosure required by final Sec.  1005.18(b)(2)(iii), although it 
may be required to disclose that fee as an additional fee type pursuant 
to final Sec.  1005.18(b)(2)(ix). In response to comments requesting 
that additional information be added to the disclosure of ATM 
withdrawal fees, the Bureau declines to require disclosure of such 
additional information in final Sec.  1005.18(b)(2)(iii). The Bureau 
believes the short form disclosure balances the

[[Page 84028]]

most important information for consumers with the brevity and clarity 
necessary for optimal consumer comprehension. Moreover, much of the 
additional information recommended by commenters, such as third-party 
fees and the name and extent of the ATM network, must or may be 
provided in the long form disclosure. See, e.g., final Sec.  
1005.18(b)(4)(ii) and Sample Form A-10(f).
    To address the comments recommending that the Bureau require more 
fulsome disclosure of the details regarding ATM fees for payroll card 
accounts (and similar comments made elsewhere recommending disclosure 
of other information in addition to ATM fees), the Bureau is finalizing 
new Sec.  1005.18(b)(2)(xiv)(B), which permits inclusion of a statement 
in the short form disclosure for payroll card accounts directing 
consumers to a location outside the short form for information on how 
to access funds and balance information for free or for a reduced fee. 
Final Sec.  1005.15(c)(2)(ii) contains a similar provision for 
government benefit accounts. To address the comment recommending 
disclosure of a single ATM fee if the fees for both in- and out-of-
network withdrawals are the same (and similar comments made elsewhere 
regarding two-tier fee disclosures), the Bureau is finalizing new Sec.  
1005.18(b)(3)(iii), which permits a single disclosure for like fees. 
Regarding the comment recommending disclosure of when ATM withdrawals 
are not available, both proposed and final Sec.  1005.18(b)(2) require 
such disclosure through use of ``N/A'' as discussed above. See also 
final comment 18(b)(2)-1. Regarding the comment requesting that the 
Bureau ban fees for ATM transactions on payroll card accounts, such 
request is outside the scope of this rulemaking.
18(b)(2)(iv) Cash Reload Fee
The Bureau's Proposal
    Proposed Sec.  1005.18(b)(2)(i)(B)(4) would have required 
disclosure of a fee for loading cash into a prepaid account using the 
term ``Cash reload'' or a substantially similar term. Cash reloads are 
one of the primary ways for a consumer to add funds to a prepaid 
account. As such, the Bureau believed that the existence of a cash 
reload service and the fee for using such a service, if any, is 
important for consumers to know insofar as this is a key feature of 
many prepaid accounts. Proposed Model Forms A-10(a) through (d) would 
have disclosed the cash reload fee on the top line of the short form 
disclosure.
    The Bureau also proposed to adopt comment 18(b)(2)(i)(B)(4)-1, 
which would have provided guidance on what would be considered a cash 
reload fee. Specifically, the proposed comment explained that the cash 
reload fee, for example, would include the cost of adding cash at a 
point-of-sale terminal, the cost of purchasing an additional card or 
other device on which cash is loaded and then transferred into a 
prepaid account, or any other method a consumer may use to load cash 
into a prepaid account. This proposed comment would have also clarified 
that if a financial institution offers more than one method for a 
consumer to load cash into the prepaid account, proposed Sec.  
1005.18(b)(2)(i)(C) would have required that it only disclose the 
highest fee on the short form. The Bureau noted that consumers may 
incur additional third-party fees when loading cash onto a card or 
other access device; these expenses are typically not controlled by the 
financial institution or program manager and instead are charged by the 
entity selling the cash reload product. Such fees would not be 
disclosed on the proposed short form pursuant to proposed comment 
18(b)(2)(i)(C)-2. The Bureau noted, however, that, pursuant to proposed 
comment 18(b)(2)(ii)(A)-3, fees imposed by third parties acting as an 
agent of the financial institution would always have to be disclosed in 
the long form.
    As described in the proposal, the Bureau considered requiring 
financial institutions to list on the short form disclosure both cash 
reload methods discussed in proposed comment 18(b)(2)(i)(B)(4)-1: Loads 
via a point-of-sale terminal and loads via an additional card or other 
device. The Bureau, however, believed it was important to limit the 
amount of information on the short form disclosure to maintain its 
simplicity in order to facilitate consumer understanding of the 
information that is included. Further, in its pre-proposal consumer 
testing, the Bureau found that participants consistently understood a 
disclosure containing a single cash reload fee, and therefore the 
Bureau did not believe it was as important to include two fees for this 
fee type.\390\
---------------------------------------------------------------------------

    \390\ See ICF Report I at 20, 29, and 30.
---------------------------------------------------------------------------

Comments Received
    One issuing bank and a number of consumer groups expressed concern 
that failing to reflect third-party fees in connection with the 
proposed disclosure of the cash reload fee in the short form might 
create consumer confusion given that it is a standard industry practice 
for reload network providers or third-party retailers, not the 
financial institutions that issue prepaid accounts, to provide and 
charge for the reloading of cash into prepaid accounts. In such 
circumstances, due to the prohibition on inclusion of third-party fees 
in the short form pursuant to proposed Sec.  1005.18(b)(2)(i)(C), a 
financial institution that does not offer proprietary cash reloading 
capabilities would typically disclose the cash reload fee as ``$0,'' 
while a financial institution that offers proprietary cash reloading 
capabilities would have to disclose the cost for the cash reload. In 
addition to confusing consumers, commenters suggested this outcome 
would result in a competitive disadvantage for financial institutions 
that offer proprietary systems, which are usually less expensive than 
third-party systems, and thereby dissuade financial institutions from 
offering this service. A trade association recommended eliminating the 
term ``cash reload'' fee in favor of ``deposit'' fee for consistency 
and clarity. An issuing bank recommended disclosure of a range of fees 
for cash reloads and a statement explaining where to find reload 
locations as well as allowing disclosure of the conditions under which 
the cash reload fee could be waived instead of the asterisk and linked 
statement for variable fees pursuant to proposed Sec.  
1005.18(b)(2)(C). A program manager commenter recommended permitting 
disclosure of a disclaimer for third-party charges for cash reloads. An 
office of a State Attorney General recommended prohibiting cash reload 
fees, particularly for payroll card accounts, but otherwise supported 
the disclosure.
The Final Rule
    For the reasons set forth herein, the Bureau is adopting proposed 
Sec.  1005.18(b)(2)(i)(B)(4), renumbered as Sec.  1005.18(b)(2)(iv), 
with certain modifications as described below. As in the proposal, the 
Bureau is requiring in the final rule disclosure of the cash reload fee 
in the top line of the short form because it is one of the primary ways 
consumers fund their prepaid accounts. The Bureau believes the 
disclosure in the short form of a single cash reload fee balances the 
most important information for consumers with the brevity and clarity 
necessary for optimal consumer comprehension and therefore declines to 
require disclosure of additional content in final Sec.  
1005.18(b)(2)(iv) as requested by commenters.
    The Bureau is adopting the final rule with a notable change from 
the proposal. The final rule requires

[[Page 84029]]

disclosure of the cash reload fee as the total of all charges from the 
financial institution and any third parties for a cash reload. See also 
final Sec.  1005.18(b)(3)(iv) and (v). The Bureau had intended the 
proposed rule to require disclosure of the complete cost of reloading 
cash. While the Bureau believes that a general prohibition on the 
disclosure of third-party fees in the short form is appropriate, the 
Bureau also believes that it is important to reflect the cost of a cash 
reload via a non-proprietary cash reload network and to avoid 
disfavoring particular prepaid market participants in connection with 
reload systems, which is a concern raised by several commenters. By 
requiring inclusion of the full cost of cash reloads, including third-
party fees, consumers will receive full information about the amount of 
this key fee as well as ensuring standardized disclosure requirements 
among market participants. Final Sec.  1005.18(b)(2)(iv) also reflects 
minor technical modifications for clarity.
    The Bureau is adopting proposed comment 18(b)(2)(i)(B)(4)-1, 
renumbered as comment 18(b)(2)(iv)-1, with modifications to reflect the 
above-referenced modification to the regulatory text. The comment 
provides several examples illustrating how financial institutions must 
disclose cash reload fees.
    The Bureau is persuaded that labeling this fee as ``cash 
deposits,'' rather than ``cash reloads,'' may be more meaningful to 
consumers in certain circumstances. Final comment 18(b)(2)(iv)-2 thus 
allows a financial institution that does not permit cash reloads via a 
third-party reload network but instead permits cash deposits, for 
example, in a bank branch, to use the term ``cash deposit'' instead of 
``cash reload.'' Regarding the comment requesting that the Bureau ban 
fees for cash reloads, such request is outside the scope of this 
rulemaking.
    The disclosure and updating of third-party cash reload fees is 
discussed in further detail in the section-by-section analysis of Sec.  
1005.18(b)(3) below.
18(b)(2)(v) ATM Balance Inquiry Fees
The Bureau's Proposal
    Directly below the top line in the short form disclosure, the 
Bureau proposed to include balance inquiry fees charged by a financial 
institution for inquiring into the prepaid account's balance at an ATM. 
Specifically, proposed Sec.  1005.18(b)(2)(i)(B)(5) would have required 
disclosure of two fees for using an ATM to check the balance of a 
consumer's prepaid account, both within and outside of the financial 
institution's network or a network affiliated with the financial 
institution, using the term ``ATM balance inquiry'' or a substantially 
similar term, and ``in-network'' or ``out-of-network,'' or 
substantially similar terms. Proposed comment 18(b)(2)(i)(B)(5)-1 would 
have clarified that if the fee imposed on a consumer for using an ATM 
in a foreign country to check the balance of a consumer's prepaid 
account is different from the fee charged for using an ATM within or 
outside the financial institution's network or a network affiliated 
with the financial institution in the United States, a financial 
institution would not disclose the foreign ATM balance inquiry fee 
pursuant to proposed Sec.  1005.18(b)(2)(i)(B)(5), but could be 
required to do so as part of the proposed incidence-based fee 
disclosure pursuant to proposed Sec.  1005.18(b)(2)(i)(B)(8).
    The Bureau believed that, just as it is important for consumers to 
know that different fees could be imposed for ATM withdrawals depending 
on whether the ATM is in-network or out-of-network, it is also 
important for consumers to know that different fees could be imposed 
when requesting balance inquiries at an ATM in a financial 
institution's network or outside of the network. However, the Bureau 
did not propose to include balance inquiry fees in the top line of the 
short form disclosure, because it believed that it is less common for 
consumers to initiate ATM balance inquiry transactions compared to 
withdrawals at ATMs.
Comments Received
    The Bureau received comments about the proposed ATM balance inquiry 
fees disclosure from several industry and consumer group commenters, 
and an office of a State Attorney General. In response to the Bureau's 
question regarding placement of ATM balance inquiry fees on the short 
form disclosure, a program manager stated that placing these fees below 
the top line of the short form disclosure is sufficient, because 
consumers are not assessed this fee frequently enough to justify its 
inclusion in the top line. According to this commenter, as well as a 
trade association and issuing bank, an ATM is one of the most expensive 
ways for consumers to check their balance on a prepaid card. The 
program manager added that consumers generally use free and more 
convenient methods to obtain balance information such as via 
interactive voice response, the internet, email, and text message.
    A consumer group suggested that the Bureau either eliminate the 
disclosure to save space or require financial institutions to disclose 
all methods a consumer may use to check the consumer's prepaid account 
balance to make consumers aware of free balance inquiry methods. 
Another consumer group recommended that the Bureau replace the ``or'' 
in the text of the ATM balance inquiry fee disclosure in the proposed 
model short form disclosure with a slash (``/'') to distinguish between 
in- and out-of-network fees. If there are two fees listed, the 
commenter stated that the use of ``or,'' as opposed to ``/,'' may 
create uncertainty with respect to which fee is the in-network fee, and 
which fee is the out-of-network fee.
    An office of a State Attorney General supported the Bureau's 
proposal as an alternative to its primary recommendation that the 
Bureau ban ATM balance inquiry fees for payroll card accounts. The 
commenter further suggested that the Bureau require financial 
institutions to list the in-network and out-of-network ATM balance 
inquiry fee on separate lines of the short form to enhance consumer 
comprehension.
The Final Rule
    For the reasons set forth herein, the Bureau is adopting proposed 
Sec.  1005.18(b)(2)(i)(B)(5), renumbered as Sec.  1005.18(b)(2)(v), 
with minor technical modifications for clarity. The Bureau continues to 
believe consumers should know the different fees they could be charged 
for in-network versus out-of-network ATM balance inquiries but that 
these fees are not incurred frequently enough to merit disclosure in 
the top line of the short form. The Bureau is also adopting proposed 
comment 18(b)(2)(i)(B)(5)-1, renumbered as comment 18(b)(2)(v)-1, with 
several revisions. Final comment 18(b)(2)(v)-1 explains that a 
financial institution may not disclose its fee (if any) for using an 
ATM to check the balance of the prepaid account in a foreign country in 
the disclosure required by final Sec.  1005.18(b)(2)(v), although it 
may be required to disclose that fee as an additional fee type pursuant 
to final Sec.  1005.18(b)(2)(ix).
    The Bureau believes the final rule's ATM balance inquiry fee 
disclosure requirement balances the most important information for 
consumers with the brevity and clarity necessary for optimal consumer 
comprehension and therefore declines to require disclosure of 
additional content in final Sec.  1005.18(b)(2)(v) as requested by one 
of the commenters. Regarding the recommendation that the Bureau use a 
slash (``/'') instead of ``or'' to distinguish between in- and out-of-
network fees, the

[[Page 84030]]

Bureau notes that in post-proposal consumer testing of prototype short 
forms nearly all participants were able to correctly identify the ATM 
balance inquiry fee when using ``or'' and showed no indication of 
misunderstanding the distinction between in- and out-of-network fees, 
confirming the Bureau's understanding from pre-proposal testing.\391\ 
Thus, the Bureau declines to make this change. Regarding the request 
that the Bureau ban fees for balance inquiries for payroll card 
accounts, such request is outside the scope of this rulemaking.
---------------------------------------------------------------------------

    \391\ See ICF Report II at 10 and 21.
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18(b)(2)(vi) Customer Service Fees
    Proposed Sec.  1005.18(b)(2)(i)(B)(6) would have required 
disclosure on the short form of any fee for calling the financial 
institution or its service provider, including an interactive voice 
response system, about a consumer's prepaid accounts using the term 
``Customer service fee'' or a substantially similar term. The Bureau 
believed that many consumers regularly have issues with their prepaid 
accounts that require talking to a customer service agent by telephone. 
The Bureau also believed that some providers impose fees for making 
such a call. Additionally, several participants in the Bureau's pre-
proposal consumer testing reported having incurred such customer 
service fees. For these reasons, the Bureau believed that the short 
form disclosure should include this fee, and thus proposed to include 
it. The Bureau noted that this disclosure would have been required even 
if the financial institution did not charge such a fee pursuant to 
proposed comment 18(b)(2)(i)-1.
    No commenters opposed inclusion of customer service fees in the 
short form disclosure. Instead of disclosing the single highest 
customer service fee, an issuing bank and several consumer groups 
recommended disclosing either the fee for both live agent and 
interactive voice response (IVR) customer service or just the IVR fee. 
They said otherwise customers may be misled into thinking the disclosed 
fee includes the cost of a call to an IVR customer service, which 
generally is free. An office of a State Attorney General recommended 
that the Bureau ban customer service fees for payroll card accounts 
because such fees chill inquiry into fraudulent or erroneous charges, 
but it otherwise supported the disclosure.
    For the reasons set forth herein, the Bureau is adopting proposed 
Sec.  1005.18(b)(2)(i)(B)(6), renumbered as Sec.  1005.18(b)(2)(vi), 
with certain modifications as described below. The Bureau continues to 
believe that it is important to require disclosure of this fee because 
consumers regularly have issues or questions that require contact with 
the financial institution's customer service department, but the fee is 
not so common as to merit disclosure in the top line of the short form.
    The Bureau is adopting the final rule with a notable change from 
the proposal. The Bureau agrees with commenters that it is beneficial 
for consumers to specifically be alerted to the generally free or less 
expensive IVR method of customer service, and thus is finalizing Sec.  
1005.18(b)(2)(vi) requiring disclosure in the short form of fees for 
both automated and live agent customer service. The Bureau's post-
proposal consumer testing revealed that, consistent with several 
commenters' observations, disclosure of a general customer service fee 
resulted in many participants incorrectly assuming the fee would remain 
the same whether the service was live or automated, while all 
participants understood the distinction when both automated and live 
agent customer service fees were disclosed.\392\ Similarly, when a 
short form disclosed a fee for ``live customer service,'' all 
participants understood that the fee would apply if they spoke to a 
live customer service agent and that the fee would not be charged if 
they used the automated customer service system to get information 
about their accounts.\393\ However, because the structure of the 
multiple service plan short form permitted pursuant to final Sec.  
1005.18(b)(6)(iii)(B)(2) does not have sufficient room to disclose both 
automated and live customer service fees on separate lines, final Sec.  
1005.18(b)(2)(vi) states that a financial institution using the 
multiple service plan short form pursuant to final Sec.  
1005.18(b)(6)(iii)(B)(2) must disclose only the fee for live customer 
service. The Bureau believes that disclosing the live customer service 
fee is preferable to disclosing the automated fee because of the 
potential cost to the consumer, as the Bureau understands that 
automated customer service is typically provided at no cost to the 
consumer. Finally, the Bureau has made other technical modifications to 
this provision for clarity. Regarding the request that the Bureau ban 
customer service fees for payroll card accounts, such a request is 
outside the scope of this rulemaking.
---------------------------------------------------------------------------

    \392\ See ICF Report II at 12-13.
    \393\ Id. at 23.
---------------------------------------------------------------------------

18(b)(2)(vii) Inactivity Fee
The Bureau's Proposal
    Proposed Sec.  1005.18(b)(2)(i)(B)(7) would have required 
disclosure of a fee for non-use, dormancy, or inactivity on a prepaid 
account, using the term ``Inactivity fee'' or a substantially similar 
term, as well as the duration of inactivity that triggers a financial 
institution to impose such an inactivity fee. The Bureau believed that 
many financial institutions charge consumers fees when they do not use 
their prepaid accounts for a specified period of time. The Bureau 
believed disclosure of these fees is important insofar as consumers 
sometimes acquire a prepaid account for occasional use; such consumers 
may want to know that a particular prepaid account program charges fees 
for inactivity.\394\ Thus, the Bureau proposed that financial 
institutions disclose the existence, duration, and amount of inactivity 
fees, or that no such fee will be charged, as part the short form 
disclosure. The Bureau also noted in the proposal, however, that, as 
with all the disclosures in the short form, the requirement to disclose 
a particular fee type was not an endorsement of such a fee.\395\
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    \394\ In the Bureau's pre-proposal consumer testing, several 
participants mentioned only using their prepaid cards occasionally.
    \395\ The Bureau understands that some States bar or limit 
inactivity fees, and nothing in this final rule is meant to preempt 
any such State laws.
---------------------------------------------------------------------------

    Proposed comment 18(b)(2)(i)(B)(7)-1 would have clarified that when 
disclosing the inactivity fee pursuant to proposed Sec.  
1005.18(b)(2)(ii)(A) as part of the long form disclosure, a financial 
institution should specify whether this inactivity fee was imposed in 
lieu of or in addition to the periodic fee disclosed pursuant to 
proposed Sec.  1005.18(b)(2)(i)(B)(1). The Bureau believed that a lower 
inactivity fee may correlate with a prepaid account product imposing a 
higher monthly periodic fee on a consumer. Thus, consumers using a 
prepaid account only sporadically, but often enough to not reach the 
dormancy period that would trigger the inactivity fee, might actually 
incur higher fees if they shop based on the inactivity fee instead of 
the monthly periodic fee. In preparing the proposal, the Bureau 
considered whether the risk of potential confusion to a consumer 
outweighed the benefit of including the inactivity fee on the short 
form disclosure, but believed that providing consumers with the 
inactivity fee amount and the relevant duration of dormancy would allow 
consumers to make an informed choice about which

[[Page 84031]]

prepaid account product is best for their usage patterns.
Comments Received
    The Bureau received comments from a program manager, an issuing 
bank, an industry trade association, a consumer group, and an office of 
a State Attorney General about the proposed inactivity fee disclosure. 
In response to the Bureau's solicitation of comments as to whether 
inactivity fees should be included in the short form disclosure, the 
program manager responded that disclosure of both the monthly fee and 
the inactivity fee would not confuse consumers, as most prepaid 
products either charge a monthly fee or an inactivity fee, but not 
both. Even if both fees are charged, it said, consumers can get more 
information about the fees from the long form disclosure or on the Web 
site associated with the prepaid program disclosed on the short form. 
In contrast, the trade association and the issuing bank urged the 
Bureau not to require disclosure of inactivity fees because, they said, 
both studies of prepaid cards that they reviewed and information 
provided to the trade association by its members indicate that 
inactivity fees are not commonly charged. Additionally, the commenters 
said there are better means than the short form through which consumers 
can learn about inactivity fees, such as the Bureau's Web site, the 
prepaid issuer's Web site or its customer service, and that contact 
information for those sources is included in the short form disclosure. 
The consumer group and the office of a State Attorney General 
recommended primarily that the Bureau ban inactivity fees, but 
otherwise generally supported the disclosure.
    The consumer group also asserted that the portion of proposed 
comment 18(b)(2)(i)(B)(7)-1 directing financial institutions to include 
in the long form disclosure whether an inactivity fee is charged in 
lieu of or in addition to the periodic fee disclosure implied the 
Bureau's implicit endorsement of charging of both a periodic fee and an 
inactivity fee--a practice the consumer group opposed. The consumer 
group also stated that the inactivity fee can be known as ``dormancy'' 
or ``maintenance'' fees, and that the Bureau should require 
standardized terminology to avoid confusion.
    The office of the State Attorney General also recommended that the 
Bureau require a minimum 10-day notice prior to imposition of an 
inactivity fee on a payroll card account. The commenter stated that the 
notice should include the amount of the inactivity fee, the date the 
fee will be assessed, and a description of how to avoid the fee. The 
commenter asserted that the notice should be provided through the 
employee's preferred method of receiving communications from the 
payroll card account vendor.
The Final Rule
    For the reasons set forth herein, the Bureau is adopting proposed 
Sec.  1005.18(b)(2)(i)(B)(7) and comment 18(b)(2)(i)(B)(7)-1, 
renumbered as Sec.  1005.18(b)(2)(vii) and comment 18(b)(2)(vii)-1, 
with certain modifications as described below. Because some consumers 
use prepaid cards on an infrequent or occasional basis, the Bureau 
continues to believe that disclosure of the inactivity fee is important 
to provide specific information to consumers regarding the consequences 
of their prepaid account use patterns, even though not all financial 
institutions may charge this fee. The Bureau understands the concerns 
of those commenters seeking to have the fee removed from the short 
form, but believes that other means of communicating this potentially 
significant fee are insufficient.
    In the final rule, in place of the proposed disclosure of the 
``duration of inactivity,'' the Bureau is requiring the broader 
disclosure of the ``conditions'' that trigger the financial institution 
to impose the inactivity fee.\396\ This change is intended to ensure 
that more relevant information is disclosed, including what the 
consumer must do to avoid imposition of the inactivity fee (such as 
engaging in at least one transaction during a specified time period), 
the time period after which the fee is imposed, and how often the fee 
is assessed. The Bureau has made corresponding changes to comment 
18(b)(2)(vii)-1, and also removed the direction to financial 
institutions to specify in the long form whether the inactivity fee is 
imposed in lieu of or in addition to the periodic fee, having relocated 
this portion of the comment to final comment 18(b)(4)(ii)-2, which 
addresses disclosure in the long form of any conditions under which a 
fee may be imposed, waived, or reduced. Final comment 18(b)(2)(vii)-1 
also contains an illustrative example of an inactivity fee disclosure. 
Finally, the Bureau made other technical modifications to final Sec.  
1005.18(b)(2)(vii) and comment 18(b)(2)(vii)-1 for conformity and 
clarity.
---------------------------------------------------------------------------

    \396\ Of course, if there is no inactivity fee, no disclosure of 
conditions is required.
---------------------------------------------------------------------------

    In response to the comment from a consumer group that proposed 
comment 18(b)(2)(i)(B)(7)-1 implicitly endorses the simultaneous charge 
of both a periodic fee and an inactivity fee, the Bureau reiterates 
that it does not endorse such a practice nor is it aware of any 
financial institution that imposes both fees at the same time. However, 
the Bureau believes it is important that consumers be clearly apprised 
if their prepaid account charges a periodic fee and an inactivity fee 
in tandem and for this reason it is included in the commentary for the 
final rule's long form disclosure requirements. In response to the 
consumer group recommending that the Bureau require standardized 
terminology for the inactivity fee disclosure to avoid consumer 
confusion, because the final rule requires financial institutions to 
make this disclosure using the term ``inactivity fee'' or a 
substantially similar term, the Bureau expects that financial 
institutions will not use substantially different terminology that 
would confuse consumers. The Bureau also notes that final Sec.  
1005.18(b)(8), discussed below, requires financial institutions to use 
fee names and other terms consistently within and across the short form 
and long form disclosures.
    Regarding the comment requesting that the Bureau ban inactivity 
fees either generally or for payroll card accounts, such a request is 
outside the scope of this rulemaking.
18(b)(2)(viii) Statements Regarding Additional Fee Types
    The proposal would have required two distinct disclosures in the 
short form designed to alert consumers to other fees financial 
institutions may charge in addition to the standardized static fees 
disclosed at the top of the short form. First, following the static fee 
disclosures, pursuant to proposed Sec.  1005.18(b)(2)(i)(B)(8), the 
proposed short form would have disclosed up to three fees incurred most 
frequently by consumers of that particular prepaid card program that 
were not otherwise disclosed on the short form (referred to as 
incidence-based fees). Second, pursuant to proposed Sec.  
1005.18(b)(2)(i)(B)(10), the short form would have included a statement 
in bold-faced type near the bottom of the disclosure stating: ``We 
charge [X] other fees not listed here.'' As described further below, 
the Bureau believed that these two elements would help emphasize to 
consumers that the short form disclosure was not a comprehensive list 
of all fees, provide consumers with specific information about the 
additional fees that they were most likely to encounter, and encourage 
consumers to review the long form disclosure or otherwise seek 
additional

[[Page 84032]]

information about the prepaid account's features and costs.
    As discussed further below in connection with both final Sec.  
1005.18(b)(2)(viii) and (ix), the Bureau is adopting both proposed 
disclosures with substantial revisions and is placing them together on 
the short form to provide greater clarity to consumers and enhance the 
impact of each disclosure relative to the proposed version. Other 
adjustments to the final rule to improve consumer comprehension and 
reduce implementation burdens for financial institutions include, for 
example, requiring disclosure of the number of additional types of fees 
charged in connection with the prepaid account program, rather than 
counting each variation in fees toward the total as proposed, and 
requiring disclosure of specific fee types on the short form based on 
revenue, rather than frequency, and only if in excess of a de minimis 
threshold. The Bureau believes that these and other changes will make 
the disclosures easier for financial institutions to prepare and more 
meaningful for consumers.
The Bureau's Proposal
    In proposed Sec.  1005.18(b)(2)(i)(B)(10), the Bureau proposed to 
require financial institutions to disclose on the short form a 
statement regarding the number of fees that could be imposed upon a 
consumer, in a form substantially similar to the clause set forth in 
proposed Model Forms A-10(a) through (d). The number of fees would have 
been derived from those listed on the comprehensive long form 
disclosure pursuant to proposed Sec.  1005.18(b)(2)(ii)(A), other than 
those listed in the short form pursuant to proposed Sec.  
1005.18(b)(2)(i)(B)(1) through (8).
    The Bureau sought comment on whether the proposed disclosure would 
be useful to consumers or whether listing the total number of 
additional fees without any other information would actually interfere 
with consumers' ability to make an informed choice between prepaid 
account programs. The Bureau acknowledged that there was some risk that 
consumers might assume that the additional fees were punitive, rather 
than covering the cost of optional services or product features that 
the consumer might find advantageous. However, the Bureau also noted 
that some participants in the Bureau's pre-proposal consumer testing 
reported finding out about fees only after purchasing their card, and 
sometimes only after incurring them.\397\ On balance, the Bureau 
believed that disclosing in the short form a statement indicating 
exactly how many additional fees could apply would encourage consumers 
to seek out more information about a prepaid account before 
acquisition.
---------------------------------------------------------------------------

    \397\ See ICF Report I at 7.
---------------------------------------------------------------------------

    Unlike the proposed incidence-based fees, the Bureau did not 
believe it was necessary to propose provisions about updating this 
statement regarding other fees. Pursuant to proposed Sec.  1005.18(f), 
a financial institution would have been required to include the long 
form disclosure in a prepaid account's Sec.  1005.7(b)(5) initial 
disclosures. Any updates made to the fees disclosed in the long form 
would have required an overhaul of all of the disclosures for a given 
prepaid account product, which the Bureau believed was unlikely to 
occur. Proposed comment 18(b)(2)(i)(B)(10)-1 would have provided 
examples of how to comply with proposed Sec.  1005.18(b)(2)(i)(B)(10). 
Proposed comment 18(b)(2)(i)(B)(10)-2 would have provided guidance 
about how to count the total number of fees to disclose pursuant to 
proposed Sec.  1005.18(b)(2)(i)(B)(10). Specifically, the proposed 
comment would have clarified that, if the fee a financial institution 
imposes might vary, even if the variation is based on a consumer's 
choice of how to utilize a particular service, the financial 
institution must count each variation of the fee that might be imposed 
as a separate fee. The proposed comment also would have provided an 
example illustrating this concept. Finally, the proposed comment would 
have explained that, even if a fee could be waived under certain 
conditions, it would still be counted in order to comply with proposed 
Sec.  1005.18(b)(2)(i)(B)(10).
Comments Received
    Several consumer groups generally supported this portion of the 
proposed short form disclosure as beneficial to alert consumers to fees 
not disclosed in the short form and to encourage financial institutions 
to simplify their fee schedules, although some groups also advocated 
providing a paper long-form disclosure in all settings to ensure that 
consumers could immediately review more detailed information about any 
additional fees.\398\
---------------------------------------------------------------------------

    \398\ For a discussion of the reasons the Bureau is requiring 
both a short form and a long form disclosure but is not requiring a 
written disclosure of all fees in all acquisition settings, see the 
section-by-section analyses of Sec.  1005.18(b) and (b)(1)(ii) and 
(iii) respectively.
---------------------------------------------------------------------------

    A number of industry commenters, including trade associations, 
issuing banks, and program managers, recommended eliminating the 
proposed disclosure of the number of additional fees charged. In its 
place, many of these commenters favored a general statement that other 
fees are charged, generally with reference to the cardholder agreement 
for more information about these other fees. One trade association and 
an issuing bank stated that they found the proposed disclosure rational 
and reasonable, as it provided useful data to consumers without 
overwhelming them with information and without overcrowding the short 
form disclosure, though they also preferred a requirement simply to 
state that additional fees could apply.
    Many of these industry commenters expressed concern that presenting 
the number of fees would tend to mislead and confuse consumers and thus 
interfere with consumers' ability to make an informed choice among 
prepaid account programs. Several industry commenters said that the 
statement would mislead consumers into believing that these other fees 
are common fees they are likely to incur when in fact the commenters 
asserted that the fees may only be charged in connection with optional 
specialized services. Other industry commenters said that the number of 
other fees could mislead and confuse consumers into thinking that a 
product with a higher number of available functions--and fees for those 
functions--is more expensive or otherwise inferior to a product with 
fewer other fees, when in fact the opposite may be true. Some industry 
commenters warned that this stigmatized perception of a higher number 
of other fees and commensurate costs to update the disclosures may 
undermine innovation and flexibility, as financial institutions may 
either discontinue or cease developing new and flexible services that 
may be advantageous to consumers.
    Similarly, one of the consumer groups that recommended disclosure 
of all fees in all acquisition settings noted that an account that has 
many more other fees may actually charge fewer fees for the services it 
has in common with another account, but the proposed short form would 
make it seem as though it was potentially a more costly product. The 
consumer group recommended that the Bureau monitor the effect of 
requiring only the listing of the number of ``other'' fees on market 
innovation and the cost and types of fees that are charged.
    An issuing bank agreed that the disclosure of the number of 
additional fees charged can be a factor for consumers in comparing 
prepaid account terms, but also challenged the methodology of counting 
each fee

[[Page 84033]]

variation as a separate fee. It said this methodology could be 
misleading to consumers as it will lead to an artificial overstatement 
of the total number of fees. It said that services like bill payment, 
which may have standard and expedited delivery and are designed to be 
flexible and offer the most choice and control to consumers, will make 
the product appear undesirable, as the number of additional fees will 
be inflated. Instead, it recommended counting fee types rather than 
individual fee variations within fee types. Two trade associations and 
two other issuing banks also recommended against counting each fee 
variation as a separate fee, agreeing that it might unnecessarily 
increase the number of other fees without commensurate benefit for 
consumers.
The Final Rule
    For the reasons set forth herein, the Bureau is adopting proposed 
Sec.  1005.18(b)(2)(i)(B)(10), renumbered as Sec.  1005.18(b)(2)(viii), 
with substantial modifications, largely in response to comments 
received. First, the Bureau is locating together both disclosures 
dealing with fees not otherwise disclosed in the short form: The number 
of such fees required pursuant to final Sec.  1005.18(b)(2)(viii) and 
the disclosure of certain such fees (referred to in the proposal as 
incidence-based fees) pursuant to final Sec.  1005.18(b)(2)(ix). 
Second, instead of requiring disclosure of the number of additional 
fees, including all fee variations, the Bureau is requiring disclosure 
of the number of additional fee types.\399\ Third, instead of requiring 
the number of additional fees that could be imposed on a consumer in 
general, the Bureau is limiting this disclosure to the number of 
additional fee types that the financial institution may charge 
consumers with respect to the prepaid account. Fourth, the Bureau is 
requiring disclosure of an additional statement if a financial 
institution discloses additional fee types pursuant to final Sec.  
1005.18(b)(2)(ix) that directs consumers to the disclosure of those 
additional fee types that follows. Fifth, the Bureau has relocated the 
statement regarding the number of additional fee types from the bottom 
portion of the proposed short form disclosure to a more clearly 
delineated ``additional fee types'' portion that follows the static 
fees.
---------------------------------------------------------------------------

    \399\ See final comment 18(b)(2)(viii)(A)-2 for an explanation 
of the term ``fee type'' and a list of examples of fee types and fee 
variations within those fee types.
---------------------------------------------------------------------------

    Finally, the Bureau is not adopting any of the proposed commentary, 
but rather is adopting new comments 18(b)(2)(viii)(A)-1 through -4 and 
18(b)(2)(viii)(B)-1 to clarify various issues regarding application of 
the final rule.
Statement Regarding the Number of Additional Fee Types Charged Required 
by Sec.  1005.18(b)(2)(viii)(A)
    Final Sec.  1005.18(b)(2)(viii)(A) requires a statement disclosing 
the number of additional fee types the financial institution may charge 
consumers with respect to the prepaid account, using the following 
clause or a substantially similar clause: ``We charge [x] other types 
of fees.'' The number of additional fee types disclosed must reflect 
the total number of fee types under which the financial institution may 
charge fees, excluding fees required to be disclosed pursuant to final 
Sec.  1005.18(b)(2)(i) through (vii) and (5) and any finance charges as 
described in final Regulation Z Sec.  1026.4(b)(11) imposed in 
connection with a covered separate credit feature accessible by a 
hybrid prepaid-credit card as defined in new Sec.  1026.61.
    The Bureau is finalizing Sec.  1005.18(b)(2)(viii) because it 
continues to believe, as explained in the proposal, that it is crucial 
to inform consumers that there may be a cost for features not otherwise 
captured in the short form disclosure. Disclosure of this information 
will help both alert consumers that the short form is not a 
comprehensive fee disclosure and encourage consumers to seek out more 
information about the prepaid account from the long form disclosure and 
other sources. As noted in the proposal, the Bureau's pre-proposal 
consumer testing revealed that participants often did not know all the 
fees that might be assessed prior to their purchase of a prepaid 
account. In addition, the Bureau's post-proposal consumer testing 
revealed that, while not all participants understood the significance 
of the disclosure of the number of additional fee types, participants 
were keenly interested in this disclosure, which the Bureau believes 
will motivate consumers to seek more information about these additional 
fee types.\400\
---------------------------------------------------------------------------

    \400\ ICF Report II at 11-12 and 22.
---------------------------------------------------------------------------

    The Bureau declines to use a more general statement to alert 
consumers that there may be additional fees, as requested by some 
industry commenters. The Bureau believes that disclosure of the 
specific number of additional fee types, as opposed to a general 
statement regarding other fees charged, provides consumers with 
concrete information and stronger motivation to both better inform 
themselves and to direct their searches for additional information. 
Moreover, as discussed below, the Bureau believes that focusing the 
disclosure on tallying the types of fees rather than counting each 
variation in fees toward the total directly addresses industry's 
concerns that disclosing a specific number of other fees would prompt 
consumers to assign undue negative weight to the fact that a product 
may have many fee variations. The change to fee types also helps reduce 
compliance burden across the two related disclosures of the number of 
additional fee types required by this provision and the disclosure of 
additional fee types required by final Sec.  1005.18(b)(2)(ix).
    The Bureau disagrees with commenters that the comprehensive 
disclosure of all fees in another disclosure, such as the long form or 
the cardholder agreement, negates the rationale for disclosing the 
number of additional fee types in the short form. The Bureau believes 
that consumers generally would rely solely on the short form disclosure 
in making their acquisition decisions if they do not see language that 
specifically emphasizes the value of consulting the long form. The 
Bureau thus believes that listing the total number of fee types that 
are not otherwise listed on the short form will complement and enhance 
the statement in final Sec.  1005.18(b)(2)(xiii) directing consumers to 
the long form, providing a concrete incentive to consult the longer 
disclosure for products that are more complex.\401\ Specifically, the 
Bureau's post-proposal consumer testing revealed that, when asked how 
they could learn more about ``other fees'' not shown on the short form, 
practically all participants referred to the financial institution's 
telephone number and Web site disclosed on the prototype short form 
disclosure (i.e., the information sources required by final Sec.  
1005.18(b)(2)(xiii)).\402\ In sum, the Bureau believes that the 
disclosure of the number of additional fee types in the short form 
pursuant to Sec.  1005.18(b)(2)(viii) will directly inform consumers of 
important information and serve to spur them to further inquiry in 
other more detailed disclosures.
---------------------------------------------------------------------------

    \401\ See ICF Report II at 12 and 22.
    \402\ Id.
---------------------------------------------------------------------------

    The Bureau acknowledges commenters' concerns that some consumers 
may tend to assume that a prepaid account with a relatively high number 
of additional fees is more expensive or less desirable than other 
accounts, even when the opposite may be true. In part to address this 
concern, the Bureau is finalizing the rule

[[Page 84034]]

requiring financial institutions to disclose the total number of fee 
types, rather than the total number of all fees (including all fee 
variations within a fee type) that would have been required under the 
proposal. Requiring disclosure of the number of fee types instead of 
the number of discrete fees likely will reduce the number required to 
be disclosed for a typical prepaid account program. The Bureau believes 
that this modification for the final rule should help ameliorate the 
risk raised by some commenters that consumers will reject prepaid 
accounts with a high number of additional fees out of hand without 
seeking more detailed fee information to determine whether the products 
meet their needs. Moreover, the requirements for both final Sec.  
1005.18(b)(2)(viii) and (ix) are based on fee types (as opposed to one 
being based on discrete fees and the other on fee types), thereby 
reducing the burden of developing and maintaining two separate counts 
to determine and disclose the elements under their respective rules. 
The Bureau is also providing a list of fee types and fee variations in 
final comment 18(b)(2)(viii)(A)-2, discussed below--which are based on 
fees that the Bureau is aware exist in the current prepaid 
marketplace--that a financial institution may use when determining both 
the number of additional fee types charged pursuant to final Sec.  
1005.18(b)(2)(viii)(A) and any additional fee types to disclose 
pursuant to final Sec.  1005.18(b)(2)(ix). The Bureau believes that 
these provisions will reduce the risks and burdens raised by commenters 
concerning the proposed disclosure of the total number of fees not 
otherwise listed, while still providing the consumer with an important 
signal and incentive to investigate prepaid accounts that have more 
complex pricing structures.
    In addition, the Bureau believes that this modification addresses 
commenters' concerns, at least in part, regarding a potential chill to 
innovation of new features because such fee variations within a fee 
type will not be required to be separately counted for purposes of this 
disclosure. The Bureau intends to monitor compliance with this rule, 
including financial institutions' disclosures of the number of 
additional fee types charged, as well as market innovations in the 
prepaid industry more generally, and will consider additional action in 
future rulemakings if necessary.
    Modifying the final rule to require disclosure of the number of fee 
types also addresses concerns raised by some commenters that the 
proposed disclosure would have included many fees that are not commonly 
incurred by consumers--including fees for discretionary features that 
require specific consumer action before they are incurred. For example, 
under the final rule, a financial institution would count bill payment 
as an additional fee type if it offered this feature, but, unlike the 
rule as proposed, would not count each of the discrete fee variations 
within bill payment such as ACH bill payment, paper check bill payment, 
check cancellation, and regular or expedited delivery of a paper check. 
Thus, in addition to a reduction in the overall number of additional 
fees required to be disclosed under the final rule, a financial 
institution would similarly not be required to disclose many of the 
less common fees and fees triggered by affirmative consumer action. 
While some of the additional fee types required to be disclosed in the 
final rule may still be less common or triggered only when a consumer 
elects to use an optional service, the Bureau reiterates that the 
primary objective of this provision is to alert consumers to fee 
information absent from the short form and to spur consumers to take 
action to gain a more fulsome understanding of the terms of a 
prospective prepaid account; this disclosure fulfils this objective.
    As discussed in the section-by-section analysis of Sec.  
1005.18(b)(2)(ix) below, the Bureau is adopting a de minimis threshold 
with respect to the disclosure of specific additional fee types. The 
Bureau does not believe a de minimis threshold would be appropriate for 
the disclosure required by Sec.  1005.18(b)(2)(viii)(A) regarding the 
total number of additional fee types. The Bureau notes, however, that 
with the de minimis threshold in Sec.  1005.18(b)(2)(ix), disclosure of 
such fee types under final Sec.  1005.18(b)(2)(ix) would not be 
required, although such fee types would be counted in the total number 
of additional fee types disclosed pursuant to final Sec.  
1005.18(b)(2)(viii).
    Finally, the Bureau continues to believe it is not necessary to 
include in the final rule specific requirements for updating the 
statement regarding the number of additional fee types charged required 
by final Sec.  1005.18(b)(2)(viii)(A). As discussed in the section-by-
section analysis of Sec.  1005.18(b) above, the Bureau does not believe 
that financial institutions change the fee schedules for prepaid 
accounts often, particularly those sold at retail. If a financial 
institution is making available a new optional service for all prepaid 
accounts in a particular prepaid account program, Regulation E provides 
a means for financial institutions to notify consumers of terms 
associated with a new EFT service that is added to a consumer's 
account, in Sec.  1005.7(c). A financial institution may provide new 
consumer disclosures in accordance with Sec.  1005.7(c) post-
acquisition, without needing to pull and replace card packaging that 
does not reflect that new optional feature in the disclosure of the 
number of additional fee types pursuant to Sec.  
1005.18(b)(2)(viii)(A). The Bureau does expect, however, that financial 
institutions will keep their other disclosures up to date (including 
those provided electronically and orally, as well as disclosures 
provided in writing that are not a part of pre-printed packaging 
materials, such as those printed by a financial institution upon a 
consumer's request). The Bureau intends to monitor financial 
institutions' practices in this area, however, and may consider 
additional requirements in a future rulemaking if necessary.
    Final comment 18(b)(2)(viii)(A)-1 clarifies what fee types to count 
in the total number of additional fee types, specifically excluding 
fees otherwise required to be disclosed in and outside the short form 
pursuant to final Sec.  1005.18(b)(2)(i) through (vii) and (5) and any 
finance charges as described in final Regulation Z Sec.  1026.4(b)(11) 
imposed in connection with a covered separate credit feature accessible 
by a hybrid prepaid-credit card as defined in final Sec.  1026.61. 
Excluding the static fees and fees required to be disclosed outside the 
short form avoids the duplicative counting of fees already disclosed to 
the consumer. As discussed in more detail below, the Bureau has made a 
strategic decision to focus the bulk of the short form disclosure on 
usage of the prepaid account itself rather than any charges related to 
overdraft credit features. The possibility that consumers may be 
offered an overdraft credit feature for use in connection with the 
prepaid account is addressed in the short form pursuant to Sec.  
1005.18(b)(2)(x), which requires the following statement if such a 
feature may be offered: ``You may be offered overdraft/credit after [x] 
days. Fees would apply.'' Consistent with this overall decision, the 
Bureau believes that it is appropriate to exclude any finance charges 
related to an overdraft credit feature that may be offered at a later 
date to some prepaid consumers from the disclosures regarding 
additional fees under both final Sec.  1005.18(b)(2)(viii) and (ix). If 
consumers are interested in such a feature, they can look to the 
Regulation Z disclosures in the long form pursuant

[[Page 84035]]

to final Sec.  1005.18(b)(4)(vii), discussed below, for more details.
    Final comment 18(b)(2)(viii)(A)-1.i explains that the number of 
additional fee types includes only fee types under which the financial 
institution may charge fees; accordingly, third-party fees are not 
included unless they are imposed for services performed on behalf of 
the financial institution. The comment additionally clarifies that the 
number of additional fee types includes only fee types the financial 
institution may charge consumers with respect to the prepaid account; 
accordingly, additional fee types does not include other revenue 
sources such as interchange fees or fees paid by employers for payroll 
card programs, government agencies for government benefit programs, or 
other entities sponsoring prepaid account programs for financial 
disbursements.
    Final comment 18(b)(2)(viii)(A)-1.ii explains that fee types that 
bear a relationship to, but are separate from, the static fees 
disclosed in the short form must be counted as additional fee types for 
purposes of final Sec.  1005.18(b)(2)(viii). The comment also provides 
a detailed explanation regarding the treatment of international ATM 
fees and fees for reloading funds into a prepaid account in a form 
other than cash (such as electronic reload and check reload). In 
addition, the comment explains that additional fee types disclosed in 
the short form pursuant to final Sec.  1005.18(b)(2)(ix) must be 
counted in the total number of additional fee types. This is because 
the exclusions in final Sec.  1005.18(b)(2)(ix)(A)(1) and (2) are only 
for fees required to be disclosed pursuant to final Sec.  
1005.18(b)(2)(i) through (vii) and (5) and any finance charges imposed 
on the prepaid account as described in Regulation Z Sec.  
1026.4(b)(11)(ii) in connection with a covered separate credit feature 
accessible by a hybrid prepaid-credit card as defined in Regulation Z 
Sec.  1026.61. Further, the statement required by final Sec.  
1005.18(b)(2)(viii)(B) explains that the additional fee types disclosed 
are some of the total number of additional fee types.
    The Bureau is adopting new comment 18(b)(2)(viii)(A)-2 to provide 
guidance regarding the calculation of the number of additional fee 
types pursuant to final Sec.  1005.18(b)(2)(viii) as well as to address 
concerns raised by an industry commenter regarding how to categorize 
fees in determining the additional fee types to disclose under final 
Sec.  1005.18(b)(2)(ix). The comment explains that the term fee type, 
as used in final Sec.  1005.18(b)(2)(viii) and (ix), is a general 
category under which a financial institution charges fees to consumers. 
A financial institution may charge only one fee within a particular fee 
type, or may charge two or more variations of fees within the same fee 
type. (The Bureau notes that an additional fee type for which a 
financial institution does not charge any fee to the consumer, 
including for any variations of the additional fee type, is not counted 
in the total number of additional fee types under final Sec.  
1005.18(b)(2)(viii) nor required to be disclosed on the short form 
under final Sec.  1005.18(b)(2)(ix).) The comment goes on to provide a 
list of examples of fee types a financial institution may use when 
determining both the number of additional fee types charged pursuant to 
final Sec.  1005.18(b)(2)(viii)(A) and any additional fee types to 
disclose pursuant to final Sec.  1005.18(b)(2)(ix). The comment also 
explains that a financial institution may create an appropriate name 
for other additional fee types.
    The Bureau compiled the list of examples of fee types in new 
comment 18(b)(2)(viii)(A)-2 to provide guidance to financial 
institutions and to help facilitate their categorization of additional 
fee types for satisfying the requirements in final Sec.  
1005.18(b)(2)(viii)(A) and (ix). The list also may encourage 
standardization of this portion of the short form in that, although 
additional fee types disclosed will vary across short forms for 
different prepaid account programs, the Bureau believes financial 
institutions will generally use consistent nomenclature for additional 
fee types identified on the list. The Bureau compiled this list of 
examples of fee types based on particular fee types referenced in 
comments received on the proposal and by reviewing the packaging of and 
disclosures for scores of prepaid account programs.\403\ The Bureau 
balanced multiple considerations in compiling the list in final comment 
18(b)(2)(viii)(A)-2 for purposes of both final Sec.  
1005.18(b)(2)(viii) and (ix), including existing industry practices 
with regard to fee types, the accounting burdens associated with 
relatively narrower or broader definitions of fee types, and the 
potential benefits to both industry and consumers in using narrower 
definitions of fee types to communicate information about specific 
account features and fees. The Bureau believes the resulting list 
strikes an appropriate balance by capturing categories and terms 
employed by the prepaid industry itself that will be useful to 
financial institutions and consumers in determining and understanding 
additional fee types. The Bureau is providing flexibility to financial 
institutions to fashion appropriate names for other fee types, 
including fee types for services that do not yet exist in the prepaid 
marketplace.
---------------------------------------------------------------------------

    \403\ As part of the Bureau's Study of Prepaid Account 
Agreements, Bureau staff found fee tables or other explanations of 
at least some of the fees charged for 278 of the 325 agreements 
reviewed. See Study of Prepaid Account Agreements at 29 and note 49.
---------------------------------------------------------------------------

    Final comment 18(b)(2)(viii)(A)-3 clarifies that, pursuant to final 
Sec.  1005.18(b)(2)(vi), a financial institution using the multiple 
service plan short form disclosure pursuant to final Sec.  
1005.18(b)(6)(iii)(B)(2) must disclose only the fee for calling 
customer service via a live agent. Thus, pursuant to final Sec.  
1005.18(b)(2)(viii), any charge for calling customer service via an 
interactive voice response system must be counted in the total number 
of additional fee types.
    Final comment 18(b)(2)(viii)(A)-4 clarifies that a financial 
institution must use the same categorization of fee types in the number 
of additional fee types disclosed pursuant to final Sec.  
1005.18(b)(2)(viii) and in its determination of which additional fee 
types to disclose pursuant to final Sec.  1005.18(b)(2)(ix). The Bureau 
is including this comment on consistency to make clear that a financial 
institution is not permitted to, for example, shorten its list of fee 
types into a few broad categories (in order to minimize the number of 
additional fee types required to be disclosed pursuant to final Sec.  
1005.18(b)(2)(viii)) but use a more detailed list of fee types broken 
out into a greater number of categories when assessing its obligations 
under final Sec.  1005.18(b)(2)(ix) (in order to maximize the number of 
fee types that may fall below the de minimis threshold pursuant to 
final Sec.  1005.18(b)(2)(ix)(A)(2)).
Statement Directing Consumers To Disclosure of Additional Fee Types 
Required by Sec.  1005.18(b)(2)(viii)(B)
    Final Sec.  1005.18(b)(2)(viii)(B) requires that, if a financial 
institution makes a disclosure of specific additional fee types 
pursuant to final Sec.  1005.18(b)(2)(ix), the financial institution 
must include a statement directing consumers to that disclosure, 
located after but on the same line of text as the statement regarding 
the number of additional fee types required by final Sec.  
1005.18(b)(2)(viii)(A), using the following clause or a substantially 
similar clause: ``Here are some of them:''.
    The disclosure required by final Sec.  1005.18(b)(2)(viii)(A) 
indicating the number of additional fee types will

[[Page 84036]]

generally be followed by the specific disclosure of two additional fee 
types pursuant to final Sec.  1005.18(b)(2)(ix). The Bureau believes 
that a brief transition statement linking these two disclosures will 
enhance consumer understanding of both disclosures and dispel potential 
consumer misunderstanding that features are not offered if they are not 
disclosed on the short form.\404\ Thus, the line in the short form 
disclosure following the static fees would disclose the following or 
substantially similar clauses: ``We charge X other types of fees. Here 
are some of them:''.
---------------------------------------------------------------------------

    \404\ See the section-by-section analysis of Sec.  
1005.18(b)(2)(ix) below discussing industry commenters' concern that 
disclosure of the proposed incidence-based fees would mislead 
consumers into thinking that features are not offered if they are 
not disclosed as incidence-based fees.
---------------------------------------------------------------------------

    As discussed in the section-by-section analysis of Sec.  
1005.18(b)(2)(ix) below, the Bureau believes that the brevity and 
clarity of the short form disclosure necessary for optimal consumer 
comprehension and engagement cannot support a detailed explanation of 
what additional fee types are or the criteria the financial institution 
used in determining which additional fee types to disclose. The 
Bureau's pre-proposal consumer testing of such explanations support 
this conclusion.\405\ Pre-proposal testing of a statement intended to 
inform consumers that the fees listed were those that generated 
significant revenue for the financial institution resulted in minimal 
participant comprehension or notice.\406\ Post-proposal testing of a 
similar disclosure that, in addition to including an explanation of the 
criteria for disclosing such fees (i.e., that the two fees listed were 
the most commonly charged), also directed consumers where to find 
detail about all fees, similarly did not increase participant 
comprehension.\407\
---------------------------------------------------------------------------

    \405\ See ICF Report I at 35 and ICF Report II at 22-23.
    \406\ See ICF Report I at 35. (Certain prototype short form 
disclosures tested included the statement: ``The fees below generate 
significant revenue for this company.'')
    \407\ See ICF Report II at 22-23. (Certain prototype short form 
disclosures tested included the statement: ``We charge [x] 
additional fees. Details on fees inside the package, at 800-234-5678 
or at bit.ly/XYZprepaids. These are our most common:''.)
---------------------------------------------------------------------------

    Thus, to make the connection for consumers that the additional fee 
types disclosed pursuant to final Sec.  1005.18(b)(2)(ix) are a subset 
of the number of additional fee types disclosed pursuant to final Sec.  
1005.18(b)(2)(viii)(A), and that absence of any feature on the short 
form does not necessarily mean the prepaid account program does not 
offer that feature, the Bureau is including in the final rule the 
transition statement set forth above.
    Final comment 18(b)(2)(viii)(B)-1 provides guidance regarding the 
statement required by final Sec.  1005.18(b)(2)(viii)(B) directing 
consumers to the disclosure of additional fee types pursuant final 
Sec.  1005.18(b)(2)(ix). The comment explains that a financial 
institution that makes no disclosure pursuant to final Sec.  
1005.18(b)(2)(ix) may not include a disclosure pursuant to final Sec.  
1005.18(b)(2)(viii)(B). The comment also provides examples regarding 
substantially similar clauses a financial institution may use in 
certain circumstances to make its disclosures under final Sec.  
1005.18(b)(2)(viii)(A) and (B), such as when a financial institution 
has several additional fee types but is only required to disclose one 
of them pursuant to final Sec.  1005.18(b)(2)(ix).
18(b)(2)(ix) Disclosure of Additional Fee Types
    As explained at the beginning of the section-by-section analysis of 
Sec.  1005.18(b)(2)(viii) above, the proposal would have required two 
distinct disclosures in the short form designed to alert consumers to 
other fees financial institutions may charge in addition to the 
standardized static fees disclosed at the top of the short form. First, 
following the static fee disclosures, pursuant to proposed Sec.  
1005.18(b)(2)(i)(B)(8), the proposed short form would have disclosed up 
to three fees incurred most frequently by consumers of that particular 
prepaid card program that were not otherwise disclosed on the short 
form (referred to as incidence-based fees). Second, pursuant to 
proposed Sec.  1005.18(b)(2)(i)(B)(10), the short form would have 
disclosed a statement in bold-faced type near the bottom of the 
disclosure stating: ``We charge [X] other fees not listed here.'' As 
described herein, the Bureau believed that these two elements would 
help emphasize to consumers that the short form disclosure was not a 
comprehensive list of all fees, provide consumers with specific 
information about the additional fees that they were most likely to 
encounter, and encourage consumers to review the long form or otherwise 
seek additional information about the prepaid account's features and 
costs.
    As discussed in connection with both final Sec.  
1005.18(b)(2)(viii) and (ix), the Bureau is adopting both proposed 
disclosures with substantial revisions and is placing them together on 
the short form to provide greater clarity to consumers and enhance the 
impact of each disclosure relative to the proposed version. Other 
adjustments made to the final rule to improve consumer comprehension 
and reduce implementation burdens for financial institutions include, 
for example, requiring disclosure of the number of additional types of 
fees charged in connection with the prepaid account program, rather 
than counting each variation in fees toward the total as proposed and 
requiring disclosure of specific fee types on the short form based on 
revenue, rather than frequency, and only if in excess of a de minimis 
threshold. The Bureau believes that these and other changes will make 
the disclosures easier for financial institutions to prepare and more 
meaningful for consumers.
The Bureau's Proposal
    In addition to the fees that all financial institutions would have 
had to disclose in the static portion of the short form disclosure 
pursuant to proposed Sec.  1005.18(b)(2)(i)(B)(1) through (7), the 
Bureau also proposed that financial institutions disclose up to three 
additional ``incidence-based'' fees not already disclosed elsewhere on 
the short form that are incurred most frequently for that particular 
prepaid account product. If a financial institution offered several 
prepaid account products, the incidence-based fees analysis would have 
had to be conducted separately for each product, based on usage 
patterns in the prior 12-month period, and updated annually. Thus, the 
incidence-based fees that would have been disclosed to a consumer on 
the short form could have varied from one product to the next depending 
on which fees consumers incurred most frequently for each product.
    The Bureau proposed this disclosure because it was concerned that, 
while the fee disclosures in the static portion of the short form under 
the proposed rule would have included the key fees on most prepaid 
accounts, that list is not comprehensive and there could be other fees 
that consumers might incur with some frequency. The Bureau also had 
concerns that, absent this incidence-based disclosure, there was a risk 
of evasion whereby a financial institution trying to gain an advantage 
relative to its competitors could restructure its fee schedule to make 
the fees disclosed in the static portion of the short form lower, while 
structuring its pricing to make up or even increase overall revenue by 
imposing fees that would not otherwise be disclosed on the short form. 
The Bureau believed that requiring financial institutions to disclose 
other fees that are frequently

[[Page 84037]]

paid by consumers would limit the ability of financial institutions to 
avoid having to disclose relevant fee information up front on the short 
form disclosure.
    Additionally, the Bureau believed that the incidence-based portion 
of the short form, though it would have mandated a specific metric to 
determine which additional fees may be listed, would have provided some 
flexibility to industry participants to disclose up to three more fees 
on the short form particular to each prepaid account product and that 
may be imposed for features that could be appealing to consumers.
    Proposed Sec.  1005.18(b)(2)(i)(B)(8)(I). Accordingly, proposed 
Sec.  1005.18(b)(2)(i)(B)(8)(I) would generally have required 
disclosure of up to three fees, other than any of those fees disclosed 
pursuant to proposed Sec.  1005.18(b)(2)(i)(B)(1) through (7), that 
were incurred most frequently in the prior 12-month period by consumers 
of that particular prepaid account product.
    For existing prepaid account products, proposed Sec.  
1005.18(b)(2)(i)(B)(8)(I) would have required that, at the same time 
each year, a financial institution assess whether the incidence-based 
fees disclosed pursuant to proposed Sec.  1005.18(b)(2)(i)(B)(8)(I) 
were the most frequently incurred fees in the prior 12-month period by 
consumers of that particular prepaid account product. In accordance 
with the timing requirements of proposed Sec.  1005.18(h), a financial 
institution would have had to execute any updates required by the rules 
within 90 days for disclosures provided in written, electronic, or oral 
form pursuant to proposed Sec.  1005.18(b)(1)(i). Disclosures provided 
on the packaging material of prepaid account access devices, for 
example, in retail stores pursuant to proposed Sec.  1005.18(b)(1)(ii), 
or in other locations, would have had to be revised when the financial 
institution printed new packaging material for its prepaid account 
access devices, in accordance with the timing requirements in proposed 
Sec.  1005.18(h). All disclosures provided pursuant to proposed Sec.  
1005.18(b)(2)(i)(B)(8)(I) and created after a financial institution 
makes an incidence-based fee assessment and determines changes are 
necessary would have had to include such changes, in accordance with 
the timing requirements in proposed Sec.  1005.18(h).
    The Bureau believed that it was important for the incidence-based 
fee disclosure to list a prepaid account product's most commonly 
incurred fees. The Bureau, however, recognized that financial 
institutions would need time to update disclosures upon assessing 
whether any changes to the incidence-based fee disclosure are needed, 
although the Bureau expected such changes would be infrequent. The 
Bureau believed such updates would be easier for disclosures provided 
in electronic form or in written form outside of a retail setting. 
Thus, the Bureau proposed that financial institutions would have had to 
make updates to written, electronic, and oral disclosures within 90 
days to ensure that consumers receive up-to-date incidence-based fee 
disclosures. The Bureau, however, recognized that it could be more 
complicated and time-consuming for financial institutions to make 
updates to packages used to market prepaid accounts in retail stores, 
and therefore proposed that financial institutions would have been able 
to implement updates on packaging material whenever they are printing 
new stock during normal inventory cycles. The Bureau acknowledged that 
the proposal could result in some disclosures for the same prepaid 
account product (i.e., electronic disclosures provided online or 
printed disclosures provided in person without the use of packaging) 
having different incidence-based fee disclosures on the short forms 
provided on retail store packaging material. The Bureau, however, did 
not believe that this discrepancy would significantly impact a 
consumer's decision regarding which prepaid account product to acquire 
since consumers would most likely be comparing the disclosures for two 
distinct products, and not reviewing disclosures side-by-side for the 
same prepaid account product found in different acquisition channels.
    The Bureau also recognized that allowing financial institutions to 
continue to use packaging with out-of-date incidence-based fee 
disclosure in retail stores could reduce the effectiveness of this 
disclosure. The Bureau, however, believed that imposing a cut-off date 
after which sale or distribution of out-of-date retail packages would 
be prohibited could be overly burdensome.
    The Bureau also proposed to adopt several comments to provide 
additional guidance on incidence-based fee disclosures. Proposed 
comment 18(b)(2)(i)(B)(8)-1 would have provided guidance regarding the 
number of incidence-based fees to disclose in the short form, including 
when no fees, more than three, or less than three fees meet the 
criteria in the definition of incidence-based fees. Proposed comment 
18(b)(2)(i)(B)(8)-2 would have set forth how to determine which fees 
were incurred most frequently in the prior 12-month period and would 
have also clarified that the price for purchasing or activating a 
prepaid account could qualify as an incidence-based fee. Proposed 
comment 18(b)(2)(i)(B)(8)(I)-3 would have provided guidance regarding 
the disclosure of incidence-based fees in accordance with the proposed 
effective date regime in proposed Sec.  1005.18(h). Proposed comment 
18(b)(2)(i)(B)(8)(I)-4 would have explained how to disclose incidence-
based fees when disclosing multiple service plans on a short form 
disclosure that would have been permitted by proposed Sec.  
1005.18(b)(3)(iii)(B). Proposed comment 18(b)(2)(i)(B)(8)(I)-5 would 
have explained that proposed Sec.  1005.18(b)(2)(i)(B)(8)(I) would have 
permitted a reprint exception that would not have required that 
financial institutions immediately destroy existing inventory in retail 
stores or elsewhere in the distribution channel, to the extent the 
disclosures on such packaging materials were otherwise accurate, but 
would have required that, if a financial institution determines that an 
incidence-based fee listed on a short form disclosure in a retail store 
no longer qualified as one of the most commonly incurred fees and made 
the appropriate change when printing new disclosures, any packages in 
retail stores that contained the previous incidence-based fee 
disclosure could still be sold in compliance with proposed Sec.  
1005.18(b)(2)(i)(B)(8)(I).
    Proposed Sec.  1005.18(b)(2)(i)(B)(8)(II). Recognizing that new 
prepaid products have no prior fee data history, the Bureau also 
proposed additional requirements to address such circumstances. 
Proposed Sec.  1005.18(b)(2)(i)(B)(8)(II) would have required that, if 
a particular prepaid account product was not offered by the financial 
institution during the prior 12-month period, the financial institution 
would have to disclose up to three fees other than any of those fees 
disclosed pursuant to proposed Sec.  1005.18(b)(2)(i)(B)(1) through (7) 
that it reasonably anticipates will be incurred by consumers most 
frequently during the next 12-month period. The incidence-based fee 
disclosures for newly-created prepaid account products would have to be 
included on all disclosures created for the prepaid account product, 
whether the disclosure is written, electronic, or on the packaging 
material of a prepaid account product sold in a retail store, in 
accordance with the timing

[[Page 84038]]

requirements in proposed Sec.  1005.18(h). Although financial 
institutions do not have actual fee data for new prepaid account 
products, the Bureau believed that they nonetheless would have a 
reasonable expectation as to which fees would be incurred most 
frequently. Thus, financial institutions would have been required, for 
those prepaid account products without prior fee data, to estimate in 
advance the fees that should be disclosed in the incidence-based 
portion of the short form disclosure. Proposed comment 
18(b)(2)(i)(B)(8)(II)-1 would have explained that the financial 
institution should use available data to reasonably anticipate what 
fees should be disclosed and provided an example to illustrate.
    Proposed Sec.  1005.18(b)(2)(i)(8)(III). The Bureau also proposed 
additional requirements for when a particular prepaid account product's 
fee schedule changes. Specifically, proposed Sec.  
1005.18(b)(2)(i)(B)(8)(III) would have required that, if a financial 
institution changes an existing prepaid account product's fee schedule 
at any point after assessing its incidence-based fee disclosure for the 
prior 12-month period pursuant to proposed Sec.  
1005.18(b)(2)(i)(B)(8)(I), it would have had to determine whether, 
after making such changes, it reasonably anticipates that the existing 
incidence-based fee disclosure would represent the most commonly 
incurred fees for the remainder of the current 12-month period. If the 
financial institution reasonably anticipates that the current 
incidence-based fee disclosure would not have represented the most 
commonly incurred fees for the remainder of the current 12-month 
period, it would have had to update the incidence-based fee disclosure 
within 90 days for disclosures provided in written or electronic form, 
in accordance with the timing requirements in proposed Sec.  
1005.18(h).
    Proposed Sec.  1005.18(b)(2)(i)(B)(8)(III) also would have required 
that disclosures provided on a prepaid account product's packaging 
material, for example, in retail stores pursuant to proposed Sec.  
1005.18(b)(1)(ii), or in other locations, must be revised when the 
financial institution is printing new packaging material, in accordance 
with the timing requirements of proposed Sec.  1005.18(h). All 
disclosures provided pursuant to proposed Sec.  
1005.18(b)(2)(i)(B)(8)(III) and created after a financial institution 
makes an incidence-based fee assessment and determines changes are 
necessary must include such changes, in accordance with the timing 
requirements of proposed Sec.  1005.18(h). Proposed comment 
18(b)(2)(i)(B)(8)(III)-1 would have provided an example demonstrating 
the impact of a fee change on an existing prepaid account product's 
incidence-based fee disclosure.
    The Bureau noted in the proposal that its proposed model forms did 
not isolate or identify these incidence-based fees in a way that would 
have distinguished them from the other fees, outside the top-line, 
disclosed under proposed Sec.  1005.18(b)(2)(i)(B)(5) through (7). 
Thus, the Bureau explained, a consumer comparing two different prepaid 
account products may see some types of fees that are the same (the 
seven standardized fees disclosed pursuant to proposed Sec.  
1005.18(b)(2)(i)(B)(1) through (7)) and may see some that differ (the 
three incidence-based fees disclosed pursuant to proposed Sec.  
1005.18(b)(2)(i)(B)(8)). During its pre-proposal consumer testing, the 
Bureau tested language identifying the incidence-based fees as such, 
but this language was often ignored or misunderstood by 
participants.\408\ Nevertheless, the Bureau recognized that some 
variation on the short form fee disclosure could lead to confusion, and 
thus the Bureau sought comment on whether the model forms should more 
clearly indicate to a consumer the meaning of the incidence-based fees.
---------------------------------------------------------------------------

    \408\ See ICF Report I at 35.
---------------------------------------------------------------------------

    The Bureau also recognized that the proposed procedure for 
determining and disclosing incidence-based fees could be complicated in 
some instances, particularly for new prepaid accounts or those with 
revised fee schedules. Further, the Bureau acknowledged that basing the 
incidence-based fees determination on fee incidence might not make 
sense for all prepaid products. Thus, the Bureau sought comment on all 
aspects of this incidence-based fees proposal. Among other things, the 
Bureau specifically solicited feedback on whether other measures, such 
as fee revenue, would be better measures of the most important 
remaining fees to disclose to consumers considering a prepaid account, 
and whether there should be a de minimis threshold below which changes 
to the incidence ranking would not require form revisions, and if so, 
what that threshold should be.
Comments Received
    Numerous industry commenters spanning a panoply of interests in the 
prepaid industry including trade associations, issuing banks, credit 
unions, program managers, a law firm commenting on behalf of a 
coalition of prepaid issuers, and other parties involved in the prepaid 
industry, as well as several employers, addressed the proposed 
requirement to disclose incidence-based fees, with the vast majority 
recommending the Bureau eliminate this aspect of the short form 
disclosure. Their specific concerns and criticisms are discussed in 
detail below. Industry commenters, however, generally supported the 
proposed reprint exception. That exception would have excused financial 
institutions from annually updating the incidence-based fees for 
disclosures provided on a prepaid account product's packaging material, 
for example, in retail stores, until the financial institution prints 
new packaging material.
    Industry commenters offered myriad reasons in support of their 
recommendation that the Bureau not finalize the requirement to disclose 
incidence-based fees. Industry commenters' concerns, summarized here, 
are discussed in more detail in the paragraphs that follow. Some said 
that the disclosure would heavily burden industry with what they viewed 
to be little, if any, benefits to consumers and, if finalized as 
proposed, would likely cause some prepaid providers to exit the market. 
Many said that this disclosure defeats the uniformity in the short form 
and thus could inhibit consumers' ability to comparison shop. Many 
others asserted that the disclosure would create a discrepancy between 
fees disclosed online and those disclosed on packaging for financial 
institutions taking advantage of the reprint exception. Some industry 
commenters suggested that the incidence-based fees disclosed may not be 
germane to all consumers. Some also asserted the disclosure would be 
redundant because the incidence-based fees can be found elsewhere, such 
as on the long form disclosure.
    Specifically, some industry commenters voiced concern regarding 
consumer comprehension of the significance of incidence-based fees. 
They said that the disclosure defeats uniformity within and comparison 
shopping among short form disclosures because incidence-based fees 
would vary among different prepaid account programs and over time even 
for the same program, which they contended would mislead consumers into 
thinking that absence of a certain fee on the short form may mean the 
feature is not offered. A few commenters said that because of 
differences in customer usage, some of the disclosed incidence-based 
fees would not be germane to some consumers. Some industry commenters 
contended that the Bureau's pre-proposal consumer testing

[[Page 84039]]

showed that consumers did not understand if they would incur incidence-
based fees, that frequency of incidence determined disclosure of one 
feature over another, or how the information was relevant to them in 
selecting a prepaid account. One industry commenter said that 
addressing this confusion with an explanation of these topics in the 
short form disclosure would take up valuable space and create its own 
confusion, but that eliminating the requirement to disclose incidence-
based fees would solve this problem while reducing the overwhelming 
amount and complexity of the information required in the short form 
disclosure.
    Some industry commenters questioned the Bureau's rationale for the 
disclosure of incidence-based fees in the proposed rule, saying that 
the risk of fee evasion by industry is unwarranted in the current 
competitive prepaid marketplace.
    Some industry commenters questioned the validity of the data upon 
which incidence-based fees would be calculated, saying incidence-based 
fees were unlikely to change significantly absent structural changes to 
the program and that, because prepaid accounts are typically short-
lived, annual assessment would not provide a sufficient basis from 
which to extrapolate meaningful information.
    Some industry commenters, including issuing banks, credit unions, 
and industry trade associations, asserted that requiring disclosure of 
incidence-based fees for products distributed in bank branch settings 
is unnecessary as availability of the long form disclosure prior to 
acquisition and bank personnel to answer questions both encourage more 
thoughtful consumer review. Some of these industry commenters claimed 
incidence-based disclosures would disproportionately burden community 
banks and credit unions because they use outside vendors to handle 
disclosures, creating higher costs and unfair due diligence demands on 
banks to oversee the vendors. Some said that, without an exemption for 
small issuers, compliance costs may force these providers out of the 
market. A program manager for government benefit account programs 
recommended an exemption for accounts arranged for or issued by 
government agencies, saying agencies usually each offer only one 
prepaid account program and consequently, consumers do not need 
disclosures to be provided in a format designed to facilitate 
comparison of multiple prepaid accounts offered by the agency. 
Alternatively, the commenter recommended permitting government agencies 
to aggregate their data for incidence-based fees rather than analyzing 
each program separately.
    Many industry commenters focused on the perceived burden of this 
proposed requirement, saying the disclosure would be complex, costly, 
and difficult to implement. One industry commenter said the fear that 
any changes to incidence-based fees will require changes to packaging 
and marketing materials would stifle innovation and development of new 
services or new prepaid products. Another recommended the Bureau 
commission a study to confirm that the benefits of the incidence-based 
disclosure outweigh the burden. Many industry commenters said it would 
be a major undertaking to identify and calculate incidence-based fees, 
with some saying the proposed annual update alone would necessitate a 
massive amount of new procedures, controls, system updates, and 
packaging design changes.
    Some questioned the meaning in the proposed rule of the term 
``separate prepaid account program,'' saying initial and ongoing 
identification and calculation of incidence-based fees would be 
particularly cost prohibitive for entities with hundreds or thousands 
of separate prepaid account programs, as they said is the case with 
certain companies that issue or manage payroll card account programs. 
Some commenters involved in payroll card account programs queried 
whether the proposed rule would require them to calculate incidence-
based fees for each individual program negotiated separately with an 
employer or whether they could aggregate data across programs. For 
example, one payroll card account program manager with 4,000 individual 
employer programs said every annual printing would cost $1 per 
cardholder such that annual printing costs alone would be a 
multimillion dollar undertaking.
    Some industry commenters questioned specific aspects of the 
proposed incidence-based fee disclosure. A few commenters questioned 
the proposed 90-day period for updates, saying it was unclear whether 
both assessing and updating incidence-based fees would be required in 
that time frame and recommended various extensions of the period, for 
example, to 120 days for both assessment and updating, 12 months after 
analysis to update, or within a reasonable time after a change. A trade 
association commenter said the requirement to disclose additional fee 
types would pose a ``compliance trap'' because financial institutions 
could be second-guessed on how they categorized them.\409\ Another 
industry commenter said financial institutions would have to justify 
their categorization and tracking of fees to examiners, even when 
vendors perform that service (as, they said, is the case with many 
small banks). Another commenter said the ``reasonable'' standard for 
estimating incidence for new products would be complicated and inexact, 
with no guarantee of accuracy but would function as a de facto strict 
liability standard.
---------------------------------------------------------------------------

    \409\ While proposed Sec.  1005.18(b)(2)(i)(8)(I) would have 
required disclosure of up to three fees, proposed comment 
18(b)(2)(i)(B)(8)(I)-2 would have explained that, in determining 
incidence-based fees, financial institutions would have had to total 
the incidence for each fee type incurred during the prescribed 
period.
---------------------------------------------------------------------------

    Many industry commenters responded to the Bureau's solicitation of 
comments regarding alternatives to the proposed incidence-based fee 
disclosure. They variously recommended the following in the short form 
disclosure: A general statement that other fees may apply, disclosing 
all fees, or adding to the static fees already disclosed on the short 
form up to three more common fees chosen by the financial institution 
or determined by the Bureau on the basis of research. Some industry 
commenters recommended modifying the proposed update schedule by 
requiring the update every two years, or requiring it only when there 
is a fee change which would require the financial institution to update 
the prepaid account terms, packaging, and disclosures in any case.
    A few industry commenters addressed the Bureau's queries regarding 
whether the disclosure should be based on assessment of fee frequency, 
as proposed, or fee revenue. A trade association and an issuing bank 
said they had no preference, as long as the criteria are clear, easy to 
determine, and not subject to annual updating. A program manager also 
said it had no preference as it has the data necessary for either 
calculation, and the cost and compliance burden would be the same 
either way.
    The proposal sought comment on a de minimis threshold below which 
changes to the incidence ranking would not require form revisions. 
While some industry commenters supported this idea, others went further 
and advocated for a general de minimis threshold that would not require 
disclosure of additional fee types below a threshold set by the Bureau. 
A trade association, a payment network, an issuing bank, and several 
program managers urged the Bureau to adopt a general de minimis 
exclusion from the incidence-based fee

[[Page 84040]]

requirement. The issuing bank said this would help to ensure that 
consumers are provided with information on the short form disclosure 
that is most likely to be relevant to their actual use of the prepaid 
account. Other commenters explained that, in general, very little 
revenue is generated from fees paid by consumers that are not already 
reflected on the proposed short form, other than from the purchase 
price and activation fees (when charged), though there are outliers in 
certain circumstances. One commenter expressed concern that because so 
few consumers use the services associated with these other fees, the 
incidence-based fees required to be disclosed would likely change every 
year due to small shifts in consumer usage.
    A trade association recommended the Bureau adopt a safe harbor to 
the proposed incidence-based fee requirement that allows financial 
institutions to disclose all fees on the short form, with a de minimis 
exception for fees that are imposed on fewer than 25 percent of 
accounts. A credit union similarly recommended that the Bureau give 
financial institutions the option of listing all fees on the short 
form, which it said would be more transparent to consumers and more 
beneficial particularly for issuers who charge a limited number of fees 
on their prepaid accounts.
    Several consumer group commenters, on the other hand, supported the 
proposed disclosure of incidence-based fees. These commenters said that 
requiring disclosure of incidence-based fees would prevent financial 
institutions from designing their fee schedules to minimize fees 
required to be disclosed on the short form and to maximize those that 
are only listed on the long form disclosure, where consumers are less 
likely to see them. They also said the disclosure of incidence-based 
fees would help consumers evaluate and avoid the most-commonly charged 
fees.
    The consumer group commenters also recommended some changes to the 
proposed requirement. They all recommended requiring calculation of the 
fees based on revenue, rather than frequency of incidence, saying it is 
more important to warn consumers about high fees that impact small 
numbers of consumers rather than small fees charged often. They warned 
that placing more importance on a commonly incurred but inexpensive 
fee, rather than a rare expensive fee, could result in consumers paying 
more for fees that are not prominently displayed. They said the rule 
could incent some providers to bring down cost of the most common fees 
in favor of higher fees on those incurred less often, thus hiding 
potential costly charges.
    One consumer group commenter recommended eliminating the 12-month 
lookback period for assessment of incidence-based fees because an 
expensive fee, such as a legal process fee, may be charged sporadically 
but could devastate a consumer. That commenter also argued against a de 
minimis exception, saying any fee so small or so rarely incurred should 
be eliminated. Moreover, it said, a de minimis threshold would likely 
eliminate disclosure of infrequent but costly fees, such as legal fees 
for garnishment. The consumer group also suggested requiring 
standardized use of the term ``bill payment'' for incidence-based fees. 
Another consumer group recommended permitting a financial institution 
that charges a total of four other fees to disclose all four of those 
fees in lieu of disclosing three of those fees and the statement 
regarding other fees.
    Regarding purchase price, one consumer group commenter agreed that, 
as the Bureau had proposed, the purchase price for a prepaid account 
should be a potential incidence-based fee and not be required as a 
static fee because of the limited space in the short form and other 
parts of the packaging can disclose this information. Moreover, the 
commenter said, it is a one-time fee and consumers will take notice of 
the price they have to pay for the prepaid account. On the other hand, 
another consumer group commenter recommended that the purchase price be 
required to be disclosed as a static fee on the short form or, 
alternatively, as an incidence-based fee. It said disclosure of this 
fee was important because almost half of regular GPR card users buy a 
new card when their funds are exhausted, so the purchase price is a 
frequent expense. Further, it stated that simply because the purchase 
price is deducted from the amount of cash loaded onto a prepaid card 
does not mean that consumers understand this fee.
The Final Rule
    For the reasons set forth herein, the Bureau is adopting proposed 
Sec.  1005.18(b)(2)(i)(B)(8), renumbered as Sec.  1005.18(b)(2)(ix), 
with substantial modifications, largely in response to comments 
received. First, as discussed above, the Bureau is moving the 
disclosure's location on the short form so that it appears immediately 
after the statement regarding the number of additional fee types 
charged pursuant to final Sec.  1005.18(b)(2)(viii)(A). The Bureau 
believes that locating these disclosures together will help consumers 
see their connection and increase understanding of why the fee 
information specified under final Sec.  1005.18(b)(2)(ix) may vary 
among prepaid account programs, and thus enhance the use of short form 
disclosures for comparison shopping. The Bureau believes this will also 
make the disclosure of the total number of additional fee types under 
final Sec.  1005.18(b)(2)(viii) more valuable to consumers by providing 
some additional specific information.
    Second, the Bureau is finalizing several changes to the nature of 
the disclosure. In particular, the Bureau is requiring disclosure of 
two fee types \410\ instead of three, and has renamed this requirement 
the ``disclosure of additional fee types.'' In addition, the Bureau is 
requiring that the criteria for determining fee types be based on which 
categories generate the highest revenue from consumers, rather than 
highest incidence of consumer use as proposed. As discussed above, the 
Bureau compiled a list of fee type examples to provide guidance to 
financial institutions and to help facilitate their categorization of 
additional fee types for satisfying the requirements in final Sec.  
1005.18(b)(2)(viii)(A) and (ix).
---------------------------------------------------------------------------

    \410\ See comment 18(b)(2)(viii)(A)-2 for an explanation of the 
term ``fee type'' and a list of examples of fee types and fee 
variations within those fee types that a financial institution may 
use when determining both the number of additional fee types 
pursuant to final Sec.  1005.18(b)(2)(viii)(A) and any additional 
fee types to disclose pursuant to final Sec.  1005.18(b)(2)(ix). 
Final comment 18(b)(2)(viii)(A)-4 also clarifies that a financial 
institution must use the same categorization of fee types in the 
number of additional fee types disclosed pursuant to final Sec.  
1005.18(b)(2)(viii) and in its determination of which additional fee 
types to disclose pursuant to final Sec.  1005.18(b)(2)(ix).
---------------------------------------------------------------------------

    Third, the Bureau has made a number of other adjustments intended 
to reduce compliance burden relative to the proposal regarding the 
tracking and reporting of the additional fee types. These adjustments 
are in addition to proposed burden-reducing measures that the Bureau is 
adopting in the final rule, such as the exemption from having to update 
the listing of additional fee types on previously printed packaging 
materials, pursuant to the update printing exception in final Sec.  
1005.18(b)(2)(ix)(E)(4). Additional burden-reducing measures in the 
final rule include a 24-month (rather than annual) cycle for assessing 
and updating the disclosures and permitting financial institutions to 
track revenue on a consolidated basis across multiple prepaid account 
programs that share the same fee schedule. The final rule also permits 
issuers not to provide

[[Page 84041]]

disclosures for any fee categories that fall below 5 percent of 
consumer-generated revenues, as well as excluding certain other fee 
categories. Finally, the Bureau has replaced the proposed commentary 
with a number of new comments to provide additional clarification and 
guidance on the requirements set forth in final Sec.  
1005.18(b)(2)(ix).
    The Bureau has considered the industry comments objecting to the 
proposed disclosure of incidence-based fees \411\ and recommending 
their elimination from the final rule. It has also considered the 
alternatives recommended by some industry commenters and suggestions 
for improvement by consumer group commenters. The Bureau has made 
extensive refinements to the proposed framework based in substantial 
part on this feedback but continues to believe that there is value to 
maintaining a dynamic element on the short form and that disclosing 
specific additional fee information that is updated on a periodic basis 
is the best way to provide such dynamic information, as discussed 
further below.
---------------------------------------------------------------------------

    \411\ Hereinafter, the Bureau uses the final rule term 
``additional fee types'' in place of ``incidence-based fees,'' 
unless the discussion calls for specific reference to the term from 
the proposed rule.
---------------------------------------------------------------------------

    As discussed in detail in the next few paragraphs, the Bureau 
continues to believe it is important that financial institutions 
disclose to consumers certain fee types not otherwise listed on the 
short form. The Bureau believes that this may be particularly important 
for certain virtual wallets and other products covered by this final 
rule that may have pricing structures that do not mirror those of GPR 
cards or other more traditional prepaid products, as well as for 
capturing potential major evolutions in pricing structures on 
traditional products that may occur in the future. Further, the final 
rule provides some flexibility to financial institutions that have 
fewer than two fee types required to be disclosed pursuant to final 
Sec.  1005.18(b)(2)(ix)(B) to disclose additional fee types of their 
choice, such as those particular to their prepaid account program and 
imposed for features that could be appealing to consumers. It also 
provides additional flexibility for financial institutions to disclose 
the names and fee amounts of the discrete fee variations for additional 
fee types with two or fewer fee variations pursuant to final Sec.  
1005.18(b)(2)(ix)(C).
    First, as pointed out by some consumer group commenters, the 
requirement to disclose additional fee types in the short form 
disclosure creates a dynamic disclosure designed to reduce incentives 
for manipulating fee structures to reduce the cost of the most common 
fee types in favor of higher fees on fee types incurred less often, 
thus hiding potential costly charges. The Bureau is not convinced, as 
asserted by some industry commenters, that market forces alone would 
adequately control for potential fee manipulation. Requiring disclosure 
of additional fee types in the short form will help prevent financial 
institutions from minimizing the cost of the fees required to be 
disclosed in and outside the short form by final Sec.  1005.18(b)(2)(i) 
through (vii) and (5) in favor of higher fees for fee types that would 
only be required to be disclosed in the comprehensive long form 
disclosure, where the Bureau believes consumers are much less likely to 
see them before acquiring a prepaid account. In particular for prepaid 
accounts sold at retail, consumers may not see the additional fee types 
disclosed only in the long form and, thus, could be more likely to 
incur such fees unknowingly. Putting consumers on notice of additional 
fee types that, outside of those excluded from disclosure pursuant to 
final Sec.  1005.18(b)(2)(ix)(A)(1) through (3), generate the highest 
revenue from consumers for the particular prepaid account or across 
prepaid account programs that share the same fee schedule will alert 
consumers to account features for which they may end up incurring a 
significant cost.
    Second, eschewing full standardization in a static short form 
disclosure in favor of the dynamic disclosure of additional fee types 
enables the disclosure to capture market changes and innovations. In 
this way, the short form is capable of reflecting over time significant 
changes in consumer use patterns that affect the amount of revenue 
generated for new features. Disclosing additional fee types in the 
short form allows the disclosure to reflect the advent of new fee types 
that consumers may come to incur frequently and for significant cost 
that, without this requirement, otherwise would be prohibited from 
disclosure in the short form and thus could render it outdated and of 
diminished value to consumers over time. This same dynamism also 
permits disclosure of fees for certain types of prepaid accounts, such 
as mobile wallets, whose currently scant fee structures may not 
otherwise be represented in the short form. Further, requiring 
disclosure of additional fee types allows the short form to capture 
future fee types charged by new products and under new pricing models 
that emerge over time. Without this mechanism, the information provided 
to consumers in the short form disclosure may become ossified and 
anachronistic over time absent additional rulemakings by the Bureau to 
update the required elements of the short form.
    The Bureau recognizes that there are some tradeoffs for consumers 
and for industry in providing the disclosures, but believes those 
disadvantages are outweighed by the benefits of these disclosures to 
consumers. Moreover, the Bureau believes that the changes it has made 
in the final rule address many of the concerns raised by industry 
commenters and also substantially reduce the burden on financial 
institutions related to providing these disclosures relative to the 
proposal.
    One objection raised by industry commenters is that, because the 
additional fee types disclosures will be the only non-standardized 
elements of the short form, the lack of uniformity will cause consumer 
confusion and prevent comparison shopping. As discussed in the section-
by-section analysis of Sec.  1005.18(b)(2)(viii) above, the Bureau had 
consumer tested language to explain how the incidence-based fees were 
selected for disclosure on the short form but found that the 
information did not track well with consumers. The Bureau believes that 
the final rule substantially reduces this problem by linking the 
disclosures in final Sec.  1005.18(b)(2)(viii) and (ix) by using a 
transition statement between the two (``Here are some of them:'') as 
discussed above, making clear that the specific additional fee types 
listed are examples of additional types of fees not otherwise disclosed 
on the short form. While the short form will not specifically explain 
why those two particular fee types were selected for disclosure, 
consumers will be able to understand that this portion of the form is 
variable across prepaid account programs, evaluate the specific 
information provided for potential applicability to their expected 
prepaid account use, and seek more information. The Bureau does not 
believe it necessary for consumers to understand the calculations 
behind and the specific purpose of the additional fee types to benefit 
from their disclosure.
    Some commenters said the proposed reprint exemption would create 
discrepancies among short form disclosures for the same prepaid account 
program depending on where a consumer views the form (for example, at 
retail versus online). However, in

[[Page 84042]]

addition to the modifications to the final rule discussed above adding 
an explanatory heading above the listing of additional fee types, the 
Bureau believes it unlikely most consumers will be comparing short form 
disclosures for the same prepaid account program in different mediums. 
Moreover, a large majority of industry commenters favored the reprint 
exemption, as it reduces burden, and the Bureau believes it is 
preferable to retain this exemption in the final rule as opposed to 
removing it. The Bureau does not believe that the additional fee type 
disclosures required by the final rule will stifle innovation, as 
suggested by industry commenters, particularly given the reprint 
exemption and the additional explanation the Bureau has provided in the 
supplementary information for this final rule regarding use of change-
in-terms notices pursuant to Sec.  1005.8(a) and notice of new EFT 
services pursuant to Sec.  1005.7(c). See, e.g., the section-by-section 
analysis of Sec.  1005.18(b)(2)(ix)(E)(4) below.
    With regard to comparison shopping, the Bureau believes that having 
the same disclosures in the bulk of the short form, including the 
static fees and informational statements, will create more than 
sufficient consistency to facilitate consumer comparison shopping based 
on key fees in the marketplace, despite some variance introduced by the 
disclosure of two additional fee types. At the same time, the 
disclosure of additional fee types will ensure that consumers are made 
aware of significant fee types relating to each particular prepaid 
account program. Also, the transition statement linking the statement 
regarding the number of additional fee types and the disclosure of 
additional fee types provides sufficient information to orient 
consumers to these disclosures and will help dispel the consumer 
confusion that concerned industry commenters, particularly in light of 
consumer testing of explanations of the criteria for selection of 
additional fee types that proved ineffective.
    To preserve standardization and consistency across short form 
disclosures, the Bureau declines to exempt prepaid accounts distributed 
in branches, particularly those of community banks and credit unions, 
and by government agencies from the requirement to disclose additional 
fee types. In addition to preserving standardization across short form 
disclosures, the Bureau is concerned that creating an individualized 
disclosure regime for different acquisition settings would create a 
patchwork regulatory regime, which is what this rule seeks to 
eliminate. The Bureau believes it is important to make the short form 
disclosure as informative as possible considering its space 
constraints; the disclosures regarding additional fee types will 
encourage consumers to review the long form for more detailed 
information in a way that simply providing the long form disclosure 
will not do.
    In finalizing this provision, the Bureau attempted to maximize the 
usefulness of the disclosure for consumers while exacting the minimum 
burden on industry. As discussed above and below, the final rule 
incorporates many burden-reducing measures relative to the proposal, 
such as excluding certain fees from potential disclosure as additional 
fee types altogether (final Sec.  1005.18(b)(2)(ix)(A)(1) and (3)), 
allowing for a consolidated calculation of additional fee types to 
occur across all prepaid account programs that share the same fee 
schedule (final Sec.  1005.18(b)(2)(ix)(A)), increasing the timeframe 
for data collection and assessment/update from one year to 24 months 
(final Sec.  1005.18(b)(2)(ix)(D) and (E)), and incorporating a de 
minimis revenue threshold to exclude from potential disclosure fee 
types that fall below this threshold (final Sec.  
1005.18(b)(2)(ix)(A)(2)). The Bureau is skeptical that this disclosure 
requirement will prompt financial institutions to exit the prepaid 
market as suggested by some commenters. Rather, the Bureau believes 
that the burden imposed on financial institutions by final Sec.  
1005.18(b)(2)(ix) is manageable. Also, with regard to comments that the 
disclosure of additional fee types in the short form is redundant of 
information found in the long form disclosure, the Bureau believes 
these fees merit disclosure in the short form as it is the disclosure 
most likely to be reviewed pre-acquisition by consumers.
    Each aspect of final Sec.  1005.18(b)(2)(ix) is addressed in turn 
below, together with other specific comments from both industry and 
consumer groups.
Determination of Which Additional Fee Types To Disclose Pursuant to 
Sec.  1005.18(b)(2)(ix)(A)
    Final Sec.  1005.18(b)(2)(ix)(A) requires disclosure of the two fee 
types that generate the highest revenue from consumers for the prepaid 
account program or across prepaid account programs that share the same 
fee schedule during the time period provided in final Sec.  
1005.18(b)(2)(ix)(D) and (E), excluding (1) fees required to be 
disclosed pursuant to final Sec.  1005.18(b)(2)(i) through (vii) and 
(5); (2) any fee types that generated less than 5 percent of the total 
revenue from consumers for the prepaid account program or across 
prepaid account programs that share the same fee schedule during the 
relevant time period; and (3) any finance charges as described in final 
Regulation Z Sec.  1026.4(b)(11) imposed in connection with a covered 
separate credit feature accessible by a hybrid prepaid-credit card as 
defined in final Sec.  1026.61.
    Specific aspects of this provision, and related commentary, are 
discussed in turn below.
    Two additional fee types. Final Sec.  1005.18(b)(2)(ix) requires 
the disclosure of fee types, rather than individual fees. Requiring 
financial institutions to disclose additional fee types for both final 
Sec.  1005.18(b)(2)(viii) and (ix) should further reduce burden on 
industry relative to the proposal.\412\ First, final Sec.  
1005.18(b)(2)(viii) and (ix) are coordinated such that both provisions 
require disclosure of additional fee types; therefore industry will use 
the same criteria to formulate the disclosures for both provisions thus 
avoiding the cost of maintaining separate rubrics.\413\ Second, 
organizing the disclosures around fee types rather than discrete fees 
simplifies the organizational process by reducing the number of 
distinct fee categories financial institutions must track and analyze 
in determining the disclosure of additional fee types. Third, in 
response to industry commenters' concerns about how to categorize fee 
types, final comment 18(b)(2)(viii)(A)-2 lists examples of fee types 
and the breakdowns of discrete fee variations within fee types that a 
financial institution may use when determining the disclosures required 
by both final Sec.  1005.18(b)(2)(viii) and (ix). The Bureau balanced 
multiple considerations in compiling this list of examples, including 
existing industry practices with regard to fee types, the accounting 
burdens associated with relatively narrower or broader definitions of 
fee types, and the potential benefits to both industry and consumers in 
using narrower definitions of fee types to communicate information 
about specific account features and fees. The Bureau believes the 
resulting list strikes an appropriate balance by capturing categories 
and terms employed by the prepaid industry itself that will be most 
useful to financial

[[Page 84043]]

institutions and consumers in determining and understanding additional 
fee types. The Bureau is providing flexibility to financial 
institutions to fashion appropriate names for other fee types, 
including fee types for services that do not yet exist in the prepaid 
marketplace.
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    \412\ As discussed in the section-by-section analysis of Sec.  
1005.18(b)(2)(viii)(A), the Bureau believes this approach addresses 
a number of the concerns raised by commenters regarding the proposed 
disclosure of the total number of additional fees.
    \413\ See final comment 18(b)(2)(viii)(A)-4.
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    The Bureau does not believe the use of fee types will compromise 
the benefit to consumers of the disclosure required by final Sec.  
1005.18(b)(2)(ix), as suggested by some commenters. While it is true 
that the additional fee types disclosed will constitute broader 
categories than disclosure of individual fee types, such as the 
disclosure of fees for bill payment generally versus a specific fee for 
regular or expedited delivery of a bill payment, there are benefits and 
detriments to either approach for both consumers and financial 
institutions and as discussed above, the Bureau believes the approach 
in the final rule strikes an appropriate balance. To allow financial 
institutions flexibility to disclose discrete fee variations, pursuant 
to final Sec.  1005.18(b)(2)(ix)(C), financial institutions with 
additional fee types with two or fewer fee variations may disclose 
those fee variations by name and fee amount. Similarly, final Sec.  
1005.18(b)(2)(ix)(B) permits financial institutions to disclose fee 
types of their choice if they have fewer than two fee types that 
require disclosure under final Sec.  1005.18(b)(2)(ix), thereby 
creating opportunities for more transparent disclosure to consumers and 
greater flexibility and control for financial institutions, including 
the option of highlighting innovative and unique product features or 
features that financial institutions project may require disclosure by 
the next reassessment and update deadline.
    Also in the final rule, the Bureau is requiring disclosure of two 
additional fee types pursuant to final Sec.  1005.18(b)(2)(ix)(A), 
rather than three as proposed. The Bureau has made this modification, 
in part, to create additional space on the short form for other 
disclosures required by the final rule, such as the statement 
associated with the alternate disclosure of a variable periodic fee 
pursuant to final Sec.  1005.18(b)(3)(ii). The Bureau also believes 
some financial institutions will find that this modification will 
impose less burden on an ongoing basis with respect to recalculation 
and updates than the rule as proposed would have done. The Bureau does 
not believe that the disclosure of two additional fee types rather than 
three will reduce the effectiveness of the short form disclosure for 
consumers, especially when balanced with other measures the Bureau has 
taken in the final rule to inform consumers of other fee types, such as 
the requirement under final Sec.  1005.18(b)(2)(vi) to generally 
disclose two customer service fees (for interactive voice response and 
live customer service) instead of the highest fee that would have been 
required under the proposed rule.
    Final comment 18(b)(2)(ix)(A)-1 clarifies that a prepaid account 
program that has two fee types that satisfy the criteria in final Sec.  
1005.18(b)(2)(ix)(A) must disclose both fees. If a prepaid account 
program has three or more fee types that potentially satisfy the 
criteria in final Sec.  1005.18(b)(2)(ix)(A), the financial institution 
must disclose only the two fee types that generate the highest revenue 
from consumers. This comment cross-references final comment 
18(b)(2)(ix)(B)-1 for guidance regarding the disclosure of additional 
fee types for a prepaid account with fewer than two fee types that 
satisfy the criteria in final Sec.  1005.18(b)(2)(ix)(A).
    Final comment 18(b)(2)(ix)(A)-1 also cross-references final comment 
18(b)(2)(viii)(A)-2 for guidance on and examples of fee types. To 
address an industry commenter's concerns regarding categorization of 
fee types, comment 18(b)(2)(viii)(A)-2 provides concrete guidance on 
how to categorize fee types. The comment provides an explanation of the 
term ``fee type'' and examples of more than a dozen fee types, along 
with fee variations within those fee types, that a financial 
institution may use when determining both the number of additional fee 
types charged pursuant to final Sec.  1005.18(b)(2)(viii)(A) and any 
additional fee types to disclose pursuant to final Sec.  
1005.18(b)(2)(ix). In response to the recommendation of one consumer 
group commenter, this comment provides standardized terms for many fee 
types, including bill payment. Final comment 18(b)(2)(ix)(A)-2 explains 
that commonly accepted or readily understandable abbreviations may be 
used as needed for additional fee types and fee variations disclosed 
pursuant to final Sec.  1005.18(b)(2)(ix), and offers several example 
to illustrate this concept.
    Highest revenue. Upon consideration of the comments and additional 
analysis, the Bureau has concluded that determining the disclosure of 
additional fee types on the basis of revenue is superior to an 
incidence-based system. The Bureau agrees with consumer group 
commenters that there may be more merit in alerting consumers to fees 
from which the financial institution makes the highest revenue, even if 
those fees impact fewer consumers, rather than lower fees incurred by 
consumers more frequently. Also, as raised by consumer group 
commenters, the rule as proposed could incent some financial 
institutions to reduce the cost of the most common fee types in favor 
of higher fees on fee types incurred less often, thus hiding potential 
costly charges. Moreover, all industry commenters who responded to the 
issue were neutral as to whether the disclosure should be based on 
incidence or revenue because they tracked both. To the extent that some 
financial institutions do not track both, the Bureau believes that it 
is more likely they track revenue and, regardless, that it will be 
simpler and more straightforward for financial institutions to 
calculate fee revenues rather than fee incidence.
    The Bureau also believes that there is additional information 
conveyed in using revenue; namely that a fee type's revenue is a 
measure of the impact of that fee type on consumers--it is the amount, 
in dollars, of the cost of that feature to consumers. In contrast, an 
incidence-based approach could have led to disclosure of fee types that 
were commonly incurred but had a low impact because the fee amount was 
low.
    Revenue from consumers. The Bureau has included specific reference 
in the final rule to ``revenue from consumers'' to assure clarity that 
the revenue required for calculation for the disclosure of additional 
fee types required by final Sec.  1005.18(b)(2)(ix) is based on fee 
types that the financial institution may charge consumers. Final 
comment 18(b)(2)(ix)(A)-3 clarifies that the calculation excludes other 
revenue sources such as revenue generated from interchange fees and 
fees paid by entities that sponsor prepaid account programs for 
financial disbursements (e.g., government agencies and employers). The 
comment also explains that the calculation excludes third-party fees, 
unless they are imposed for services performed on behalf of the 
financial institution.
    Assessing revenue within and across prepaid account programs to 
determine disclosure of additional fee types. Some industry commenters 
said the proposed requirement to calculate incidence-based fees on a 
program-by-program basis would pose significant cost and burden to 
them. They explained that some financial institutions administer 
hundreds or more prepaid account programs, particularly in the payroll 
and government benefit space, and recommended that financial 
institutions be permitted to aggregate data rather than analyze the 
data of each prepaid account program separately. The Bureau continues 
to believe it is crucial that the

[[Page 84044]]

additional fee types disclosed to consumers in the short form reflect 
consumer usage and cost for a particular prepaid account program. 
However, the Bureau also recognizes that many payroll card account and 
government benefit account programs may be considered separate programs 
but share fee schedules and other terms. Because of the potential 
burden for determining the additional fee disclosures based on fee 
revenue data separately for programs that all share the same fee 
schedule, particularly in the context of payroll card accounts and 
government benefits accounts, the final rule permits financial 
institutions to make their additional fee types determination based on 
the fee types that generate the highest revenue from consumers for a 
particular prepaid account program or across prepaid account programs 
that share the same fee schedule during the time period provided in 
final Sec.  1005.18(b)(2)(ix)(D) and (E).
    Final comment 18(b)(2)(ix)(A)-4 explains that, if a financial 
institution offers more than one prepaid account program, unless the 
programs share the same fee schedule, the financial institution must 
consider the fee revenue data separately for each prepaid account 
program and not consolidate the fee revenue data across prepaid account 
programs. The comment explains that prepaid account programs are deemed 
to have the same fee schedules if they charge the same fee amounts, 
including offering the same fee waivers and fee reductions for the same 
features. The comment also provides examples of how to assess revenue 
within and across prepaid account programs to determine the disclosure 
of additional fee types. In addition, the comment explains that, for 
multiple service plans disclosed pursuant to final Sec.  
1005.18(b)(6)(iii)(B)(2), a financial institution must consider revenue 
across all of those plans in determining the disclosure of additional 
fee types for that program.
    The Bureau notes that, financial institutions disclosing only the 
default service plan for a prepaid account program offering multiple 
service plans pursuant to final Sec.  1005.18(b)(6)(iii)(B)(1) are not 
required to evaluate revenues or disclose additional fee types under 
Sec.  1005.18(b)(2)(ix) for service plans other than the default 
service plan.
    Exclusions pursuant to Sec.  1005.18(b)(2)(ix)(A)(1) through (3). 
As clarified in final comment 18(b)(2)(ix)(A)-5, once the financial 
institution has calculated the fee revenue data for the prepaid account 
program or across prepaid account programs that share the same fee 
schedule during the appropriate time period, it must remove from 
consideration the categories excluded pursuant to final Sec.  
1005.18(b)(2)(ix)(A)(1) through (3) before determining the fee types, 
if any, that generated the highest revenue.
    Exclusion of fee types required to be disclosed elsewhere pursuant 
to Sec.  1005.18(b)(2)(ix)(A)(1). Like the proposed rule, the final 
rule requires financial institutions to exclude from the additional fee 
types required to be disclosed (and from the number of additional fee 
types required to be disclosed pursuant to final Sec.  
1005.18(b)(2)(viii)(A)) the static fees required to be disclosed in the 
short form pursuant to final Sec.  1005.18(b)(2)(i) through (vii). A 
new provision in the final rule, Sec.  1005.18(b)(5), requires the 
disclosure of certain information, including any purchase price or 
activation fee for a prepaid account, outside the short form 
disclosure. Because purchase price and activation fees will thus always 
be disclosed for prepaid accounts under the final rule, the Bureau does 
not believe it is necessary or appropriate for such fees to be 
potentially disclosed as additional fee types under final Sec.  
1005.18(b)(2)(ix), as was proposed, and thus has added an exclusion for 
those fees as well. Final comment 18(b)(2)(ix)(A)-5.i provides further 
clarification regarding the exclusion for fees required to be disclosed 
elsewhere, including clarification that fee types such as those for 
international ATM withdrawals and international ATM balance inquiries 
are not excluded as potential additional fee types.
    De minimis exclusion pursuant to Sec.  1005.18(b)(2)(ix)(A)(2). In 
the final rule, the Bureau is adopting a de minimis threshold 
permitting exclusion from the additional fee types required to be 
disclosed of any fee types that generated less than 5 percent of the 
total revenue from consumers for the prepaid account program or across 
prepaid account programs that share the same fee schedule during the 
time period provided in final Sec.  1005.18(b)(2)(ix)(D) and (E). Final 
comment 18(b)(2)(ix)(A)-5.ii provides two examples illustrating the de 
minimis exclusion; the second example also cross-references final 
comment 18(b)(2)(ix)(B)-1. While the Bureau solicited comments on 
whether the final rule should establish a de minimis threshold for 
updating the proposed incidence-based fees, some industry commenters 
recommended a de minimis threshold for the disclosure of such fees in 
general, which is what the Bureau is adopting in this final rule.
    The Bureau understands from some industry commenters that many fees 
that would have qualified under the proposal as additional fee types 
neither generate significant revenue nor are charged very frequently, 
though they often relate to services that certain consumers find 
valuable. With the de minimis threshold, disclosure of such fee types 
under final Sec.  1005.18(b)(2)(ix) would not be required, although 
such fee types would be counted in the total number of additional fee 
types disclosed pursuant to final Sec.  1005.18(b)(2)(viii). Even with 
a de minimis exclusion, the Bureau believes that this disclosure 
requirement removes the potential incentive for financial institutions 
to restructure their fee schedules to avoid disclosure on the short 
form of certain fees from which they garner significant revenue. The 
short form disclosure likewise still remains dynamic such that it can 
reflect significant changes in the marketplace and in consumer use 
patterns over time. The Bureau believes the dynamic disclosures may 
also be useful to reflect the fees of certain types of prepaid 
accounts, such as mobile wallets, that are less likely to charge the 
types of fees that are represented in the static portion of the short 
form.
    Moreover, with a de minimis threshold, this disclosure requirement 
will impose less burden relative to the proposal on financial 
institutions whose potential additional fee types fall below the de 
minimis threshold, as they may but are not required to disclose or 
update those fee types under final Sec.  1005.18(b)(2)(ix). The Bureau 
acknowledges, as pointed out by industry commenters, that some fee 
types may not be germane to all consumers. The Bureau believes that by 
applying a de minimis threshold, additional fee types that will not be 
germane to most consumers are not likely to be required to be 
disclosed. In response to the consumer group commenter that urged 
prohibiting any fee so small as to fall below a de minimis threshold, 
the Bureau states that such request is outside the scope of this 
rulemaking. The Bureau acknowledges the consumer group commenter's 
concerns regarding high fees with low incidence, but believes that the 
de minimis exception, in combination with the disclosure of additional 
fee types based on revenue, as opposed to incidence, strikes the 
appropriate balance for the final rule.
    After determining that a de minimis exclusion from the requirement 
to disclose additional fee types would be appropriate, the Bureau 
considered

[[Page 84045]]

recent studies as well as information provided by commenters to 
determine an appropriate threshold. A 2012 study offered statistics on 
the aggregate fees paid by cardholders to the prepaid issuer, using 
data from more than 3 million prepaid cards across 15 programs from one 
issuing bank.\414\ For the payroll card programs, approximately 89 
percent of the fees (by value) paid by cardholders were from fees that 
appear to align with those required to be disclosed on the static 
portion of the short form under the final rule.\415\ The remaining fees 
ranged between 1 and 7 percent.\416\ The study's fee analysis for the 
various types of GPR card programs were less instructive, having been 
evaluated across only three general categories (ATM withdrawal fees, 
maintenance and origination fees, and transaction and other fees).\417\
---------------------------------------------------------------------------

    \414\ See 2012 FRB Philadelphia Study at 4, 11, and 26. This 
study used transactions covering a six-year cycle, but most occurred 
during the last two years of the data set (2009 and 2010). Programs 
included three web GPR programs, six GPR programs sold at retail, 
one GPR program offered in bank branches, and three payroll card 
programs. See id. at 11.
    \415\ These fees were ATM withdrawal (54 percent), PIN POS 
purchase (14 percent), balance inquiry (11 percent), maintenance (10 
percent). See id. at 59 fig. 5.1(B).
    \416\ These fees were ATM decline (7 percent), PIN POS decline 
(1 percent), and other/unidentified (3 percent). See id.
    \417\ In the web GPR programs, these fees were ATM withdrawal 
(26 percent), maintenance and origination (52 percent), and 
transaction and other (22 percent). See id. at 60 fig. 5.2(B). In 
the retail GPR programs, these fees were ATM withdrawal (17 
percent), maintenance and origination (28 percent), and transaction 
and other (55 percent). See id. at 61 fig. 5.3(B). In the FI GPR 
program, these fees were ATM withdrawal (19 percent), maintenance 
and origination (68 percent), and transaction and other (13 
percent). See id. at 62 fig. 5.4(B). The category of transaction and 
other fees here were calculated as the residual of all fees less 
origination, maintenance, and ATM withdrawal fees, which include, 
for example, fees for point-of-sale transactions, balance inquires, 
paper statements, and calls to a live customer service agent. See, 
e.g., id. at 60 note 2.
---------------------------------------------------------------------------

    A 2014 study evaluated transactions on more than 3 million GPR 
cards from one program manager over a one-year period in 2011-
2012.\418\ Approximately 96 percent of the fees (by value) paid by 
cardholders in these programs were from fees that appear to align with 
those required to be disclosed on the static portion of the short form 
or outside the short form pursuant to Sec.  1005.18(b)(5) under the 
final rule.\419\ The remaining fees were 1.5 and 2.5 percent.\420\ The 
Bureau notes that the data used in these studies is at least four years 
old, while fee structures on prepaid accounts have generally been 
shifting to be both lower and more simplified in recent years.\421\
---------------------------------------------------------------------------

    \418\ See 2012 FRB Kansas City Study at 4.
    \419\ These fees were signature transaction (36.7 percent), PIN 
transaction (19.5 percent), ATM withdrawal (15.9 percent), monthly 
fee (8.7 percent), account maintenance (8.5 percent), IVR balance 
inquiry (5.6 percent), and ATM balance inquiry (1.2 percent). See 
id. at 67 fig. 5.1.
    \420\ These fees were decline (1.5 percent) and other (2.5 
percent). See id.
    \421\ See, e.g., Fed. Reserve Bank of St. Louis, Cards, Cards 
and More Cards: The Evolution to Prepaid Cards, Inside the Vault, at 
1, 2 (Fall 2011), available at https://www.stlouisfed.org/publications/itv/articles/?id=2168 (``Competition among prepaid card 
issuers and increased volume have helped lower card fees and 
simplify card terms''); 2014 Pew Study at 2 (``[O]ur research finds 
that the providers are competing for business by lowering some fees 
and are facing pressure from new entrants in the market'').
---------------------------------------------------------------------------

    The Bureau also received information from several commenters 
regarding fee revenue for a number of prepaid account programs. These 
commenters provided data mainly for GPR programs, but the Bureau 
received some information regarding corporate disbursement cards and 
non-reloadable cards sold at retail as well. Based on this information, 
across all of these programs except one, fee revenue from consumers 
amounted to 97 to 99 percent of fee revenue from fees required to be 
disclosed on the static portion of the short form or outside the short 
form pursuant to Sec.  1005.18(b)(5) under the final rule. Of the 
remaining fees, fee revenue ranged from 3 percent to a fraction of 1 
percent. In the one other program, 79 percent of fee revenue was from 
fees required to be disclosed on the static portion of the short form. 
Of the remaining fees, one comprised approximately 18 percent of fee 
revenue, while the others ranged between 1 and 2 percent each.
    After considering the requests from commenters for a de minimis 
exclusion and the information available in studies and provided by 
commenters, the Bureau believes that a 5 percent threshold is 
appropriate and offers a clear dividing line between fee types that 
generate only a small amount of revenue from consumers and those that 
generate significant revenue and thus are most important to be 
disclosed to consumers prior to acquisition of a prepaid account. Based 
on this information, the Bureau believes that this threshold level 
would facilitate compliance and reduce burden, as requested by industry 
commenters, because a 5 percent de minimis threshold would exclude a 
majority of the applicable fees (other than the fees disclosed on the 
static portion of the short form disclosure or outside the short form 
disclosure pursuant to Sec.  1005.18(b)(5)) that generate a small 
amount of revenue and would be less germane to consumers. At the same 
time, the Bureau believes that the 5 percent threshold appropriately 
tailors the additional fee type disclosure requirement to ensure 
consumers are alerted to fees that would potentially impose significant 
costs. In addition, the Bureau believes that the 5 percent threshold 
helps effectuate the intent of the dynamic portion of the short form 
disclosure to reflect significant changes in the marketplace and in 
consumer use patterns over time. The Bureau intends to monitor 
developments in the market in this area.
    Exclusion for certain credit-related fees pursuant to Sec.  
1005.18(b)(2)(ix)(A)(3). The final rule requires financial institutions 
to exclude from disclosure as additional fee types any finance charges 
as described in final Regulation Z Sec.  1026.4(b)(11) imposed in 
connection with a covered separate credit feature accessible by a 
hybrid prepaid-credit card as defined in final Sec.  1026.61. Final 
comment 18(b)(2)(ix)(A)-5.iii clarifies that, pursuant to final Sec.  
1005.18(b)(2)(viii)(A)(2), such finance charges are also excluded from 
the number of additional fee types disclosed.
    As discussed in more detail below, the Bureau has made a strategic 
decision to focus the bulk of the short form disclosure on usage of the 
prepaid account itself (i.e., the asset feature of the prepaid 
account). The possibility that consumers may be offered an overdraft 
credit feature for use in connection with the prepaid account is 
addressed in the short form pursuant to Sec.  1005.18(b)(2)(x), which 
requires the following statement if such a feature may be offered: 
``You may be offered overdraft/credit after [x] days. Fees would 
apply.'' Consistent with this overall decision, the Bureau believes 
that it is appropriate to exclude any finance charges related to an 
overdraft credit feature that may be offered at a later date to some 
prepaid consumers from the disclosures regarding additional fees under 
both final Sec.  1005.18(b)(2)(viii) and (ix). If consumers are 
interested in such a feature, they can look to the Regulation Z 
disclosures in the long form pursuant to final Sec.  
1005.18(b)(4)(vii), discussed below, for more details.
    The Bureau notes that the calculation for the disclosure of 
additional fee types does not include fees that are not imposed with 
respect to the prepaid account program. For example, any finance 
charges imposed in connection with a covered separate credit feature 
accessible by a hybrid prepaid-credit card, where such finance charges 
are imposed on the separate credit account (not on the prepaid account) 
would not be included as part of the denominator

[[Page 84046]]

used in calculating whether the two additional fee types that generated 
the highest revenue from consumers of a particular prepaid account 
program qualify for the de minimis exclusion in final Sec.  
1005.18(b)(2)(ix)(A)(2).
Disclosure of Fewer Than Two Additional Fee Types Pursuant to Sec.  
1005.18(b)(2)(ix)(B)
    Final Sec.  1005.18(b)(2)(ix)(B) provides that a financial 
institution that has only one additional fee type that satisfies the 
criteria in final Sec.  1005.18(b)(2)(ix)(A) must disclose that one 
additional fee type; it may, but is not required to, also disclose 
another additional fee type of its choice. A financial institution that 
has no additional fee types that satisfy the criteria in final Sec.  
1005.18(b)(2)(ix)(A) is not required to make a disclosure under final 
Sec.  1005.18(b)(2)(ix); it may, but is not required to, disclose one 
or two fee types of its choice. Final comment 18(b)(2)(ix)(B)-1 
contains several examples to provide guidance on the additional fee 
types disclosure pursuant to Sec.  1005.18(b)(2)(ix)(B) for a prepaid 
account with fewer than two fee types that satisfy the criteria in 
final Sec.  1005.18(b)(2)(ix)(A). Final comment 18(b)(2)(ix)(B)-2 
clarifies that, pursuant to final Sec.  1005.18(b)(3)(vi), a financial 
institution may not disclose any finance charges as a voluntary 
additional fee disclosure under final Sec.  1005.18(b)(2)(ix)(B).
    The Bureau has included this provision in the final rule to clarify 
the disclosure requirements for a financial institution that has fewer 
than two additional fee types that neither exceed the de minimis 
threshold nor otherwise satisfy the criteria in final Sec.  
1005.18(b)(2)(ix)(A), given that some financial institutions may have 
additional fee types that are not required to be disclosed on the short 
form pursuant to the de minimis exclusion in final Sec.  
1005.18(b)(2)(ix)(A)(2). The Bureau declines to permit disclosure of 
more than two additional fee types or disclosure of all fee types, as 
was suggested respectively by one consumer group commenter and two 
industry commenters, because the Bureau believes adding more 
information will upset the balance between providing the most important 
information for consumers with the brevity and clarity necessary for 
optimal consumer comprehension. However this final rule provision 
permitting voluntary disclosure of fee types when a financial 
institution has less than two additional fee types that satisfy the 
criteria of Sec.  1005.18(b)(2)(ix)(A) does provide flexibility for 
some financial institutions with regard to their disclosure of 
additional fee types. A financial institution that chooses to disclose 
fee types under this provision will be able to more fully inform 
consumers of the features of a particular prepaid account. Moreover, 
under this provision, a financial institution that is not currently 
required to disclose any additional fees, but anticipating that in the 
future one or two of its fee types may exceed the de minimis exception 
in final Sec.  1005.18(b)(2)(ix)(A)(2) has the option to voluntarily 
disclose those fee types in order to avoid the future need to update 
its short form disclosures pursuant to final Sec.  1005.18(b)(2)(ix).
Fee Variations in Additional Fee Types Required by Sec.  
1005.18(b)(2)(ix)(C)
    Final Sec.  1005.18(b)(2)(ix)(C) provides that, if an additional 
fee type required to be disclosed pursuant to Sec.  
1005.18(b)(2)(ix)(A) has more than two fee variations, or when 
providing a short form disclosure for multiple service plans pursuant 
to Sec.  1005.18(b)(6)(iii)(B)(2), the financial institution must 
disclose the name of the additional fee type and the highest fee amount 
in accordance with Sec.  1005.18(b)(3)(i). It goes on to say that, 
except when providing a short form disclosure for multiple service 
plans pursuant to final Sec.  1005.18(b)(6)(iii)(B)(2), if an 
additional fee type has two fee variations, the financial institution 
must disclose the name of the additional fee type together with the 
names of the two fee variations and the fee amounts in a format 
substantially similar to that used to disclose the two-tier fees 
required by final Sec.  1005.18(b)(2)(v) and (vi) and in accordance 
with final Sec.  1005.18(b)(7)(ii)(B)(1). Finally, it states that, if a 
financial institution only charges one fee under a particular fee type, 
the financial institution must disclose the name of the additional fee 
type and the fee amount; it may, but is not required to, disclose also 
the name of the one fee variation, if any, for which the fee amount is 
charged, in a format substantially similar to that used to disclose the 
two-tier fees required by Sec.  1005.18(b)(2)(v) and (vi), except that 
the financial institution would disclose only the one fee variation 
name and fee amount instead of two.
    Final comment 18(b)(2)(ix)(C)-1 provides examples to illustrate 
disclosures when a financial institution charges two or more fee 
variations under a particular fee type, including how to disclose two 
fee variations with different fee amounts, two fee variations with like 
fee amounts, more than two variations, and multiple service plans with 
two fee variations. Final comment 18(b)(2)(ix)(C)-2 provides an example 
illustrating the options for disclosing a fee type with only one fee 
variation.
    The Bureau has included Sec.  1005.18(b)(2)(ix)(C) in the final 
rule to create consistency in the short form disclosure by conforming 
the requirements for disclosure of fee variations for additional fee 
types with the requirements for disclosure of fee variations for the 
static fees disclosed pursuant to final Sec.  1005.18(b)(2)(i) through 
(vii). In addition, this provision will give consumers the opportunity 
to see more detailed information about fee variations and their 
respective costs as well as to allow financial institutions flexibility 
to disclose more details about discrete fee variations. This provision, 
together with final Sec.  1005.18(b)(2)(ix)(B) which permits financial 
institutions to disclose fee types of their choice if they have fewer 
than two fee types that are required to be disclosed under final Sec.  
1005.18(b)(2)(ix)(A), creates opportunities for more transparent 
disclosure to consumers and greater flexibility and control for 
financial institutions.
Assessment and Update of Additional Fee Types Pursuant to Sec.  
1005.18(b)(2)(ix)(D) and (E)
    Many industry commenters recommended that the Bureau eliminate the 
proposed requirement to disclose incidence-based fees based on the 
burden those commenters said the disclosure would place on industry, 
particularly with regard to assessing and updating the additional fee 
types disclosure. As discussed above, however, the Bureau is finalizing 
the requirement to disclose additional fee types because it believes it 
will bring significant benefit to consumers. Moreover, the Bureau 
recognizes that certain industry practices already in place as well as 
modifications the Bureau is making in the final rule serve to 
ameliorate some of the burden financial institutions face in complying 
with final Sec.  1005.18(b)(2)(ix). For example, the Bureau notes that 
industry commenters have confirmed that prepaid issuers and program 
managers already generally track and tag all fees imposed on consumers, 
typically analyzing both frequency and revenue, thereby collecting 
similar metrics in their normal course of business as those necessary 
for assessing and updating the disclosure of additional fee types. In 
addition, the Bureau has attempted to minimize burden on industry by 
basing the detailed list of examples of fee types and fee variations in 
final comment 18(b)(2)(ix)(A)-2 on fee classifications

[[Page 84047]]

used in the current prepaid marketplace.
    The Bureau also notes that, as discussed above, the final rule 
permits calculation of additional fee types across prepaid account 
programs with like fee schedules, such that entities that have multiple 
programs with identical fee schedules, as may be the case particularly 
with payroll card account and government benefit account programs, may 
perform a single assessment for all of the programs sharing the same 
fee schedule.
    The specific elements of final Sec.  1005.18(b)(2)(ix)(D) and (E) 
are discussed in turn below.
    Timing of initial assessment of additional fee types disclosure 
pursuant to Sec.  1005.18(b)(2)(ix)(D). Final Sec.  
1005.18(b)(2)(ix)(D)(1) provides that, for a prepaid account program in 
effect as of October 1, 2017, the financial institution must disclose 
the additional fee types based on revenue for a 24-month period that 
begins no earlier than October 1, 2014. Final comment 
18(b)(2)(ix)(D)(1)-1 explains that a prepaid account program that was 
in existence as of October 1, 2017 must assess its additional fee types 
disclosure from data collected during a consecutive 24-month period 
that took place between October 1, 2014 and October 1, 2017. For 
example, an existing prepaid account program was first offered to 
consumers on January 1, 2012 and provides its first short form 
disclosure on October 1, 2017. The earliest 24-month period from which 
that financial institution could calculate its first additional fee 
types disclosure would be from October 1, 2014 to September 30, 2016.
    Final Sec.  1005.18(b)(2)(ix)(D)(2) provides that, if a financial 
institution does not have 24 months of fee revenue data for a 
particular prepaid account program from which to calculate the 
additional fee types disclosure in advance of October 1, 2017, the 
financial institution must disclose the additional fee types based on 
revenue it reasonably anticipates the prepaid account program will 
generate over the 24-month period that begins on October 1, 2017. Final 
comment 18(b)(2)(ix)(D)(2)-1 provides the example of a financial 
institution that begins offering to consumers a prepaid account program 
six months before October 1, 2017. Because the prepaid account program 
will not have 24 months of fee revenue data prior to October 1, 2017, 
the financial institution must disclose the additional fee types it 
reasonably anticipates the prepaid account program will generate over 
the 24-month period that begins on October 1, 2017. The financial 
institution would take into account the data it had accumulated at the 
time of its calculation to arrive at the reasonably anticipated 
additional fee types for the prepaid account program.
    Final Sec.  1005.18(b)(2)(ix)(D)(3) provides that, for a prepaid 
account program created on or after October 1, 2017, the financial 
institution must disclose the additional fee types based on revenue it 
reasonably anticipates the prepaid account program will generate over 
the first 24 months of the program. The Bureau has included these 
provision in the final rule to set forth detailed requirements for 
financial institutions regarding the time frame within which and the 
data from which to calculate the first assessment of additional fee 
types required to be disclosed in the short form pursuant to final 
Sec.  1005.18(b)(2)(ix). As illustrated in the example in final comment 
18(b)(2)(ix)(D)(1)-1, for prepaid account programs in existence as of 
the October 1, 2017 effective date of the final rule, the Bureau has 
built in the additional flexibility of giving financial institutions up 
to one year, after the 24-month time period from which to draw the data 
used to calculate the additional fee types, for the financial 
institution to perform the assessment and prepare its initial short 
form disclosure. Similar to the proposed rule, the final rule provides 
flexibility for the financial institution with prepaid account programs 
in existence prior to the effective date with unavailable data by 
requiring the financial institution to disclose the additional fee 
types based on revenue it reasonably anticipates the prepaid account 
program will generate over the 24-month period beginning on October 1, 
2017. Similarly, for new prepaid account programs created on or after 
October 1, 2017, the final rule provides flexibility for the financial 
institution to disclose the additional fee types based on revenue it 
reasonably anticipates the prepaid account will generate over the first 
24 months of the program.
    In response to the industry commenter recommending against the 
reasonableness standard under which a financial institution must 
project revenues for prepaid account programs in certain circumstances 
(in final Sec.  1005.18(b)(2)(ix)(D)(2) and (3) as well as in final 
Sec.  1005.18(b)(2)(ix)(E)(3) discussed below), the Bureau believes 
that, although financial institutions will not have actual fee revenue 
data for such products, they nonetheless will have a reasonable 
expectation as to which fee types will generate the highest revenue. 
Moreover, the reasonableness standard is a commonly-accepted legal 
standard employed across diverse areas of law \422\ and the Bureau 
believes it is appropriate to apply here, in lieu of prescribing a 
complex formula upon which to base additional fee types disclosures for 
situations such as those set forth above when the a financial 
institution simply does not have 24 months of data from which to 
calculate additional fee types.
---------------------------------------------------------------------------

    \422\ For example, this standard already is employed in 
Regulation E in Sec. Sec.  1005.33(h)(5) and 1005.17(b)(1).
---------------------------------------------------------------------------

    In response to the industry commenters questioning the validity of 
data collected over the proposed one-year period and recommending that 
the Bureau expand the proposed time frame from which to calculate data, 
the Bureau agrees that 24 months of data, rather than the proposed one 
year, will improve the data set from which financial institutions 
calculate the additional fee types and thus is modifying the final rule 
as set forth above. In response to industry commenters recommending 
elimination of this disclosure entirely due to the burden of 
calculating the additional fee types, the Bureau notes that industry 
commenters have confirmed that prepaid issuers and program managers 
currently track and tag all fees imposed on consumers, typically 
analyzing both frequency and revenue, thereby collecting similar 
metrics in their normal course of business as those necessary for 
assessing and updating the disclosure of additional fee types and thus, 
the Bureau does not believe compliance with this requirement will be 
particularly challenging or burdensome for most financial institutions.
    In addition, the Bureau expects that both the de minimis threshold 
and the change in the reassessment and update timeframes from one year 
to 24 months will reduce variation over time in the additional fee 
types that must be disclosed pursuant to final Sec.  1005.18(b)(2)(ix) 
for each prepaid account or across prepaid account programs that share 
the same fee schedule, resulting in fewer instances that financial 
institutions will be required to make changes to the disclosure of 
additional fee types on their short form disclosures.
    Timing of periodic reassessment and update of additional fee types 
disclosure pursuant to Sec.  1005.18(b)(2)(ix)(E). Final Sec.  
1005.18(b)(2)(ix)(E)(1) provides a general framework for the 
requirements to reassess and update the additional fee types 
disclosures required by final

[[Page 84048]]

Sec.  1005.18(b)(2)(ix). Specifically, it states that a financial 
institution must reassess its additional fee types disclosure 
periodically as described in final Sec.  1005.18(b)(2)(ix)(E)(2) and 
upon a fee schedule change as described in final Sec.  
1005(b)(2)(ix)(E)(3). The financial institution must update its 
additional fee types disclosure if the previous disclosure no longer 
complies with the requirements of final Sec.  1005.18(b)(2)(ix).
    Final Sec.  1005.18(b)(2)(ix)(E)(2) sets forth the requirements for 
the periodic reassessment of the additional fee types disclosures 
required by final Sec.  1005.18(b)(2)(ix). Specifically, it provides 
that a financial institution must reassess whether its previously 
disclosed additional fee types continue to comply with the requirements 
of final Sec.  1005.18(b)(2)(ix) every 24 months based on revenue for 
the previous 24-month period. The financial institution must complete 
this reassessment and update its disclosures, if applicable, within 
three months of the end of the 24-month period, except as provided in 
the update printing exception in final Sec.  
1005.18(b)(2)(ix)(E)(4).\423\ A financial institution may, but is not 
required to, carry out this reassessment and update, if applicable, 
more frequently than every 24 months, at which time a new 24-month 
period commences.
---------------------------------------------------------------------------

    \423\ Pursuant to this provision, under certain circumstances, a 
financial institution is not required to update the listing of 
additional fee types within the timeframes provided under final 
Sec.  1005.18(b)(2)(ix)(E).
---------------------------------------------------------------------------

    Final comment 18(b)(2)(ix)(E)(2)-1 provides guidance regarding the 
periodic assessment and, if applicable, update of the disclosure of 
additional fee types pursuant to final Sec.  1005.18(b)(2)(ix), 
including examples addressing reassessment when there is no change in 
the additional fee types disclosed, when there has been a change in the 
additional fee types disclosed, and when a voluntarily-disclosed 
additional fee type later qualifies as an additional fee type required 
to be disclosed pursuant to final Sec.  1005.18(b)(2)(ix). Final 
comment 18(b)(2)(ix)(E)(2)-2 provides guidance regarding a voluntary 
reassessment that occurs more frequently than every 24 months, 
including an example illustrating the concept.
    Final Sec.  1005.18(b)(2)(ix)(E)(3) sets forth the requirements for 
the reassessment and update of additional fee types disclosures 
required by final Sec.  1005.18(b)(2)(ix) when there is a change in the 
fee schedule of a prepaid account program. Specifically, it provides 
that if a financial institution revises the fee schedule for a prepaid 
account program, it must determine whether it reasonably anticipates 
that the previously disclosed additional fee types will continue to 
comply with the requirements of final Sec.  1005.18(b)(2)(ix) for the 
24 months following implementation of the fee schedule change. If the 
financial institution reasonably anticipates that the previously 
disclosed additional fee types will not comply with the requirements of 
final Sec.  1005.18(b)(2)(ix), it must update the disclosure based on 
its reasonable anticipation of what those additional fee types will be 
at the time the fee schedule change goes into effect, except as 
provided in the update printing exception in final Sec.  
1005.18(b)(2)(ix)(E)(4). In this case, the stale forms would therefore 
be accurate except for the fact that the disclosure of additional fee 
types would not reflect the expectations of the financial institution 
going forward for which fee types will garner the highest revenue from 
consumers. The Bureau is thus adopting the update printing exception in 
final Sec.  1005.18(b)(2)(ix)(E)(4) to make clear that a financial 
institution will not be liable for such a result.
    At the same time, as discussed in more detail in the section-by-
section analysis of Sec.  1005.18(b) above, the Bureau does not believe 
that financial institutions change the fee schedules for prepaid 
accounts often, and that financial institutions may need to pull and 
replace card packaging in some circumstances anyway.
    Final Sec.  1005.18(b)(2)(ix)(E)(3) also addresses situations in 
which an immediate change in terms and conditions is necessary to 
maintain or restore the security of an account or an EFT system as 
described in Sec.  1005.8(a)(2) and that change affects the prepaid 
account program's fee schedule. In that case, the financial institution 
must complete its reassessment and update its disclosures, if 
applicable, within three months of the date it makes the change 
permanent, except as provided in the update printing exception in final 
Sec.  1005.18(b)(2)(ix)(E)(4). Final comment 18(b)(2)(ix)(E)(3)-1 
provides guidance regarding how to handle the disclosure of additional 
fee types if a financial institution revises the fee schedule for a 
prepaid account program, including examples addressing when the 
financial institution reasonably anticipates that the previously 
disclosed additional fee types will continue to comply with final Sec.  
1005.18(b)(2)(ix) and when it reasonably anticipates that they will 
not. The comment also clarifies that a fee schedule change resets the 
24-month period for assessment; a financial institution must comply 
with the requirements of final Sec.  1005.18(b)(2)(ix)(E)(2) at the end 
of the 24-month period following implementation of the fee schedule 
change.
    Final Sec.  1005.18(b)(2)(ix)(E)(4) provides an exception to the 
update requirements of final Sec.  1005.18(b)(2)(ix)(E). Specifically, 
it states that, notwithstanding the requirements to update additional 
fee types disclosures in final Sec.  1005.18(b)(2)(ix)(E), a financial 
institution is not required to update the listing of additional fee 
types disclosed that are provided on, in, or with prepaid account 
packaging materials that were manufactured, printed, or otherwise 
produced prior to a periodic reassessment and update pursuant to final 
Sec.  1005.(b)(2)(ix)(E)(2) or prior to a fee schedule change pursuant 
to final Sec.  1005.18(b)(2)(ix)(E)(3). Final comment 
18(b)(2)(ix)(E)(4)-1 clarifies application of the update printing 
exception to prepaid accounts sold in retail locations and provides an 
example illustrating the timing of the exception.
    The Bureau agrees with industry and consumer group commenters 
recommending longer time periods between periodic assessments and 
updates (if applicable) that the change from one year to two may 
improve the data set from which to calculate additional fee types 
because, absent structural changes to the prepaid account program, 
revenue garnered from additional fee types above the de minimis 
threshold in final Sec.  1005.18(b)(2)(ix)(A)(2) is unlikely to change 
in a one-year period. Moreover, the Bureau believes changes in the 
additional fee types disclosed will occur relatively infrequently 
because the Bureau understands that financial institutions typically do 
not revise prepaid account fees often. The Bureau also believes this 
modification will impose a lower ongoing burden on financial 
institutions with respect to recalculating and updating additional fee 
types disclosures in addition to smoothing variations in the additional 
fee types required to be disclosed.
    In response to industry commenters' requests for clarification of 
the time period within which financial institutions must reassess and 
update (if applicable) the additional fee types disclosure, the final 
rule explicitly states that both the reassessment and the update must 
take place within three months of the end of the 24-month period, 
except as provided in the update printing exception in final Sec.  
1005.18(b)(2)(ix)(E)(4). The Bureau declines to extend this time 
period, as recommended by a few industry

[[Page 84049]]

commenters, as it believes a quarter of a year is sufficient time to 
perform these tasks, especially in conjunction with the update printing 
exception in final Sec.  1005.18(b)(2)(ix)(E)(4).
    The Bureau also added additional flexibility to the final rule by 
expressly permitting financial institutions to carry out the required 
reassessment and update (if applicable) more frequently than every 24 
months. As clarified in final comment 18(b)(2)(ix)(E)(2)-2, a financial 
institution may choose to do this, for example, to sync its assessment 
process for additional fee types with its financial reporting schedule 
or other financial analysis it performs regarding the particular 
prepaid account program. The comment also explains that if a financial 
institution chooses to reassess its additional fee types disclosure 
more frequently than every 24 months, it is still required to use 24 
months of fee revenue data to conduct the reassessment, and provides an 
example illustrating this concept.
    With regard to the provisions regarding fee schedule changes in 
final Sec.  1005.18(b)(2)(ix)(E)(3), as discussed above, the Bureau is 
using a 24-month timeframe to correspond to both the initial additional 
fee types calculation in final Sec.  1005.18(b)(2)(ix)(D)(2) and (3) as 
well as the periodic reassessment in final Sec.  
1005.18(b)(2)(ix)(E)(2). In response to the industry commenter 
recommending against the ``reasonable'' standard under which a 
financial institution must project revenues for prepaid account 
programs in certain circumstances (in final Sec.  
1005.18(b)(2)(ix)(E)(3), as well as in final Sec.  
1005.18(b)(2)(ix)(D)(2) and (3) discussed above), the Bureau believes 
that, although financial institutions will not have actual fee revenue 
data for such products, they nonetheless will have a reasonable 
expectation as to which fee types will generate the highest revenue. 
Moreover, as discussed earlier, the reasonableness standard is a 
commonly-accepted legal standard employed across diverse areas of law 
and the Bureau believes it is appropriate to apply here, in lieu of 
prescribing a complex formula upon which to base additional fee types 
disclosures for situations such as those set forth above when a 
financial institution simply does not have 24 months of data from which 
to calculate additional fee types.
    Final Sec.  1005.18(b)(2)(ix)(E)(3) also addresses the circumstance 
of a fee schedule change necessary to maintain or restore the security 
of any account or an EFT system as described in Sec.  1005.8(a)(2). The 
Bureau believes it is appropriate to include an accommodation in the 
final rule to address situations where, for example, a financial 
institution may have to cease offering a particular service for a 
period of time because of security concerns. The Bureau does not wish 
such a change due to temporary or exigent circumstances to have 
negative consequences for financial institutions with respect to their 
disclosure of additional fee types. Due to the nature of this provision 
in Sec.  1005.8(a)(2), the Bureau does not expect evasion risk with 
this accommodation because the Bureau does not foresee any 
circumstances where it would be appropriate for a financial institution 
to rely on Sec.  1005.18(b)(2)(ix)(E)(3) to increase a fee amount, add 
a new fee, or change an existing fee to any amount other than $0.
    Similar to the proposed rule, final Sec.  1005.18(b)(2)(ix)(E)(4) 
provides an update printing exception. The Bureau notes that, despite 
opposition to the additional fee types disclosure generally by industry 
commenters these same commenters supported the proposed update printing 
exception. As stated in the proposed rule, the Bureau recognizes that 
it could be more complicated and time-consuming for financial 
institutions to make updates to packages used to sell prepaid accounts 
at retail. Thus, in the final rule, the Bureau is permitting financial 
institutions to implement updates on packaging material whenever they 
are printing new stock during normal inventory cycles. With regard to 
the possibility raised by some commenters that disclosures for the same 
prepaid account program may have different additional fee types 
disclosures depending on the medium of the disclosure (i.e., electronic 
disclosures versus disclosures printed on packaging materials for 
prepaid accounts sold at retail), the Bureau continues to believe that 
this discrepancy will not significantly impact a consumer's decision 
regarding which prepaid account to acquire since consumers will most 
likely be comparing the disclosures for two distinct products, and not 
reviewing disclosures side-by-side for the same prepaid account found 
in different acquisition channels.
    While there is a chance that allowing financial institutions to 
continue to use packaging with significantly out-of-date additional fee 
types disclosures in retail locations could reduce the effectiveness of 
the short form disclosure, the Bureau believes that imposing a cut-off 
date after which sale or distribution of out-of-date retail packages 
would be prohibited could be complex and would be an overly burdensome 
requirement to impose on financial institutions on an ongoing basis.
    While the Bureau is finalizing an update printing exception for the 
additional fee types disclosure on prepaid account packaging materials, 
it did not propose, nor is it finalizing, any other specific update 
requirements with respect to disclosures generally. The Bureau notes 
that financial institutions generally must ensure all other aspects of 
pre-acquisition disclosures, whether on packaging materials, online, or 
provided through other means, are accurate at the time such disclosures 
are provided to consumers. In this final rule, as in the proposal, the 
Bureau does not believe that a general disclosure update requirement is 
necessary for other elements of the short form or long form disclosures 
provided before a consumer acquires a prepaid account, as a financial 
institution must continue to honor the fees and terms it discloses to 
the consumer, at least until such time as it satisfies the change-in-
terms requirements as set forth in Sec.  1005.8(a) and final Sec.  
1005.18(f)(2). See the section-by-section analysis of Sec.  1005.8(b) 
above for a more detailed discussion of the Bureau's expectations 
regarding changes in terms and the addition of new EFT services.
18(b)(2)(x) Statement Regarding Overdraft Credit Features
The Bureau's Proposal
    The Bureau proposed to include in the short form disclosure a 
statement indicating whether a consumer might be offered certain types 
of credit features in connection with a prepaid account. Specifically, 
proposed Sec.  1005.18(b)(2)(i)(B)(9) would have required a statement 
on the short form disclosure directly below the top-line fees that 
credit-related fees may apply, in a form substantially similar to the 
clause set forth in proposed Model Form A-10(c), if, at any point, a 
credit plan that would be a credit card account under Regulation Z (12 
CFR part 1026) may be offered in connection with the prepaid account.
    Proposed Sec.  1005.18(b)(2)(i)(B)(9) would have explained that a 
credit plan that would be a credit card account under Regulation Z 
Sec.  1026.2(a)(15)(i) could be structured either as a credit plan that 
could be accessed through the same device that accesses the prepaid 
account, or through an account number where extensions of credit are 
permitted to be deposited directly only into particular prepaid 
accounts specified by the creditor offering the plan. Proposed Sec.  
1005.18(b)(2)(i)(B)(9) further provided that if neither of these two 
types of

[[Page 84050]]

credit plans would be offered in connection with the prepaid account at 
any point, a financial institution would have to disclose on the short 
form a statement that no overdraft or credit-related fees will be 
charged, in a form substantially similar to the clause set forth in 
proposed Model Form A-10(d). The proposed model forms showed this 
disclosure as ``This card may charge credit-related fees'' or ``No 
overdraft or credit-related fees.''
    As discussed in the proposal, in the Bureau's pre-proposal consumer 
testing, many participants expressed a desire to avoid using any 
financial products that offer overdraft. Further, other research 
indicates that many consumers turn to prepaid cards specifically to 
avoid incurring any overdraft charges.\424\ The Bureau therefore 
believed that if a financial institution may offer a credit feature, 
then a consumer should be on notice of this possibility before 
acquiring the prepaid account. The Bureau believed that placing such 
notice on the short form disclosure would allow consumers to decide 
whether they want to acquire a prepaid account that may offer credit, 
or whether they would prefer an account that would not offer credit. 
Without such a notice, the Bureau believed that consumers may not have 
adequate information to decide which prepaid account is best for them. 
The Bureau recognized that there might be some risk of confusion from 
providing a relatively terse statement about credit because the Bureau 
also proposed in Sec.  1005.18(g) and in Regulation Z Sec.  1026.12(h) 
to require financial institutions to wait at least 30 days before 
offering prepaid account holders credit, and not all account holders 
may qualify for such credit features in any event. The Bureau noted, 
however, that additional information would be provided on the long form 
about credit availability and believed that the importance of alerting 
all consumers as to whether credit features could be offered in 
connection with a prepaid account warranted including a brief statement 
on the short from.
---------------------------------------------------------------------------

    \424\ See 2014 Pew Study at 1.
---------------------------------------------------------------------------

    Proposed comment 18(b)(2)(i)(B)(9)-1 would have explained that the 
statement required by proposed Sec.  1005.18(b)(2)(i)(B)(9) would have 
to be provided on all short form disclosures, regardless of whether 
some consumers would be solicited to enroll in such a plan, if such a 
credit plan could be offered.
Comments Received
    While the Bureau received many comments regarding its proposed 
approach to regulating overdraft and certain other credit features on 
prepaid accounts generally, few commenters addressed the Bureau's 
proposal regarding how to disclose these features in the short form and 
long form disclosures.\425\ With regard to the short form disclosure, 
two issuing banks and an industry trade association recommended 
eliminating the disclosure for products that could offer associated 
credit features, saying it would be confusing to consumers given that 
the proposed rules would require financial institutions to wait 30 days 
after registration of a prepaid account to offer credit features and to 
obtain separate consumer consent. Another industry trade association 
and a program manager recommended substituting the word ``feature'' for 
``fee'' in the proposed disclosure of ``No overdraft or credit-related 
fees,'' suggesting this change would avoid the potentially erroneous 
impression that a credit feature might be offered for free.
---------------------------------------------------------------------------

    \425\ For an overview of the Bureau's overall approach to 
regulating overdraft credit features for prepaid accounts, see the 
Overview of the Final Rule's Amendments to Regulation Z section 
below. For a discussion of disclosure of overdraft and credit 
features in the long form disclosure, see the section-by-section 
analyses of Sec.  1005.18(b)(4)(iv) and (vii) below.
---------------------------------------------------------------------------

    Two consumer groups recommended including the disclosure in the 
short form only when overdraft or credit are offered and not when such 
features are not offered. They said that disclosure when such features 
are not offered would confuse consumers, as most prepaid account 
programs do not offer overdraft or credit. They also said the absence 
of the negative disclosure would offer a starker contrast to the 
affirmative disclosure required when such features are offered. These 
consumer groups also recommended more fulsome disclosure in the short 
form regarding offered overdraft and credit features, such as requiring 
disclosure of fees for transfers, loads, negative balances, and 
insufficient funds. These groups also recommended that this disclosure 
should be made more prominent, such as by requiring a larger-size font. 
One consumer group recommended that the disclosure distinguish between 
prepaid account programs that offer overdraft and those that offer 
credit features so that financial institutions that offer prepaid 
accounts with low cost lines of credit (with consumer consent) can be 
distinguished from those that offer overdraft. Finally, two consumer 
groups recommended that the Bureau require the word ``overdraft'' in 
the disclosure because, they said, consumers know this term and it is 
crucial information for them. These consumer groups also opposed using 
the term ``credit-related fees,'' as they believed it would be opaque 
and incomprehensible to consumers.
Final Rule
    For the reasons set forth herein, the Bureau is adopting proposed 
Sec.  1005.18(b)(2)(i)(B)(9) and comment 18(b)(2)(i)(B)(9)-1, 
renumbered as Sec.  1005.18(b)(2)(x) and comment 18(b)(2)(x)-1, as 
proposed with certain modifications as described below. As discussed 
below in connection with Regulation Z, the final rule makes some 
revisions as to the proposal's scope of coverage regarding covered 
overdraft and other credit features and final Sec.  1005.18(b)(2)(x) 
mirrors these revisions. The final rule also revises the proposed 
content of the disclosure for clarity and completeness. The Bureau also 
made technical modifications to the rule and final comment 18(b)(2)(x)-
1 for conformity and clarity.
    Specifically, if a covered separate credit feature accessible by a 
hybrid prepaid-credit card as defined in Regulation Z Sec.  1026.61 may 
be offered at any point to a consumer in connection with the prepaid 
account, the final rule requires the financial institution to disclose 
a statement that overdraft/credit may be offered, the time period after 
which it may be offered, and that fees would apply, using the following 
clause or a substantially similar clause: ``You may be offered 
overdraft/credit after [x] days. Fees would apply.'' If no such credit 
feature will be offered at any point to a consumer in connection with 
the prepaid account, the financial institution must disclose a 
statement that no overdraft/credit feature is offered, using the 
following clause or a substantially similar clause: ``No overdraft/
credit feature.'' Comment 18(b)(2)(x)-1, adopted largely as proposed, 
clarifies that this statement must be provided on the short form 
disclosures for all prepaid accounts that may offer such a feature, 
regardless of whether some consumers may never be solicited or qualify 
to enroll in such a feature.
    As discussed in the proposal, the Bureau is adopting the 
requirement to disclose in the short form whether an overdraft credit 
feature as defined by the final rule may be offered in connection with 
a prepaid account because it believes this is key information consumers 
should know to better inform their prepaid account purchase and use 
decisions, particularly for those

[[Page 84051]]

consumers seeking to use prepaid accounts to avoid overdraft or credit-
related charges and those seeking out prepaid accounts with such 
features.\426\ In keeping with the overall goal of the short form 
disclosure to provide consumers with a snapshot of key information, the 
disclosure required in the final rule is designed to alert consumers to 
whether an overdraft credit feature may be offered to them and, if so, 
two other key pieces of information--that there is a waiting period, 
and that fees will apply.
---------------------------------------------------------------------------

    \426\ See ICF Report II at 25. (In the Bureau's post-proposal 
consumer testing, participants were nearly evenly split as to 
whether knowing a prepaid card offering overdraft or credit made 
them feel more positively or negatively toward the card.)
---------------------------------------------------------------------------

    The Bureau does not believe it is possible to give consumers the 
detailed information needed to make a decision about an overdraft 
credit feature on the short form, and that attempting to do so would 
substantially undermine the value of the form--that is, succinctly 
providing consumers with the most important information needed to make 
a decision about whether to acquire the prepaid account. Moreover, the 
Bureau is concerned that devoting scarce space to overdraft credit 
features would distract consumers from this decision-making process, 
resulting in less space to address the core functionalities of the 
prepaid account. In addition, given that some consumers may not satisfy 
creditors' underwriting requirements or other eligibility criteria, the 
Bureau believes that a limited disclosure strikes the best practicable 
balance between competing considerations.
    Accordingly, the Bureau has made a strategic decision to limit 
information on the short form disclosure about overdraft credit 
features to this one statement, and to refer consumers to the long form 
for more detailed information about all fees and conditions, including 
information about any overdraft credit feature. The Bureau recognizes 
that the short form disclosure will not provide consumers with a 
detailed definition of the term ``overdraft/credit'' or the details 
about a particular overdraft credit feature, but believes that the 
disclosure strikes a reasonable balance given the goals of the form, 
its performance in testing, and its space constraints. In short, the 
Bureau believes that the form will give consumers the most critical 
information about any overdraft credit features with a strong incentive 
to seek additional details in the long form disclosure or elsewhere if 
they are interested. Relatedly, consistent with this overall decision, 
the Bureau believes that it is appropriate to exclude any finance 
charges related to an overdraft credit feature from the additional fee 
type disclosures required in the short form pursuant to final Sec.  
1005.18(b)(2)(viii) and (ix), as discussed above.
    Participants in the Bureau's post-proposal consumer testing 
generally understood that an affirmative statement about the 
availability of overdraft or credit in a prototype short form 
disclosure indicated the feature was offered while a negative statement 
indicated it was not offered. All participants given a short form 
indicating a prepaid card did not offer overdraft or credit correctly 
understood that no such program would be offered or that a transaction 
would not go through if the consumer tried to make a purchase for more 
money than the amount loaded on the card. Conversely, all participants 
given a short form indicating a prepaid card offered overdraft or 
credit who noticed the statement correctly understood that a 
transaction might be allowed in some cases if they tried to make a 
purchase for more money than the amount loaded on the card.\427\ Thus, 
post-proposal testing results confirm consumer understanding of 
disclosures both when an overdraft credit feature is offered and when 
no such feature is offered--as would have been required by the proposed 
rule.
---------------------------------------------------------------------------

    \427\ See ICF Report II at 14.
---------------------------------------------------------------------------

    Moreover, the long form disclosure will provide additional 
information about overdraft credit features for consumers who are 
interested in such programs including, as referenced by a consumer 
group commenter, programs under which prepaid accounts with low lines 
of credit are offered. As discussed in detail below, final Sec.  
1005.18(b)(4)(iv) requires that the long form disclosure contain a 
statement that mirrors the overdraft credit statement required in the 
short form by final Sec.  1005.18(b)(2)(x). In addition, for prepaid 
account programs offering an overdraft credit feature as defined by the 
final rule, the long form disclosure must include the actual fees 
consumers may incur for using that feature that are imposed in 
connection with the prepaid account (pursuant to final Sec.  
1005.18(b)(4)(ii)),\428\ as well as the disclosures described in 
Regulation Z Sec.  1026.60(e)(1) (pursuant to final Sec.  
1005.18(b)(4)(vii)).
---------------------------------------------------------------------------

    \428\ See comment 18(b)(7)(i)(B)-1 for guidance regarding 
disclosure of finance charges in the long form.
---------------------------------------------------------------------------

    The Bureau also believes that the final rule's refinements to the 
language and placement of the short form statement about overdraft 
credit features will reduce the risk of consumer confusion about the 
nature and timing of any credit offers. To emphasize its importance, 
pursuant to final Sec.  1005.18(b)(7)(ii)(B)(1), the statement about 
overdraft credit features must be in bold-faced type. The proposed rule 
would have required the statement to be located within the fee section 
of the short form disclosure, just below the top-line fees, to 
emphasize its relative importance among all the disclosures on the 
short form. In the final rule, the Bureau has relocated the statement 
to the section below the fee disclosures together with other statements 
required in the short form disclosure, as upon further consideration, 
the Bureau is concerned locating it amidst the fee disclosures could be 
confusing to consumers.
    The Bureau's consumer testing and other considerations, such as 
commenters' concerns that consumers may be confused by the proposed 
short form's lack of information regarding availability of the feature 
and the Bureau's proposed 30-day waiting period, after which consumers 
may be solicited for or may link credit to a prepaid account, led the 
Bureau to require disclosure that a consumer ``may be offered 
overdraft/credit after [x] days'' (emphasis added). In response to the 
concern that the proposed disclosure could intimate that prepaid 
account programs offer overdraft or credit programs for free, the final 
rule requires explicit disclosure that ``[f]ees would apply.'' Where no 
overdraft credit feature will be offered, the final rule requires 
disclosure of ``[n]o overdraft/credit feature'' (emphasis added), 
replacing the proposed term ``fee.'' The Bureau's post-proposal 
consumer testing revealed, consistent with the Bureau's proposed rule, 
that the statements required in the final rule effectively provide the 
information that the Bureau intends to be imparted in that most 
participants understood that overdraft or credit may or may not be 
offered (as applicable), that obtaining the service is not guaranteed, 
that there is a 30-day waiting period, and that they may pay fees for 
the service.\429\
---------------------------------------------------------------------------

    \429\ See ICF Report II at 14 and 24-25.
---------------------------------------------------------------------------

    The disclosures required under the final rule use the term 
``overdraft/credit'' instead of the proposed ``credit-related [fees]'' 
and ``overdraft or credit-related [fees]'' because the Bureau agrees 
with commenters that use of the term ``overdraft'' in both versions of 
the disclosure may be more meaningful to consumers. The Bureau is 
concerned that, while the term ``overdraft credit'' (without a slash) 
is more technically

[[Page 84052]]

accurate, it may not have particular meaning to consumers. The Bureau 
also believes that use of the same term in both the short form and long 
form disclosures will facilitate consumers' ability to comparison shop.
    For all of these reasons, the Bureau believes that the refined and 
relatively short statement regarding whether overdraft credit features 
may be offered in connection with the prepaid account strikes the best 
balance for the short form disclosure. The Bureau therefore declines to 
add additional details about the terms of such overdraft credit 
features to the short form disclosure.
18(b)(2)(xi) Statement Regarding Registration and FDIC or NCUA 
Insurance
    As described in detail below, the proposed rule would have required 
a statement in the short form disclosure communicating to consumers 
that a prepaid account must be registered in order for the funds to be 
protected. On the following line, the proposed rule would have required 
disclosure of a lack of FDIC or NCUSIF insurance. In the final rule, 
the Bureau has combined the registration and insurance disclosures and 
is requiring the financial institution to disclose whether or not the 
prepaid account program is eligible for FDIC or NCUA insurance.
The Bureau's Proposal Requiring a Statement Regarding Registration of 
the Prepaid Account
    The Bureau proposed that a statement regarding the importance of 
registering the prepaid account with the financial institution be 
included on the short form disclosure. Specifically, proposed Sec.  
1005.18(b)(2)(i)(B)(12) would have required a statement that 
communicates to a consumer that a prepaid account must be registered 
with a financial institution or service provider in order for the funds 
loaded onto the account to be protected, in a form substantially 
similar to the clauses set forth in proposed Model Forms A-10(a) 
through (d).
    As discussed in part II.B above, registration typically means that 
a consumer provides identifying information such as name, address, date 
of birth, and Social Security Number or other government-issued 
identification number so that the financial institution can identify 
the cardholder and verify the cardholder's identity. The Bureau 
proposed to add this statement because many consumer protections set 
forth in the proposed rule would not take effect until a consumer 
registers an account. For example, under proposed Sec.  1005.18(e)(3), 
a consumer would not have been entitled to error resolution rights or 
protection from unauthorized transactions until after registering the 
prepaid account. The Bureau believed that this is an important 
protection insofar as unregistered prepaid accounts are like cash--once 
lost, funds may be difficult or impossible to protect or replace 
because the financial institution may not know who the rightful 
cardholder is.
    The Bureau, however, recognized that in some acquisition scenarios, 
for example, government benefit accounts, payroll card accounts, or 
cards used to disburse financial aid to students, this type of 
statement might be less useful because consumers must register with the 
government agency, employer, or institution of higher education, in 
order to acquire the account. The Bureau therefore specifically 
solicited comment on whether the short form disclosure provided to 
consumers pre-acquisition should always include this statement 
regarding registering the prepaid account.
The Bureau's Proposal Requiring a Statement Regarding FDIC or NCUA 
Insurance
    The Bureau also proposed to address pass-through deposit (and 
share) insurance in proposed Sec.  1005.18(b)(2)(i)(B)(13). 
Specifically, proposed Sec.  1005.18(b)(2)(i)(B)(13) would have 
required that if a prepaid account product is not set up to be eligible 
for FDIC deposit or NCUA share insurance, a financial institution would 
have to include a statement on the short form disclosure that FDIC 
deposit insurance or NCUA share insurance, as appropriate, does not 
protect funds loaded into the prepaid account, in a form substantially 
similar to the clause set forth in proposed Model Forms A-10(c) and 
(d).
    As discussed in part II.B above, the FDIC, among other things, 
protects funds placed by depositors in insured banks and savings 
associations; the NCUA provides a similar role for funds placed in 
credit unions. As explained in the FDIC's 2008 General Counsel Opinion 
No. 8, the FDIC's deposit insurance coverage will ``pass through'' the 
custodian to the actual underlying owners of the deposits in the event 
of failure of an insured institution, provided certain specific 
criteria are met.\430\
---------------------------------------------------------------------------

    \430\ 73 FR 67155, 67157 (Nov. 13, 2008).
---------------------------------------------------------------------------

    In response to the Prepaid ANPR, many consumer advocacy group 
commenters suggested that the Bureau require that pass-through deposit 
(or share) insurance cover all funds loaded into prepaid accounts, 
while many industry group commenters suggested that the Bureau propose 
clear disclosure of whether a prepaid product carries FDIC insurance or 
not. The Bureau believed it is not always easy to determine or explain 
whether FDIC or NCUSIF pass-through deposit or share insurance would 
apply to a particular prepaid account. Thus, the Bureau proposed that 
disclosure be made regarding FDIC or NCUSIF insurance in only limited 
situations.
    In the Bureau's Study of Prepaid Account Agreements, the Bureau 
found that about two thirds of all account agreements reviewed stated 
that cardholder funds were protected by FDIC deposit (or NCUSIF share) 
insurance (this includes agreements that explained insurance coverage 
depends on card registration, or explained that it only applies to 
funds held by a bank or credit union in a pooled account associated 
with the program). The Bureau found that only about 11 percent of 
agreements explicitly stated that the program was not insured.\431\
---------------------------------------------------------------------------

    \431\ Of the remaining agreements, about 17 percent implied that 
the program was FDIC or NCUSIF insured by stating that the issuer is 
an FDIC- or NCUA-insured institution, but that did not address FDIC 
or NCUSIF insurance coverage for the program. A small number of 
agreements, 6 percent of those reviewed, did not address FDIC or 
NCUA insurance coverage for the program. For the latter two 
categories of programs, it is possible that such programs are in 
fact set up to be eligible for pass-through deposit (or share) 
insurance, but it was not possible to tell from reviewing the 
program's account agreement. See Study of Prepaid Account Agreements 
at 27-28 and tbl.13. In addition, the Bureau has observed that some 
GPR card providers disclose the existence of pass-through deposit 
insurance coverage or that the issuing bank is an FDIC-insured 
institution on their retail packaging, often quite prominently. The 
Bureau's Study of Prepaid Account Agreements, however, did not 
examine pass-through insurance statements made on GPR cards' retail 
packaging. Likewise, the Study did not examine pass-through 
insurance statements made on prepaid programs' other marketing 
materials or on their Web sites. See id.
---------------------------------------------------------------------------

    In its pre-proposal consumer testing, the Bureau observed that some 
participants misunderstood the scope of the protections FDIC pass-
through deposit insurance actually provides for prepaid accounts. 
During the consumer focus groups, for example, nearly all participants 
said they had heard of FDIC deposit insurance, and many consumers 
believed the funds on their GPR cards were FDIC-insured.\432\ When 
consumers were asked to explain what it meant that their GPR card had 
FDIC deposit insurance, most made vague references to their funds being 
``protected.'' Upon further probing, however, the majority of 
participants incorrectly thought FDIC deposit insurance would protect 
their funds in the event of fraudulent charges

[[Page 84053]]

or a stolen card.\433\ Very few participants understood FDIC insurance 
correctly in that it applies to the insolvency of the bank that holds 
the underlying funds and not to the funds on a prepaid card itself in 
the case of an unauthorized transaction on the account.
---------------------------------------------------------------------------

    \432\ See ICF Report I at 10.
    \433\ The Bureau notes, however, that despite believing that 
FDIC insurance could ``protect'' funds held in a prepaid account, in 
its pre-proposal consumer testing no participants mentioned FDIC 
insurance when asked to interpret the statement ``Register your card 
to protect your money,'' which would have been disclosed pursuant to 
proposed Sec.  1005.18(b)(2)(i)(B)(12). See ICF Report I at 5.
---------------------------------------------------------------------------

    In light of the results of the Bureau's Study of Prepaid Account 
Agreements indicating that many products meeting the proposed 
definition of prepaid account already provide pass-through deposit 
insurance coverage and consumers' misunderstandings about what 
protections pass-through deposit insurance actually affords, the Bureau 
decided not to propose any requirements related to the affirmative 
existence of pass-through deposit insurance. The Bureau did propose, 
however, that financial institutions would have to disclose a statement 
on the short form if a prepaid account is not set up to be eligible for 
FDIC (or NCUSIF) pass-through deposit (or share) insurance.
Comments Received Regarding the Statement Regarding Registration
    Industry commenters, including an industry trade association, an 
issuing bank, a program manager, and the office of a State Attorney 
General generally supported the proposed statement regarding 
registration. The industry commenters also expressed concern, however, 
that the disclosure could mislead consumers because the statement 
implies that registration alone protects against fraud, rather than 
just providing a step toward FDIC insurance coverage and protections 
under Regulation E. The program manager recommended modifying the 
disclosure by combining the registration and insurance disclosures into 
one disclosure because, it said, registration is necessary for FDIC 
insurance coverage and a combined disclosure would be more accurate and 
less confusing to consumers. It also recommended stating that 
registration protects the consumer's ``rights'' rather than ``money,'' 
as a more accurate statement. The program manager recommended the 
following statement: ``Register your card to be eligible for [FDIC/
NCUSIF] insurance and to protect your rights.'' The trade association 
and issuing bank recommended the following statement: ``Register your 
card to protect your money.'' \434\
---------------------------------------------------------------------------

    \434\ The trade association and the issuing bank also expressed 
concern that the proposed rule would have required disclosure of the 
name of the financial institution, when a vendor, such as a program 
manager, might actually carry out registration. The Bureau notes 
that the proposal would have permitted the name of whatever party 
carried out registration to be listed here, as the proposed rule 
would have required a statement that communicates to a consumer that 
a prepaid account must register with a financial institution or 
servicer provider. The final rule does not require disclosure of 
this information, as discussed below.
---------------------------------------------------------------------------

    Several industry commenters, including a trade association, a 
program manager, and two issuing banks also recommended eliminating the 
registration disclosure for certain types of prepaid account programs, 
including non-reloadable prepaid products, payroll card accounts, and 
government benefit accounts. One of the issuing banks and the program 
manager said the statement was not relevant for non-reloadable products 
because there is no customer identification or account registration 
process for such programs and, thus, the statement would be confusing 
to consumers. The remaining commenters said the registration 
requirement was not relevant for payroll card accounts and/or 
government benefit accounts because registration occurs prior to card 
issuance and because such accounts would be required to provide error 
resolution and limited liability protections regardless of 
registration. The program manager suggested that the space could be 
better used to disclose other information, such as how to access full 
wages without fees for payroll card accounts.
Comments Received Regarding the Statement Regarding FDIC or NCUA 
Insurance
    A number of industry commenters, including industry trade 
associations, issuing banks, and a credit union, and as well as several 
consumer groups commented on the proposed insurance disclosure (which, 
as discussed above, would have required disclosure only of the lack of 
insurance). Several industry trade associations and a credit union 
supported the Bureau's proposed disclosure requirement; one commenter 
noted that it is essential for consumers to know that they could lose 
their money if the financial institution were to fail. Most industry 
commenters, however, recommended that the Bureau require disclosure of 
both when pass-through deposit insurance is available and when it is 
not. One industry trade association and an issuing bank recommended 
requiring disclosure when a prepaid account program is not eligible for 
insurance coverage and permitting the issuer to decide whether to 
disclose when the program is eligible for insurance coverage. The 
credit union commenter recommended disclosure only when the program is 
eligible for insurance coverage.
    Two consumer groups recommended more fulsome disclosure of 
insurance coverage. One recommended disclosure in the short form of the 
risks of uninsured deposits and, when the program is eligible for 
insurance coverage, the need to register for insurance to attach. The 
other consumer group recommended that the Bureau include a section in 
the long form disclosure which would provide fuller disclosure 
regarding the lack of insurance. (See a detailed discussion of this 
issue in the section-by-section analysis of Sec.  1005.18(b)(4)(iii) 
below.) One of the consumer groups recommended requiring providers to 
inform consumers that registration of the prepaid account is required 
for deposit insurance to attach and protect funds.
    Although the Bureau had not proposed to require financial 
institutions affirmatively to obtain deposit or share insurance, some 
commenters urged such a requirement. In particular, many consumer 
groups, individual consumers who submitted comments as part of a 
comment submission campaign organized by a national consumer advocacy 
group, and the offices of two State Attorneys General argued that 
disclosures are insufficient in this instance and requested that the 
Bureau require that prepaid account funds be held in custodial accounts 
that carry deposit insurance. Several commenters requested FDIC 
insurance for specific accounts, such as payroll card accounts and 
registered prepaid accounts. A few commenters argued that virtual 
payment accounts that offer the same features as prepaid cards should 
also be FDIC insured because the non-bank entities that offer such 
accounts might attempt to avoid the cost of insurance and the oversight 
of regulators by not storing funds at a depository institution.
    These commenters primarily argued that prepaid accounts 
increasingly serve as bank alternatives and therefore should have the 
same benefits as checking and savings accounts, especially because 
consumers expect this type of protection. Several commenters argued 
that accepting a consumer's core income and holding it in an uninsured 
account would be an unfair, deceptive or abusive act or practice; 
requiring FDIC insurance would not be unexpected or onerous

[[Page 84054]]

and would eliminate unscrupulous providers that do not deposit funds 
with legitimate financial institutions; and not requiring FDIC 
insurance would cause prepaid accounts to be viewed as subpar financial 
products.
    Conversely, one industry trade association advocated against 
requiring pass-through insurance for prepaid accounts, arguing that 
such a measure would put credit unions at a competitive disadvantage 
because of their field of membership restrictions.
The Final Rule
    For the reasons set forth herein, the Bureau is adopting proposed 
Sec.  1005.18(b)(2)(i)(B)(12) and (13), combined into renumbered Sec.  
1005.18(b)(2)(xi), with several substantial modifications as described 
below. First, the Bureau has combined the registration and insurance 
disclosures into a single line. Second, the Bureau is requiring 
disclosure both when a prepaid account program is eligible for FDIC or 
NCUA insurance coverage and when it is not. Third, the Bureau has added 
to the regulatory text the specific language that should be used to 
make this combined disclosure in five distinct circumstances. The 
Bureau is also adopting new comments 18(b)(2)(xi)-1 and -2 to provide 
additional guidance regarding this disclosure requirement. Finally, the 
Bureau has made technical modifications to the rule for conformity and 
clarity.
    The Bureau continues to believe it is important that financial 
institutions disclose to consumers purchasing prepaid accounts both 
that registration and insurance coverage provide protection. Because 
certain protections do not attach until registration, such that 
unregistered prepaid accounts are akin in some ways to carrying cash, 
the Bureau believes it is important for consumers to be aware that they 
should register their accounts. As discussed below, the final rule 
links the act of registration with insurance coverage and other 
protections. The Bureau believes that, even absent a consumer's full 
understanding of the protections afforded by registration, linking 
registration to insurance coverage and other protections will help 
motivate consumers to register their prepaid accounts.
    Similarly, the Bureau believes it is important to disclose to 
consumers information about insurance coverage. While the Bureau's 
post-proposal consumer testing confirmed that some consumers 
erroneously equate FDIC coverage with fraud or theft protection, a 
number of participants understood that the insurance protects 
consumers' funds in the case of bank insolvency.\435\ Regardless of 
their understanding of what FDIC insurance actually protects against, 
most participants identified insurance coverage as positive and wanted 
to know whether the prepaid card they were considering buying in the 
testing scenario offered this protection. The Bureau understands that 
the attachment of pass-through FDIC deposit or NCUA share insurance can 
be a complex matter determined by many factors, including how the 
financial institution has structured the program and the accuracy of 
its recordkeeping. The Bureau believes that, even absent a full 
understanding of the attachment requirements and the protections 
afforded by insurance coverage, disclosing whether a prepaid account 
program provides insurance coverage will educate consumers and a 
combined insurance and registration disclosure will help motivate 
consumers to register their prepaid accounts, when applicable.
---------------------------------------------------------------------------

    \435\ See ICF Report II at 15 and 26. In the first round of the 
Bureau's post-proposal consumer testing, two out of nine 
participants understood that FDIC insurance is meant to protect 
their money in case of a bank failure; in the second round, 
approximately half of the 11 participants understood this.
---------------------------------------------------------------------------

    The Bureau is persuaded by commenters, the results of its post-
proposal consumer testing, and information received during the 
interagency consultation process that the registration and insurance 
disclosures should be combined, and that both the existence as well as 
the lack of insurance eligibility should be disclosed. First, 
registration is a prerequisite to insurance protection; the two 
processes are conceptually linked and the Bureau believes that 
disclosing them together will help consumers appreciate this cause and 
effect. Also, while under the proposed rule registration would have 
been a prerequisite to certain Regulation E protections, the final rule 
expands error resolution and limited liability protections for 
unregistered consumers, thereby reducing the urgency to emphasize 
registration in its own dedicated line in the short form disclosure. 
See final Sec.  1005.18(e). Moreover, the additional space in the short 
form created by combining these disclosures has allowed the Bureau to 
permit the addition of other information to the form while remaining in 
keeping with the size constraints of existing J-hook packaging. See, 
e.g., final Sec.  1005.18(b)(2)(xiv)(B) and (3)(ii). The Bureau 
believes that melding these two disclosures into a single line will 
provide more rational and efficient information to consumers.
    Second, the Bureau believes that disclosure of both the existence 
or lack of insurance eligibility will be more beneficial to consumers 
than disclosing only when insurance is not available. Consistent with 
the position of many commenters, the Bureau found in its post-proposal 
consumer testing that, while participants understood the meaning of 
statements regarding coverage and non-coverage, when the prototype 
short form was silent (as it would be under the proposed rule if the 
prepaid account program was eligible for insurance coverage) most 
participants did not understand that to mean insurance was 
offered.\436\ The Bureau was thus concerned that the proposed model 
forms' silence when a program is eligible for insurance coverage would 
not be effective in communicating to consumers that a prepaid account 
program is eligible for insurance coverage.
---------------------------------------------------------------------------

    \436\ See ICF Report II at 15 and 25-26.
---------------------------------------------------------------------------

    The final rule refers to NCUA, rather than NCUSIF, insurance for 
credit unions. After further consideration and based on information 
received during the interagency consultation process, the Bureau 
believes the term ``NCUA'' may be more meaningful to consumers than 
``NCUSIF'' and has revised the disclosures accordingly in both final 
Sec.  1005.18(b)(2)(xi) and (4)(iii).
    In response to concerns raised by commenters, the Bureau has 
tailored the final rule to take into account the existence and timing 
of a financial institution's consumer identification and verification 
process. For some types of prepaid account programs, such as payroll 
card accounts and government benefit accounts, financial institutions 
conduct customer identification and verification before the card is 
distributed or activated, while others, such as certain non-reloadable 
cards, may have no customer identification and verification process at 
all. As noted above, the Bureau has added to the regulatory text of the 
final rule specific language that financial institutions should use to 
make the disclosure for clarity. The tailored language required under 
the final rule accounts for these distinctions.
    Specifically, the final rule covers five different scenarios:
     Final Sec.  1005.18(b)(2)(xi)(A) requires that, if a 
prepaid account program is set up to be eligible for FDIC deposit or 
NCUA share insurance, and customer identification and verification does 
not occur before the account is opened, the financial institution make 
this

[[Page 84055]]

disclosure using the following clause or a substantially similar 
clause: ``Register your card for [FDIC insurance eligibility] [NCUA 
insurance, if eligible] and other protections.''
     Final Sec.  1005.18(b)(2)(xi)(B) requires that, if a 
prepaid account program is not set up to be eligible for FDIC deposit 
or NCUA share insurance, and customer identification and verification 
does not occur before the account is opened, the financial institution 
make this disclosure using the following clause or a substantially 
similar clause: ``Not [FDIC] [NCUA] insured. Register your card for 
other protections.''
     Final Sec.  1005.18(b)(2)(xi)(C) requires that, if a 
prepaid account program is set up to be eligible for FDIC deposit or 
NCUA share insurance, and customer identification and verification 
occurs for all prepaid accounts within the prepaid program before the 
account is opened, the financial institution make this disclosure using 
the following clause or a substantially similar clause: ``Your funds 
are [eligible for FDIC insurance] [NCUA insured, if eligible].''
     Final Sec.  1005.18(b)(2)(xi)(D) requires that, if a 
prepaid account program is not set up to be eligible for FDIC deposit 
or NCUA share insurance, and customer identification and verification 
occurs for all prepaid accounts within the prepaid account program 
before the account is opened, the financial institution make this 
disclosure using the following clause or a substantially similar 
clause: ``Your funds are not [FDIC] [NCUA] insured.''
     Finally, final Sec.  1005.18(b)(2)(xi)(E) requires that, 
if a prepaid account program is set up such that there is no customer 
identification and verification process for any prepaid accounts within 
the prepaid account program, the financial institution make this 
disclosure using the following clause or a substantially similar 
clause: ``Treat this card like cash. Not [FDIC] [NCUA] insured.''
    The Bureau had specifically requested comment as to whether non-
banks that issue prepaid accounts could apply the proposed statement 
regarding FDIC or NCUA insurance to their products, or whether the 
Bureau should propose an alternative requirement regarding the 
disclosure of the availability of FDIC or NCUA insurance for non-banks 
that issue prepaid accounts. The Bureau did not receive any comments in 
response to this request. The Bureau believes that it nonetheless would 
be useful to provide additional guidance as to when the disclosure 
should refer to NCUA insurance coverage and when it should instead 
refer to FDIC insurance coverage. Thus, new comment 18(b)(2)(xi)-1 
clarifies when to use the term ``FDIC'' and when to use ``NCUA.'' 
Specifically, the comment explains that if the consumer's prepaid 
account funds are held at a credit union, the disclosure must indicate 
NCUA insurance eligibility. The comment goes on to say that if the 
consumer's prepaid account funds are held at a financial institution 
other than a credit union, the disclosure must indicate FDIC insurance 
eligibility. As a result of requests received during the interagency 
consultation process, the disclosures of both FDIC and NCUA insurance 
pursuant to Sec.  1005.18(b)(2)(xi) expressly reflect eligibility in 
the statement, to put consumers acquiring prepaid accounts on notice 
that insurance protections may not attach in all cases. This includes, 
for example, when the consumer is not a member of the issuing credit 
union with respect to NCUA.
    New comment 18(b)(2)(xi)-2 addresses certain aspects of customer 
identification and verification. Specifically, the comment cross-
references final Sec.  1005.18(e)(3) and comments 18(e)-4 and -5 for 
additional guidance on the timing of customer identification and 
verification processes, and on prepaid account programs for which there 
is no customer identification and verification process for any prepaid 
accounts within the prepaid account program.
    The Bureau considered adding additional information to the 
registration and insurance disclosure in the short form, as requested 
by one commenter, such as an explanation of what protections in 
addition to insurance eligibility registration provides or more fulsome 
information about the implications of insurance coverage. However, in 
light of overall space constraints and the multiple goals for the short 
form, the Bureau ultimately decided against adding any more information 
to the registration/insurance disclosure. The Bureau believes this 
disclosure balances the most important information for consumers with 
the brevity and clarity necessary for optimal consumer comprehension of 
the short form disclosure. The Bureau is, however, requiring financial 
institutions to provide more detailed information about insurance 
coverage in the long form disclosure. See final Sec.  
1005.18(b)(4)(iii).
    In light of the results of the Bureau's Study of Prepaid Account 
Agreements indicating that many products meeting the proposed 
definition of prepaid account already provide pass-through deposit 
insurance coverage, consumers' misunderstandings about what protections 
pass-through deposit insurance actually affords, and the complexities 
inherent in ensuring pass-through insurance coverage, the Bureau is not 
including a requirement mandating FDIC or NCUA insurance coverage at 
this time.
18(b)(2)(xii) Statement Regarding CFPB Web Site
    The proposed rule would have required financial institutions to 
disclose in proposed Sec.  1005.18(b)(2)(i)(B)(14) the URL of the Web 
site of the Consumer Financial Protection Bureau, in a form 
substantially similar to the clauses set forth in proposed Model Forms 
A-10(a) through (d) and (f). In the proposal, the Bureau indicated that 
it intended to develop resources on its Web site that would, among 
other things, provide basic information to consumers about prepaid 
accounts, the benefits and risks of using them, how to use the final 
rule's prepaid account disclosures, and a URL to the Bureau's Web site 
where they can submit a complaint about a prepaid account.
    The Bureau received comments from the office of a State Attorney 
General, an industry trade association, and a group advocating on 
behalf of business interests about this portion of the proposal. The 
office of the State Attorney General generally supported the disclosure 
while the trade association and business group recommended that the 
Bureau eliminate the disclosure. The industry trade association 
suggested that eliminating the disclosure would make room in the short 
form for information more valuable to consumers and reduce consumer 
confusion. It first asserted that the disclosure would not be necessary 
in bank branches because Bureau contact information was included in the 
proposed long form, which would be provided to consumers at the same 
time as the short form in a bank branch. Second, it said that the 
Bureau's pre-proposal consumer testing suggested consumers are unlikely 
to access the Bureau's Web site when reviewing the short form 
disclosure. Third, the commenter expressed concern about consumer 
confusion, stating that the Bureau's pre-proposal consumer testing 
suggested consumers would more likely access a financial institution's 
Web site for additional information about a prepaid account rather than 
obtaining more general information from the Bureau's Web site. Finally, 
it argued that listing both the financial institution's Web site and 
the Bureau's Web site on the short form disclosure would misdirect 
consumers,

[[Page 84056]]

because in one of the rounds of the Bureau's pre-proposal consumer 
testing, half of the participants stated that they would go to the 
Bureau's Web site to get additional information about a particular 
prepaid card product.
    The business group opposed including a link to the Bureau's Web 
site in both the short form and long form disclosures. It stated that 
the link to the Web site in the model short form disclosure was not yet 
an operating Web site, and therefore the commenter said it could not 
comment on the wisdom of directing consumers to this particular Bureau 
Web page. The commenter further suggested that requiring financial 
institutions to disclose the Bureau's Web site URL on the short form 
disclosure constituted Bureau interference with the purchasing process 
and would instill doubt in the consumer's mind about the safety of the 
prepaid account. It said it believed questions about prepaid accounts 
should be directed to the financial institution in the first instance, 
not to a regulatory agency.
    For the reasons set forth herein, the Bureau is adopting proposed 
Sec.  1005.18(b)(2)(i)(B)(14), renumbered as Sec.  1005.18(b)(2)(xii), 
with minor modifications. The Bureau has moved the required language 
for this disclosure into the regulatory text, and has modified that 
language to specify that the disclosed Web site URL would provide 
consumers with general information about prepaid accounts. Finally, the 
Bureau has made technical modifications to the rule for conformity and 
clarity. Accordingly, final Sec.  1005.18(b)(2)(xii) requires that 
financial institutions include in the short form a statement directing 
the consumer to a Web site URL of the Bureau (cfpb.gov/prepaid) for 
general information about prepaid accounts, using the following clause 
or a substantially similar clause: ``For general information about 
prepaid accounts, visit cfpb.gov/prepaid.''
    The Bureau is not persuaded by industry commenters' objections that 
this disclosure is unnecessary, inappropriate, or confusing. In the 
Bureau's post-proposal consumer testing of the short form disclosure, 
most participants understood that the Web site in this disclosure was 
administered by a government agency, not the financial institution, and 
that it would contain general information about prepaid accounts.\437\ 
The Bureau continues to believe that it is important to provide 
consumers with a non-commercial alternative source of information about 
prepaid accounts to enhance consumers' ability to learn about prepaid 
accounts in general in order to better inform their purchase and use 
decisions.
---------------------------------------------------------------------------

    \437\ See ICF Report II at 12 and 22.
---------------------------------------------------------------------------

18(b)(2)(xiii) Statement Regarding Information on All Fees and Services
The Bureau's Proposal
    Proposed Sec.  1005.18(b)(2)(i)(B)(11) would have required 
disclosure of a telephone number and the unique URL of a Web site that 
a consumer may use to access the long form disclosure that would have 
been required under proposed Sec.  1005.18(b)(2)(ii) in a form 
substantially similar to the clauses set forth in proposed Model Forms 
A-10(c) and (d). Proposed Sec.  1005.18(b)(2)(i)(B)(11) would have 
required this disclosure only when a financial institution chose not to 
provide a written form of the long form disclosure that would have been 
required by proposed Sec.  1005.18(b)(2)(ii) before a consumer acquires 
a prepaid account at a retail store as described in proposed Sec.  
1005.18(b)(1)(ii). (Proposed Model Forms A-10(a) and (b) also included 
this language for government benefit accounts and payroll card 
accounts.) The Bureau believed that using either the telephone number 
or the Web site, a consumer would be able to access information about 
the fees listed in the long form disclosure, and any conditions on the 
applicability of those fees. As discussed in the proposal, the Bureau 
believed that if consumers do not receive the long form disclosure in 
writing or by email before acquisition in a retail store, it is 
important that they are still able to access the information. The 
Bureau also believed it is important that the Web site URL be unique to 
ensure that a consumer can directly access the same type of stand-alone 
long form disclosure that would otherwise be provided pursuant to 
proposed Sec.  1005.18(b)(1)(i) in written or electronic form before a 
consumer acquires a prepaid account.
    Proposed comment 18(b)(2)(i)(B)(11)-1 would have provided further 
details about the telephone number that would have been required to be 
included on the short form disclosure pursuant to proposed Sec.  
1005.18(b)(2)(i)(B)(11) when a financial institution does not provide 
the long form disclosure before a consumer acquires a prepaid account. 
The proposed comment would have clarified that, for example, a 
financial institution could use a customer service agent or an 
interactive voice response system, to provide this disclosure. Proposed 
comment 18(b)(2)(i)(B)(11)-1 would have also explained that a consumer 
must not incur a fee to call this telephone number before acquiring a 
prepaid account. The telephone number disclosed pursuant to proposed 
Sec.  1005.18(b)(2)(i)(B)(11) could be the same as the customer service 
number for which a financial institution may impose a fee on a consumer 
to use for other purposes, but a consumer could not incur any customer 
service or other transaction fees when calling this number to access 
the information set forth in proposed Sec.  1005.18(b)(2)(ii) before 
acquiring a prepaid account in retail store.
    The Bureau considered requiring that this number be toll-free, but 
ultimately decided that having a toll-free number is less important to 
consumers, most of whom use mobile phones and do not incur additional 
fees for making long distance calls, and such a requirement could 
impose a burden on smaller financial institutions because they would 
perhaps have to maintain a separate toll-free line just for their 
prepaid account products. The Bureau noted that some card networks may 
require financial institutions to maintain toll-free lines, and 
therefore believed that telephone numbers disclosed in such cases would 
likely be toll-free.
    Proposed comment 18(b)(2)(i)(B)(11)-2 would have provided further 
details about the Web site that would have been required to be included 
on the short form disclosure pursuant to proposed Sec.  
1005.18(b)(2)(i)(B)(11) when a financial institution does not provide 
the long form disclosure before a consumer acquires a prepaid account. 
The proposed comment would have clarified that an entered URL that 
requires a consumer to navigate various other Web pages before viewing 
the long form disclosure would not comply with proposed Sec.  
1005.18(b)(2)(i)(B)(11). The Bureau believed that consumers make 
acquisition decisions in retail stores relatively quickly--often while 
standing--and should not have to navigate different links to access the 
Web page that contains the long form disclosure.
    Relatedly, proposed Sec.  1005.18(b)(4)(i)(A) would have required, 
among other things, that the URL disclosed pursuant to proposed Sec.  
1005.18(b)(2)(i)(B)(11) must not exceed 22 characters and must be 
meaningfully named. The Bureau explained that by meaningfully named, it 
meant a Web site URL that uses real words or phrases, particularly 
those related to the actual prepaid account product. The Bureau 
believed 22 characters is the maximum length of a Web site URL that can 
fit legibly on a short form disclosure on

[[Page 84057]]

most existing retail packaging material. The Bureau further believed 
these parameters would ensure that a consumer can easily enter the Web 
site URL listed on the short form into a mobile device when shopping in 
a retail store in order to access the long form disclosure. Using a 
meaningfully named Web site URL would also ensure that it is easy for a 
consumer to understand, which the Bureau believed would increase the 
likelihood that a consumer would use the URL to seek out more 
information about a prepaid account product.
    The Bureau also considered whether to require financial 
institutions to disclose an SMS short code, which might be easier to 
type than a Web site URL, that consumers could text to receive the Web 
site URL that links directly to the long form disclosure.\438\ The 
Bureau decided against including this method because sending a text 
message using an SMS short code would still require a mobile phone 
capable of sending text messages, could incur costs for the consumer, 
and would require adequate reception in the retail location. The Bureau 
also considered, but did not propose, requiring that a quick response 
(QR) code be included in the short form but decided against it because 
a QR code would require a substantial amount of space on the small 
short form disclosure and QR code adoption remains low. The Bureau did, 
however, request comment on including SMS and QR codes in the short 
form disclosure.
---------------------------------------------------------------------------

    \438\ An SMS short code is a group of numbers one can send as a 
text message using a mobile phone and receive a text message in 
response.
---------------------------------------------------------------------------

Comments Received
    The Bureau received few but varied comments regarding the 
requirement in proposed Sec.  1005.18(b)(2)(i)(B)(11) to disclose a 
telephone number and Web site URL in the short form disclosure in 
retail settings so that consumers could access the long form disclosure 
pre-acquisition. An industry trade association supported the disclosure 
and recommended it for all short forms, not just those in retail 
settings, but arguing that inclusion of this information generally 
would render unnecessary pre-acquisition disclosure of the written long 
form. A member of a trade association for State government officials 
generally expressed concern about consumer confusion, positing that a 
consumer picking up the short form may not realize there is also a long 
form disclosure. A program manager requested clarification that the 
telephone number disclosed need not be the same number for all the 
financial institution's prepaid account programs but rather could 
correspond to a particular prepaid account program. Two consumer groups 
and a program manager recommended allowing, but not requiring, 
disclosure of an SMS or QR code to provide an additional easy method to 
access the long form disclosure for consumers who have smart phones. An 
office of a State Attorney General said the Bureau should require that 
the long form disclosure be provided in written form in all payroll 
settings as employees may have limited telephone and internet access. 
(The proposed and final rules, in fact, do require that a long form 
disclosure be provided pre-acquisition for payroll card accounts.)
    Several industry commenters recommended eliminating the character 
limit and the ``meaningfully named'' standard from the Web site URL. 
Specifically, an industry trade association and an issuing bank said 
that the limited space of the short form already requires brevity and a 
program manager said that use of real words and phrases does not mean 
web addresses will be easier to remember and that many recognizable 
trademarks and product names do not qualify as real words and phrases.
The Final Rule
    For the reasons set forth herein, the Bureau is adopting proposed 
Sec.  1005.18(b)(2)(i)(B)(11), renumbered as Sec.  1005.18(b)(2)(xiii), 
with certain modifications. The Bureau is requiring that all short 
forms contain a statement directing consumers to the location of the 
long form disclosure to find details and conditions for all fees and 
services. For prepaid accounts offered at retail locations, this 
statement must include a telephone number and a Web site URL, as 
proposed. For clarity, the Bureau has added to the regulatory text the 
specific language for this statement. The requirements in proposed 
Sec.  1005.18(b)(4)(i)(A) that the Web site URL be no more than 22 
characters and must be meaningfully named has been relocated to final 
Sec.  1005.18(b)(2)(xiii). Also, this provision permits financial 
institutions to include an SMS code as part of the disclosure. In 
addition, comments 18(b)(2)(i)(B)(11)-1 and -2, renumbered as 
18(b)(2)(xiii)-1 and -2, provide further clarification regarding 
disclosure of the telephone number and Web site URL. The Bureau has 
also made technical modifications to the rule and commentary for 
conformity and clarity.
    The final rule requires a statement in the short form disclosure 
directing the consumer to the location of the long form disclosure 
required by final Sec.  1005.18(b)(4) to find details and conditions 
for all fees and services. For financial institutions offering prepaid 
accounts pursuant to the retail location exception in final Sec.  
1005.18(b)(1)(ii), this statement must also include a telephone number 
and Web site URL that a consumer may use to directly, respectively, 
access an oral and an electronic version of the long form disclosure 
required under final Sec.  1005.18(b)(4). The Bureau proposed this 
exception from the requirement to provide the long form disclosure pre-
acquisition at retail in recognition of the space limitations inherent 
in selling prepaid accounts at retail. However, the Bureau continues to 
believe it is important for consumers to be able to access the long 
form disclosure through other modes prior to purchasing a prepaid 
account at retail. The Bureau's post-proposal consumer testing of the 
short form disclosure confirmed that nearly all participants understood 
they could find information about additional fees not disclosed on the 
prototype short form by visiting the Web site or calling the telephone 
number on the form.\439\ Thus, in final Sec.  1005.18(b)(2)(xiii), the 
Bureau has retained the proposed requirement to include in the short 
form disclosure a telephone number and Web site URL that a consumer may 
use to access oral and electronic versions of the long form disclosure 
required by final Sec.  1005.18(b)(4) when the financial institution is 
offering prepaid accounts at a retail location pursuant to final Sec.  
1005.18(b)(1)(ii).
---------------------------------------------------------------------------

    \439\ See ICF Report II at 12 and 22.
---------------------------------------------------------------------------

    As stated above, the Bureau is finalizing Sec.  1005.18(b)(2)(xiii) 
to require disclosure in all short forms of a statement directing the 
consumer to the location of the long form to find details and 
conditions for all fees and services. Pursuant to the final rule, short 
form disclosures provided in locations other than retail locations are 
not required to disclose the additional information of a telephone 
number or Web site URL. Thus, the proposed disclosure remains the same 
in the final rule for financial institutions offering prepaid accounts 
pursuant to the retail location exception in final Sec.  
1005.18(b)(1)(ii). The Bureau is adopting the additional requirement 
that all short form disclosures contain a similar statement directing 
consumers to the location of the long form disclosure to alert 
consumers that there is a comprehensive list of fees and information 
available to them and where to find it in order to help them make 
prepaid account purchase and use decisions. The location included in 
the

[[Page 84058]]

statement required in a non-retail location might be, for example, the 
cardholder agreement or the Web site URL, or any other location where 
the consumer can locate the long form disclosure. While the long form 
disclosure may be readily accessible to consumers along with the short 
form in certain settings, the amount of information often provided to 
consumers prior to acquiring a prepaid account in some settings may 
obfuscate the existence of the more complete long form disclosure. The 
short form disclosure was designed to be a snapshot of key fees and 
information; thus it is an optimal place to alert consumers to its 
companion disclosure, the comprehensive long form. Finally, this change 
to the proposal helps standardize the short form disclosures, including 
those provided outside of retail locations, by requiring a parallel 
disclosure in all short forms directing consumers to the location of 
the long form disclosure.
    Final Sec.  1005.18(b)(2)(xiii) provides that this disclosure must 
be made using the following clause or a substantially similar clause: 
``Find details and conditions for all fees and services in [location]'' 
or, for prepaid accounts offered at retail locations pursuant to final 
Sec.  1005.18(b)(1)(ii), made using the following clause or a 
substantially similar clause: ``Find details and conditions for all 
fees and services inside the package, or call [telephone number] or 
visit [Web site].''
    The Bureau declines to follow the recommendation of the commenter 
that all short forms, not just those provided in retail settings, 
disclose a telephone number and Web site URL through which to access 
the long form in lieu of requiring the written long form disclosure be 
provided pre-acquisition. For a full discussion of the Bureau's 
rationale for requiring disclosure of both a short form and a long 
form, see the section-by-section analysis of Sec.  1005.18(b) above. 
Also, the Bureau believes that providing consumers with written 
versions of required disclosures that they can keep, without requiring 
them to have access to the internet and a printer (or a telephone), is 
superior to limiting consumer access to such disclosures solely through 
a Web site or telephone number.
    The Bureau has removed the requirement that the Web site URL 
provided be ``unique,'' and instead is requiring that both the 
telephone number and Web site URL provide the consumer with direct 
access, respectively, to an oral and an electronic version of the long 
form disclosure. This modification makes explicit the reasoning set 
forth in the proposed rule that a consumer must not be required to go 
through excessive steps or have to pay to access the electronic and 
oral disclosures required under this section. In addition, comments 
18(b)(2)(xiii)-1 and -2 provide further clarification of the direct 
access requirement for telephone number and Web site URL.
    In the final rule, the Bureau has also relocated to Sec.  
1005.18(b)(2)(xiii) the requirements that the Web site URL not exceed 
22 characters and be meaningfully named from its location in proposed 
Sec.  1005.18(b)(4)(i)(A), to consolidate the requirements regarding 
this Web site URL in a single place. As discussed above, several 
industry commenters recommended eliminating the character limit and the 
``meaningfully named'' standard from the Web site URL. The Bureau 
continues to believe that the character limit and the requirement that 
Web site URLs be meaningfully named is important for consumer 
comprehension and ease of use in a retail setting; for these reasons 
the Bureau is adopting these requirements in the final rule. The Bureau 
notes that the character limit and the meaningfully named standard are 
not meant to make the Web site URLs easier for consumers to remember 
later, but rather are meant to enable consumers to more easily and 
accurately enter them into a web browser on their mobile phones while 
in a retail location. The Bureau does not believe that a Web site URL 
containing a long string of meaningless letters and numbers would 
facilitate consumer access to the long form disclosure at a retail 
location. The Bureau is providing clarification in final comment 
18(b)(2)(xiii)-2, as discussed below, that trademark and product names 
and their commonly accepted or readily understandable abbreviations are 
deemed to comply with the requirement of final Sec.  
1005.18(b)(2)(xiii) that the Web site URL be meaningfully named.
    Finally, the Bureau is adopting the final rule with the added 
provision that a financial institution may, but is not required to, 
disclose an SMS code at the end of the statement disclosing the 
telephone number and Web site URL, if the SMS code can be accommodated 
on the same line of text as the statement required by final Sec.  
1005.18(b)(2)(xiii). The Bureau agrees with industry and consumer group 
commenters that consumers could benefit from allowing financial 
institutions to provide an additional easy method to access the long 
form disclosure at retail locations. The Bureau believes that an SMS 
code can fit within the short form disclosure without sacrificing 
consumer engagement and comprehension. The Bureau is not permitting a 
QR code to be disclosed in the short form, however, because although 
potentially useful, a QR code would require a substantial amount of 
space on the small short form disclosure and, the Bureau believes, QR 
code adoption continues to remain low.
    Final comment 18(b)(2)(xiii)-1 clarifies that, to provide the long 
form disclosure by telephone, a financial institution could use a live 
customer service agent or an interactive voice response system. In 
response to the commenter referenced above, the comment goes on to 
clarify that a financial institution could use a telephone number 
specifically dedicated to providing the long form disclosure or a more 
general customer service telephone number for the prepaid account 
program. It also provides an example of a financial institution that 
would be deemed to provide direct access pursuant to Sec.  
1005.18(b)(2)(xiii) if a consumer navigates one or two prompts to reach 
the oral long form disclosure via a live customer service agent or an 
interactive voice response system using either a specifically dedicated 
telephone number or a more general customer service telephone number.
    Final comment 18(b)(2)(xiii)-2 provides an example of a financial 
institution that requires a consumer to navigate various other Web 
pages before viewing the long form as one that would not be deemed to 
provide direct access pursuant to final Sec.  1005.18(b)(2)(xiii). The 
comment also clarifies that trademark and product names and their 
commonly accepted or readily understandable abbreviations comply with 
the requirements of final Sec.  1005.18(b)(2)(xiii) that the Web site 
URL be meaningfully named and provides an example.
18(b)(2)(xiv) Additional Content for Payroll Card Accounts
The Bureau's Proposal
    As discussed in the section-by-section analysis of Sec.  1005.18(b) 
above, the Bureau proposed to require the same short form and long form 
disclosures for payroll card accounts (and government benefit accounts) 
as for prepaid accounts generally. However, as discussed in detail 
below, the Bureau also proposed in Sec.  1005.18(b)(2)(i)(A) to require 
that the short form disclosure for payroll card accounts include a 
statement at the top of the short form indicating that a consumer does 
not have to accept the payroll card account and instructing the 
consumer to ask the employer about other ways to receive

[[Page 84059]]

his or her wages instead of receiving them via the payroll card 
account, in a form substantially similar to proposed Model Form A-
10(b). Proposed Sec.  1005.15(c)(2) would have included a similar 
requirement for government benefit accounts, reflected in proposed 
Model Form A-10(a).
    Pursuant to the existing compulsory use prohibition in Sec.  
1005.10(e)(2), no financial institution or other person may require a 
consumer to establish an account for receipt of EFTs with a particular 
institution as a condition of employment or receipt of a government 
benefit. See also existing comment 10(e)(2)-1 and final comment 
10(e)(2)-2. The Bureau believed it is important for consumers to 
realize they have the option of not receiving payment of wages via a 
payroll card account, and that receiving such notice at the top of the 
short form disclosure will help to ensure consumers are aware of this 
right. For this reason, the Bureau proposed that a notice be provided 
at the top of the short form for a payroll card account to highlight 
for consumers that they are not required to accept a particular payroll 
card account.
    Specifically, proposed Sec.  1005.18(b)(2)(i)(A) would have 
required that, when offering a payroll card account, a financial 
institution must include a statement on the short form disclosure that 
a consumer does not have to accept the payroll card account, and that a 
consumer can ask about other ways to get wages or salary from the 
employer instead of receiving them via the payroll card account, in a 
form substantially similar to the language set forth in Model Form A-
10(b). Proposed Sec.  1005.18(b)(2)(i)(A) would have also cross-
referenced proposed Sec.  1005.15(c)(2) for requirements regarding what 
notice to give a consumer when offering a government benefit account.
Comments Received
    Many industry commenters, including industry trade associations 
(including several that focus on payroll and employment issues), 
issuing banks, program managers, payment networks, as well as several 
employers, several State government agencies, and a think tank 
commented on this aspect of the proposal. Specifically, they expressed 
concern that the proposed compulsory use statement was negative and 
implies that the payroll or government benefit card is an inferior 
product, thereby discouraging its use. One commenter said the negative 
statement would, in effect, ``warn away'' consumers from choosing a 
payroll card account or government benefit card. A number of industry 
commenters suggested alternative disclosure language that they said 
would render more neutral the statement proposed by the Bureau.
    Several industry commenters also asserted out that many States 
allow employee wages paid only via electronic means; because there is 
no paper check option for receiving wages, the commenters concluded 
that unless the employee has a bank account that can receive direct 
deposits, the payroll card account would be the sole way to receive 
wages. Others noted that most State wage and hour laws already require 
disclosure of information about all wage payment options before an 
employee decides how to receive wages. One trade association stated 
that the Bureau should not require financial institutions to list all 
available wage payment options as part of the banner notice in the 
final rule, as it would be difficult for employers operating in 
multiple states who would need to have different forms for different 
states, but also stated that it would support such a disclosure if it 
were available as an alternative to the version the Bureau proposed.
    Relatedly, as discussed in more detail in the section-by-section 
analysis of Sec.  1005.18(b) above, some industry commenters generally 
objected to the proposed short form disclosure requirement for payroll 
card accounts (and government benefit accounts) citing, among other 
things, State-required disclosure of certain fee discounts and waivers 
as a factor distinguishing these accounts from GPR cards. Other 
industry commenters recommended that the Bureau permit additional 
disclosures on the short form for these products, such as disclosure of 
State-required methods to access wages without incurring fees.
    Conversely, a number of consumer group commenters supported the 
proposed disclosure requirements for payroll card accounts and 
government benefit accounts generally. Their comments underscored the 
importance of the notice regarding payment options at the top of the 
short form disclosure, with some recommending an even more conspicuous 
disclosure, or an expanded disclosure explaining the benefit of direct 
deposit to a bank account as generally cheaper and more advantageous to 
the consumer than receiving funds via a payroll card account (or 
government benefit account). Some consumer groups recommended that the 
Bureau extend the banner notice requirement to other types of prepaid 
accounts that are not subject to Regulation E's compulsory use 
prohibition, such as those used to disburse students' financial aid, 
insurance proceeds, tax refunds, and needs-tested government benefits 
that are excluded from coverage under Regulation E generally. Some 
consumer groups also urged disclosure of additional information, such 
as alerting the consumer when payments stop (for example when the 
consumer leaves the job or no longer qualifies for benefits), 
instructing the consumer how to un-enroll from the prepaid program, and 
explicitly stating that the employer cannot require acceptance of the 
payroll card account as a condition of employment and cannot retaliate 
against an employee that does not accept a payroll card account.
    A nonprofit organization representing the interests of restaurant 
workers submitted information gathered from a survey it conducted of 
200 people employed by a company that compensates nearly half of its 
140,000 hourly employees via payroll card. Survey results showed that, 
among other problems, 63 percent of employees surveyed reported that 
they were not told about all of the fees associated with the payroll 
card before it was issued to them and 26 percent reported not being 
allowed to choose an alternative method of payment.
    As discussed in the section-by-section analysis of Sec.  
1005.18(b)(2)(iii) above, the office of a State Attorney General 
recommended free and unlimited withdrawal of wages via ATMs, stating 
that its research in its State revealed that ATMs were the most common 
way for payroll card accountholders to access their wages and that 
accountholders regularly incurred fees for ATM transactions.
The Final Rule
    For the reasons set forth in the proposal and herein, the Bureau is 
adopting proposed Sec.  1005.18(b)(2)(i)(A), renumbered as Sec.  
1005.18(b)(2)(xiv)(A), with certain modifications. First, the Bureau 
has modified the proposed regulatory text to permit financial 
institutions to choose between two statements regarding wage payment 
options for payroll cards. Second, the Bureau has added, in new Sec.  
1005.18(b)(2)(xiv)(B), a provision to the final rule permitting 
financial institutions to include in the short form disclosure for 
payroll card accounts a statement directing consumers to a particular 
location outside the short form disclosure for information on ways the 
consumer may access payroll card account funds and balance information 
for free or for a reduced fee. In addition, for the reasons set forth 
below, the Bureau is adopting four new comments

[[Page 84060]]

to further explain and clarify the requirements in final Sec.  
1005.18(b)(2)(xiv)(A) and (B). Finally, the Bureau has made technical 
modifications to the rule for conformity and clarity.
    The Bureau is adopting this provision pursuant to its authority 
under EFTA sections 904(a) and (c), and 913(2), and section 1032(a) of 
the Dodd-Frank Act, as discussed above. EFTA section 913(2) prohibits a 
person from requiring a consumer to establish an account for receipt of 
EFTs with a particular financial institution as a condition of 
employment or receipt of a government benefit. The Bureau believes it 
is important for consumers to realize they have the option of not 
receiving payment of wages or government benefits via a payroll card 
account or government benefit account, and that receiving such notice 
at the top of the short form disclosure will help to ensure consumers 
are aware of this right and can thus exercise their right. Further, the 
Bureau believes that requiring this disclosure is necessary and proper 
to effectuate the purposes of EFTA to provide a framework to establish 
the rights, liabilities, and responsibilities of prepaid account users 
because the revision will assist consumers' understanding of the terms 
and conditions of their prepaid accounts--namely, that consumers have a 
choice regarding whether to accept the specific account. In addition, 
the Bureau believes that this disclosure will, consistent with section 
1032(a) of the Dodd-Frank Act, ensure that the features of the prepaid 
accounts--again, that consumers have a choice regarding whether to 
accept the specific account--are fully, accurately, and effectively 
disclosed to consumers in a manner that permits consumers to understand 
the costs, benefits, and risks associated with the account.
Statement Regarding Wage Payment Options Required by Sec.  
1005.18(b)(2)(xiv)(A)
    The Bureau disagrees with industry commenters' suggestion that the 
statement regarding wage (or benefit) payment options is negative and 
implies that payroll card accounts (and government benefit accounts) 
are inferior products, thereby discouraging consumers from using them. 
The Bureau examined this issue in its post-proposal consumer testing 
and found that participants did not construe the language negatively, 
confirming the Bureau's original understanding from the proposal.\440\ 
Participants were provided a prototype short form disclosure with the 
statement language from the proposed rule (version one) or a disclosure 
with the following language (version two): \441\ ``You have several 
options to receive your wages [benefits]: direct deposit to your bank 
account; direct deposit to your own prepaid card, or using this payroll 
[benefits] card. Tell your employer [the government agency/office] 
which option you want.''
---------------------------------------------------------------------------

    \440\ See ICF Report at II 16-17 and 27.
    \441\ Id. A version of the unbracketed language was used on a 
prototype short form disclosure for a payroll card account; a 
version of the bracketed language was used on a prototype short form 
disclosure for a government benefit account; the wording and 
punctuation in version two was also changed slightly for government 
benefit accounts.
---------------------------------------------------------------------------

    All testing participants understood both versions of the statement 
language as saying that they did not have to accept their wages/
government benefits via that prepaid card. Also, while participants 
understood from both versions that there were other ways to receive 
their payments, those that received version two were able to identify 
the specific options available to them. Finally, most participants 
expressed essentially neutral feelings about both versions of the 
statement and appeared to be drawing on past experiences, rather than 
the language in the statement, to decide whether or not they would want 
to use the payroll card account or the government benefit account.\442\
---------------------------------------------------------------------------

    \442\ Id.
---------------------------------------------------------------------------

    Even though the Bureau's post-proposal consumer testing confirmed 
that the proposed version of the statement regarding wage or benefit 
payment options would not be perceived as negative by consumers and 
that participants understood the statement, the Bureau has decided to 
include in the final rule an alternative version of the statement 
language which the Bureau believes would address commenters' concerns 
and have the added advantage of providing concrete options to consumer 
of how they can receive their funds.
    The Bureau is thus finalizing Sec.  1005.18(b)(2)(xiv)(A), which 
provides that for payroll card accounts, a financial institution must 
disclose a statement that the consumer does not have to accept the 
payroll card account and directing the consumer to ask about other ways 
to receive wages or salary from the employer instead of receiving them 
via the payroll card account using the following clause or a 
substantially similar clause: ``You do not have to accept this payroll 
card. Ask your employer about other ways to receive your wages.'' 
Alternatively, a financial institution may provide a statement that the 
consumer has several options to receive wages or salary, followed by a 
list of the options available to the consumer, and directing the 
consumer to tell the employer which option the consumer chooses using 
the following clause or a substantially similar clause: ``You have 
several options to receive your wages: [list of options available to 
the consumer]; or this payroll card. Tell your employer which option 
you choose.'' This statement must be located above the information 
required by final Sec.  1005.18(b)(2)(i) through (iv), which are 
located in the top line of the short form.
    The statements regarding wage payment options in the final rule do 
not incorporate much of the additional information recommended by some 
consumer group commenters, such as explaining the benefit of direct 
deposit and providing information on how to un-enroll from the payroll 
card account. The Bureau declines to add such information because the 
design of the short form disclosure seeks a balance between the 
disclosure of key information necessary for consumer acquisition and 
use decisions and the brevity and clarity necessary for optimal 
consumer comprehension and engagement. While space constraints are less 
severe in the context of payroll card accounts and government benefit 
accounts than in retail locations, the Bureau is still concerned that 
adding this information would affect this balance and risk information 
overload. In response to recommendations to make the statement more 
conspicuous, the Bureau believes that its relative length and position 
at the top of the short form disclosure already provide heightened 
conspicuousness.
    New comment 18(b)(2)(xiv)(A)-1 makes clear that financial 
institutions offering payroll card accounts may choose which of the two 
statements required by final Sec.  1005.18(b)(2)(xiv)(A) to use in the 
short form disclosure. The list of options required in the second 
statement might include the following, as applicable: Direct deposit to 
the consumer's bank account, direct deposit to the consumer's own 
prepaid account, paper check, or cash. The comment also clarifies that 
a financial institution may, but is not required to, provide more 
specificity as to whom consumers must ask or inform of their choice of 
wage payment method, such as specifying the employer's Human Resources 
Department. The Bureau notes that, based on comments received, direct 
deposit to the consumer's own prepaid account is often not recognized 
as an option to receiving wages via the payroll card account for 
consumers. The Bureau believes that this is an important option

[[Page 84061]]

of which consumers should be apprised, and has thus included it in 
comment 18(b)(2)(xiv)(A)-1 in the list of enumerated wage payment 
options when using the second version of the required statement.
    New comment 18(b)(2)(xiv)(A)-2 cross-references Sec.  
1005.15(c)(2)(i) for statement options for government benefit accounts. 
In response to commenter recommendation that the Bureau extend the 
notice requirement to other types of prepaid accounts, the Bureau 
declines to require such a statement for other types of prepaid 
accounts as it does not believe that to be necessary at this time. 
However, new comment 18(b)(2)(xiv)(A)-3 clarifies that a financial 
institution offering a prepaid account other than a payroll card 
account or a government benefit account may, but is not required to, 
include a statement in the short form disclosure regarding payment 
options that is similar to either of the statements required for 
payroll card accounts pursuant to final Sec.  1005.18(b)(2)(xiv)(A) or 
government benefit accounts pursuant to final Sec.  1005.15(c)(2)(i). 
For example, a financial institution issuing a prepaid account to 
disburse student financial aid proceeds may disclose a statement such 
as the following: ``You have several options to receive your financial 
aid payments: direct deposit to your bank account, direct deposit to 
your own prepaid card, paper check, or this prepaid card. Tell your 
school which option you choose.'' The Bureau believes consumers would 
benefit from knowing their options and thus is clarifying that this 
disclosure may be provided by financial institutions for other types of 
prepaid accounts, but declines to require such a statement for other 
types of prepaid accounts as requested by some consumer group 
commenters.
Statement Regarding State-Required Information or Other Fee Discounts 
and Waivers Permitted by Sec.  1005.18(b)(2)(xiv)(B)
    Some industry commenters voiced concern regarding the interplay 
between the short form disclosure required for payroll card accounts 
(and government benefit accounts) and disclosure of information 
required by State law and other fee discounts and waivers for these 
products.\443\ In response to these concerns, the Bureau is adopting 
new Sec.  1005.18(b)(2)(xiv)(B) which states that, for payroll card 
accounts, a financial institution may, but is not required to, include 
a statement in one additional line of text directing the consumer to a 
particular location outside the short form disclosure for information 
on ways the consumer may access payroll card account funds and balance 
information for free or for a reduced fee. This statement must be 
located directly below any statements disclosed pursuant to final Sec.  
1005.18(b)(3)(i) and (ii) (regarding variable fees), or, if no such 
statements are disclosed, above the statement required by final Sec.  
1005.18(b)(2)(x) (regarding overdraft credit features). In addition, 
for the reasons set forth below, the Bureau is adopting new comment 
18(b)(2)(xiv)(B)-1. The Bureau is also adopting a similar provision for 
government benefit accounts in final Sec.  1005.15(c)(2)(ii).
---------------------------------------------------------------------------

    \443\ See, e.g., the section-by-section analysis of Sec.  
1005.18(b)(2)(iii) above regarding ATM withdrawal fees.
---------------------------------------------------------------------------

    The Bureau believes that some commenters may have misunderstood the 
proposed short form disclosure as prohibiting inclusion near the short 
form disclosure of State-required information regarding the payroll 
card account (or government benefit account), particularly State-
mandated methods to access the full amount of wages for free each pay 
period. However, neither the proposed rule nor this final rule's 
segregation requirements prohibit such disclosures near, but outside, 
of the short form. Final Sec.  1005.18(b)(7)(iii), as discussed in 
detail below, provides that the short form and long form disclosures 
must be segregated from other information and must contain only 
information that is required or permitted for those disclosures by 
final Sec.  1005.18(b). Thus, while additional information may not be 
added to the short form, there is no prohibition in the proposed or 
final rule against including other information, such as the State-
required disclosures or other fee discounts and waivers, on the same 
page as the short form. Moreover, because payroll card accounts and 
government benefit accounts are not subject to the same space 
constraints as prepaid accounts sold in retail locations, the short 
form disclosure for such accounts likely can accommodate additional 
information on the same page as the short form disclosure.
    The Bureau examined the potential feasibility of the optional 
statement in final Sec.  1005.18(b)(2)(xiv)(B) during its post-proposal 
consumer testing. Specifically, testing was conducted to ascertain 
whether consumers understood the relationship between specific 
information provided on the same page as (but outside) the short form 
to the information inside the short form.\444\ The discounts/waivers 
listed below the short form were generally related to a fee that was 
asterisked in the prototype short form to indicate the fee can be 
lower.\445\ To help direct participants' attention to these additional 
disclosures, the short form included the following statement below the 
asterisk statement: ``See below for free ways to access your funds and 
balance information.'' In addition, in one round of testing, 
participants were provided with both a prototype short form and a long 
form to see if they could locate information about specific fees that 
were not included within the short form. In post-proposal consumer 
testing, the majority of participants understood and could use this 
information.\446\ Based on this testing, the Bureau believes that 
consumers will be able to understand the connection between information 
in the short form and other information that financial institutions may 
include on the same page as, but outside, the short form disclosure. 
The Bureau believes that permitting such a statement in the short form 
for payroll card accounts (and government benefit accounts) will not 
disrupt consumer engagement and comprehension and would help industry 
accommodate for any potential discrepancies between Federal and State 
disclosure requirements.
---------------------------------------------------------------------------

    \444\ See ICF Report II at apps. B and C for the forms shown to 
participants during the Bureau's post-proposal consumer testing. The 
tested information included: First three out-of-network ATM 
withdrawals per month free; one free bank teller cash withdrawal per 
month; and balance information available for free online, via mobile 
app, and by calling automated customer service.
    \445\ Id. The tested information included: first three out-of-
network ATM withdrawals per month free; one free bank teller cash 
withdrawal per month; and balance information available for free 
online, via mobile app, and by calling automated customer service.
    \446\ In the first round of post-proposal testing, four of nine 
participants understood how the information in the short form 
disclosure related to the additional disclosures appearing below the 
short form. Id. at 17. The Bureau believes more participants would 
have made the link to this information if the prototype payroll card 
account short form had not been tested last; the Bureau believes 
participants stopped reading the content of the asterisk disclosure 
because they assumed they already knew what it said from the 
previous versions they had reviewed. In the second round, all 11 
participants were able to use the information below the short form 
or the information in the long form to correctly respond to queries 
as to whether certain fees could be lower than the fees cited within 
the short form. Id. at 28-29. In the second round of the Bureau's 
post-proposal consumer testing, the prototype government benefit 
short form was the first form shown to participants. Id. at 20-21.
---------------------------------------------------------------------------

    New comment 18(b)(2)(xiv)(B)-1 provides several examples of how a 
financial institution might disclose in the short form for payroll card 
accounts

[[Page 84062]]

a statement directing consumers to outside the short form to find 
information on conditions for a consumer to access funds and balance 
information for free or for a reduced fee in accordance with Sec.  
1005.18(b)(2)(xiv)(B). Specifically, the comment states that, for 
example, a financial institution might include the following line of 
text in the short form disclosure: ``See below for free ways to access 
your funds and balance information'' and then list below, but on the 
same page as, the short form disclosure several ways consumers can 
access their payroll card account funds and balance information for 
free. Alternatively, the financial institution might direct the 
consumer to another location for that information, such as by stating 
``See the cardholder agreement for free ways to access your funds and 
balance information.'' The comment also notes that a similar statement 
is permitted for government benefit accounts pursuant to final Sec.  
1005.15(c)(2)(ii).
18(b)(3) Short Form Disclosure of Variable Fees and Third-Party Fees 
and Prohibition on Disclosure of Finance Charges
The Bureau's Proposal
    Proposed Sec.  1005.18(b)(2)(i)(C) would have set forth how, within 
the confines of the proposed short form disclosure, financial 
institutions could disclose fees that may vary. As noted in the 
proposal and above, in many instances, prepaid accounts may have 
certain fees that vary depending on how a consumer uses the account. 
The proposal gave the example of monthly periodic fees that are, for 
some prepaid account programs, waived when a consumer receives direct 
deposit or when the monthly balance exceeds a certain amount. The 
Bureau was concerned that in some instances, these conditional 
situations could become complicated and difficult to explain on a short 
form disclosure, particularly for multiple fees. The Bureau believed 
that allowing multiple, complex disclaimers on a single form would be 
complicated and make comprehension and comparisons more difficult.
    Thus, the Bureau proposed Sec.  1005.18(b)(2)(i)(C), which would 
have provided that if the amount of the fee that a financial 
institution imposes for each of the fee types disclosed pursuant to 
proposed Sec.  1005.18(b)(2)(i)(B) could vary, a financial institution 
must disclose the highest fee it could impose on a consumer for 
utilizing the service associated with the fee, along with a symbol, 
such as an asterisk, to indicate that a lower fee might apply, and text 
explaining that the fee could be lower, in a form substantially similar 
to the clause set forth in the proposed Model Forms A-10(a) through 
(d). Proposed Sec.  1005.18(b)(2)(i)(C) would have also stated that a 
financial institution must use the same symbol and text for all fees 
that could be lower, but may use any other part of the prepaid account 
product's packaging material or its Web site to provide more detail 
about how a specific fee type may be lower. Proposed Sec.  
1005.18(b)(2)(i)(C) would have further stated that a financial 
institution must not disclose any additional third-party fees imposed 
in connection with any of the fees disclosed pursuant to proposed Sec.  
1005.18(b)(2)(i)(B)(1) through (8).
    Proposed comment 18(b)(2)(i)(C)-1 would have provided examples of 
how to disclose variable fees on the short form disclosure in 
accordance with proposed Sec.  1005.18(b)(2)(i)(C). The proposed 
comment would have also clarified that proposed Sec.  
1005.18(b)(2)(i)(C) does not permit a financial institution to explain 
the conditions under which a fee may be lower, but a financial 
institution could use any other part of the prepaid account product's 
packaging material or may use its Web site to disclose that 
information. That information would also have been required to be 
disclosed in the long form pursuant to proposed Sec.  
1005.18(b)(2)(ii)(A). Proposed comment 18(b)(2)(i)(C)-2 would have 
explained that third parties could include service providers and other 
entities, regardless of whether the entity is an agent of the financial 
institution. The Bureau believed that, regardless of whether a third 
party has a relationship with the financial institution, no additional 
fees should be disclosed on the short form.
    The Bureau recognized that its proposed approach to the disclosure 
of variable fees on the short form could potentially obscure some 
complexity in a prepaid account's fee structure. The Bureau, however, 
proposed to require that this information be disclosed on the long 
form, pursuant to proposed Sec.  1005.18(b)(2)(ii)(A) and to permit its 
disclosure outside the confines of the short form to mitigate any risk 
of confusion. The Bureau believed that the proposed short form 
disclosure--and the requirement to disclose the highest fee with an 
indication that the fee may be lower in certain circumstances--would 
allow consumers to know the maximum they will pay for that fee type 
while indicating to consumers when they could qualify for a lower fee.
Comments Received
    Comments regarding disclosure of variable fees. A number of 
industry commenters, including industry trade associations, program 
managers, issuing banks, a payment network, and a law firm writing on 
behalf of a coalition of prepaid issuers, as well as several State 
government agencies and a think tank, recommended that the Bureau 
eliminate the requirement to disclose the highest fee for a fee that 
varies in favor of more fulsome disclosure of the price variations for 
that fee. They said disclosing the highest fee, with a symbol linked to 
a statement explaining that the fee may be lower depending on how and 
where the prepaid account is used, would mislead consumers by failing 
to provide them with information critical to making meaningful 
decisions, such as more detailed information within the short form on 
how they can take advantage of fee waivers and discounts. Some industry 
commenters said it would be counterintuitive for consumers to check 
other areas of the packaging for such discounts and pointed to 
confusion over the asterisk in the Bureau's pre-proposal consumer 
testing as indicating the Bureau's proposed system would not work. One 
trade association added that required disclosure of the highest fee 
would restrict fee models and limit innovation.
    Many of these industry commenters recommended alternatives to 
disclosure of the highest fee, such as permitting disclosure in the 
short form of the full variation of fees or requiring disclosure of the 
highest fee only if the issuer chooses not to disclose the fee 
variations. Others recommended disclosing the most common, highest and 
lowest, lower end, median, or a range of fees. Some recommended 
disclosing a graphic showing the proportion of consumers paying the 
highest fee or permitting a de minimis exception allowing disclosure of 
a lower fee if that lower price is within a close range of the highest 
fee. Two consumer groups specifically addressed this portion of the 
proposal, praising the Bureau for the short form disclosure's balance 
between simplicity and completeness, and saying that too much 
information reduces consumer understanding. One of the commenters 
stated that it is important for the consumer to know the highest fee, 
that financial institutions have alternative places to highlight how to 
avoid a higher fee, and that disclosing the highest fee also encourages 
consumers to turn to the long form disclosure to find out about fee 
waivers and discounts. The other consumer group

[[Page 84063]]

commenter stated that the required disclosure of the highest fee may 
encourage lowering fees but could also mislead consumers regarding the 
actual cost of a feature, particularly with regard to the cash reload 
fee, suggesting that the required disclosure of the highest fee may 
provide an incentive to industry to eliminate discounts, such as waiver 
of the periodic fee with direct deposit. This commenter suggested that 
the Bureau monitor and assess the impact of requiring disclosure of the 
highest fee.
    Several industry commenters, including an issuing bank and a trade 
association specifically recommended permitting inclusion in the short 
form disclosure of the conditions under which the monthly fee could be 
waived, citing the importance of this fee and the prevalence of 
discounts and waivers applicable to this fee as crucial to consumer 
decisions in choosing a prepaid card. A consumer group said its 
research showed that 14 of 66 prepaid cards disclose that the monthly 
fee can be waived entirely if the consumer takes certain actions.
    Comments regarding single disclosure of like fees. Some commenters 
recommended permitting a single disclosure in the short form in place 
of required two-tier fees, i.e., those provisions requiring disclosure 
of two fee variations under a single fee or fee type, when the fee 
amount is the same for both fees. As noted above, two trade 
associations, an issuing bank, and the office of a State Attorney 
General made this recommendation specifically for the per purchase fee 
disclosure that would have been required under proposed Sec.  
1005.18(b)(2)(i)(B)(2) (final Sec.  1005.18(b)(2)(ii) requires 
disclosure of a single per purchase fee) and a program manager made 
this recommendation for the ATM withdrawal fees under proposed Sec.  
1005.18(b)(2)(i)(B)(3).
    Comments regarding disclosure of third-party fees. Several industry 
commenters, including issuing banks and an industry trade association 
commented on the Bureau's proposal to prohibit the disclosure of third-
party fees in the short form. The trade association and two issuing 
banks generally recommended against mandating disclosure of third-party 
fees as impractical because, they said, the amount of the fees and the 
timing and frequency of changes to the fees is often outside the 
control of the financial institution. Specifically regarding the short 
form, they recommended permitting a general disclaimer regarding third-
party fees or an example to show when such a fee may occur. Another 
issuing bank recommended that third-party fees should be permitted, but 
not required, to be disclosed in the short form. Comments related to 
disclosure of third-party fees in the short form specifically for cash 
reloads are addressed in more detail in the section-by-section analysis 
of Sec.  1005.18(b)(2)(iv) above. In that particular circumstance, some 
commenters expressed concern that failing to reflect third-party fees 
in connection with the proposed disclosure of the cash reload fee in 
the short form might create consumer confusion given that it is a 
standard industry practice for reload network providers or third-party 
retailers, not the financial institutions that issue prepaid accounts, 
to provide and charge for the reloading of cash into prepaid accounts. 
In addition to confusing consumers, commenters suggested this outcome 
would result in a competitive disadvantage for financial institutions 
that offer proprietary systems, which are usually less expensive than 
third-party systems, and thereby dissuade financial institutions from 
offering this service.
    Comments regarding disclosure of finance charges. Although the 
Bureau did not specifically solicit comment on disclosure in the short 
form of finance charges, several consumer group commenters addressed 
this issue in their comments regarding the proposed statement on 
overdraft credit features. As discussed above, these consumer groups 
recommended that the Bureau require disclosure in the short form of the 
actual fees charged for overdraft credit features, which one consumer 
group said would otherwise permit the issuer to hide the ball by 
calling such fees by other names. The Bureau received no comments from 
industry specifically about disclosure of finance charges in the short 
form disclosure.
The Final Rule
    For the reasons set forth herein, the Bureau is adopting proposed 
Sec.  1005.18(b)(2)(i)(C), renumbered as Sec.  1005.18(b)(3), with 
certain modifications. While the Bureau is adopting the proposed 
requirement to disclose the highest fee when the amount of a fee can 
vary in final Sec.  1005.18(b)(3)(i), it is also adopting new Sec.  
1005.18(b)(3)(ii) to give financial institutions the option to disclose 
more detailed fee waiver or discount information specifically for the 
periodic fee required to be disclosed by final Sec.  
1005.18(b)(2)(i).\447\ In addition, the Bureau is adopting new Sec.  
1005.18(b)(3)(iii) permitting, as an alternative to certain two-tier 
fee disclosures, disclosure of a single fee amount when the amount is 
the same for both fees. With regard to third-party fees, the Bureau is 
adopting in new Sec.  1005.18(b)(3)(iv) a more explicit general 
prohibition on inclusion of third-party fees in the short form 
disclosure, while also providing more detail in new Sec.  
1005.18(b)(3)(v) with regard to the special provision in final Sec.  
1005.18(b)(2)(iv) to include third-party cash reload fees. Final Sec.  
1005.18(b)(3)(vi) prohibits disclosure in the short form of finance 
charges as described in Regulation Z Sec.  1026.4(b)(11) imposed in 
connection with a covered separate credit feature accessible by a 
hybrid prepaid-credit card as defined in Sec.  1026.61.
---------------------------------------------------------------------------

    \447\ See final comment 18(b)(2)(ix)(C)-1 for specific guidance 
regarding disclosure of fee variations in additional fee types.
---------------------------------------------------------------------------

    Finally, the Bureau has made technical modifications to the rule 
and related commentary for conformity and clarity and, for the reasons 
set forth below, the Bureau has revised proposed comments 
18(b)(2)(i)(C)-1 and 2, renumbered as 18(b)(3)(i)-1 and 18(b)(3)(iv)-1, 
respectively, and has added new comments 18(b)(3)(ii)-1, 18(b)(3)(iii)-
1, 18(b)(3)(v)-1, and 18(b)(3)(vi)-1 to provide additional 
clarification and guidance regarding the requirements set forth in 
final Sec.  1005.18(b)(3).
Disclosure of Variable Fees Generally and for the Periodic Fee
    Final Sec.  1005.18(b)(3)(i) generally provides that if the amount 
of any fee that is required to be disclosed in the short form 
disclosure could vary, a financial institution shall disclose the 
highest amount it may impose for that fee, followed by a symbol, such 
as an asterisk, linked to a statement explaining that the fee could be 
lower depending on how and where the prepaid account is used, using the 
following clause or a substantially similar clause: ``This fee can be 
lower depending on how and where this card is used.'' Except as 
provided in final Sec.  1005.18(b)(3)(ii), a financial institution must 
use the same symbol and statement for all fees that could vary. The 
linked statement must be located above the statement required by final 
Sec.  1005.18(b)(2)(x). As discussed in more detail below, final rule 
Sec.  1005.18(b)(3)(ii) provides an alternative for periodic fees 
disclosed pursuant to Sec.  1005.18(b)(2)(i) where a financial 
institution can disclose either the asterisk statement pursuant to 
Sec.  1005.18(b)(3)(i) or can disclose specific information about fee 
waiver or reduction for the periodic fee.

[[Page 84064]]

    As discussed above in connection with the periodic fee disclosure 
under Sec.  1005.18(b)(2)(i), the Bureau acknowledges the concerns 
expressed by commenters regarding the need to provide more information 
about how such fees can vary. However, for the reasons discussed below, 
the Bureau believes that providing the same level of tailoring and 
detail with regard to all other fees on the short form would 
substantially increase the complexity of the form and decrease its 
usefulness to consumers as an introductory overview of account pricing. 
Accordingly, the Bureau believes that the best balance is to allow more 
flexibility with regard to periodic fees while maintaining the 
proposal's approach to variations in other fees. The Bureau continues 
to believe that information on fee variations for all other fees could 
not be disclosed in a manner that is both engaging and comprehensible 
to consumers. The design of the short form disclosure seeks a balance 
between the disclosure of key information necessary for consumer 
purchase and use decisions and the brevity and clarity necessary for 
optimal consumer comprehension and engagement. Incorporating into the 
short form disclosure multiple complex disclaimers, often featuring a 
variety of conditions under which consumers may receive fee waivers or 
discounts or obtain fee waivers or discounts for a certain time period, 
would disrupt this balance.
    Further, many of the alternatives recommended by commenters, such 
as disclosing a range of fees or using a graphic to show the proportion 
of consumers paying the highest fees, posed a degree of complexity the 
Bureau also believes would disrupt this balance. In addition, as 
opposed to alternatives recommended by commenters such as disclosing 
the median, lowest, or most common fee, the Bureau believes, as stated 
in the proposal, it is paramount for consumers to know the maximum they 
could pay for a particular fee. In this way, consumers will not be 
surprised by being charged fees higher than they expected and, as 
pointed out by a consumer group commenter, the linked statement can 
incent consumers to turn to other sources to learn about available 
discounts and waivers. As the Bureau explained in the proposal, 
financial institutions have the alternative of explaining these fee 
variations elsewhere, such as on other parts of the packaging or on 
their Web sites. In addition, financial institutions must disclose 
these details in the long form disclosure pursuant to final Sec.  
1005.18(b)(4)(ii), discussed below. The Bureau believes that once the 
standardized short form disclosure is used by all prepaid account 
programs, it will not be counterintuitive, as asserted by some industry 
commenters, to look outside of its contours for additional information 
like fee waivers and discounts.
    In response to the consumer group commenter raising concerns and 
recommending that the Bureau monitor and assess the impact of requiring 
disclosure of the highest fee, the Bureau notes that the commenters' 
concerns regarding disclosure of periodic fees and fees for cash 
reloads are specifically addressed in the final rule, respectively, by 
Sec.  1005.18(b)(3)(ii) and (v). Also, the Bureau intends to continue 
to monitor the issues addressed in this rule, including disclosure of 
the highest fee.
    In response to the industry commenter citing to the Bureau's pre-
proposal consumer testing as indicating that the proposed system for 
disclosing fee variation with an asterisk linked to a generic statement 
that fees could be lower would confuse consumers, the cited testing 
actually revealed the opposite: Participants were confused by multiple 
asterisks linked to the details of fee variations for specific fees. 
The Bureau's post-proposal consumer testing supports adoption of the 
proposed system in that, although some misconceptions persisted, most 
participants understood the significance of the presence or absence of 
the asterisk when linked to fees other than the monthly fee.\448\
---------------------------------------------------------------------------

    \448\ See ICF Report II at 10-11 and 21.
---------------------------------------------------------------------------

    As discussed above, some commenters recommended that the Bureau 
permit fuller fee disclosure in the short form for waivers and 
discounts of the monthly fee. The Bureau recognizes that the monthly 
fee is a key fee and is one of the most commonly waived or discounted 
prepaid account fees. The Bureau understands such waivers and discounts 
are based on the consumer meeting one or a combination of the following 
conditions: Having direct deposit into the prepaid account, making a 
set number of transactions per month, or loading a minimum amount of 
money per month into the prepaid account.
    The Bureau followed up on this issue in its post-proposal consumer 
testing. In addition to an asterisk linking the highest fees to a 
statement indicating the fee can be lower depending on how and where 
the card is used, the Bureau also tested adding a dagger symbol 
([dagger]) after the highest fee disclosed for the periodic fee, linked 
to an additional line of text located above the asterisked statement, 
describing variations in the monthly fee due to waivers and discounts 
when certain conditions are met.\449\ The Bureau's post-proposal 
consumer testing examined participant comprehension of various versions 
of the language and in various scenarios.\450\ Most participants who 
saw the form with the dagger language correctly linked the dagger to 
the associated text and understood that the circumstances under which 
the monthly fee could be waived and most participants who saw the form 
with only the generic asterisk language linked to the monthly fee 
correctly linked the asterisk to the associated text and understood the 
monthly fee could be lower in some situations.\451\ Thus, regardless of 
the version shown, all participants understood that the monthly fee 
could be waived in some situations, and all were able to correctly 
identify those situations.
---------------------------------------------------------------------------

    \449\ See ICF Report II at apps. B and C for copies of the 
prototype short form disclosures tested.
    \450\ Participants variously examined a single prototype short 
form in isolation, compared two prototype short forms with differing 
versions of the dagger language, and compared one prototype short 
form that included dagger language to a short form that did not 
include dagger language (but which did link the monthly fee to the 
more generic asterisk statement). See ICF Report II at 11 and 21-22.
    \451\ Id. In addition to successfully following the dagger 
symbol to the appropriate text, some participants also linked the 
monthly fee to the text associated with the more generic asterisk 
language which, while applicable, was not intended.
---------------------------------------------------------------------------

    The primacy of the periodic fee, prevalence of fee variations 
associated with the periodic fee, successful consumer testing of 
disclosure of fee variation for the monthly fee, and both industry and 
consumer group comments suggesting particular consideration regarding 
disclosure of the periodic fee have led the Bureau to adopt new Sec.  
1005.18(b)(3)(ii), which permits financial institutions an alternative 
disclosure for a periodic fee that may vary. Specifically, if the 
amount of the periodic fee disclosed in the short form disclosure 
pursuant to final Sec.  1005.18(b)(2)(i) could vary, as an alternative 
to the disclosure required by final Sec.  1005.18(b)(3)(i), the 
financial institution may disclose the highest amount it may impose for 
the periodic fee, followed by a symbol, such as a dagger, that is 
different from the symbol the financial institution uses pursuant to 
final Sec.  1005.18(b)(3)(i), to indicate that a waiver of the fee or a 
lower fee might apply, linked to a statement in one additional line of 
text disclosing the waiver or reduced fee amount and explaining the 
circumstances under

[[Page 84065]]

which the fee waiver or reduction may occur. The linked statement must 
be located directly above or in place of the linked statement required 
by final Sec.  1005.18(b)(3)(i), as applicable.
    The Bureau believes that this optional addition to the short form 
disclosure will help consumers better understand nuances regarding this 
important fee without serious compromise to the overall integrity of 
the short form design, especially in light of the reduction of 
information disclosed in the short form pursuant to the final rule. 
See, e.g., removal of two-tiered fees from Sec.  1005.18(b)(2)(ii), 
reduction of three incidence-based fees to two additional fee types 
disclosed pursuant to Sec.  1005.18(b)(2)(ix), and permitted single 
disclosure for like fees pursuant to Sec.  1005.18(b)(3)(iii).
    Final comment 18(b)(3)(i)-1 provides an example illustrating the 
general disclosure requirements of variable fees pursuant to final 
Sec.  1005.18(b)(3)(i). The comment also explains that, except as 
described in final Sec.  1005.18(b)(3)(ii), final Sec.  
1005.18(b)(3)(i) does not permit a financial institution to describe in 
the short form disclosure the specific conditions under which a fee may 
be reduced or waived, but the financial institution could use, for 
example, any other part of the prepaid account's packaging or other 
printed materials to disclose that information. The comment also 
explains that the conditions under which a fee may be lower are 
required to be disclosed in the long form disclosure pursuant to Sec.  
1005.18(b)(4)(ii).
    New comment 18(b)(3)(ii)-1 explains that, if the amount of the 
periodic fee disclosed in the short form pursuant to final Sec.  
1005.18(b)(2)(i) could vary, a financial institution has two 
alternatives for disclosing the variation, as set forth in final Sec.  
1005.18(b)(3)(i) and (ii), and provides an illustrative example of both 
alternatives.
Single Disclosure of Like Fees
    In new Sec.  1005.18(b)(3)(iii), the final rule provides that, as 
an alternative to the two-tier fee disclosures required by final Sec.  
1005.18(b)(2)(iii), (v), and (vi) and any two-tier fee required by 
Sec.  1005.18(b)(2)(ix), a financial institution may disclose a single 
fee amount when the amount is the same for both fees. New comment 
18(b)(3)(iii)-1 provides examples illustrating how to provide a single 
disclosure for like fees on both the short form disclosure and the 
multiple service plan short form disclosure. The Bureau believes that 
permitting disclosure of a single fee amount for a two-tier fee 
disclosure where the same fee is charged for both variations creates 
efficiency by simplifying and shortening the short form disclosure 
without sacrificing consumer comprehension. The Bureau's post-proposal 
consumer testing confirmed that, for example, participants shown a 
short form with a single ATM withdrawal fee seemed to understand that 
the company providing the prepaid account would not charge different 
fees depending on what network the cardholder used.\452\
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    \452\ See ICF Report II at 13-14.
---------------------------------------------------------------------------

Disclosure of Third-Party Fees
    For the reasons set forth in herein, the Bureau is adopting the 
proposed general prohibition on inclusion of third-party fees in the 
short form explicitly in its own provision of the final rule in Sec.  
1005.18(b)(3)(iv). Specifically, final Sec.  1005.18(b)(3)(iv) states 
that, except as provided in final Sec.  1005.18(b)(3)(v) with regard to 
cash reload fees, a financial institution may not include any third-
party fees in a disclosure made pursuant to final Sec.  1005.18(b)(2). 
New comment 18(b)(3)(iv)-1 explains that fees imposed by another party, 
such as a program manager, for services performed on behalf of the 
financial institution are not third-party fees and therefore must be 
disclosed pursuant to final Sec.  1005.18(b)(3)(iv). For example, if a 
program manager performs customer service functions for a financial 
institution's prepaid account program, and charges a fee for live agent 
customer service, that fee must be disclosed pursuant to final Sec.  
1005.18(b)(3)(iv).
    As discussed above, the Bureau received several comments in support 
of the Bureau's proposed exclusion of third-party fees from the short 
form disclosure. In response to the comments recommending that 
additional information or disclaimers be provided in the short form 
with regard to third-party fees, the Bureau believes that the abridged 
nature of the short form disclosure cannot accommodate disclosing all 
variable and third-party fees and that the comprehensive design of the 
long form disclosure is better suited to inform consumers about the 
details of fee variations and third-party fees. See the section-by-
section analysis of Sec.  1005.18(b)(4)(ii) below.
    For the reasons set forth in the section-by-section analysis of 
Sec.  1005.18(b)(2)(iv) above, the Bureau is requiring disclosure in 
the short form of third-party fees for cash reloads. This requirement 
is principally set forth in final Sec.  1005.18(b)(2)(iv), and is 
supplemented by new Sec.  1005.18(b)(3)(v). Final Sec.  
1005.18(b)(3)(v) provides that any third-party fee included in the cash 
reload fee disclosed in the short form pursuant to final Sec.  
1005.18(b)(2)(iv) must be the highest fee known by the financial 
institution at the time it prints, or otherwise prepares, the short 
form disclosure required by final Sec.  1005.18(b)(2). A financial 
institution is not required to revise its short form disclosure to 
reflect a cash reload fee change by a third party until such time that 
the financial institution manufactures, prints, or otherwise produces 
new prepaid account packaging materials or otherwise updates the short 
form disclosure. Thus, whether for a prepaid account program with 
packaging material or for one with only online or oral disclosures, the 
financial institution must update the short form to disclose a third-
party cash reload fee change when it otherwise updates its short form 
disclosure. New comment 18(b)(3)(v)-1 provides several examples 
illustrating when a financial institution must update its short form 
disclosure to reflect a change in a third-party cash reload fee.
    As explained in the section-by-section analysis of Sec.  
1005.18(b)(2)(iv) above, the Bureau believes it is important to 
disclose cash reload fees for proprietary and non-proprietary cash 
reload systems alike. However, the Bureau does not believe it would be 
appropriate to require financial institutions to reprint or otherwise 
reissue their short form disclosures whenever a third party changes its 
fees for cash reloads, as the financial institution may not always have 
control over when a third party changes its fees. Rather, the Bureau 
believes it is appropriate to require financial institutions to update 
the disclosure of these third-party fees when the financial institution 
manufactures, prints, or otherwise produces new packaging materials or 
until such time that the financial institution otherwise updates the 
short form disclosure.
Prohibition on Disclosure of Finance Charges
    In new Sec.  1005.18(b)(3)(vi), the final rule provides that a 
financial institution may not include in a disclosure made pursuant to 
Sec.  1005.18(b)(2)(i) through (ix) any finance charges as described in 
Regulation Z Sec.  1026.4(b)(11) imposed in connection with a covered 
separate credit feature accessible by a hybrid prepaid-credit card as 
defined in Sec.  1026.61. New comment 18(b)(3)(vi)-1 explains that if a 
financial institution imposes a higher fee or charge on the asset 
feature of a prepaid account with a covered separate credit feature 
accessible by a hybrid prepaid-credit

[[Page 84066]]

card than the amount of a comparable fee or charge it imposes on any 
prepaid account in the same prepaid account program that does not have 
such a credit feature, it must disclose on the short form for purposes 
of Sec.  1005.18(b)(2)(i) through (vii) and (ix) the amount of the 
comparable fee rather than the higher fee. This comment also cross-
references final Sec.  1005.18(g)(2) and related commentary.
    As discussed in more detail above, the Bureau has made a strategic 
decision to focus the bulk of the short form disclosure on usage of the 
prepaid account itself (i.e., the asset feature of the prepaid 
account). The possibility that consumers may be offered an overdraft 
credit feature for use in connection with the prepaid account is 
addressed in the short form pursuant to final Sec.  1005.18(b)(2)(x), 
which requires the following statement if such a feature may be 
offered: ``You may be offered overdraft/credit after [x] days. Fees 
would apply.'' The Bureau believes this statement, informing consumers 
whether an overdraft credit feature is offered for the particular 
prepaid account and, if so, the conditionality of the feature, the 
duration of the mandatory waiting period, and that fees would apply, is 
sufficient information for consumers for the purposes of the short 
form. The Bureau believes inclusion of finance charges in the short 
form fee disclosures would confuse consumers, obfuscating information 
about the fees that the Bureau believes are most important to consumers 
when shopping for a prepaid account.
    Thus, the Bureau believes that it is appropriate to exclude any 
finance charges related to an overdraft credit feature that may be 
offered at a later date to some prepaid consumers from general 
disclosure on the short form, including in the disclosures regarding 
additional fee types under both final Sec.  1005.18(b)(2)(viii) and 
(ix). If consumers are interested in such a feature, they can look to 
the Regulation Z disclosures in the long form pursuant to final Sec.  
1005.18(b)(4)(vii) (as well as the main fee disclosure pursuant to 
final Sec.  1005.18(b)(4)(ii) for finance charges imposed on the asset 
features of the prepaid account), discussed below, for more details.
18(b)(4) Long Form Disclosure Content
    In addition to the short form, the proposed rule would have 
required financial institutions to provide a long form disclosure 
providing all fees and certain other specified information prior to the 
consumer's acquisition of a prepaid account. Proposed Sec.  
1005.18(b)(2)(ii) would have provided that, in accordance with proposed 
Sec.  1005.18(b)(1), a financial institution shall provide the 
disclosures listed in proposed Sec.  1005.18(b)(2)(ii)(A) through (E). 
In contrast to the short form, where the Bureau proposed very specific 
formatting requirements and model forms that would provide a safe 
harbor for compliance, the Bureau did not specify as detailed 
formatting requirements with regard to the long form in the proposal. 
It included proposed Sample Form A-10(e) as one possible way to 
organize the detailed fee information, but noted that long forms might 
vary more widely depending on the number of fees and conditions and 
therefore solicited comment on whether to provide a model form.
    The Bureau did not receive any comments specifically regarding 
whether to provide a long form as a sample form or a model form. More 
general comments received regarding the Bureau's proposal to require 
financial institutions to provide long form disclosures pre-
acquisition, and the Bureau's reasons for finalizing that requirement 
overall, are discussed in the section-by-section analysis of Sec.  
1005.18(b) above.
    The Bureau is adopting proposed Sec.  1005.18(b)(2)(ii), renumbered 
as Sec.  1005.18(b)(4), with minor modifications for clarity. The final 
rule requires that, in accordance with final Sec.  1005.18(b)(1), a 
financial institution shall provide a disclosure setting forth the fees 
and information listed in final Sec.  1005.18(b)(4)(i) through (vii) 
for a prepaid account, as applicable. Specific revisions and additions 
to the enumerated list of fees and information required in the long 
form disclosure are discussed in the section-by-section analyses of 
Sec.  1005.18(b)(4)(i) through (vii) below.
    The Bureau is finalizing Sample Form A-10(f) rather than providing 
a specific model long form (which would have provided safe harbor). In 
light of the variation in long forms that may occur where financial 
institutions have different fee structures and conditions, the Bureau 
has also revised the text of the final rule from the proposed version 
to remove language that would have required the long form to be in 
substantially similar format to the sample form. The Bureau believes 
this change will further underscore the fact that financial 
institutions are afforded discretion in formatting the long form in a 
way that will best convey the amount and nature of the information that 
is required to be provided under the rule. Thus, Sample Form A-10(f) is 
provided as an example that financial institutions may, but are not 
required to, incorporate or emulate in their own long form disclosures.
18(b)(4)(i) Title for Long Form Disclosure
    Upon further consideration, the Bureau is adopting the final rule 
with an additional requirement in new Sec.  1005.18(b)(4)(i) to include 
in the first line of the long form a heading stating the name of the 
prepaid account program and that the long form disclosure contains a 
list of all fees for that particular prepaid account program. See also 
final Sec.  1005.18(b)(7)(i)(B). The Bureau understands that financial 
institutions typically include such a heading on fee disclosures 
contained in prepaid account agreements now. The Bureau believes that 
providing a title or heading to the long form, such as the one shown as 
an example in Sample Form A-10(f) (``List of all fees for XYZ Prepaid 
Card''), will help orient consumers to the long form disclosure as a 
comprehensive repository for fees and other key information about the 
particular prepaid account, particularly in contrast to the short form 
which provides an abridged list of fees and information.
18(b)(4)(ii) Fees
The Bureau's Proposal
    Proposed Sec.  1005.18(b)(2)(ii)(A) would have required the 
financial institution to disclose in the long form all fees that may be 
imposed by the financial institution in connection with a prepaid 
account. For each fee type, the financial institution would have had to 
disclose the amount of the fee and the conditions, if any, under which 
the fee may be imposed, waived, or reduced. This would include, to the 
extent known, any third-party fee amounts that may apply. Proposed 
Sec.  1005.18(b)(2)(ii)(A) would also have required that if such third-
party fees may apply but the amount of those fees are not known, a 
financial institution would have had to instead include a statement 
indicating that third-party fees may apply without specifying the fee 
amount. Under the proposal, a fee imposed by a third party that acts as 
an agent of the financial institution for purposes of the prepaid 
account always would have had to be disclosed.
    Proposed Sec.  1005.18(b)(2)(ii)(A) would have also stated that a 
financial institution may not utilize any symbols, such as asterisks, 
to explain the conditions under which any fee may be imposed. The 
Bureau believed it is important that consumers be able to easily follow 
the information in the long form, and that, when financial

[[Page 84067]]

institutions do not face space constraints like on the short form, text 
should be used to explain any information about fees, instead of 
relying on a consumer first to notice symbols and then associate them 
with text in a footnote.
    The Bureau also proposed to add commentary to explain the format of 
the long form disclosure. Specifically, proposed comment 
18(b)(2)(ii)(A)-1 would have explained that, for example, if a 
financial institution charges a cash reload fee, the financial 
institution must list the amount of the cash reload fee and also 
specify any circumstances under which a consumer can qualify for a 
lower fee. The proposed comment would have further explained that 
relevant conditions to disclose could also include, for example, if 
there is a limit on the amount of cash a consumer may load into the 
prepaid account in a transaction or during a particular time period.
    Proposed comment 18(b)(2)(ii)(A)-2 would have explained that a 
financial institution may, at its option, choose to disclose pursuant 
to proposed Sec.  1005.18(b)(2)(ii)(A), any service or feature it 
provides or offers even if it does not charge a fee for that service or 
feature. The proposed comment would have clarified that, for example, a 
financial institution may choose to list ``online bill pay service'' 
and indicate that the fee is ``$0'' or ``free'' when the financial 
institution does not charge consumers a fee for that service or 
feature. By contrast, where a service or feature is available without a 
fee for an introductory period, but where a fee may be imposed at the 
conclusion of the introductory period for that service or feature, the 
financial institution could not indicate that the fee is ``$0.'' The 
proposed comment would have clarified that the financial institution 
should instead list the main fee and explain in the separate 
explanatory column how the fee could be lower during the introductory 
period, what that alternative fee would be, and when it will be 
imposed. Similarly, if a consumer must enroll in an additional service 
to avoid incurring a fee for another service, neither of those services 
should disclose a fee of ``$0,'' but should instead list each fee 
amount imposed if a consumer does not enroll. The proposed comment also 
would have provided an example that if the monthly fee is waived once a 
consumer receives direct deposit payments into the prepaid account, the 
monthly fee imposed upon a consumer if they do not receive direct 
deposit would be disclosed in the long form, and an explanation 
regarding how receiving direct deposit might lower the fee should be 
included in the explanatory column in the long form.
    Proposed comment 18(b)(2)(ii)(A)-3 would have provided guidance on 
the disclosure of third-party fees in the long form disclosure. 
Specifically, the proposed comment would have explained that, for 
example, a financial institution that offers balance updates to a 
consumer via text message would disclose that mobile carrier data 
charges may apply for each text message a consumer receives. Regarding 
the requirement in proposed Sec.  1005.18(b)(2)(ii)(A), a financial 
institution must always disclose in the long form any fees imposed by a 
third party who is acting as an agent of the financial institution for 
purposes of the prepaid account product, the proposed comment would 
have provided an example that any fees that the provider of a cash 
reload service who has a relationship with the financial institution 
may impose would have had to be disclosed in the long form.
Comments Received
    In the context of recommending against requiring the long form 
disclosure altogether, a number of industry commenters--including an 
industry trade association, program managers, and issuing banks--
asserted that the amount and complexity of the information proposed to 
be included in the long form disclosure would overwhelm consumers. See 
the section-by-section analysis Sec.  1005.18(b) above for discussion 
of such comments and the Bureau's reasoning for finalizing the overall 
requirement to disclose the long form.
    With regard to recommendations for the specific content of the long 
form disclosure, two issuing banks requested that the Bureau limit the 
proposed requirement to disclose on the long form all fees that may be 
imposed in connection with a prepaid account by eliminating disclosure 
of optional, incidental services. The commenters said such features 
generally are not available at the time of purchase and are disclosed 
in a prepaid account program's terms and conditions at the time the 
consumer elects such services. The commenter asserted that mandating 
disclosure of fees connected with such services would add complexity to 
the long form disclosure and discourage financial institutions from 
creating new features and enhanced functionality due to the burden of 
having to update the disclosure and distribute new packaging.
    Two consumer group commenters and individual consumers who 
submitted comments as part of a comment submission campaign organized 
by a national consumer advocacy group generally supported the long form 
disclosures' proposed scope and urged the Bureau to add additional 
content requirements, such as disclosure of when funds become available 
after consumer deposits via ATM, teller, and remote deposit capture; 
free ways to get cash such as cash back at point of sale when making a 
purchase; and the number of surcharge-free ATM withdrawals available to 
the consumer. One consumer group commenter suggested that the Bureau's 
proposed sample long form disclosure was ambiguous in certain places 
regarding fees disclosure, particularly with respect to payroll card 
account fees.
    An industry trade association recommended that free services and 
features be disclosed as ``$0'' in the long form instead of the two 
options in proposed comment 18(b)(2)(ii)(A)-2 of ``$0'' or ``free.''
    Several industry commenters, including trade associations, issuing 
banks, program managers, and a payment network recommended eliminating 
the requirement to disclose third-party fees in the long form 
disclosure. They said it is not practical to disclose third-party fees 
because the amount, timing, and frequency of such fees are outside of 
the control of the financial institution and because any changes in 
such fees would require updates to the long form disclosure and change-
in-fee notices. Some industry commenters urged the Bureau to require 
instead a general disclosure that third-party fees may apply or a more 
specific disclosure that third-party fees apply with information on how 
to obtain the specific fee information. A consumer group supported the 
disclosure of third-party fees in the long form as a method of creating 
a fair comparison among financial institutions that use third parties 
to load cash into prepaid accounts and those with proprietary cash 
reload systems.
The Final Rule
    For the reasons set forth herein, the Bureau is adopting proposed 
Sec.  1005.18(b)(2)(ii)(A), renumbered as Sec.  1005.18(b)(4)(ii), with 
certain modifications. Most significantly, as explained below, the 
final rule contains several additional accommodations regarding 
disclosure of third-party fees in the long form. The Bureau is also 
adopting proposed comments 18(b)(2)(ii)(A)-1 through -4, renumbered as 
18(b)(4)(ii)-1 through -4, with certain revisions as discussed below. 
Finally, the Bureau has made

[[Page 84068]]

technical modifications to the rule and commentary for conformity and 
clarity.
    The Bureau is adopting this provision pursuant to its authority 
under EFTA sections 904(a) and (c), and 905(a), and section 1032(a) of 
the Dodd-Frank Act. The Bureau believes that pre-acquisition 
disclosures of all fees for prepaid accounts will, consistent with EFTA 
section 902 and section 1032(a) of the Dodd-Frank Act, assist 
consumers' understanding of the terms and conditions of their prepaid 
accounts, and ensure that the features of prepaid accounts are fully, 
accurately, and effectively disclosed to consumers in a manner that 
permits consumers to understand the costs, benefits, and risks 
associated with the account. The Bureau also believes that the long 
form disclosure will, in many ways, be similar to what many financial 
institutions currently disclose regarding prepaid accounts' fee 
structures in their prepaid account agreements, although pursuant to 
final Sec.  1005.18(b) the long form disclosure will be provided to 
consumers as a stand-alone document before they acquire a prepaid 
account (unless the exception in final Sec.  1005.18(b)(1)(ii) or (iii) 
applies).\453\
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    \453\ See also final Sec.  1005.18(f)(1) regarding requirements 
for initial disclosures.
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    Disclosure of all fees and conditions and disclosure of features 
without a charge. Final Sec.  1005.18(b)(4)(ii) requires disclosure in 
the long form of all fees that may be imposed in connection with a 
prepaid account, including fees that may be imposed by a third party, 
if known by the financial institution. The Bureau is finalizing as 
proposed the requirement that the financial institution disclose the 
amount of each fee and the conditions, if any, under which the fee may 
be imposed, waived, or reduced. The final rule also requires that a 
financial institution may not use any symbols, such as an asterisk, to 
explain conditions under which any fee may be imposed. The final rule 
further states that a financial institution may, but is not required 
to, include in the long form disclosure any service or feature it 
provides or offers at no charge to the consumer.
    As discussed above, some industry commenters urged the Bureau not 
to require disclosure of all fees on the long form. The Bureau believes 
that this requirement is necessary to help consumers understand, both 
prior to and after purchase, the terms and conditions of their prepaid 
accounts and ensure that account features are fully, accurately, and 
effectively disclosed in a manner that permits consumer understanding 
of the costs, benefits, and risks associated with the prepaid account. 
Furthermore, because the short form discloses a limited number of fees 
and few conditions, this requirement is necessary so that the long form 
disclosure can provide the full amount of information unabridged.
    As discussed in the section-by-section analysis of Sec.  1005.18(b) 
above, the Bureau believes there should be a comprehensive disclosure 
to which a consumer can turn prior to purchasing a prepaid account for 
straightforward information on all fees and the circumstances under 
which they may be imposed. The Bureau is not requiring disclosure in 
the long form of additional information related to fees as requested by 
some commenters because the Bureau believes disclosing fee amounts and 
the conditions under which they may be imposed provides consumers with 
the most important information they need to have access to pre-
acquisition. The Bureau has observed that many financial institutions 
include details in their account agreements' fee schedules about free 
services, and the Bureau encourages financial institutions to continue 
to do so. To provide support to the proposed commentary regarding how 
to disclose free services and features, the Bureau has added to the 
regulatory text a sentence stating that a financial institution may, 
but is not required to, include in the long form disclosure any service 
or feature it provides or offers at no charge to the consumer.
    While the Bureau is generally permitting formatting flexibility on 
the long form disclosure, the Bureau also is adopting the prohibition 
in the proposed rule against using any symbol, such as an asterisk, to 
explain the conditions in the long form disclosure under which any fee 
may be imposed. The Bureau continues to believe that it is important 
that consumers can easily follow the information in the long form 
disclosure and, absent the space constraints of the short form 
disclosure, the financial institution is able to explain any 
information about fees directly instead of relying on consumers to 
notice symbols and then associate them with explanatory text.
    Regarding the consumer group's comment that the Bureau's proposed 
sample long form disclosure was ambiguous in certain places regarding 
fees disclosure, particularly with respect to payroll card account 
fees, the Bureau notes that the sample long form is meant to provide an 
example to aid financial institutions in complying with the 
requirements of final Sec.  1005.18(b)(4). Financial institutions, 
including those offering payroll card accounts, should ensure that 
their long form disclosures accurately reflect the fees and features of 
their prepaid accounts.
    Final comment 18(b)(4)(ii)-1 explains that the requirement in final 
Sec.  1005.18(b)(4)(ii) that a financial institution disclose in the 
long form all fees that may be imposed in connection with a prepaid 
account and is not limited to just fees for EFTs or the right to make 
transfers. It further explains that the requirement to disclose all 
fees in the long form includes any finance charges imposed on the 
prepaid account as described in Regulation Z Sec.  1026.4(b)(11)(ii) in 
connection with a covered separate credit feature accessible by a 
hybrid prepaid-credit card as defined in Sec.  1026.61 but does not 
include finance charges imposed on the covered separate credit feature 
as described in Sec.  1026.4(b)(11)(i). The comment cross-references 
comment 18(b)(7)(i)(B)-2 for guidance on disclosure of finance charges 
as part of the Sec.  1005.18(b)(4)(ii) fee disclosure in the long form. 
The comment also clarifies that a financial institution may also be 
required to include finance charges in the Regulation Z disclosures 
required pursuant to final Sec.  1005.18(b)(4)(vii).
    Final comment 18(b)(4)(ii)-2 elaborates on the disclosure of 
conditions in the long form. The comment provides several examples 
illustrating how a financial institution would disclose the amount of 
each fee and the conditions, if any, under which the fee may be 
imposed, waived, or reduced. The comment also clarifies that a 
financial institution may, but is not required to, include on the long 
form disclosure additional information or limitations related to the 
service or feature for which a fee is charged, such as, for cash 
reloads, any limit on the amount of cash a consumer may load into the 
prepaid account in a single transaction or during a particular time 
period. Finally, the comment clarifies that the general requirement in 
final Sec.  1005.18(b)(4)(ii) does not apply to individual fee waivers 
or reductions granted to a particular consumer or group of consumers on 
a discretionary or case-by-case basis.
    Final comment 18(b)(4)(ii)-3 addresses disclosure of a service or 
feature without a charge. It reiterates the provision in the rule that 
a financial institution may, but is not required to, list in the long 
form disclosure any service or feature it provides or offers at no 
charge to the consumer. For example, a financial institution may list 
``online bill pay'' in its long form disclosure and indicate a fee 
amount of ``$0'' when the financial institution does not charge

[[Page 84069]]

consumers a fee for that feature. The Bureau agrees that such services 
should be disclosed as $0, rather than ``free,'' as requested by one 
industry commenter, because having a single standardized approach is 
shorter, simpler, and clearer for consumers to use to compare fees 
across prepaid accounts.
    Comment 18(b)(4)(ii)-3 further explains, however, that where a fee 
is waived or reduced under certain circumstances or where a service or 
feature is available for an introductory period without a fee, the 
financial institution may not list the fee amount as ``$0'' or 
``free.'' Rather, the financial institution must list the highest fee, 
accompanied by an explanation of the waived or reduced fee amount and 
any conditions for the waiver or discount. The comment also provides 
several examples.
    As discussed in more detail in the section-by-section analysis of 
Sec.  1005.18(b) above, the Bureau does not believe that financial 
institutions change the fee schedules for prepaid accounts often, 
particularly for those sold at retail locations, and changes may 
require pulling and replacing or providing appropriate change-in-terms 
notices.
    If a financial institution is making available a new optional 
service for all prepaid accounts in a particular prepaid account 
program, a financial institution may provide new customers disclosures 
in accordance with Sec.  1005.7(c) post-acquisition, without needing to 
pull and replace card packaging that does not reflect that new optional 
feature in any disclosure contained inside the package in accordance 
with Sec. Sec.  1005.7 and 1005.18(b)(1)(ii)(C), (b)(4)(ii), and 
(f)(1). The Bureau intends to monitor financial institutions' practices 
in this area, however, and may consider additional requirements in a 
future rulemaking if necessary.
    Disclosure of third-party fees. With regard to disclosure of third-
party fees in the long form, the Bureau is finalizing the general 
proposed requirement that financial institutions disclose in the long 
form any third-party fee amounts known to the financial institution 
that may apply, but making changes regarding the wording and updating 
of the disclosure to address commenter concerns.
    Specifically, the final rule provides that for any such third-party 
fee disclosed, the financial institution may, but is not required to, 
include a statement that the fee is accurate as of or through a 
specific date, a statement that the third-party fee is subject to 
change, or both statements. As in the proposal, if a third-party fee 
may apply but the amount of that fee is not known by the financial 
institution, the final rule requires that the long form disclosure 
include a statement indicating that the third-party fee may apply 
without specifying the fee amount.
    The Bureau moved language clarifying disclosure of fees by a party 
acting on behalf of the financial institution from the proposed 
regulatory text to the commentary in the final rule. Specifically, 
comment 18(b)(4)(ii)-4 clarifies that fees imposed by another party, 
such as a program manager, for services performed on behalf of the 
financial institution are not third-party fees and therefore must be 
disclosed on the long form pursuant to final Sec.  1005.18(b)(4)(ii).
    The final rule also provides that a financial institution is not 
required to revise the long form disclosure required by Sec.  
1005.18(b)(4) to reflect a fee change by a third party until such time 
that the financial institution manufactures, prints, or otherwise 
produces new prepaid account packaging materials or otherwise updates 
the long form disclosure. Thus, whether for a prepaid account program 
with packaging material or for one with only online or oral 
disclosures, the financial institution must update the long form to 
disclose a third-party fee change when it otherwise updates its long 
form disclosure. Final comment 18(b)(4)(ii)-4 provides an example 
illustrating a disclosure on the long form of a third-party fee when 
that fee is known to a financial institution and an example of when it 
is not.
    As discussed in the section-by-section analysis of Sec.  
1005.18(b)(3) above, the comprehensive design of the long form 
disclosure is better suited to inform consumers about the details of 
fee variations and third-party fees than the short form disclosure for 
which, due to its abridged nature, the final rule disallows disclosure 
of most third-party fees. Indeed, the Bureau believes that the 
comprehensiveness of the long form disclosure would be compromised by 
the exclusion of third-party fees, which would result in consumers not 
being made aware of all fees they could incur in connection with the 
prepaid account. The Bureau believes the final rule strikes an 
appropriate balance by requiring disclosure in the long form of third-
party fees but providing, among other things, a safe harbor regarding 
reprinting or otherwise updating the long form disclosure when a third-
party fee changes and a general statement for situations in which a 
financial institution does not know the amount of the third-party fee.
    Disclosing the date as of or through which a third-party fee is 
accurate, the fact that the third-party fee is subject to change, or 
both provides flexibility to alert consumers to the limitations of the 
financial institution's knowledge about third-party fees. The Bureau 
also believes that it reduces the need to require instantaneous updates 
as third-party fees shift. Regarding the safe harbor for reprinting due 
to third-party fee changes, the Bureau believes it is appropriate to 
require updates of these third-party fees when the financial 
institution prints new packaging materials or, if there are no 
packaging materials, when the financial institution otherwise updates 
the long form disclosure.
18(b)(4)(iii) Statement Regarding Registration and FDIC or NCUA 
Insurance
    Proposed Sec.  1005.18(b)(2)(ii)(D) would have required that the 
long form also include the disclosure required in the short form under 
proposed Sec.  1005.18(b)(2)(i)(B)(13) regarding FDIC (or NCUSIF) pass-
through deposit (or share) insurance, when appropriate.
    The Bureau received one comment regarding the disclosure of FDIC or 
NCUSIF insurance in the long form. A consumer group recommended that, 
in addition to requiring disclosure of the statement regarding 
insurance eligibility required in the short form (see final Sec.  
1005.18(b)(2)(xi)), the Bureau require disclosure of additional 
information about the benefit of the insurance or the consequence of 
the lack of such coverage in a separate box for important notices. The 
consumer group also recommended specific language for such a notice.
    As noted above, one consumer group also requested that the Bureau 
consider adding additional information to the registration and 
insurance disclosure in the short form, such as an explanation of what 
protections in addition to insurance eligibility registration provides 
or more fulsome information about the implications of insurance 
coverage. As discussed in connection with Sec.  1005.18(b)(2)(xi), the 
Bureau is declining to add any more information to the registration/
insurance disclosure in the short form disclosure, but has concluded 
that it would be useful to require financial institutions to provide 
more detailed information about insurance coverage in the long form 
disclosure. See final Sec.  1005.18(b)(4)(iii).
    Thus, for the reasons set forth herein, the Bureau is finalizing 
proposed Sec.  1005.18(b)(2)(ii)(D), renumbered as Sec.  
1005.18(b)(4)(iii), with substantial modifications. Specifically, the 
Bureau

[[Page 84070]]

is requiring a more fulsome disclosure regarding insurance, as well as 
the statement directing the consumer to register the account, where 
applicable. The Bureau has made other technical modifications to the 
rule for conformity and clarity.
    Unlike the proposal, final Sec.  1005.18(b)(2)(xi) requires that 
financial institutions disclose a statement regarding eligibility for 
FDIC deposit insurance or NCUA share insurance, as appropriate, rather 
than just a statement in situations where the prepaid account was not 
eligible for insurance. Final Sec.  1005.18(b)(2)(xi) also requires 
that the statement direct the consumer to register the prepaid account 
for insurance and other account protections, where applicable, which 
had been a separate provision in the proposal. In addition, final Sec.  
1005.18(b)(4)(iii) requires an explanation of FDIC or NCUA insurance 
coverage and the benefit of such coverage or the consequence of the 
lack of such coverage, as applicable. New comment 18(b)(4)(iii)-1 
provides examples illustrating how this disclosure might be made for 
FDIC and NCUA insurance in certain circumstances, and cross-references 
final comment 18(b)(2)(xi)-1 for guidance as to when NCUA insurance 
coverage should be disclosed instead of FDIC insurance coverage.
    As discussed in the section-by-section analysis of Sec.  
1005.18(b)(2)(xi), the Bureau is persuaded by commenters, the results 
of its post-proposal consumer testing, and information received during 
the interagency consultation process that the registration and 
insurance disclosures should be combined, and that both the existence 
as well as the lack of insurance eligibility should be disclosed. The 
Bureau also believes that mirroring the Sec.  1005.18(b)(2)(xi) 
disclosure in the long form will assist consumers in comparison 
shopping and reinforce the need to register prepaid accounts, where 
applicable.
    As discussed above, while the Bureau's post-proposal consumer 
testing confirmed that some consumers erroneously equate FDIC coverage 
with fraud or theft protection, a number of participants understood 
that the insurance protects consumers' funds in the case of bank 
insolvency.\454\ Absent the space limitations of the short form 
disclosure, the Bureau believes the long form disclosure provides an 
optimal opportunity to briefly, but more fully, explain the 
implications of insurance coverage or lack thereof. The Bureau does not 
believe it necessary to prescribe the exact content of this disclosure 
because circumstances may vary for a particular prepaid account 
program; thus, the final rule requires only that the long form include 
(in addition to the statement required in the short form pursuant to 
final Sec.  1005.18(b)(2)(xi)) an explanation of FDIC or NCUA insurance 
coverage and the benefit of such coverage or the consequence of the 
lack of such coverage, as applicable.
---------------------------------------------------------------------------

    \454\ See ICF Report II at 15 and 26. In the first round of 
post-proposal testing, two out of nine participants understood that 
FDIC insurance is meant to protect their money in case of a bank 
failure; in the second round, approximately half of the 11 
participants understood this.
---------------------------------------------------------------------------

    As noted above in the section-by-section analysis of Sec.  
1005.18(b)(2)(xi), the final rule refers to NCUA, rather than NCUSIF, 
insurance for credit unions. After further consideration and based on 
information received during the interagency consultation process, the 
Bureau believes the term ``NCUA'' may be more meaningful to consumers 
than ``NCUSIF'' and has revised the disclosures accordingly in both 
final Sec.  1005.18(b)(2)(xi) and (4)(iii).
18(b)(4)(iv) Statement Regarding Overdraft Credit Features
    Under the proposed rule, fees relating to overdraft and certain 
other credit features would have been subject to the general 
requirement in proposed Sec.  1005.18(b)(2)(ii)(A) to disclose all fees 
and the condition under which they may be imposed, as well as the 
requirement in proposed Sec.  1005.18(b)(2)(ii)(B) to provide certain 
Regulation Z disclosures if, at any point, a covered credit plan might 
have been offered in connection with the prepaid account. The proposed 
rule would not have required a basic statement in the long form 
regarding whether an overdraft or credit feature could be provided at 
all in connection with the prepaid account, parallel to the proposed 
statement in the short form.
    Several consumer groups recommended that the long form, as the more 
comprehensive disclosure, should indicate whether the financial 
institution offers overdraft or other credit features in connection 
with that prepaid account program. The Bureau agrees that the long form 
disclosure, like the short form disclosure, should include an explicit 
statement as to whether or not the prepaid account offers any overdraft 
or credit feature because this is key information for consumers to 
consider in making their purchase and use decisions regarding prepaid 
accounts. See the section-by-section analysis of Sec.  1005.18(b)(2)(x) 
above for further discussion of this disclosure requirement generally. 
While a financial institution offering a prepaid account program with 
an overdraft credit feature must disclose in the long form any fees 
that are imposed in connection with the prepaid account pursuant to 
final Sec.  1005.18(b)(4)(ii), the Bureau believes a more explicit 
statement regarding the existence or lack of such a feature is also 
appropriate, as the availability of such a feature may not be obvious 
depending on the nature of the fees imposed in connection with the 
overdraft credit feature and where they are imposed (i.e., on the 
prepaid account or on the covered separate credit feature). Moreover, 
inclusion of this statement makes the short form and long form 
disclosures parallel with regard to the disclosure of the existence of 
such a feature and, if one may be offered, the duration of the waiting 
period, and that fees would apply.
    For these reasons, the Bureau is adopting the final rule with the 
additional requirement in new Sec.  1005.18(b)(4)(iv) to disclose in 
the long form the same statement regarding overdraft credit features 
required in the short form pursuant to final Sec.  1005.18(b)(2)(x).
18(b)(4)(v) Statement Regarding Financial Institution Contact 
Information
    Proposed Sec.  1005.18(b)(2)(ii)(C) would have required disclosure 
of the telephone number, mailing address, and Web site of the person or 
office that a consumer may contact to learn about the terms and 
conditions of the prepaid account, to obtain prepaid account balance 
information, to request a written copy of transaction history pursuant 
to proposed Sec.  1005.18(c)(1)(iii) if the financial institution does 
not provide periodic statements pursuant to existing Sec.  1005.9(b), 
or to notify the person or office when a consumer believes that an 
unauthorized EFT has occurred as required by existing Sec.  
1005.7(b)(2) and proposed Sec.  1005.18(d)(1)(ii).
    Having received no comments on this portion of the proposal, and 
for the reasons set forth herein, the Bureau is adopting proposed Sec.  
1005.18(b)(2)(ii)(C), renumbered as Sec.  1005.18(b)(4)(v), with 
technical modifications for conformity and clarity. The Bureau believes 
that it is axiomatic for the comprehensive long form disclosure to 
include the contact information for the financial institution or its 
service provider through which consumers may obtain information about 
their prepaid accounts and provide notice of unauthorized transfers.

[[Page 84071]]

18(b)(4)(vi) Statement Regarding CFPB Web Site and Telephone Number
The Bureau's Proposal
    Proposed Sec.  1005.18(b)(2)(ii)(D) would have required disclosure 
of the URL of the Web site of the Consumer Financial Protection Bureau, 
and a telephone number a consumer can contact and the URL a consumer 
can visit to submit a complaint about a prepaid account. As discussed 
in the proposal and the section-by-section analysis of Sec.  
1005.18(b)(2)(xii) above, the Bureau intends to develop resources on 
its Web site that would, among other things, provide basic information 
to consumers about prepaid accounts, the benefits and risks of using 
them, and how to use the prepaid account disclosures. The Bureau also 
believed that consumers would benefit from seeing on the long form 
disclosure the Consumer Financial Protection Bureau's Web site and 
telephone number that they can use to submit a complaint about a 
prepaid account.
Comments Received
    As discussed in the section-by-section analysis of Sec.  
1005.18(b)(2)(xii) above, a group advocating on behalf of business 
interests opposed disclosing contact information for the Bureau in both 
the short form and long form disclosures. The commenter suggested that 
disclosure in the long form of a Bureau Web site URL and telephone 
number through which consumers could submit complaints about prepaid 
cards would undermine the relationship between financial institutions 
and their customers. The commenter said consumers should be encouraged 
to raise issues about their prepaid cards directly with the financial 
institution rather than directing those issues to the Bureau. An 
issuing bank similarly opposed the proposed requirement to include in 
the long form contact information through which consumers could submit 
complaints about their prepaid accounts, saying that the statement 
casts prepaid cards in a negative light. The commenter instead 
supported disclosure of a neutral statement referring consumers to the 
Bureau for more information about prepaid products.
The Final Rule
    For the reasons set forth herein, the Bureau is adopting proposed 
Sec.  1005.18(b)(2)(ii)(D), renumbered as Sec.  1005.18(b)(4)(vi), with 
certain modifications. Specifically, for clarity, the Bureau has added 
to the regulatory text the specific language for this statement. In 
addition, the Bureau made technical modifications to the rule for 
conformity and clarity.
    Final Sec.  1005.18(b)(4)(vi) requires inclusion in the long form 
of a statement directing the consumer to a Web site URL of the Bureau 
(cfpb.gov/prepaid) for general information about prepaid accounts, and 
a statement directing the consumer to the Bureau telephone number (1-
855-411-2372) and Web site URL (cfpb.gov/complaint) to submit a 
complaint about a prepaid account, using the following clause or a 
substantially similar clause: ``For general information about prepaid 
accounts, visit cfpb.gov/prepaid. If you have a complaint about a 
prepaid account, call the Consumer Financial Protection Bureau at 1-
855-411-2372 or visit cfpb.gov/complaint.'' In the final rule, the 
Bureau has added the word ``general'' to the statement that the Bureau 
Web site provides ``general information'' about prepaid accounts for 
parity with final Sec.  1005.18(b)(2)(xii).
    The Bureau is not persuaded by industry commenters that it should 
not include these disclosure requirements in the final rule. In the 
same vein, regarding the long form disclosure of the telephone number 
and Web site URL for submitting a complaint, the Bureau believes it 
both logical and crucial to inform consumers of an available resource 
that can help them connect with financial institutions so their 
complaints about prepaid accounts can be heard and addressed. Indeed, 
the Bureau included a similar requirement in the Remittance Rule; 
there, remittance transfer providers must disclose the Bureau's contact 
information on the receipt provided in conjunction with a remittance 
transfer.\455\ In the preamble to the final Remittance Rule, the Bureau 
explained that such a disclosure requirement was necessary to ensure 
consumer complaints about remittance transfer providers were 
centralized in one place.\456\
---------------------------------------------------------------------------

    \455\ Sec.  1005.31(b)(2)(vi).
    \456\ 77 FR 6194, 6229 (Feb. 7, 2012).
---------------------------------------------------------------------------

18(b)(4)(vii) Regulation Z Disclosures for Overdraft Credit Features
The Bureau's Proposal
    Proposed Sec.  1005.18(b)(2)(ii)(B) would have required the 
financial institution to include in the long form the disclosures 
described in Regulation Z Sec.  1026.60(a), (b), and (c) if, at any 
point, a credit plan that would be a credit card account under 
Regulation Z (12 CFR part 1026) may be offered in connection with the 
prepaid account. Regulation Z Sec.  1026.60 sets forth disclosure 
requirements for credit and charge card application and solicitations 
commonly referred to as ``Schumer Box'' disclosures. Section 1026.60(b) 
lists the required disclosure elements, Sec.  1026.60(a) contains 
general rules for such disclosures, and Sec.  1026.60(c) contains 
specific requirements for direct mail and electronic applications and 
solicitations. Proposed Sec.  1005.18(b)(2)(ii)(B) would have explained 
that a credit plan that would be a credit card account under proposed 
Regulation Z Sec.  1026.2(a)(15) could be structured either as a credit 
plan that could be accessed through the same device that accesses the 
prepaid account, or through an account number where extensions of 
credit are permitted to be deposited directly only into particular 
prepaid accounts specified by the creditor offering the plan.
    The Bureau recognized that Regulation Z does not require these 
disclosures to be provided until a consumer is actually solicited for a 
credit plan. The Bureau, however, believed it would be important for 
consumers who are considering whether to acquire a prepaid account to 
know not only if a credit plan could be offered at any point, as would 
have been required to be disclosed in the short form pursuant to 
proposed Sec.  1005.18(b)(2)(i)(B)(9), but also what the possible cost 
of such a plan might be. Because of the space constraints on the short 
form, as discussed in the proposal, the Bureau believed it would be 
appropriate for a consumer to receive as part of the long form 
disclosure more complete information about any credit plan that could 
be offered to them, even if they would not be solicited for such a plan 
until at least 30 days after registering a particular prepaid account 
pursuant to proposed Sec.  1005.18(g) and proposed Regulation Z Sec.  
1026.12(h).
    Proposed comment 18(b)(2)(ii)(B)-1 would have clarified that the 
disclosures described in Regulation Z Sec.  1026.60(a), (b), and (c) 
must appear in the form required under Sec.  1026.60(a), (b), and (c), 
and, to the extent possible, on the same printed page or Web page as 
the rest of the information required to be listed pursuant to proposed 
Sec.  1005.18(b)(2)(ii). The Bureau recognized that depending on the 
number of fees included in the long form disclosure, it might not be 
possible to include both disclosures on the same printed page. The 
Bureau believed, however, that to the extent it would be possible to 
include these disclosures on the same printed page or Web page, doing 
so would make it easier for the consumer to review the disclosures.

[[Page 84072]]

Comments Received
    An issuing bank opposed the proposed requirement to include the 
above-cited Regulation Z disclosures along with the long form 
disclosure, arguing that providing this level of detail regarding a 
potential overdraft or credit feature of a prepaid account is not 
logical at the pre-acquisition stage. It cautioned the information 
disclosed will likely be outdated by the time a consumer seeks or is 
offered such credit, and suggested that consumers may become confused 
or angry if the actual credit terms offered differ from those disclosed 
in the long form, which it said is likely considering the mandatory 30-
day waiting period before solicitation and infrequency with which the 
proposed rule would have required updating disclosures in a retail 
location. It stated that this would result in stale Regulation Z 
disclosures, including the APR, that could be more than a year old at 
the time a consumer would actually apply for credit. The commenter 
suggested that the disclosures would confuse consumers who, upon seeing 
them in the long form disclosure, will likely assume credit is being or 
will be offered to them. The commenter also expressed concern that 
consumers seeking credit who do not ultimately qualify for it may be 
confused or angered and suspect the financial institution has engaged 
in discrimination or false advertising. Finally, the commenter 
expressed concern that consumers who do obtain credit may be confused 
by being provided with the Regulation Z disclosures again at the time 
of solicitation and, perhaps, with changed terms. In sum, the commenter 
recommended that the Bureau remove this long form requirement as likely 
to provide little consumer benefit but rather lead to significant 
consumer misunderstanding.
    A consumer group commenter supported disclosure of the Regulation Z 
and E information on the same page, if possible.
The Final Rule
    For the reasons set forth herein, the Bureau is adopting proposed 
Sec.  1005.18(b)(2)(ii)(B), renumbered as Sec.  1005.18(b)(4)(vii), 
with certain modifications. The Bureau is also finalizing proposed 
comment 18(b)(2)(ii)(B)-1, renumbered as 18(b)(4)(vii)-1, with certain 
revisions and is adding new comment 18(b)(4)(vii)-2, as discussed 
below.
    Specifically, final Sec.  1005.18(b)(4)(vii) requires that, as part 
of the long form disclosure, the disclosures required by Regulation Z 
Sec.  1026.60(e)(1) must be given, in accordance with the requirements 
for such disclosures in Sec.  1026.60, if a covered separate credit 
feature accessible by a hybrid prepaid-credit card as defined in Sec.  
1026.61, may be offered to a consumer in connection with the prepaid 
account. Under the proposal, a financial institution would have been 
required to include the Regulation Z disclosures pursuant to Sec.  
1026.60(a), (b), and (c). While the content required for disclosures 
given under Regulation Z Sec.  1026.60(b) and (e)(1) are largely the 
same, the disclosures pursuant to Sec.  1026.60(e)(1) are tailored for 
credit card applications and solicitations made available to the 
general public--commonly referred to as ``take one'' disclosures--which 
the Bureau believes to be more apt for inclusion in the long form.
    As discussed in the proposal and in the section-by-section analysis 
of Sec.  1005.18(b)(2)(x) above, the Bureau believes it is important 
for consumers to be informed of the key costs and terms of an overdraft 
credit feature in order to be able to make informed purchase and use 
decisions with regard to both prepaid accounts and associated overdraft 
credit features--even though they may not be eligible for the feature 
until after a waiting period or at all. In response to the comment 
suggesting that such information may become stale and cause consumer 
confusion or worse, the Bureau notes that Regulation Z Sec.  
1026.60(e)(1) permits inclusion in a prominent location in the 
disclosure of the date the required information was printed, including 
a statement that the required information was accurate as of that date 
and is subject to change after that date, as well as a statement and 
contact information regarding any change in the required information 
since it was printed. The Bureau has also added an additional provision 
to Sec.  1005.18(b)(4)(vii), discussed below, limiting the requirement 
to update these disclosures. For an overview of the Bureau's overall 
approach to regulating overdraft credit features offered in conjunction 
with prepaid accounts, see the Overview of the Final Rule's Amendments 
to Regulation Z section below.
    Final Sec.  1005.18(b)(4)(vii) also provides that a financial 
institution may, but is not required to, include above the Regulation Z 
disclosures required by Sec.  1005.18(b)(4)(vii), a heading or other 
explanatory information introducing the overdraft credit feature. Given 
the organization of the long form disclosure and the placement of the 
Regulation Z disclosures at the end, the Bureau believes it is 
appropriate to provide financial institutions this option in case they 
deem it necessary or appropriate to include brief additional text to 
orient or explain to consumers to the ensuing disclosures.
    Finally, the final rule provides that a financial institution is 
not required to revise the disclosures required by final Sec.  
1005.18(b)(4)(vii) to reflect a change in the fees or other terms 
disclosed therein until such time as the financial institution 
manufactures, prints, or otherwise produces new prepaid account 
packaging materials or otherwise updates the long form disclosure. In 
conjunction with the final rule's incorporation of the Regulation Z 
Sec.  1026.60(e)(1) disclosures, the Bureau believes it would be 
inefficient to require financial institutions to update their long form 
disclosures (and their initial disclosures, pursuant to final Sec.  
1005.18(f)(2)), each time a change is made to the fees and terms 
required to be included in the credit portion of that disclosure. The 
Bureau has thus added this exception, which mirrors the exception for 
third-party fees in final Sec.  1005.18(b)(4)(ii) discussed above.
    Final comment 18(b)(4)(vii)-1 provides guidance on where these 
disclosures must be located in the long form. Specifically, it states 
that if the financial institution includes the disclosures described in 
Regulation Z Sec.  1026.60(e)(1), pursuant to final Sec.  
1005.18(b)(7)(i)(B), such disclosures must appear below the disclosures 
required by final Sec.  1005.18(b)(4)(vi). If the disclosures provided 
pursuant to Regulation Z Sec.  1026.60(e)(1) are provided in writing, 
these disclosures must appear in the form required by Sec.  
1026.60(a)(2), and to the extent possible, on the same page as the 
other disclosures required by final Sec.  1005.18(b)(4). The Bureau 
continues to believe that consumers could more easily review these 
Regulation Z disclosures if they are on the same page as the rest of 
the long form information, although the Bureau understands that this 
may not be possible depending on the length of the prepaid account 
program's long form.
    Final comment 18(b)(4)(vii)-2 explains that the updating exception 
in Sec.  1005.18(b)(4)(vii) does not extend to any finance charges 
imposed on the prepaid account as described in final Regulation Z Sec.  
1026.4(b)(11)(ii), in connection with a covered separate credit feature 
accessible by a hybrid prepaid-credit card as defined in final Sec.  
1026.61 that are required to be disclosed on the long form pursuant to 
final Sec.  1005.18(b)(4)(ii). This comment

[[Page 84073]]

also cross-references final comment 18(b)(4)(ii)-1.
18(b)(5) Disclosure Requirements Outside the Short Form Disclosure
    The proposed rule did not include a prepaid account's purchase 
price or activation fee in the static portion of the short form 
disclosure. However, proposed comment 18(b)(2)(i)(B)(8)(I)-2 would have 
explained, among other things, that the price for purchasing or 
activating a prepaid account could be disclosed as an incidence-based 
fee for purposes of proposed Sec.  1005.18(b)(2)(i)(B)(8)(I). (To 
qualify as an incidence-based fee under the proposal, the purchase 
price or activation fee would have had to be one of up to three fees, 
other than those disclosed as a static fee in the short form pursuant 
to proposed Sec.  1005.18(b)(2)(i)(B)(1) through (7), that were 
incurred most frequently in the prior 12-month period by consumers of 
that particular prepaid account product.)
    An industry trade association recommended against requiring 
disclosure of the purchase price in the short form because, it said, 
consumers already are sufficiently alerted to its display on the 
packaging of the prepaid account or by the retailer. An issuing bank, 
on the other hand, recommended disclosure of the purchase price in the 
short form because, it said, consumers lack clarity on this fee in 
certain situations, such as when confronted with hundreds of prepaid 
cards in some retail settings. Several industry commenters, including 
an issuing bank, a program manager, and a trade association, 
recommended requiring disclosure of the activation fee instead of the 
purchase price. Several industry commenters recommended against 
requiring disclosure of the activation fee in the short form as an 
incidence-based fee because, they said, it is not a common fee and 
would be disclosed in the terms and conditions for the prepaid account. 
They suggested the activation fee be added as a static fee to the short 
form, perhaps in lieu of one of the incidence-based fees, if the 
Bureau's research indicated the fee was common enough. Otherwise, they 
recommended it be disclosed only in the long form.
    A consumer group agreed that the purchase price should not be 
disclosed in the short form as a static fee because it would take up 
scarce space when there is no fee (such as for online purchases of 
prepaid accounts), the purchase price can be conspicuously disclosed on 
other parts of the packaging, consumers already take notice of the 
price they have to pay for a prepaid card, and it is a one-time fee 
such that disclosing it within the short form would overemphasize it 
and mislead consumers to compare it with recurring fees. It also said 
that, for prepaid account programs where consumers frequently buy new 
prepaid cards, the purchase price may appear in any case as an 
incidence-based fee. Conversely, a consumer group urged requiring 
disclosure of the purchase price and any activation fee; another 
consumer group specifically recommended disclosure of the purchase 
price as a static fee or, alternatively, as a potential incidence-based 
fee. In support of its recommendation, this latter commenter said its 
research indicated that nearly half of regular GPR users purchase new 
cards after exhausting their funds on their current card. Moreover, it 
said, being charged a purchase fee at the point of purchase does not 
mean the consumer understands that fee is reducing the amount of funds 
being loaded onto the card at purchase. It also warned that consumers 
could confuse the ``purchase fee'' with the ``per purchase fee.'' 
Individual consumers who submitted comments as part of a comment 
submission campaign organized by a national consumer advocacy group 
recommended that the short form disclosure include the purchase price.
    With regard to branding, one industry commenter urged the Bureau to 
clarify that identification within the short form of the name of the 
prepaid issuer and the name of the prepaid account program would not 
violate the requirements of the rule.
    For the reasons set forth below, the Bureau is adopting new Sec.  
1005.18(b)(5) and comments 18(b)(5)-1 and -2 to address issues of the 
disclosure of the purchase price and activation fee as well as 
identification of the financial institution and the prepaid account 
program. The final rule requires that, at the time a financial 
institution provides the short form, it must also disclose the 
following information: the name of the financial institution; the name 
of the prepaid account program; the purchase price for the prepaid 
account, if any; and the fee for activating the prepaid account, if 
any. Pursuant to final Sec.  1005.18(b)(7)(iii), short form disclosures 
must contain only information required or permitted under final Sec.  
1005.18(b)(2). Thus, the information required by Sec.  1005.18(b)(5) 
must appear outside of the confines of the short form disclosure.
    New Sec.  1005.18(b)(5) sets forth the required location for the 
above-referenced disclosures. In a setting other than a retail 
location, this information must be disclosed in close proximity to the 
short form. In a retail location, this information, other than the 
purchase price, must be disclosed on the exterior of the access 
device's packaging material. In a retail location, the purchase price 
must be disclosed either on the exterior of or in close proximity to 
the prepaid account access device's packaging materials. As described 
in more detail below, new comment 18(b)(5)-1 clarifies the content of 
the disclosure and comment 18(b)(5)-2 clarifies its location, including 
the meaning of ``close proximity.''
    The Bureau agrees that, because the purchase price invariably is 
disclosed on the packaging or otherwise at the point of purchase prior 
to acquisition of a prepaid account, it is unnecessary to use the 
limited space in the short form to disclose this one-time fee as a 
static fee. The Bureau likewise agrees that it is unnecessary to use 
the limited space in the short form to disclose the activation fee as a 
static fee, as it is not a common fee and if charged is only incurred 
once. The Bureau also believes that including these fees as potential 
additional fee types in the disclosure under final Sec.  
1005.18(b)(2)(ix) is neither an optimal way to alert consumers to the 
cost of purchasing or activating a prepaid account nor a good use of 
the additional fee type disclosure. Because the Bureau believes it is 
important for consumers to be aware of this fee prior to purchase in 
all situations, it is requiring that the purchase price and activation 
fee be disclosed, but outside the short form disclosure.
    To ensure that consumers see the purchase price, it must be 
disclosed in close proximity to the short form--except that in a retail 
location the financial institution has the option to disclose the 
purchase price on the exterior of the packaging for the prepaid account 
access device (other than in the short form) or in close proximity to 
the display of packaging. The Bureau understands that at present, the 
purchase price for prepaid accounts sold at retail is disclosed either 
on the exterior of the prepaid account access device's packaging or 
displayed near the packaging by the retailer. In an effort not to 
disturb this system, the Bureau is permitting disclosure of the 
purchase price in a retail location either on the exterior of or in 
close proximity to the prepaid account access device's packaging 
material. The Bureau believes that either location would provide 
consumers with ample opportunity to be alerted to a prepaid account's 
purchase price.

[[Page 84074]]

    While the activation fee is not a common fee, unless it is plainly 
disclosed prior to acquisition when it does exist, the Bureau is 
concerned that it likely would not be noticed by many consumers before 
they acquire the prepaid account. The Bureau has observed that, similar 
to purchase price, financial institutions that charge activation fees 
for prepaid accounts sold at retail often conspicuously disclose the 
activation fee on the front of the packaging. The Bureau believes that 
it is important that consumers be informed if a prepaid account they 
are considering charges an activation fee. The Bureau also believes 
that, considering that activation fees are uncommon, incurred once, and 
that in the current marketplace the Bureau has observed such fees 
disclosed on the front of the packaging in a retail setting, it is 
appropriate to require the disclosure outside the confines of the short 
form but in close proximity to it--and, in retail locations, on the 
exterior of the access device's packaging material. The Bureau believes 
this requirement will more clearly apprise consumers of when the 
activation fee is charged and the amount of the fee.
    Regarding the general issue of branding, branding information is 
not permitted to be included within the short form. However, the Bureau 
recognizes the importance to both industry and consumers of connecting 
the short form disclosure with the prepaid account's commercial 
identity. The Bureau understands that it is common industry practice 
for financial institutions offering prepaid accounts at retail to 
include this information on the exterior of their packaging. The Bureau 
believes it is important for this information to be readily available 
for all prepaid programs, not just those sold at retail. For this 
reason, the Bureau is requiring, pursuant to new Sec.  1005.18(b)(5), 
that the name of the financial institution and the name of the prepaid 
program be disclosed outside the short form but in close proximity to 
it or, in retail locations, on the exterior of the prepaid account 
access device's packaging material.
    New comment 18(b)(5)-1 clarifies that, in addition to the 
disclosures required by final Sec.  1005.18(b)(5), a financial 
institution may, but is not required to, also disclose the name of the 
program manager or other service provider involved in the prepaid 
account program.
    New comment 18(b)(5)-2 provides additional guidance regarding the 
location requirement of the rule and the meaning of ``close 
proximity.'' The comment explains that, for example, if a financial 
institution provides the short form online, the information required by 
final Sec.  1005.18(b)(5) is deemed disclosed in close proximity to the 
short form disclosure if it appears on the same Web page as the short 
form disclosure. If the financial institution offers the prepaid 
account in its own branch locations and provides the short form 
disclosure on the exterior of its preprinted packaging materials, the 
information required by final Sec.  1005.18(b)(5) is deemed disclosed 
in close proximity to the short form disclosure if the information 
appears on the exterior of the packaging. If the financial institution 
provides written short form disclosures in a manner other than on 
preprinted packaging materials, such as on paper, the information 
required by final Sec.  1005.18(b)(5) is deemed disclosed in close 
proximity to the short form if it appears on the same piece of paper as 
the short form disclosure. If the financial institution provides the 
short form disclosure orally, the information required by final Sec.  
1005.18(b)(5) is deemed disclosed in close proximity to the short form 
disclosure if it is provided immediately before or after disclosing the 
fees and information required pursuant to final Sec.  1005.18(b)(2).
    Comment 18(b)(5)-2 also explains that, for prepaid accounts sold in 
a retail location pursuant to the retail location exception in final 
Sec.  1005.18(b)(1)(ii), final Sec.  1005.18(b)(5) requires the 
information other than purchase price be disclosed on the exterior of 
the access device's packaging material. If the purchase price, if any, 
is not also disclosed on the exterior of the packaging, disclosure of 
the purchase price on or near the sales rack or display for the 
packaging materials is deemed disclosed in close proximity to the short 
form disclosure.
18(b)(6) Form of Pre-Acquisition Disclosures
    Proposed Sec.  1005.18(b)(3) would have set forth the requirements 
for how the short form and long form disclosures must be presented. 
Specifically, proposed Sec.  1005.18(b)(3)(i) would have set forth 
general requirements for written, electronic, and oral disclosures. 
Proposed Sec.  1005.18(b)(3)(ii) would have provided requirements 
regarding whether these disclosures must be made in a retainable form. 
Proposed Sec.  1005.18(b)(3)(iii) would have set forth parameters for 
the tabular form in which the disclosures must be presented, including 
specific requirements for short forms presenting fee disclosures for 
multiple service plans. The Bureau has renumbered these provisions, 
each discussed in detail below, under Sec.  1005.18(b)(6) in the final 
rule.
18(b)(6)(i) General
18(b)(6)(i)(A) Written Disclosures
    Proposed Sec.  1005.18(b)(3)(i)(A) would have required that the 
short form and long form disclosures be provided in writing, except as 
provided in proposed Sec.  1005.18(b)(3)(iii)(B) and (C) for electronic 
and oral disclosures. The Bureau believed consumers could best review 
the terms of a prepaid account before acquisition when seeing these 
disclosures in written form.
    The Bureau did not receive any comments specific to this proposed 
general requirement to provide the short form and long form disclosure 
in writing, and therefore, is adopting proposed Sec.  
1005.18(b)(3)(i)(A), renumbered as Sec.  1005.18(b)(6)(i)(A), with 
minor modifications for clarity. The final rule states that, except as 
provided in final Sec.  1005.18(b)(6)(i)(B) and (C), the disclosures 
required by final Sec.  1005.18(b) must be in writing.
18(b)(6)(i)(B) Electronic Disclosures
The Bureau's Proposal
    Currently, Sec.  1005.4(a)(1) permits disclosures required by 
Regulation E to be provided in electronic form, subject to compliance 
with consumer consent and other applicable provisions of the E-Sign 
Act. The E-Sign Act generally allows the use of electronic records to 
satisfy any statute, regulation, or rule of law requiring that such 
information be provided in writing, if a consumer has affirmatively 
consented to such use and has not withdrawn such consent, and if 
certain delivery format requirements are met. Before receiving such 
consent, the E-Sign Act requires financial institutions to make clear 
to a consumer that the consumer has the option of receiving records in 
paper form, to specify whether a consumer's consent applies to a 
specific transaction or throughout the duration of the consumer's 
relationship with the financial institution, and to inform a consumer 
of how the consumer could withdraw consent and update information 
needed to contact the consumer electronically, among other 
requirements. The E-Sign Act also requires financial institutions to 
retain records of any disclosures that have been provided to a consumer 
electronically so that the consumer can access them later.
    When the Bureau issued regulations on remittance transfers in 
subpart B of Regulation E, the Bureau altered the general requirement 
to provide disclosures in writing, such that

[[Page 84075]]

pursuant to Sec.  1005.31(a)(2) remittance transfer providers may 
provide pre-payment disclosures electronically when remittance 
transfers are requested electronically. Comment 31(a)(2)-1 explains 
that in such circumstances, the pre-payment disclosures may be provided 
without regard to the consumer consent and other applicable provisions 
of the E-Sign Act.
    The Bureau similarly proposed to modify Regulation E's default 
requirements for pre-acquisition disclosures for prepaid accounts. 
Specifically, proposed Sec.  1005.18(b)(3)(iii)(B) would have required 
a financial institution to provide the short form and long form 
disclosures required by proposed Sec.  1005.18(b)(2)(i) and (ii) in 
electronic form when a consumer acquires a prepaid account through the 
internet, including via a mobile application. Although the Bureau 
believed that consumers can best review the terms of a prepaid account 
before acquiring it when seeing the terms in written form, it 
recognized that in certain situations, it is not practicable to provide 
written disclosures. For example, when a consumer acquires a prepaid 
account via the internet, the Bureau believed that a financial 
institution could not easily provide written (non-electronic) 
disclosures to a consumer pre-acquisition.
    Proposed Sec.  1005.18(b)(3)(i)(B) also would have stated that 
short form and long form disclosures required by proposed Sec.  
1005.18(b)(2)(i) and (ii) must be provided electronically in a manner 
which is reasonably expected to be accessible in light of how a 
consumer is acquiring the prepaid account. In addition, proposed Sec.  
1005.18(b)(3)(i)(B) would have provided that these electronic 
disclosures need not meet the consumer consent and other applicable 
provisions of the E-Sign Act. Last, proposed Sec.  1005.18(b)(3)(i)(B) 
would have required that disclosures provided to a consumer through a 
Web site where required by proposed Sec.  1005.18(b)(1)(ii)(C) and as 
described in proposed Sec.  1005.18 (b)(2)(i)(B)(11) must be made in an 
electronic form using a machine-readable text format that is accessible 
via both web browsers and screen readers.
    Similar to pre-payment disclosures for remittance transfers, the 
Bureau believed that altering the general Regulation E requirement for 
electronic disclosures in Sec.  1005.4(a)(1) was necessary to ensure 
that consumers receive relevant information at the appropriate time. 
The Bureau believed that during the pre-acquisition time period for 
prepaid accounts, it was important for consumers who decide to go 
online to acquire prepaid accounts to see the relevant disclosures for 
that prepaid account product in electronic form. The Bureau also said 
it believes that consumers will often decide whether to acquire a 
particular prepaid account after doing significant research online, and 
that if they are not able to see disclosures on the prepaid accounts' 
Web sites, consumers cannot make an informed acquisition decision. 
Accordingly, the Bureau believed that, for acquisition of prepaid 
products via the internet or mobile applications, it would be more 
appropriate to require financial institutions to provide pre-
acquisition disclosures electronically.
    As discussed above, Sec.  1005.4(a)(1) requires that financial 
institutions comply with the E-Sign Act when providing disclosures 
electronically. The Bureau did not propose to require such compliance 
for prepaid accounts that are acquired through the internet or mobile 
applications. Proposed Sec.  1005.18(b)(3)(i)(B) only would have 
required that electronic short form and long form disclosures for 
prepaid accounts acquired through the internet be provided 
electronically in a manner which is reasonably expected to be 
accessible in light of how a consumer acquired the prepaid account. The 
Bureau believed that if a consumer has acquired a prepaid account 
through a Web site, it is reasonable to expect that the consumer would 
be able to view electronic disclosures on a Web site, and no E-Sign 
consent would be necessary. The Bureau also noted in the proposal that 
the requirement in proposed Sec.  1005.18(b)(3)(i)(B) would apply only 
to the pre-acquisition disclosure of the short form and long form 
disclosures for prepaid accounts acquired over the internet or via 
mobile applications. It would not have altered the application of Sec.  
1005.4(a)(1) to prepaid accounts after acquisition nor to any other 
type of account.
    The Bureau also proposed comment 18(b)(3)(i)(B)-1, which would have 
explained how to disclose the short form and long form electronically. 
Specifically, the proposed comment would have explained that a 
financial institution may, at its option, provide the short form and 
long form disclosures on the same Web page or on two different Web 
pages as long as the disclosures were provided in accordance with the 
pre-acquisition disclosure requirements in proposed Sec.  
1005.18(b)(1)(i). The Bureau recognized, as several consumer advocacy 
group commenters to the Prepaid ANPR stated, that disclosures provided 
electronically on Web sites may be difficult for consumers to find. 
Sometimes the disclosures are buried several pages deep or are only 
accessible to a consumer after the consumer completes some form of 
registration or otherwise logs onto the Web site. The Bureau generally 
believed that pre-acquisition disclosures provided on a Web site should 
be easy to locate, whether they are provided on the same Web page or on 
two separate pages, as addressed in proposed Sec.  1005.18(b)(1) and 
proposed comment 18(b)(1)-2.
    Proposed comment 18(b)(3)(i)(B)-2 would have provided guidance with 
respect to the lack of an E-sign requirement for prepaid account pre-
acquisition disclosures. The proposed comment would have clarified 
that, for example, if a consumer is acquiring the prepaid account using 
a financial institution's Web site, it would be reasonable to expect 
that a consumer would be able to access pre-acquisition disclosures 
provided on a similar Web site.
    Proposed comment 18(b)(3)(i)(B)-3 would have clarified that a 
disclosure would not comply with the requirement in Sec.  
1005.18(b)(3)(i)(B) regarding machine-readable text if it was not 
provided in a textual format that can be read automatically by internet 
search engines or other computer systems.
Comments Received
    Several industry commenters, including industry trade associations, 
program managers, and a digital wallet provider as well as some 
consumer groups commented on the Bureau's proposal regarding electronic 
disclosure of the short form and long form. The Bureau received no 
comments regarding the requirement that disclosures be provided in 
machine-readable text.
    Industry commenters primarily asked for clarification regarding the 
placement and treatment of the short form and long form disclosures in 
an online setting. Some commenters indicated that prepaid cards 
increasingly will be marketed and acquired via the internet, including 
through mobile applications and wearable devices. Commenters said that 
the rule, as proposed, did not sufficiently address how to comply when 
providing the short form and long form disclosures via these electronic 
delivery methods. One commenter noted that the prescriptive font size 
and other form and formatting requirements of the proposed rule remove 
the flexibility to shrink or resize disclosures to fit onto mobile 
screens, which could result in a confusing and frustrating user 
experience in which it would be impossible to view the entire 
disclosure

[[Page 84076]]

at once without zooming out to a wider view.
    One consumer group supporting the proposed requirement regarding 
electronic disclosure of the short form and long form urged the Bureau 
to additionally require that financial institutions also provide the 
disclosures in writing if they issue physical cards. Another consumer 
group expressed concern that consumers may not see the electronic 
disclosures and recommended that the Bureau require they be prominently 
displayed on financial institutions' Web sites. It also urged the 
Bureau to adopt specific rules regarding location of the short form and 
long form disclosures on the financial institution's Web site.
The Final Rule
    For the reasons set forth herein, the Bureau is adopting proposed 
Sec.  1005.18(b)(3)(i)(B), renumbered as Sec.  1005.18(b)(6)(i)(B), 
with certain modifications. First, the Bureau has added requirements to 
the final rule that electronic disclosures be provided in a responsive 
form and viewable across all screen sizes. Second, the Bureau has made 
technical modifications to the rule and comments for consistency and 
clarity. Third, in response to the comments discussed above, the final 
rule and commentary more specifically address how to provide the 
required disclosures through electronic means. Fourth, in the final 
rule the Bureau has removed proposed comment 18(b)(3)(i)(B)-2 because 
it believes the rule is clear that financial institutions may provide 
disclosures electronically without regard to consumer consent and other 
applicable provisions of the E-Sign Act. Finally, final comments 
18(b)(6)(i)(B)-1 and -2 now specifically address access to the required 
disclosures on Web sites and final comment 18(b)(6)(i)(B)-3, which 
addresses machine-readable text, is adopted generally as proposed.
    The final rule requires that the disclosures required by final 
Sec.  1005.18(b) must be provided in electronic form when a consumer 
acquires a prepaid account through electronic means, including via a 
Web site or mobile application, and must be viewable across all screen 
sizes. The Bureau has added the requirement that these disclosures be 
viewable across all screen sizes to clarify that they must be able to 
be seen by consumers regardless of the electronic method used. The 
final rule also states that the long form disclosure must be provided 
electronically through a Web site when a financial institution is 
offering prepaid accounts at a retail location pursuant to the retail 
location exception in final Sec.  1005.18(b)(1)(ii). The rule also 
finalizes the proposed requirements that electronic disclosures must be 
provided in a manner which is reasonably expected to be accessible in 
light of how a consumer is acquiring the prepaid account, in a 
responsive form, and using machine-readable text that is accessible via 
web browsers or mobile applications, as applicable, and via screen 
readers. Also, the final rule, like the proposed rule, provides that 
electronic disclosures provided pursuant to final Sec.  1005.18(b) need 
not meet the consumer consent and other application provisions of the 
E-Sign Act.
    Final comment 18(b)(6)(i)(B)-1 explains the rule's requirement that 
electronic disclosures be provided in a manner which is reasonably 
expected to be accessible in light of how a consumer is acquiring the 
prepaid account. Specifically, the comment states that, for example, if 
a consumer is acquiring a prepaid account via a Web site or mobile 
application, it would be reasonable to expect that a consumer would be 
able to access the disclosures required by final Sec.  1005.18(b) on 
the first page or via a direct link from the first page of the Web site 
or mobile application or on the first page that discloses the details 
about the specific prepaid program. The comment also cross-references 
final comment 18(b)(1)(i)-2 for additional guidance on placement of the 
short form and long form disclosures on a Web page. The additions to 
comment 18(b)(6)(i)(B)-1 respond to comments requesting clarification 
regarding the required location of the short form and long form 
disclosures when provided via electronic means.
    In response to commenters' concerns discussed above, new comment 
18(b)(6)(i)(B)-2 specifically addresses how to provide the required 
disclosures in a way that responds to smaller screen sizes. The comment 
clarifies that, in accordance with the requirement in final Sec.  
1005.18(b)(6)(i)(B) that electronic disclosures be provided in a 
responsive form, electronic disclosures provided pursuant to final 
Sec.  1005.18(b) must be provided in a way that responds to different 
screen sizes, for example, by stacking elements of the disclosures in a 
manner that accommodates consumer viewing on smaller screens, while 
still meeting the other formatting requirements set forth in final 
Sec.  1005.18(b)(7). For example, the disclosures permitted by final 
Sec.  1005.18(b)(2)(xiv)(B) or (3)(ii) must take up no more than one 
additional line of text in the short form disclosure. The comment 
explains that if a consumer is acquiring a prepaid account using a 
mobile device with a screen too small to accommodate these disclosures 
on one line of text in accordance with the size requirements set forth 
in final Sec.  1005.18(b)(7)(ii)(B), a financial institution is 
permitted to display the disclosures permitted by final Sec.  
1005.18(b)(2)(xiv)(B) and (3)(ii), for example, by stacking those 
disclosures in a way that responds to smaller screen sizes, while still 
meeting the other formatting requirements in final Sec.  1005.18(b)(7). 
The Bureau's source code for web-based disclosures provides an example 
of stacking.\457\
---------------------------------------------------------------------------

    \457\ See www.consumerfinance.gov/prepaid-disclosure-files.
---------------------------------------------------------------------------

    Final comment 18(b)(6)(i)(B)-3, which addresses machine-readable 
text, clarifies that a disclosure would not be deemed to comply with 
Sec.  1005.18(b)(6)(i)(B) if it was not provided in a form that can be 
read automatically by internet search engines or other computer 
systems. As noted in the proposal, this textual format could include, 
for example, JSON, XML, or a similar format.
18(b)(6)(i)(C) Oral Disclosures
    The Bureau proposed Sec.  1005.18(b)(3)(i)(C), which would have 
stated that disclosures required by proposed Sec.  1005.18(b)(2)(i) 
must be provided orally when a consumer acquires a prepaid account 
orally by telephone as described in proposed Sec.  1005.18(b)(2)(iii). 
Proposed Sec.  1005.18(b)(3)(i)(C) would have also stated that 
disclosures provided to a consumer through the telephone number 
described in proposed Sec.  1005.18(b)(2)(i)(B)(11) also must be made 
orally. The Bureau believed that when a consumer acquires a prepaid 
account orally by telephone or when a consumer requests to hear the 
long form disclosure in a retail store by calling the telephone number 
disclosed on the short form pursuant to proposed Sec.  
1005.18(b)(2)(i)(B)(11), it would not be practicable for a financial 
institution to provide these disclosures in written form, and therefore 
it would be appropriate for oral disclosures to be provided.
    The Bureau did not receive any comments specific to proposed Sec.  
1005.18(b)(3)(i)(C) and therefore, is adopting this provision generally 
as proposed, renumbered as Sec.  1005.18(b)(6)(i)(C), with technical 
modifications to the rule for conformity and clarity. Specifically, the 
Bureau has made clear that this provision applies both when a consumer 
is acquiring a prepaid account in a retail location and

[[Page 84077]]

orally by telephone. The Bureau continues to believe that when 
consumers acquire a prepaid account orally by telephone or in a retail 
location, consumers should nonetheless have the benefit of pre-
acquisition disclosures. Thus, final Sec.  1005.18(b)(6)(i)(C) states 
that disclosures required by final Sec.  1005.18(b)(2) and (5) must be 
provided orally when a consumer acquires a prepaid account orally by 
telephone as described in final Sec.  1005.18(b)(1)(iii). For prepaid 
accounts acquired in retail locations or orally by telephone, 
disclosures required by final Sec.  1005.18(b)(4) provided by telephone 
pursuant to final Sec.  1005.18(b)(1)(ii)(B) or final Sec.  
1005.18(b)(1)(iii)(B) also must be made orally.
18(b)(6)(ii) Retainable Form
The Bureau's Proposal
    Proposed Sec.  1005.18(b)(3)(ii) would have provided that, except 
for disclosures provided to a consumer through the telephone number 
described in proposed Sec.  1005.18(b)(2)(i)(B)(11) or disclosures 
provided orally pursuant to proposed Sec.  1005.18(b)(1)(iii), 
disclosures required by proposed Sec.  1005.18(b)(2)(i) and (ii) must 
be made in a retainable form. Proposed comment 18(b)(3)(ii)-1 would 
have explained that a financial institution may satisfy the requirement 
to provide electronic disclosures in a retainable form if it provides 
disclosures on its Web site in a format that would be capable of being 
printed, saved or emailed to a consumer.
    As noted in the proposal, Sec.  1005.13(b) contains recordkeeping 
requirements applicable to Regulation E generally. However, the Bureau 
did not believe it was necessary that the oral disclosures provided to 
a consumer for a prepaid account acquired orally by telephone or the 
long form disclosure accessed by a consumer via telephone pre-
acquisition in a retail store be retainable. Pursuant to proposed Sec.  
1005.18(f), after having acquired a prepaid account orally (or by any 
other means), a consumer would have received the long form disclosure 
in the initial disclosures provided for the prepaid account. Further, 
the long form disclosure would also generally be available on the 
financial institution's Web site, as part of the full prepaid account 
agreement that would be required to be posted pursuant to proposed 
Sec.  1005.19. The Bureau also did not believe it would be practicable 
to provide retainable forms of oral disclosures. The Bureau did, 
however, believe that providing retainable forms of written and 
electronic disclosures would be feasible.
Comments Received
    One consumer group commented regarding the proposed retainability 
requirement. It supported the proposed requirement generally but 
recommended that the Bureau clarify that electronic disclosures 
provided via a pop-up window must be able to be easily printed to 
comply with the rule.
The Final Rule
    For the reasons set forth herein, and in the absence of comments 
raising concerns about the proposed retainability requirement, the 
Bureau is adopting proposed Sec.  1005.18(b)(3)(ii), renumbered as 
Sec.  1005.18(b)(6)(ii), with certain modifications. The Bureau has 
added additional specificity to this provision to clarify exceptions to 
the retainability requirements for certain disclosures permitted or 
required under the final rule. The Bureau has also added to the final 
rule a cross-reference to Sec.  1005.4(a)(1), which generally requires 
that disclosures provided pursuant to Regulation E be in a form 
consumers may keep, and conforms the language in the final rule to 
parallel that of Sec.  1005.4(a)(1). In addition, as set forth below, 
the Bureau is adopting revisions to comment 18(b)(3)(ii)-1, renumbered 
as comment 18(b)(6)(ii)-1. Finally, the Bureau has made technical 
modifications to the rule for conformity and clarity.
    Final Sec.  1005.18(b)(6)(ii) provides that, pursuant to Sec.  
1005.4(a)(1), disclosures required by Sec.  1005.18(b) must be made in 
a form that a consumer may keep, except for disclosures provided orally 
pursuant to final Sec.  1005.18(b)(1)(ii) or (iii), long form 
disclosures provided via SMS as permitted by final Sec.  
1005.18(b)(2)(xiii) for a prepaid account sold at retail locations 
pursuant to the retail location exception in final Sec.  
1005.18(b)(1)(ii), and the disclosure of a purchase price pursuant to 
final Sec.  1005.18(b)(5) that is not disclosed on the exterior of the 
packaging material for a prepaid account sold at a retail location 
pursuant to the retail location exception in final Sec.  
1005.18(b)(1)(ii).
    The Bureau continues to believe that its modification to the 
general retainability requirement in Regulation E for oral disclosures 
(and certain other disclosures) is appropriate, as the Bureau does not 
believe it would be practicable to provide retainable forms of oral 
disclosures. The Bureau also notes that the requirements of final Sec.  
1005.18(b)(1)(ii)(D) and (f)(1) will ensure that even consumers who 
acquire prepaid accounts orally by telephone or who access the long 
form disclosure for prepaid accounts sold at retail locations either 
orally or via SMS will receive the long form disclosure in a retainable 
format, albeit after they acquire the prepaid account.
    Final comment 18(b)(6)(ii)-1 illustrates the retainability 
requirement with an example stating that a short form disclosure with a 
tear strip running through it would not be deemed retainable because 
use of the tear strip to gain access to the prepaid account access 
device inside the packaging would destroy part of the short form 
disclosure. Electronic disclosures are deemed retainable if the 
consumer is able to print, save, and email the disclosures from the Web 
site or mobile application on which they are displayed. Therefore, a 
pop-up window or modal \458\ from which a consumer can only print, 
save, or email the disclosure by taking a screen shot of it would not 
satisfy the rule's retainability requirement.
---------------------------------------------------------------------------

    \458\ Modal windows, also known as dialog boxes or lightboxes, 
are ``pop-up'' elements that appear in front of a Web page, blocking 
the main page below. Similar to pop-up windows or system alerts, 
modals are unique because they prevent interaction with the page 
underneath.
---------------------------------------------------------------------------

    The Bureau declines to require that electronic disclosures provided 
via a pop-up window be easily printed, as requested by a consumer group 
commenter because the Bureau believes such a standard is subjective and 
may be imprecise. The Bureau also cautions against the use of pop-up 
windows or modals from which it is difficult for consumers to figure 
out how to print or to actually print. Providing electronic disclosures 
in a manner which a consumer is not able to retain them by printing, 
saving, or emailing would not comply with this final rule and would be 
contrary to the general retainability requirement for disclosures 
provided under Regulation E.
18(b)(6)(iii) Tabular Format
18(b)(6)(iii)(A) General
The Bureau's Proposal
    The Bureau set forth in proposed Sec.  1005.18(b)(3)(iii) the 
tabular format requirements that would be used to present the short and 
long form disclosures. Specifically, proposed Sec.  
1005.18(b)(3)(iii)(A) would have required that, except as provided in 
proposed Sec.  1005.18(b)(3)(iii)(B), short form disclosures required 
by proposed Sec.  1005.18(b)(2)(i) that are provided in writing or 
electronically shall be in the form of a table substantially similar to 
proposed Model Forms A-10(a) through (d), as applicable. It also would 
have

[[Page 84078]]

required that long form disclosures required by proposed Sec.  
1005.18(b)(2)(ii) that are provided in writing or electronically shall 
be in a form of a table substantially similar to proposed Sample Form 
A-10(e).
    The Bureau had observed that most (though not all) financial 
institutions currently use some sort of table to disclose fees in their 
prepaid account agreements, although each institution generally selects 
different fees to highlight and presents them in different orders. The 
Bureau also noted that financial institutions implement a variety of 
formats to present fee information on packaging material in retail 
stores. Thus, the burden is on consumers to identify the fees that are 
most important to them and find them across various formats to 
determine the best product for their needs.
    The Bureau's pre-proposal consumer testing revealed that few 
participants researched prepaid accounts before acquisition, 
particularly when they acquired their accounts in retail stores. The 
Bureau believed that one of the reasons that consumers do not often 
engage in comparison shopping is because doing so is not 
straightforward. At retail, prepaid accounts are often displayed behind 
counters, close to check-out lanes at ends of aisles, and in other 
often crowded or difficult to access areas which the Bureau believed 
can limit careful review of a product's terms. The Bureau believed that 
financial institutions are more likely to present fee information in a 
clearer and more complete format for prepaid account products offered 
online, but, as mentioned above, the format used to display this 
information varies, making comparison shopping challenging. Although 
some variation is inevitable because each financial institution offers 
different services in connection with its prepaid accounts, the Bureau 
believed that requiring use of a standardized form to disclose fee 
information would be appropriate to minimize variation in presentation 
format. Additionally, in the case of the short form disclosure, a 
standardized form also would keep many of the fee types listed 
constant.
    The Bureau proposed a sample form for the long form disclosure 
instead of a model form for the short form disclosure. The Bureau 
believed long form disclosures could vary depending on the number of 
fees included in the form and the extent of relevant conditions that 
would have had to be disclosed in connection with each fee.
Comments Received
    While many commenters critiqued certain aspects of the proposed 
form and format of the short form and long form disclosures, the Bureau 
received no specific comments regarding the proposed general tabular 
format requirement for those disclosures. See the section-by-section 
analysis of Sec.  1005.18(b)(7)(i) below for discussion of comments 
regarding grouping and other format requirements.
The Final Rule
    For the reasons set forth herein, and in the absence of comments, 
the Bureau is adopting Sec.  1005.18(b)(3)(iii)(A) as proposed, 
renumbered as Sec.  1005.18(b)(6)(iii)(A), with certain modifications 
for clarity and to set forth more explicitly the content required in 
the tabular format.
    The final rule requires that when a short form disclosure is 
provided in writing or electronically, the information required by 
final Sec.  1005.18(b)(2)(i) through (ix) shall be provided in the form 
of a table. Except as provided in final Sec.  1005.18(b)(6)(iii)(B), 
the short form disclosures required by final Sec.  1005.18(b)(2) shall 
be provided in a form substantially similar to Model Forms A-10(a) 
through (d), as applicable. The final rule requires that specific 
sections of the short form disclosure be in a tabular format. The 
Bureau continues to believe that this standardized format will increase 
consumer comprehension and enhance comparability among prepaid 
accounts, thereby creating a system under which consumers have the 
tools to make improved purchase and use decisions with regard to 
prepaid accounts.
    The final rule, like the proposed rule, also requires that when a 
long form disclosure is provided in writing or electronically, the 
information required by final Sec.  1005.18(b)(4)(ii) shall be provided 
in the form of a table. Sample Form A-10(f) provides an example of the 
long form disclosure required by final Sec.  1005.18(b)(4) when the 
financial institution does not offer multiple service plans. The Bureau 
has removed the proposed requirement that the table in the long form be 
substantially similar to the table in the proposed sample form in favor 
of the statement that Sample Form A-10(f) provides an example of the 
long form disclosure. As discussed in the section-by-section analysis 
of Sec.  1005.18(b)(4) above, the sample form for the long form 
disclosure, unlike the model forms for the short form disclosures, does 
not impose a ``substantially similar'' requirement. Unlike the short 
form disclosure, the Bureau believes that the comprehensive content of 
the long form, together with the wide variety of fees, fee types, and 
conditions under which those fees are imposed across financial 
institutions, is likely not suitable for a strictly standardized 
content and format design.
    Because the long form disclosures, unlike the standardized short 
form disclosure, could vary substantially, the Bureau continues to 
believe that it is more appropriate to provide a sample form as an 
example that financial institutions may, but are not required to, 
incorporate or emulate in their own long form disclosures, rather than 
a model form that would only provide a safe harbor if financial 
institutions adhered closely to its parameters. Thus, in the regulatory 
text of the final rule, the Bureau has replaced any reference to long 
form content required to be disclosed in a form substantially similar 
to a sample form with language indicating that the sample form provides 
an example of the long form disclosure.
18(b)(6)(iii)(B) Multiple Service Plans
The Bureau's Proposal
    As an alternative to proposed Sec.  1005.18(b)(3)(iii)(A) (which 
would have applied to products with a single fee schedule), proposed 
Sec.  1005.18(b)(3)(iii)(B) would have set forth tabular format 
requirements for prepaid products offering multiple service plans. 
Specifically, proposed Sec.  1005.18(b)(3)(iii)(B)(1) would have stated 
that when a financial institution offers multiple service plans for a 
particular prepaid account product and each plan has a different fee 
schedule, the information required in the short form disclosure by 
proposed Sec.  1005.18(b)(2)(i)(B)(1) through (7) may be provided for 
each service plan together in one table, in a form substantially 
similar to proposed Model Form A-10(f), and must include descriptions 
of each service plan included in the table, using the terms, ``Pay-as-
you-go plan,'' ``Monthly plan,'' ``Annual plan,'' or substantially 
similar terms. Proposed Sec.  1005.18(b)(3)(iii)(B)(1) would have 
further stated that when disclosing multiple service plans on one short 
form, the information that would have been required by proposed Sec.  
1005.18(b)(2)(i)(B)(8) must only be disclosed once in the table. 
Alternatively, proposed Sec.  1005.18(b)(3)(iii)(B)(1) would have 
permitted a financial institution to disclose the information required 
by proposed Sec.  1005.18(b)(2)(i)(B)(1) through (8) for only the 
service plan in which a consumer is enrolled automatically by default 
upon acquiring the prepaid account, in the form of a table 
substantially similar to proposed

[[Page 84079]]

Model Forms A-10(c) or (d). Finally, proposed Sec.  
1005.18(b)(3)(iii)(B)(1) would have stated that regardless of whether a 
financial institution discloses fee information for all service plans 
on one form or chooses only to disclose the service plan in which a 
consumer is automatically enrolled by default, the disclosures required 
by proposed Sec.  1005.18(b)(2)(i)(B)(9) through (14) must only be 
disclosed once.
    As discussed in the proposal and herein, the Bureau believed that 
it was important for short and long form disclosures to have a 
standardized format in order to facilitate consumer comparison of 
multiple products and the ability to understand key fee and service 
information about a prepaid product. The Bureau also recognized, 
however, that financial institutions offering multiple service plans on 
one prepaid account needed flexibility to disclose information about 
multiple plans to a consumer. The Bureau therefore proposed that 
financial institutions may use one short form table that discloses the 
information required by proposed Sec.  1005.18(b)(2)(i) for each of the 
service plans to highlight for a consumer that such plans exist. The 
Bureau explained that, a financial institution, at its option, could 
also choose to disclose only the service plan in which a consumer is 
enrolled upon acquiring the prepaid account using the tabular format 
described in proposed Sec.  1005.18(b)(3)(iii)(A) and note elsewhere on 
the packaging material or on its Web site the other service plans it 
offers. The Bureau believed that these options would give financial 
institutions the flexibility to accommodate disclosure of multiple 
service plans, while also maintaining the simplicity of the tabular 
short form and long form designs to facilitate consumers' comparison 
shopping.
    In the Bureau's pre-proposal consumer testing, some participants 
were confused by short forms that included multiple service plans 
similar to the one in proposed Model Form A-10(f). The Bureau therefore 
also considered proposing that financial institutions must disclose 
each service plan in a separate short form table instead of allowing 
financial institutions to disclose all of the plans on one short form. 
Some participants also were unsure of which service plan applied upon 
purchase when seeing multiple service plans on one short form, an issue 
that the Bureau believed may be resolved if a financial institution 
only discloses the fee schedule for the plan that applies upon a 
consumer's acquisition of the account. The Bureau thus sought comment 
on the best way to accommodate prepaid accounts products offering 
multiple service plans on the short form disclosure while providing 
accurate and sufficient information to consumers.
    In the proposal, the Bureau also acknowledged that only disclosing 
the service plan in which a consumer is automatically enrolled by 
default upon acquiring the prepaid account could potentially conflict 
with the requirement in proposed Sec.  1005.18(b)(2)(i)(C) that 
financial institutions would have to disclose the highest fee for each 
fee type required to be disclosed in the short form. For example, a 
``pay-as-you-go'' plan in which a consumer is enrolled upon acquisition 
might not impose a periodic fee, and thus, could disclose ``$0'' in the 
top line of the short form where the periodic fee disclosure would be 
required. Under such a plan, if consumers were to opt into a monthly 
plan, however, they could be charged a periodic fee higher than $0. The 
Bureau therefore also sought comment on whether the disclosure of only 
the default plan on the short form would be clear or if the Bureau 
should require that financial institutions always disclose multiple 
service plans on the short form.
    Proposed Sec.  1005.18(b)(3)(iii)(B)(2) would have stated that the 
information required to be disclosed in the long form by proposed Sec.  
1005.18(b)(2)(ii) must be presented for all service plans in the form 
of a table substantially similar to proposed Sample Form A-10(g). The 
Bureau believed that the long form disclosure should include all fee 
information about a prepaid account product, and therefore it should 
contain the fee schedule for every possible service plan.
    Additionally, the Bureau proposed comment 18(b)(3)(iii)(B)-1, which 
would have provided additional guidance on the proposed definition of 
multiple service plans. Specifically, proposed comment 
18(b)(3)(iii)(B)-1 would have stated that the multiple service plan 
disclosure provisions in proposed Sec.  1005.18(b)(3)(iii)(B) apply 
when a financial institution offers more than one service plan for a 
particular prepaid account product, and each plan has a different fee 
schedule. For example, a financial institution might offer a prepaid 
account product with one service plan where a consumer pays no periodic 
fee but instead pays a fee for each transaction, and another plan that 
includes a monthly fee but no per transaction fee. A financial 
institution may also offer a prepaid account product with one service 
plan for consumers who utilize another one of a financial institution's 
non-prepaid services (e.g., a mobile phone service) and a different 
plan for consumers who only utilize a financial institution's prepaid 
account products. Each of these plans would be considered a ``service 
plan'' for purposes of proposed Sec.  1005.18(b)(3)(iii)(B).
Comments Received
    Several industry commenters, including industry trade associations, 
a program manager, and an issuing bank, commented on the proposed 
multiple service plan short form disclosure and recommended that the 
Bureau adopt a final rule permitting such disclosures for prepaid 
account loyalty programs and other current and future innovative fee 
structures. Some commenters asserted that the proposed rule failed to 
contemplate loyalty programs and thus urged the Bureau to permit use of 
the multiple service plan short form disclosure for such programs. 
Commenters also asserted that the rule as proposed would stymie future 
innovation of new fee plans by limiting use of the multiple service 
plan short form disclosure to plans already in existence.
    Several consumer groups urged the Bureau to eliminate the multiple 
service plan short form disclosure. They believed the multiple service 
plan short form disclosure compared poorly with the general short form 
disclosure, saying it was too complex and confusing, defeated the 
comparison-shopping purpose of the short form disclosure, failed to 
disclose all the information in the short form (such as the two-tier 
distinction between certain fees, including the in-network and out-of-
network ATM withdrawal and balance inquiry fees), and lacked the top-
line emphasis on key fees. Some of these groups also expressed concern 
that financial institutions seeking to minimize emphasis on certain of 
their fees might use the complexity of the multiple service plan short 
form disclosure to hide expensive fees, such as by starting with a pay-
as-you-go plan with no monthly fee before disclosing higher fees for 
other plans.
    Some consumer groups suggested that the Bureau require disclosure 
of the default fee plan in short forms at retail, and require that 
short form disclosures for the other plans be provided inside the 
packaging material or at the time the consumer chooses to switch to 
another fee plan. In other contexts that do not have the same space 
constraints as retail settings, such as online or at bank branches, 
consumer groups said the Bureau should require disclosure of

[[Page 84080]]

separate short forms for each distinct fee plan.
The Final Rule
    The Bureau is adopting final Sec.  1005.18(b)(6)(iii)(B) largely as 
proposed, but has divided the provision regarding multiple service plan 
short form disclosures to separately address disclosure of the default 
service plan and disclosure of all service plans. Other modifications 
to these provisions are described in turn below.
18(b)(6)(iii)(B)(1) Short Form Disclosure for Default Service Plan
    For the reasons set forth herein, the Bureau is adopting the 
portion of proposed Sec.  1005.18(b)(3)(iii)(B)(1) that addressed the 
option to disclose a short form only for a multiple service plan's 
default plan, renumbered Sec.  1005.18(b)(6)(iii)(B)(1) with technical 
modifications to the rule for conformity and clarity.
    Final Sec.  1005.18(b)(6)(iii)(B)(1) provides that when a financial 
institution offers multiple service plans within a particular prepaid 
account program and each plan has a different fee schedule, the 
information required by final Sec.  1005.18(b)(2)(i) through (ix) may 
be provided in the tabular format described in final Sec.  
1005.18(b)(6)(iii)(A) for the service plan in which a consumer is 
initially enrolled by default upon acquiring a prepaid account. New 
comment 18(b)(6)(iii)(B)(1)-1 clarifies that, pursuant to the 
requirement in Sec.  1005.18(b)(3)(i) to disclose the highest amount a 
financial institution may impose for a fee disclosed pursuant to Sec.  
1005.18(b)(2)(i) through (vii) and (ix), a financial institution would 
not be permitted to disclose any short-term or promotional service 
plans as a default service plan.
    In accordance with Sec.  1005.18(b)(3)(i), a financial institution 
providing a short form for a multiple service plan's default plan only 
must disclose the highest fees under the default plan but not the 
highest fees across all service plans. The Bureau believes that to 
require otherwise would distort the information disclosed about the 
default service plan, leading to potential consumer confusion.
    The Bureau notes that financial institutions disclosing the default 
plan can inform consumers of the prepaid program's other service plan 
options outside the short form disclosure, such as on other portions of 
the packaging, online, or via the telephone; further, disclosure of all 
plan information is required in the long form pursuant to final Sec.  
1005.18(b)(4) discussed below. The Bureau also notes that nothing in 
the final rule would prohibit a financial institution from providing a 
short form disclosure for each of its service plans separately (such as 
on its Web site or in other acquisition scenarios without the same 
space constraints as in retail locations) though, if doing so, the 
Bureau encourages financial institutions to make clear to consumers 
which plan, if any, is the default plan.
18(b)(6)(iii)(B)(2) Short Form Disclosure for Multiple Service Plans
    For the reasons set forth herein, the Bureau is adopting the 
portion of proposed Sec.  1005.18(b)(3)(iii)(B)(1) that addressed the 
option to use a modified short form to disclose multiple service plans, 
renumbered Sec.  1005.18(b)(6)(iii)(B)(2), with certain modifications 
as described below for clarity. In addition, for the reasons set forth 
below, the Bureau has modified comment 18(b)(3)(iii)(B)-1, renumbered 
as comment 18(b)(6)(iii)(B)(2)-1. The Bureau has also made other 
technical modifications for conformity.
    Final Sec.  1005.18(b)(6)(iii)(B)(2) provides that, as an 
alternative to disclosing the default service plan pursuant to Sec.  
1005.18(b)(6)(iii)(B)(1), when a financial institution offers multiple 
service plans within a particular prepaid account program and each plan 
has a different fee schedule, fee disclosures required by final Sec.  
1005.18(b)(2)(i) through (vii) and (ix) may be provided in the form of 
a table with separate columns for each service plan in a form 
substantially similar to Model Form A-10(e). Column headings must 
describe each service plan included in the table, using the terms 
``Pay-as-you-go plan,'' ``Monthly plan,'' ``Annual Plan,'' or 
substantially similar terms. For multiple service plans offering 
preferred rates or fees for the prepaid accounts of consumers who also 
use another non-prepaid service, column headings must describe each 
service plan included in the table for the preferred- and non-preferred 
service plans, as applicable.
    The Bureau has substantially redesigned the multiple service plan 
short form disclosure in order to address many of the concerns raised 
by consumer group commenters as described above. The short form 
disclosure for multiple service plans includes the following changes: 
Expansion of the multi-columned table to disclose all required fees 
pursuant to final Sec.  1005.18(b)(2)(i) through (vii) and (ix) 
together, rather than separating out fees that vary across plans from 
fees that do not; use of bold-face type for the fees listed pursuant to 
final Sec.  1005.18(b)(2)(i) through (iv) to mirror the general short 
form disclosure's emphasis on the top-line fees; and addition of rows 
to separately disclose the two-tier fees for in-network and out-of-
network ATM withdrawals and balance inquiries. See Model Form A-10(f).
    The Bureau's post-proposal consumer testing indicated that the 
redesigned short form disclosure for multiple service plans markedly 
improved the disclosure's usability. Participants were able to navigate 
a prototype short form disclosure for multiple service plans and to use 
the disclosure to find specific information about particular plans. 
Moreover, the relative complexity of the form, although off-putting to 
some participants, did not appear to alter testing results.\459\ Most 
participants quickly understood that the columns in the table 
represented different potential fee plans and all were generally able 
to compare fees in that form with the fees in a general short form 
disclosure. In light of comments received on the proposed version of 
the multiple service plan short form and the results of the Bureau's 
post-proposal consumer testing of the redesigned form, the Bureau is 
finalizing the rule permitting use of a short form disclosure for 
multiple service plans.
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    \459\ See ICF Report II at 16 and 26-27.
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    The Bureau recognizes that financial institutions offering multiple 
service plans may not have a default plan or may find a requirement to 
disclose only a short form for the default plan overly restrictive and 
choose instead to discontinue their multiple service plan programs. The 
Bureau does not intend to disfavor any prepaid account program over 
another in its rule and seeks to avoid potential disruption to prepaid 
account programs offering multiple service plans. While the Bureau 
acknowledges that the relative complexity and density of the multiple 
service plan short form disclosure may render it somewhat less consumer 
friendly than the general short form disclosure, the Bureau believes 
the redesigned form will provide financial institutions with 
flexibility to accommodate disclosure of products with multiple service 
plans, while also retaining much of the standardization of the short 
form design that facilitates comprehension and comparison shopping for 
consumers.
    As referenced above, the rule sets forth specific requirements for 
the column headings required to describe each service plan. The Bureau 
is finalizing the proposed requirement to use the terms ``Pay-as-you-go 
plan,'' ``Monthly plan,'' ``Annual Plan,'' or substantially similar 
terms. To illustrate,

[[Page 84081]]

final comment 18(b)(6)(iii)(B)(2)-1 states that, for example, a 
financial institution that offers a prepaid account program with one 
service plan for which a consumer pays no periodic fee but instead pays 
a fee for each transaction, and another plan that includes a monthly 
fee but no per transaction fee, may use the short form disclosure for 
multiple service plans pursuant to final Sec.  
1005.18(b)(6)(iii)(B)(2).
    As noted above, some industry commenters requested that the Bureau 
allow use of the multiple service plan short form for loyalty plans; 
this issue was addressed in proposed comment 18(b)(3)(iii)(B)-1. For 
clarity, the Bureau has addressed use of the multiple service plan 
short form for loyalty plans in the regulatory text of the final rule 
as described above. Final comment 18(b)(6)(iii)(B)(2)-1 reiterates that 
a financial institution that offers a prepaid account program with 
preferred rates or fees for the prepaid accounts of consumers who also 
use another non-prepaid service (e.g., a mobile phone service), often 
referred to as ``loyalty plans,'' may also use the short form 
disclosure for multiple service plans pursuant to final Sec.  
1005.18(b)(6)(iii)(B)(2). The comment also explains that pricing 
variations based on whether a consumer elects to use a specific feature 
of a prepaid account, such as waiver of the monthly fee for consumers 
electing to receive direct deposit, does not constitute a loyalty plan. 
Final comment 18(b)(6)(iii)(B)(2)-1 also cross-references final comment 
18(b)(3)(iii)-1.ii for guidance on how to provide a single disclosure 
for like fees for multiple service plan short form disclosures.
18(b)(6)(iii)(B)(3) Long Form Disclosure
    Proposed Sec.  1005.18(b)(3)(iii)(B)(2) would have required that 
the information required by proposed Sec.  1005.18(b)(2)(ii) must be 
presented for all service plans in the form of a table substantially 
similar to proposed Sample Form A-10(g). The Bureau did not receive any 
comments regarding this portion of the proposal.
    The Bureau is adopting proposed Sec.  1005.18(b)(3)(iii)(B)(2), 
renumbered as Sec.  1005.18(b)(6)(iii)(B)(3), with a minor modification 
as described below, as well as with technical modifications for 
conformity and clarity.
    Final Sec.  1005.18(b)(6)(iii)(B)(3) states that the information in 
the long form disclosure required by final Sec.  1005.18(b)(4)(ii) must 
be presented in the form of a table for all service plans. The Bureau 
has removed the proposed requirement that the table be substantially 
similar to proposed Sample Form A-10(g) and has also removed that 
proposed sample form from the final rule. As discussed in the section-
by-section analysis of Sec.  1005.18(b)(4) and Sec.  
1005.18(b)(6)(iii)(A) above, the final rule does not impose a 
substantially similar requirement for the sample form for the long form 
disclosure, unlike the model forms for the short form disclosures. This 
is because unlike the short form disclosure, the comprehensive content 
of the long form, together with the wide variety of fees, fee types, 
and conditions under which those fees are imposed across financial 
institutions, is not suitable for a strictly standardized content and 
format design. As discussed in the section-by-section analysis of 
Appendix A-10 Model Forms and Sample Forms for Financial Institutions 
Offering Prepaid Accounts (Sec. Sec.  1005.15(c) and 1005.18(b)) below, 
to provide more flexibility to industry, the Bureau is not providing a 
sample form for a long form disclosure with multiple service plans. The 
Bureau notes that Sample Form A-10(f) provides an example of a tabular 
format for the long form disclosure.
18(b)(7) Specific Formatting Requirements for Pre-Acquisition 
Disclosures
18(b)(7)(i) Grouping
18(b)(7)(i)(A) Short Form Disclosure
The Bureau's Proposal
    Proposed Sec.  1005.18(b)(4)(i)(A) would have contained several 
formatting requirements for the short form disclosure. First, proposed 
Sec.  1005.18(b)(4)(i)(A) would have stated that the information that 
would have been required by proposed Sec.  1005.18(b)(2)(i)(A) or 
proposed Sec.  1005.15(c)(2), when applicable, must be grouped 
together. Proposed Sec.  1005.18(b)(4)(i)(A) would have further stated 
that the information that would have been required by proposed Sec.  
1005.18(b)(2)(i)(B)(1) through (4) must generally be grouped together 
and in the order they appear in the form of proposed Model Forms A-
10(a) through (d). The Bureau believed that grouping the fees that 
would have been required to be disclosed by proposed Sec.  
1005.18(b)(2)(i)(B)(1) through (4) in the top line of the short form 
disclosure would more effectively direct consumers' attention to these 
fees. The Bureau also believed that, when it is applicable, the payroll 
card account or government benefit account notice banner should appear 
at the top of the short form to ensure consumers understand that they 
do not have to accept such an account.
    Proposed Sec.  1005.18(b)(4)(i)(A) would have further stated that 
the information required by proposed Sec.  1005.18(b)(2)(i)(B)(5) 
through (9) must generally be grouped together and in the order they 
appear in the form of proposed Model Forms A-10(a) through (d). The 
textual information required by proposed Sec.  1005.18(b)(2)(i)(B)(10) 
through (14) must be generally grouped together and in the order they 
appear in proposed Model Forms A-10(a) through (d). The Bureau 
recognized that some consumers may focus only on fee information and 
not review textual information, and noted that, in its pre-proposal 
consumer testing many participants did not notice some of the textual 
information included on prototype short forms until the facilitator 
pointed it out to them.
    The Bureau also proposed in Sec.  1005.18(b)(4)(i)(A) that the Web 
site URL disclosed pursuant to proposed Sec.  1005.18(b)(2)(i)(B)(11) 
must not exceed 22 characters and must be meaningfully named. See the 
section-by-section analysis of Sec.  1005.18(b)(2)(xiii) above for a 
discussion of this requirement in the final rule.
Comments Received
    Several industry commenters addressed the proposed grouping or 
other related format requirements for the prepaid disclosures. A 
program manager supported the proposed grouping requirements saying 
they are reasonable and very similar to current disclosures, but 
cautioned that the short form disclosure format requirements would 
crowd out or dilute other critical information and oblige industry to 
extensively redesign current packaging. Another program manager said 
the rigidity of the format of the short form disclosure would limit the 
ability of industry to offer new types of prepaid cards. Two industry 
trade associations said the rule was unclear regarding the extent to 
which a financial institution could depart from the format of the 
required disclosures. In a comment generally addressing the format of 
the proposed disclosures, an issuing bank recommended that the short 
form and long form disclosures have the same format to avoid confusion 
and be recognizable.
The Final Rule
    For the reasons set forth herein and in the absence of comments 
opposing the specific grouping requirements of the short form, the 
Bureau is adopting proposed Sec.  1005.18(b)(4)(i)(A), renumbered as 
Sec.  1005.18(b)(7)(i)(A),

[[Page 84082]]

with minor modifications. First, the Bureau has added references to the 
grouping requirements for the payroll card account disclosures set 
forth in final Sec.  1005.18(b)(2)(xiv)(A) and (B). Second, the Bureau 
has made technical modifications to the rule for conformity and 
clarity.
    The Bureau is adopting the proposed grouping requirements for the 
short form disclosure essentially as proposed. As stated in the 
proposal, the Bureau designed the top line of the short form disclosure 
to direct consumers' attention to what it believes are the most 
important fees for consumers to know in advance of acquiring a prepaid 
account. With regard to the statement regarding wage or salary payment 
options required for payroll card account (and government benefit 
account) short form disclosures, the Bureau believes that consumers 
understanding that their job (or government benefit) is not contingent 
upon their acceptance of the payroll card (or government benefit card) 
is of paramount importance in the short form disclosure. As in the 
proposed rule, the final rule generally groups fees together and non-
fee information together. Similar to the proposed rule, the final rule 
also groups together the statements regarding fees that can vary, 
including new provisions Sec.  1005.18(b)(3)(ii) (variable fee 
disclosure for the periodic fee) and Sec.  1005.18(b)(2)(xiv)(B) 
(State-required information or other fee discounts and waivers for 
payroll card accounts and government benefit accounts).
    The Bureau has made minor changes to the proposed grouping 
requirements. First, to conform to the principle stated above to group 
fees together and group other information together, the Bureau has 
relocated the statement regarding overdraft and credit, required by 
final Sec.  1005.18(b)(2)(x), from the fee section in the proposed rule 
to a location among the non-fee other information. To more effectively 
connect the fee section with the statement regarding the number of 
additional fee types, required by final Sec.  1005.18(b)(2)(viii)(A), 
the Bureau relocated this statement to the fee section. Finally, the 
new statement required by final Sec.  1005.18(b)(2)(viii)(B) directing 
consumers to the disclosure of additional fee types required by final 
Sec.  1005.18(b)(2)(ix) is located immediately after the statement 
regarding the number of additional fee types charged and immediately 
before the disclosure of any actual additional fee types.
    Specifically, the final rule requires that the information required 
in the short form disclosure by final Sec.  1005.18(b)(2)(i) through 
(iv) must be grouped together and provided in that order. The 
information required by final Sec.  1005.18(b)(2)(v) through (ix) must 
be generally grouped together and provided in that order. The 
information required by final Sec.  1005.18(b)(3)(i) and (ii), as 
applicable, must be generally grouped together and in the location 
described by Sec.  1005.18(b)(3)(i) and (ii). The information required 
by final Sec.  1005.18(b)(2)(x) through (xiii) must be generally 
grouped together and provided in that order.
    The final rule also provides that the statement regarding wage or 
salary payment options for payroll card accounts required by final 
Sec.  1005.18(b)(2)(xiv)(A) must be located above the information 
required by final Sec.  1005.18(b)(2)(i) through (iv), as described in 
final Sec.  1005.18(b)(2)(xiv)(A). The statement regarding State-
required information or other fee discounts or waivers permitted by 
final Sec.  1005.18(b)(2)(xiv)(B), when applicable, must appear in the 
location described in final Sec.  1005.18(b)(2)(xiv)(B).
    In response to comments generally addressing the format and 
formatting requirements of the short form and long form disclosures, 
the Bureau states that those requirements, together with the content 
requirements for the disclosures, were designed to create companion 
disclosures intended to facilitate consumers' prepaid account purchase 
and use decisions. The Bureau intended these disclosures to play very 
different but complementary roles and, thus, purposefully gave them 
different formats. The abridged nature of the short form, with its 
emphasis on key fees and information, versus the comprehensive nature 
of the long form, with its requirement to disclose, among other things, 
all fees and the conditions under which they may be imposed, require 
different formats that together create a synergistic whole.
    Regarding the comments questioning the extent to which a financial 
institution could depart from the required format, financial 
institutions must comply with the disclosure requirements set forth in 
the final rule but the Bureau notes that the regulatory text and 
commentary contain additional information and direction clarifying 
specific requirements in the final rule, including a number of optional 
modifications. Also the Bureau is providing the model and sample forms 
to provide concrete illustrations of the requirements under the 
rule.\460\ For examples of short form disclosures that comply with the 
grouping requirements of final Sec.  1005.18(b)(7)(i)(A), see Model 
Forms A-10(a) through (d). Model Forms A-10(a) and (b) illustrate the 
grouping requirements specifically for payroll card accounts and 
government benefit accounts, respectively. Model Forms A-10(c) and (d) 
illustrate the grouping requirements for short form disclosures in 
general, including those sold in retail locations. Model Form A-10(e) 
illustrates the short form grouping requirements specifically for 
prepaid account programs with multiple service plans disclosed pursuant 
to final Sec.  1005.18(b)(6)(iii)(B)(2); these grouping requirements 
are addressed in detail in final Sec.  1005.18(b)(7)(i)(C) discussed 
below.
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    \460\ For the convenience of the prepaid industry and to help 
reduce development costs, the Bureau is also providing native design 
files for print and source code for web-based disclosures for all of 
the model and sample forms included in the final rule. These files 
are available at www.consumerfinance.gov/prepaid-disclosure-files.
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18(b)(7)(i)(B) Long Form Disclosure
The Bureau's Proposal
    The Bureau proposed in Sec.  1005.18(b)(4)(i)(B) that all fees that 
may be imposed by the financial institution in connection with a 
prepaid account that proposed Sec.  1005.18(b)(2)(ii)(A) would have 
required to be disclosed in the long form must be generally grouped 
together and organized by categories of function for which a consumer 
would utilize the service associated with each fee. The Bureau believed 
that disclosing fees in categories would aid consumers' navigation of 
the long form disclosure, which would include all of a prepaid 
account's fees and could be much longer than the short form disclosure. 
Proposed Sec.  1005.18(b)(4)(i)(B) would also have required that text 
describing the conditions under which a fee may be imposed must appear 
in the table directly to the right of the numeric fee amount disclosed 
pursuant to proposed Sec.  1005.18(b)(2)(ii)(A). The information 
required by proposed Sec.  1005.18(b)(2)(ii)(B) (that is, the 
Regulation Z disclosures regarding overdraft and other credit features) 
must be generally grouped together. The information required by 
proposed Sec.  1005.18(b)(2)(ii)(C) through (E) (that is, the telephone 
number, Web site and mailing address; the statement regarding FDIC 
insurance, if applicable; and the Bureau Web site and telephone 
number), must be generally grouped together.
Comments Received
    The Bureau received two comments from industry on the grouping

[[Page 84083]]

requirements of the long form disclosure. Both commenters requested 
that the Bureau provide examples of the categories of function required 
under the proposal in the long form disclosure.
The Final Rule
    For the reasons set forth herein, the Bureau is adopting proposed 
Sec.  1005.18(b)(4)(i)(B), renumbered as Sec.  1005.18(b)(7)(i)(B), 
with modifications to reflect additional content added by other 
provisions of the final rule. The Bureau has also made technical 
modifications to the rule for conformity and clarity. Finally, the 
Bureau has added new comments 18(b)(7)(i)(B)-1 and-2 to provide 
guidance regarding the requirements of final Sec.  1005.18(b)(7)(i)(B).
    First, the final rule addresses the grouping requirement for new 
Sec.  1005.18(b)(4)(i), the title or heading for the long form 
disclosure. The final rule provides that the information required by 
new Sec.  1005.18(b)(4)(i) be located in the first line of the long 
form disclosure.
    The final rule, like the proposed rule, generally requires that 
like categories be grouped together in the long form disclosure. 
Regarding the disclosure in the long form of all fees and the 
conditions under which they may be imposed, the final rule, like the 
proposed rule, requires that the information required by final Sec.  
1005.18(b)(4)(ii) be generally grouped together and organized under 
subheadings by the category of function for which a financial 
institution may impose the fee.
    While the proposed rule would have required that text describing 
the conditions under which a fee may be imposed must appear in the 
table directly to the right of the numeric fee amount disclosed, the 
final rule relaxes this requirement. In the final rule, the text 
describing the conditions under which a fee may be imposed must appear 
in the table required by final Sec.  1005.18(b)(6)(iii)(A) in close 
proximity to the fee amount. The Bureau continues to believe that 
disclosing fees in categories will aid consumers in navigating the long 
form disclosure which, with the disclosure of all of a prepaid 
account's fees, could be much longer than the short form disclosure and 
will benefit from such organization. The Bureau has observed that many 
financial institutions currently organize the fees schedules in their 
prepaid account agreements in this manner. With regard to the change to 
``close proximity'' in the final rule, the Bureau believes that, while 
the short form disclosure necessitates stricter requirements to achieve 
more precise standardization, financial institutions should have more 
discretion in the long form. To this end, the sample form for the long 
form disclosure, as opposed to the model forms for the short form 
disclosures, serves as an example of a disclosure structure financial 
institutions may emulate or use to develop their own long form 
disclosure.
    In response to the industry commenters requesting examples of the 
categories of function required in the long form disclosure, the Bureau 
directs financial institutions to the sample long form disclosure, 
Sample Form A-10(f). The sample form is provided as an example that 
financial institutions may, but are not required to, incorporate or 
emulate in developing their own long form disclosures. The following 
categories of function that appear in the sample form can serve as 
examples of categories that financial institutions might use in 
designing their long form disclosures: Get started (disclosing the 
purchase price), Monthly usage (disclosing the monthly fee), Add money 
(disclosing fees for direct deposit and cash reload), Spend money 
(disclosing bill payment fees), Get cash (disclosing ATM withdrawal 
fees), Information (disclosing customer service and ATM balance inquiry 
fees), Using your card outside the U.S. (disclosing fees for 
international transactions, international ATM withdrawals, and 
international ATM balance inquiries), and Other (disclosing the 
inactivity fee). Financial institutions may use some or all of the 
categories in the sample form or may create their own categories.
    Regarding the statements in the long form disclosure, the rule 
requires that the information in the long form disclosure required by 
final Sec.  1005.18(b)(4)(iii) through (vi) be generally grouped 
together, provided in that order, and appear below the information 
required by final Sec.  1005.18(b)(4)(ii). As in the short form 
disclosure, the Bureau believes that grouping together like categories 
of information here will improve readability and enhance consumer 
comprehension.
    Finally, the final rule explains that if, pursuant to final Sec.  
1005.18(b)(4)(vii), the financial institution includes the disclosures 
described in Regulation Z Sec.  1026.60(e)(1), such disclosures must 
appear below the disclosures required by final Sec.  1005.18(b)(4)(vi).
    New comment 18(b)(7)(i)(B)-1 provides an example illustrating the 
meaning of close proximity as used in the final Sec.  
1005.18(b)(7)(i)(B). The comment states that, for example, a financial 
institution is deemed to comply with this requirement if the text 
describing the conditions is located directly to the right of the fee 
amount in the long form disclosure, as illustrated in Sample Form A-
10(f). The comment also cross-references final comment 18(b)(6)(i)(B)-2 
regarding stacking of electronic disclosures for display on smaller 
screen sizes. As discussed above, that comment describes how compliance 
with the requirements of Sec.  1005.18(b)(7)(i)(B) may be achieved, for 
example, through stacking of the long form disclosure for a consumer 
viewing it on an electronic device with a smaller screen size.
    New comment 18(b)(7)(i)(B)-2 explains how to create a subheading by 
category of function for any finance charges that may be imposed on a 
prepaid account as described in Regulation Z Sec.  1026.4(b)(11)(ii) in 
connection with a covered separate credit feature accessible by a 
hybrid prepaid-credit card as defined in Sec.  1026.61. The comment 
explains that, pursuant to Sec.  1005.18(b)(7)(i)(B), the financial 
institution may, but is not required to, group all finance charges 
together under a single subheading. The comment goes on to say that 
this includes situations where the financial institution imposes a 
higher fee or charge on the asset feature of a prepaid account with a 
covered separate credit feature accessible by a hybrid prepaid-credit 
card than the amount of a comparable fee or charge it imposes on any 
prepaid account in the same prepaid account program that does not have 
such a credit feature. The comment illustrates this with an example of 
a financial institution that charges on the prepaid account a $0.50 per 
transaction fee for each transaction that accesses funds in the asset 
feature of a prepaid account and a $1.25 per transaction fee for each 
transaction where the hybrid prepaid-credit card accesses credit from 
the covered separate credit feature in the course of the transaction. 
In this case, the financial institution is permitted to disclose the 
$0.50 per transaction fee under a general transactional subheading and 
disclose the additional $0.75 per transaction fee under a separate 
subheading together with any other finance charges that may be imposed 
on the prepaid account.
18(b)(7)(i)(C) Multiple Service Plan Disclosure
    The Bureau proposed in Sec.  1005.18(b)(4)(i)(C) that when a 
financial institution provides disclosures in compliance with proposed 
Sec.  1005.18(b)(3)(iii)(B)(1) and discloses the fee schedules of 
multiple service plans together on one form, the

[[Page 84084]]

fees that would have been required to be listed pursuant proposed Sec.  
1005.18(b)(2)(i)(B)(1) through (7) that vary among service plans must 
be generally grouped together, and the fees that are the same across 
all service plans must be grouped together. See proposed Model Form A-
10(f). Proposed Sec.  1005.18(b)(4)(i)(C) would have further stated 
that if the periodic fee varies between service plans, the financial 
institution must use the term ``plan fee,'' or a substantially similar 
term when disclosing the periodic fee for each service plan. The Bureau 
believed that, when a financial institution chooses to disclose 
multiple service plans together on one short form, it would be most 
useful for a consumer to see all the fees that vary among plans grouped 
together to more easily compare the different plans. The Bureau sought 
comment on whether this grouping distinction for short forms that 
include multiple service plans makes sense.
    Proposed Sec.  1005.18(b)(4)(i)(C) also would have stated that when 
providing disclosures for multiple service plans on one short form in 
compliance with proposed Sec.  1005.18(b)(3)(iii)(B)(1), the incidence-
based fees disclosed pursuant to proposed Sec.  1005.18(b)(2)(i)(B)(8) 
must be grouped with the fees that are the same across all service 
plans. The Bureau believed that since a financial institution would 
have to consider total incidence across all plans when determining its 
incidence-based fee disclosure to comply with proposed Sec.  
1005.18(b)(2)(i)(B)(8), it made sense that these fees would be grouped 
with the fees that are the same across all service plans.
    The Bureau received comments from industry and consumer groups 
regarding the multiple service plan short form generally, which are 
addressed in the section-by-section analysis of Sec.  
1005.18(b)(6)(iii)(B) above. Most relevant to this provision were the 
comments from several consumer groups that urged the Bureau to 
eliminate the multiple service plan short form disclosure. The Bureau 
did not receive any comments, however, specific to proposed Sec.  
1005.18(b)(4)(i)(C).
    For the reasons set forth herein, the Bureau is adopting proposed 
Sec.  1005.18(b)(4)(i)(C), renumbered as Sec.  1005.18(b)(7)(i)(C), 
with substantial modifications to reflect the redesigned short form for 
multiple service plans as discussed in the section-by-section analysis 
of Sec.  1005.18(b)(6)(iii)(B) above.
    The final rule's grouping requirements correspond to the formatting 
requirements for the redesigned short form disclosure for multiple 
service plans set forth in final Sec.  1005.18(b)(6)(iii)(B)(2). 
Similar to the grouping requirements in the short form and long form 
disclosures, the final rule's grouping requirements for short form 
disclosures for multiple service plans conform to the principle of 
grouping fees together and grouping other information together. 
Specifically, final Sec.  1005.18(b)(7)(i)(C) requires that when 
providing a short form disclosure for multiple service plans pursuant 
to final Sec.  1005.18(b)(6)(iii)(B)(2), in lieu of the requirements in 
final Sec.  1005.18(b)(7)(i)(A) for grouping of the disclosures 
required by final Sec.  1005.18(b)(2)(i) through (iv) and (v) through 
(ix), the information required by final Sec.  1005.18(b)(2)(i) through 
(ix) be grouped together and provided in that order. Model Form A-10(e) 
illustrates the grouping requirements specifically for short form 
disclosures with multiple service plans disclosed pursuant to final 
Sec.  1005.18(b)(6)(iii)(B)(2).
18(b)(7)(ii) Prominence and Size
The Bureau's Proposal
    Proposed Sec.  1005.18(b)(4)(ii)(A) through (D) would have set 
forth the prominence and size requirements for the short form and long 
form disclosures. Generally, the Bureau believed that the information 
provided to consumers in the short form and long form disclosure should 
appear in a large enough font size to ensure that consumers can easily 
read the information. Further, the Bureau observed in its pre-proposal 
consumer testing that some participants had to use reading glasses or 
otherwise struggled to read existing prepaid account disclosures and 
that many participants reported a preference for larger font sizes to 
facilitate their ability both to read and to understand disclosures. 
Thus, the Bureau proposed minimum font size requirements for both the 
short form and long form disclosures in order to ensure that consumers 
can easily read the disclosures. In addition, the Bureau believed that 
the proposed relative font sizes for the disclosures made on the short 
form would ensure that consumers' attention is quickly drawn to the 
most important information about a prepaid account (i.e., the top-line 
fees).
    The Bureau also noted in the proposal that the proposed minimum 
font sizes were likely also the maximum sizes that could be used on the 
short form disclosure to ensure that it will still fit on most 
packaging material currently used in retail settings. In other 
acquisition scenarios, when space constraints are not as much of an 
issue, the Bureau expected that financial institutions would use larger 
versions of the short form disclosure. For example, when distributing 
disclosures for payroll card accounts in printed form, financial 
institutions could use a 8.5x11 inch piece of paper to present a larger 
version of the short form disclosure, as long as the form maintains the 
visual hierarchy of the information as reflected in the proposed 
relative font size requirements. Proposed Sec.  
1005.18(b)(4)(ii)(B)(2), discussed in more detail below, would have 
required that the statement disclosed pursuant to proposed Sec.  
1005.18(b)(2)(i)(B)(10), and the telephone number and Web site URL 
disclosed pursuant to proposed Sec.  1005.18(b)(2)(i)(B)(11) must be 
more prominent than the information disclosed pursuant to proposed 
Sec.  1005.18(b)(2)(i)(B)(12) through (14) and proposed Sec.  
1005.18(b)(2)(i)(C). The Bureau believed that it is particularly 
important for a consumer to see this information on the short form 
disclosure, and that making it more prominent than the other textual 
language on the short form could help to draw consumers' attention to 
these disclosures.
Comments Received
    The Bureau received few comments regarding the proposed prominence 
and size requirements. A digital wallet provider commented that the 
prescriptive font size and other format and formatting requirements of 
the proposed rule would remove the flexibility to shrink or resize 
disclosures to fit onto mobile screens, resulting in a confusing and 
frustrating user experience as it would be impossible to view the 
entire disclosure at once without zooming out to a wider view.\461\ A 
trade association recommended that the Bureau preempt State laws 
regarding font size where compliance with both the proposed font size 
and State law would be impracticable, specifically citing a Maryland 
law requiring a minimum 12-point font for its required payroll card 
account disclosures that the commenter indicated would make it 
difficult to fit the short form on one page. A consumer group commenter 
recommended that the Bureau require larger font size for disclosures 
provided in non-retail settings. It said that while small print may be 
unavoidable in retail stores, font size was not similarly constrained 
in other locations such as Web sites, bank branches, and in

[[Page 84085]]

settings in which payroll card accounts and government benefit accounts 
are offered.
---------------------------------------------------------------------------

    \461\ See the section-by-section analysis of Sec.  
1005.18(b)(6)(i)(B) above for the Bureau's response to this 
commenter's concern and other issues relating to electronic 
disclosures.
---------------------------------------------------------------------------

The Final Rule
    The Bureau is adopting proposed Sec.  1005.18(b)(4)(ii)(A) through 
(D), renumbered as Sec.  1005.18(b)(7)(ii)(A) through (D), generally as 
proposed with additional specificity for certain requirements and other 
modifications as discussed below. The Bureau is also adopting new 
comments 18(b)(7)(ii)-1 and -2 to provide additional clarification 
regarding type size requirements in final Sec.  1005.18(b)(7)(ii). See 
the section-by-section analyses of Sec.  1005.18(b)(7)(ii)(A), (B), 
(C), and (D) below for prominence and size requirements with respect to 
typeface and type color generally as well as specific requirements 
regarding the general short form disclosure, the long form disclosure, 
and the multiple service plan short form disclosure, respectively.
    The Bureau is finalizing the proposed visual hierarchy of 
information for the short form disclosure created by requiring minimum 
type sizes in descending order because, as explained in the proposal, 
this format quickly garners consumers' attention, directing it first to 
the information the Bureau's research indicates is most important to 
consumers when selecting a prepaid account. The final rule also retains 
the actual type size requirements as proposed, with the addition of 
size requirements for newly-created permissible or required disclosures 
or those that were unspecified in the proposed rule. The Bureau 
continues to believe that the size requirements will ensure that 
consumers can read and understand the disclosures without struggling to 
see small print while also accommodating the existing packaging 
constraints for prepaid accounts sold at retail locations. Also, in the 
final rule, the Bureau has replaced ``font'' size with ``type'' size 
for clarity, as the term font can refer to both type size and type 
style. Finally, instead of stating that disclosures must be made in the 
``corresponding pixel size'' for electronic disclosures when providing 
the minimum type size for each element of the disclosures, the final 
rule includes the actual corresponding pixel size for each type size 
specified.
    The Bureau declines to mandate type size requirements that vary 
depending on the setting in which consumers receive the pre-acquisition 
disclosures. As discussed above, the Bureau designed the minimum type 
sizes requirements for the short form disclosure, that appear in final 
Sec.  1005.18(b)(7)(ii)(B) and (D), to accommodate the existing 
packaging constraints related to the sale of prepaid accounts on J-
hooks displays in retail locations. Financial institutions are 
encouraged, but not required, to use larger type sizes when providing 
pre-acquisition disclosures for prepaid accounts in less space-
restrictive settings. For example, financial institutions offering 
prepaid accounts online, in a bank branch, in the context of payroll 
card accounts and government benefit accounts, and in other similar 
circumstances are encouraged to provide the short form disclosure in a 
type size that exceeds the minimum requirements in the rule to enhance 
both consumer engagement and comprehension of the prepaid account's 
terms.
    To illustrate this, both the proposed and final model forms for 
government benefit accounts and payroll card accounts use type sizes 
that exceed the regulatory minimum. See Model Forms A-10(a) and (b). 
Even when disclosing other information on the same page as the short 
form disclosure, such as when exercising the option to display State-
required information or other fees and discounts on the same page as 
(but outside) the short form disclosure for these products pursuant to 
final Sec. Sec.  1005.15(c)(2)(ii) and 1005.18(b)(2)(xiv)(B), the 
Bureau believes the required disclosures can exceed the minimum size 
requirements set forth in the final rule. To that end, new comment 
18(b)(7)(ii)-1 explains that a financial institution may provide 
disclosures in a type size larger than the required minimum to enhance 
consumer comprehension in any acquisition scenario, as long as the 
financial institution complies with the type/pixel size hierarchy set 
forth in final Sec.  1005.18(b)(7)(ii). New comment 18(b)(7)(ii)-2 
clarifies that references in final Sec.  1005.18(b)(7)(ii) to ``point'' 
size correspond to printed disclosures and references to ``pixel'' size 
correspond to disclosures provided via electronic means.
    The Bureau declines to follow the recommendation of an industry 
commenter that the Bureau preempt certain State law font size 
requirements that it believes would be impracticable to reconcile with 
the Bureau's font size requirements. Section 1005.12(b) addresses 
standards for when inconsistent State law is preempted, but the Bureau 
does not read the comment to argue that the Bureau's font size 
requirements are inconsistent with any State law requirements. 
Moreover, the Bureau notes that financial institutions can provide 
short form disclosures for payroll accounts in a larger font and on 
8.5'' x 11'' or larger paper, as they are not subject to the same space 
constraints, for example, as are many retail locations.
    In addition, as explained in the section-by-section analysis of 
Sec.  1005.18(b)(7)(iii) below generally regarding State-required 
information not permitted within the short form disclosure, financial 
institutions are free to disclose State-required information outside 
the confines of the short form disclosure, even on the same page as the 
short form disclosure. In fact, as discussed in the section-by-section 
analysis of Sec.  1005.18(b)(2)(xiv)(B), the final rule permits 
inclusion in the short form disclosure of a statement directing the 
consumer to a particular location outside the short form disclosure for 
certain information (ways the consumer may access payroll card account 
funds and balance information for free or for a reduced fee). Financial 
institutions have the option of providing other State-required 
information, including information complying with State conspicuousness 
requirements, in the location referenced in the short form disclosure 
pursuant to Sec.  1005.18(b)(2)(xiv)(B) or in any other location the 
financial institution sees fit outside the short form disclosure. 
Because financial institutions have these options outside the short 
form disclosure to disclose information required by or otherwise comply 
with the laws of specific States, the Bureau does not believe either 
further modification to this final rule nor preemption of State law 
regarding prominence and size is necessary or appropriate.
18(b)(7)(ii)(A) General
    Proposed Sec.  1005.18(b)(4)(ii)(A) would have required that all 
text used to disclose information pursuant to proposed Sec.  
1005.18(b)(2) be in a single, easy-to-read type face. All text included 
in the tables required to be disclosed pursuant to proposed Sec.  
1005.18(b)(3)(iii) must be all black or one color type and printed on a 
white or other neutral contrasting background whenever practical. The 
Bureau believed that contrasting colors for the text and the background 
of the short form and long form disclosures would make it easier for 
consumers to read the disclosures. The Bureau did not receive any 
comments on this proposed requirement.
    For the reasons set forth herein, and in the absence of comments, 
the Bureau is adopting proposed Sec.  1005.18(b)(4)(ii)(A), renumbered 
as Sec.  1005.18(b)(7)(ii)(A), with technical

[[Page 84086]]

modifications for conformity and clarity. In addition, for the reasons 
set forth below, the Bureau is adopting new comment 18(b)(7)(ii)(A)-1.
    The final rule requires that all text used to disclose information 
in the short form or in the long form disclosure pursuant to final 
Sec.  1005.18(b)(2), (3)(i) and (ii), and (4) be in single, easy-to-
read type that is all black or one color and printed on a background 
that provides a clear contrast. The Bureau has removed the proposed 
requirement that the background be provided in clear contrast to the 
type whenever practical because the Bureau does not believe there is a 
circumstance under which providing a clear contrast would not be 
practical. As stated in the proposal, the Bureau believes that 
contrasting colors for the text and the background of the short form 
and long form disclosures will make it easier for consumers to read and 
comprehend the disclosure.
    New comment 18(b)(7)(ii)(A)-1 explains that a financial institution 
complies with the color requirements if, for example, it provides the 
disclosures required by final Sec.  1005.18(b)(2), (3)(i) and (ii), and 
(4) printed in black type on a white background or white type on a 
black background. While the Bureau continues to believe that using 
black/white for the text and a contrasting white/black for the 
background of the disclosures would provide an ideal presentation, it 
also recognizes that using other similarly dark colors for text with a 
neutral background color could also provide clear contrast. For 
example, as noted in the proposal, the Bureau believes that the 
statement at the top of the short form disclosure for payroll card 
accounts required by final Sec.  1005.18(b)(2)(xiv)(A) disclosed in 
black type on a grey background, if the background of the rest of the 
short form disclosure is white, could provide a clear contrast that 
would help alert consumers to that notice. See, e.g., final Model Form 
A-10(b).
    The comment also explains that, pursuant to final Sec.  
1005.18(b)(7)(ii)(A), the type and color may differ between the short 
form disclosure and the long form disclosure provided for a particular 
prepaid account program. For example, a financial institution may use 
one font/type style for the short form disclosure for a particular 
prepaid account program and use a different font/type style for the 
long form disclosure for that same prepaid account program. Similarly, 
a financial institution may use black type for the short form 
disclosure for a particular prepaid account program and use blue type 
for the long form disclosure for that same prepaid account program.
    The Bureau notes that neither final Sec.  1005.18(b)(7)(ii)(A) nor 
anything else in the final rule specifies the minimum type size or 
other prominence requirements for the disclosures required outside the 
short form by final Sec.  1005.18(b)(5).
18(b)(7)(ii)(B) Short Form Disclosure
18(b)(7)(ii)(B)(1) Fees and Other Information
The Bureau's Proposal
    Proposed Sec.  1005.18(b)(4)(ii)(B)(2) would have required that the 
fee amounts disclosed by proposed Sec.  1005.18(b)(2)(i)(B)(1) through 
(4) be more prominent than the other parts of the disclosure required 
by proposed Sec.  1005.18(b)(2)(i) and appear in a minimum 11-point 
font or the corresponding pixel size.
    As discussed above, the Bureau believed that consumers commonly 
incur these top-line fees when a financial institution imposes charges 
for these services. In the Bureau's pre-proposal consumer testing, 
participants reported that these fee disclosures were the most 
important to them.\462\ The Bureau recognized that a financial 
institution may not charge all of the fees identified in proposed Sec.  
1005.18(b)(2)(i)(B)(1) through (4). For example, a financial 
institution might not charge any per purchase fees when it imposes a 
monthly fee. The Bureau, however, still believed that such fees should 
be disclosed in a more prominent and larger font size than other 
information on the short form disclosure in order to draw consumers' 
attention to this information before acquiring a prepaid account. The 
Bureau also proposed that pixel sizes used correspond to the font sizes 
specified because font sizes can vary when applied in electronic 
contexts. Though the font sizes may differ, the Bureau explained that 
the relative sizes of the components of the short form would have to 
remain consistent to maintain the visual hierarchy of information 
included in the form.
---------------------------------------------------------------------------

    \462\ See ICF Report I at i.
---------------------------------------------------------------------------

    Additionally, the Bureau proposed in Sec.  1005.18(b)(4)(ii)(B)(2) 
that the disclosures required by proposed Sec.  1005.18(b)(2)(i)(B)(5) 
through (9) (namely, the ATM balance inquiry fees, inactivity fee, and 
incidence-based fees) must appear in a minimum eight-point font or the 
corresponding pixel size and appear in no larger a font than what is 
used for the information required by proposed Sec.  
1005.18(b)(2)(i)(B)(1) through (4). As discussed in the recap of the 
proposal above, the Bureau believed that, while these other fees are 
important for a consumer to know pre-acquisition, the Bureau believed 
that these fees are less likely to drive most consumers' acquisition 
decisions when shopping among prepaid accounts and thus should be 
disclosed using a smaller font size.
    Proposed Sec.  1005.18(b)(4)(ii)(B)(2) also would have required 
that the disclosures required by proposed Sec.  1005.18(b)(2)(i)(B)(10) 
through (14) appear in a minimum seven-point font or the corresponding 
pixel size and appear in no larger a font than what is used for the 
information required to be disclosed by proposed Sec.  
1005.18(b)(2)(i)(B)(5) through (9) (that is, the ATM balance inquiry 
fees, customer service fee, inactivity fee, incidence-based fees, and 
the statement regarding overdraft services and other credit features). 
Additionally, the statement disclosed pursuant to proposed Sec.  
1005.18(b)(2)(i)(B)(10), and the telephone number and Web site URL 
disclosed pursuant to proposed Sec.  1005.18(b)(2)(i)(B)(11) would have 
had to be more prominent than the information disclosed pursuant to 
proposed Sec.  1005.18(b)(2)(i)(B)(12) through (14) and (b)(2)(i)(C).
    Proposed Sec.  1005.18(b)(4)(ii)(B)(2) would have also stated that 
text used to distinguish each of the two fees that would have been 
required to be disclosed by proposed Sec.  1005.18(b)(2)(i)(B)(2), (3) 
and (5), or to explain the duration of inactivity that triggers a 
financial institution to impose an inactivity fee as required by 
proposed Sec.  1005.18(b)(2)(i)(B)(7) must appear in a minimum six-
point font or the corresponding pixel size and appear in no larger a 
font than what is used for information required to be disclosed by 
proposed Sec.  1005.18(b)(2)(i)(B)(9) through (12). The Bureau believed 
that this descriptive information was less important than the actual 
fee information and therefore should be in a smaller font or pixel 
size.
    The Bureau did not receive any comments specifically regarding the 
prominence and size requirements in proposed Sec.  
1005.18(b)(4)(ii)(B)(2).
The Final Rule
    For the reasons set forth herein, and in the absence of comments 
opposing the specific prominence and size requirements for the fees and 
other information in the short form disclosure, the Bureau is adopting 
proposed Sec.  1005.18(b)(4)(ii)(B)(2), renumbered as Sec.  
1005.18(b)(7)(ii)(B)(1), as proposed with certain modifications. The 
Bureau is adopting the actual size requirements as proposed, with the

[[Page 84087]]

addition of size requirements that were unspecified in the proposed 
rule. The Bureau has also replaced the proposed requirement that 
certain portions of the short form disclosure be more prominent with 
the more specific requirement that such disclosures appear in bold-
faced type to clarify that other methods of illustrating prominence, 
such as italicized type, would not be deemed compliant. Finally, the 
Bureau has made technical modifications to the rule for conformity and 
clarity.
    As stated in the proposal and above, the top line of the short form 
disclosure uses prominence and relative type size to highlight what the 
Bureau's research indicates are the fees that are most important to 
consumers when selecting a prepaid account. Thus, the final rule 
requires that the information required by final Sec.  1005.18(b)(2)(i) 
through (iv) appear as follows: Fee amounts in bold-faced type; single 
fee amounts in a minimum type size of 15 points (or 21 pixels); two-
tier fee amounts for ATM withdrawal in a minimum type size of 11 points 
(or 16 pixels) and in no larger a type size than what is used for the 
single fee amounts; and fee headings in a minimum type size of eight 
points (or 11 pixels) and in no larger a type size than what is used 
for the single fee amounts.
    Echoing the proposed rule, the next rung of the visual hierarchy 
for the short form disclosure includes the remaining fees and the 
statements regarding additional fee types. The Bureau continues to 
believe that this information, while important, is not as crucial as 
the top-line information in driving consumer acquisition decisions and, 
thus, merits disclosure in a relatively smaller type size. Thus, the 
final rule requires that the information required by final Sec.  
1005.18(b)(2)(v) through (ix) appear in a minimum type size of eight 
points (or 11 pixels) and appear in the same or a smaller type size 
than what is used for the fee headings required by final Sec.  
1005.18(b)(2)(i) through (iv).
    As in the proposed rule, the final rung of the visual hierarchy for 
the short form disclosure includes the statements required by final 
Sec.  1005.18(b)(2)(x) through (xiii). The Bureau believes that this 
information, while important, is secondary to the fee information 
provided in larger type above the statements. Thus, the final rule 
requires that the information required by final Sec.  1005.18(b)(2)(x) 
through (xiii) appear in a minimum type size of seven points (or nine 
pixels) and appear in no larger a type size than what is used for the 
information required to be disclosed by final Sec.  1005.18(b)(2)(v) 
through (ix).
    While the proposal would have required that certain disclosures in 
the short form be more prominent than other parts of the disclosure, 
the final rule specifies that those disclosures appear in bold-faced 
type. The Bureau believes that the statement regarding the number of 
additional fee types should be in bold-faced type to alert consumers 
that the short form does not disclose all fee types that the consumer 
may incur using that particular prepaid account and to inform them of 
the total number of additional fee types that could be charged. As 
discussed in the section-by-section analysis of Sec.  
1005.18(b)(2)(viii) above, in the Bureau's post-proposal consumer 
testing, participants expressed interest in knowing more about these 
fee types.\463\ Relatedly, the Bureau believes it is important to 
direct consumers to the source from which consumers can learn about 
these additional fee types and other information about the prepaid 
account program. The Bureau believes that standardized and consistent 
use of bold-faced type for elements the Bureau believes merit greater 
prominence supports the overall goal of the short form disclosure to 
provide consumers with clear and easy-to-read information that will 
enhance their prepaid account purchase and use decisions. Therefore, 
the final rule requires that the statements disclosed pursuant to final 
Sec.  1005.18(b)(2)(viii)(A) and (x) and the telephone number and Web 
site URL disclosed pursuant to final Sec.  1005.18(b)(2)(xiii), where 
applicable, must appear in bold-faced type. For the reasons set forth 
in the section-by-section analysis of Sec.  1005.18(b)(2)(x) above, the 
Bureau believes the statement regarding the availability of an 
overdraft credit feature must stand out to consumers.
---------------------------------------------------------------------------

    \463\ See ICF Report II at 11.
---------------------------------------------------------------------------

    Finally, the final rule sets forth the smallest type size 
requirements for the remaining elements of the short form disclosure, 
which provide the details of certain fees. The final rule requires that 
text used to distinguish each of the two-tier fees pursuant to final 
Sec.  1005.18(b)(2)(iii), (v), (vi), and (ix), to explain that the fee 
required by final Sec.  1005.18(b)(2)(vi) applies ``per call,'' where 
applicable, or to explain the conditions that trigger an inactivity fee 
and that the fee applies monthly, or for the applicable time period, 
pursuant to final Sec.  1005.18(b)(2)(vii) appear in a minimum type 
size of six points (or eight pixels) and appear in no larger a type 
size than what is used for the information required by Sec.  
1005.18(b)(2)(x) through (xiii).
18(b)(7)(ii)(B)(2) Variable Fees
    Proposed Sec.  1005.18(b)(4)(ii)(B)(3) would have required that the 
explanatory text for variable fees disclosed pursuant to proposed Sec.  
1005.18(b)(2)(i)(C), when applicable, must appear in a minimum seven-
point font or the corresponding pixel size and appear in no larger the 
font than what is used for the information required to be disclosed by 
proposed Sec.  1005.18(b)(2)(i)(B)(5) through (8). The Bureau believed 
that this explanatory text should be in the same font size as the rest 
of the textual information included on the short form disclosure.
    The Bureau did not receive any comments on the prominence and size 
requirements for variable fees in proposed Sec.  
1005.18(b)(4)(ii)(B)(3).
    For the reasons set forth herein, and in the absence of comments 
opposing the specific prominence and size requirements regarding 
variable fees in the short form disclosure, the Bureau is adopting 
proposed Sec.  1005.18(b)(4)(ii)(B)(3), renumbered as Sec.  
1005.18(b)(7)(ii)(B)(2), with certain modifications. The Bureau is 
adopting the actual size requirements for disclosing variable fee as 
proposed, with the addition of size requirements that were unspecified 
in the proposed rule. The Bureau has also made technical modifications 
to the rule to for conformity and clarity.
    In keeping with the rationale set forth in the proposed rule, the 
final rule conforms the size of the explanatory text and symbols for 
variable fees pursuant to final Sec.  1005.18(b)(3)(i) and (ii) with 
the type size of the rest of the statements required in the short form 
disclosure. Thus, the final rule requires that the symbols and 
corresponding statements regarding variable fees disclosed in the short 
form pursuant to final Sec.  1005.18(b)(3)(i) and (ii), when 
applicable, appear in a minimum type size of seven points (or nine 
pixels) and appear in no larger a type size than what is used for the 
information required by final Sec.  1005.18(b)(2)(x) through (xiii). A 
symbol required next to the fee amount pursuant to final Sec.  
1005.18(b)(3)(i) and (ii) must appear in the same type size or pixel 
size as what is used for the corresponding amount.
18(b)(7)(ii)(B)(3) Payroll Card Account Additional Content
    Proposed Sec.  1005.18(b)(4)(ii)(B)(1) would have provided that the 
information required by proposed Sec.  1005.18(b)(2)(i)(A) and proposed 
Sec.  1005.15(c)(2) (that is, the payroll card

[[Page 84088]]

account and government benefit account banner notices) must appear in a 
minimum eight-point font or the corresponding pixel size and appear in 
no larger a font than what is used for the information required to be 
disclosed by proposed Sec.  1005.18(b)(2)(i)(B)(1) through (4) (that 
is, the top-line fees in the short form).
    The Bureau did not receive any comments regarding the prominence 
and size requirements in proposed Sec.  1005.18(b)(4)(ii)(B)(1).
    For the reasons set forth herein, and in the absence of comments 
opposing the specific prominence and size requirements regarding the 
payroll card account and government benefit account banner notices in 
the short form disclosure, the Bureau is adopting proposed Sec.  
1005.18(b)(4)(ii)(B)(1), renumbered as Sec.  1005.18(b)(7)(ii)(B)(3), 
with certain modifications. The Bureau is adopting the final rule with 
the addition of size requirements for new Sec.  1005.18(b)(2)(xiv)(B). 
The Bureau has also made technical modifications to the rule for 
conformity and clarity. These revisions have been carried through to 
final Sec.  1005.15(c)(2), the parallel provision addressing additional 
content requirements in the government benefit account section.
    As discussed above, the Bureau continues to believe that the 
statement regarding wage or salary payment options required in the 
short form disclosure pursuant to final Sec.  1005.18(b)(2)(xiv)(A) is 
key information for consumers being offered payroll card accounts to 
know before they choose whether or not to accept the payroll card 
account. For this reason, the Bureau believes the type size of the 
statement should be no larger than, but generally the same size as, the 
top-line fee headings. Thus, the final rule requires the statement 
regarding wage or salary payment options for payroll card accounts 
required by final Sec.  1005.18(b)(2)(xiv)(A), when applicable, appear 
in a minimum type size of eight points (or 11 pixels) and appear in no 
larger a type size than what is used for the fee headings required by 
final Sec.  1005.18(b)(2)(i) through (iv).
    Because the new disclosure permitted for payroll card accounts by 
final Sec.  1005.18(b)(2)(xiv)(B) regarding State-required information 
and other fee discounts or waivers is a statement similar to and 
located near the statements required by final Sec.  1005.18(b)(3)(i) 
and (ii) and those required by final Sec.  1005.18(b)(2)(x) through 
(xiii), the final rule requires the statement regarding State-required 
information and other fee discounts and waivers permitted final Sec.  
1005.18(b)(2)(xiv)(B) to appear in the same type size used to disclose 
variable fee information pursuant to final Sec.  1005.18(b)(3)(i) and 
(ii), or, if none, the same type size used for the information required 
by final Sec.  1005.18(b)(2)(x) through (xiii).
18(b)(7)(ii)(C) Long Form Disclosure
    Proposed Sec.  1005.18(b)(4)(ii)(C) would have provided that the 
disclosures required by proposed Sec.  1005.18(b)(2)(ii) (that is, the 
fees and other information in the long form disclosure) must appear in 
a minimum eight-point font or the corresponding pixel size. The Bureau 
believed that the long form disclosure, which would list all of a 
prepaid account's fees, need only appear in a font that is clear enough 
for consumers to read. The Bureau did not believe any part of the long 
form disclosure should be more prominent than another part. Thus, the 
Bureau did not propose any rules regarding the relative font size of 
information disclosed in the long form.
    The Bureau did not receive any comments regarding the prominence 
and size requirements for the long form disclosure in proposed Sec.  
1005.18(b)(4)(ii)(C).
    For the reasons set forth in the proposal, and in the absence of 
comments opposing the prominence and size requirements regarding the 
long form disclosure, the Bureau is adopting proposed Sec.  
1005.18(b)(4)(ii)(C), renumbered as Sec.  1005.18(b)(7)(ii)(C), with 
technical modifications for conformity and clarity. Final Sec.  
1005.18(b)(7)(ii)(C) provides that the long form disclosures required 
by final Sec.  1005.18(b)(4) must appear in a minimum type size of 
eight points (or 11 pixels). The final rule does not impose any 
additional prominence or size requirements for the long form 
disclosure.
18(b)(7)(ii)(D) Multiple Service Plan Short Form Disclosure
    Proposed Sec.  1005.18(b)(4)(ii)(D) would have required that when 
providing disclosures in compliance with proposed Sec.  
1005.18(b)(3)(iii)(B)(1) and disclosing the fee schedules of multiple 
service plans together on one form, disclosures required by proposed 
Sec.  1005.18(b)(2)(i)(B)(1) through (9) must appear in a minimum 
seven-point font or the corresponding pixel size. Disclosures required 
by proposed Sec.  1005.18(b)(2)(i)(B)(10) through (14) must appear in 
the font sizes set forth in proposed Sec.  1005.18(b)(4)(ii)(B)(2).
    The Bureau did not receive any comments on the prominence and size 
requirements for the multiple service plan short form in proposed Sec.  
1005.18(b)(4)(ii)(D).
    For the reasons set forth below, and in the absence of comments 
opposing the prominence and size requirements regarding the short form 
disclosure for multiple service plans, the Bureau is adopting proposed 
Sec.  1005.18(b)(4)(ii)(D), renumbered as Sec.  1005.18(b)(7)(ii)(D), 
with certain modifications. The Bureau generally is adopting the size 
requirements for the multiple service plan short form disclosure as 
proposed but with additional prominence and size requirements to 
address the redesigned short form disclosure for multiple service plans 
and, upon further consideration, to include specifications that were 
not addressed in the proposed rule. The Bureau has made technical 
modifications to the rule for conformity and clarity.
    The design structure and increased density and complexity of the 
short form disclosure for multiple service plans, as compared to the 
general short form disclosure, requires more simplified uniform size 
requirements. Thus, the final rule requires that, when providing a 
short form disclosure for multiple service plans pursuant to final 
Sec.  1005.18(b)(6)(iii)(B)(2), the fee headings required by final 
Sec.  1005.18(b)(2)(i) through (iv) must appear in bold-faced type. 
With this requirement, the disclosure of these fees will somewhat mimic 
the focus on the top-line disclosures in the general short form. The 
information required by final Sec.  1005.18(b)(2)(i) through (xiii) 
must appear in a minimum type size of seven points (or nine pixels), 
except the following must appear in a minimum type size of six points 
(or eight pixels) and appear in no larger a type size than what is used 
for the information required by final Sec.  1005.18(b)(2)(i) through 
(xiii): Text used to distinguish each of the two-tier fees required by 
final Sec.  1005.18(b)(2)(iii) and (v); text used to explain that the 
fee required by final Sec.  1005.18(b)(2)(vi) applies ``per call,'' 
where applicable; text used to explain the conditions that trigger an 
inactivity fee pursuant to final Sec.  1005.18(b)(2)(vii); and text 
used to distinguish that fees required by Sec.  1005.18(b)(2)(i) and 
(vii) apply monthly or for the applicable time period.
18(b)(7)(iii) Segregation
The Bureau's Proposal
    Proposed Sec.  1005.18(b)(5) would have explained that disclosures 
that would have been required under Sec.  1005.18(b) that are provided 
in writing or electronically must be segregated from

[[Page 84089]]

everything else and could contain only information that is directly 
related to the disclosures required under Sec.  1005.18(b). The Bureau 
believed it was important that only the information it would have 
required to be disclosed be included on the short form and long form 
disclosures. The Bureau noted that financial institutions (or whatever 
entity is responsible for marketing the prepaid account) could use the 
remainder of a prepaid account's packaging material or Web site to 
disclose other information to a consumer, but the Bureau believed it 
was important to limit the amount of information permitted in the 
required disclosures to protect the integrity of their design.
Comments Received
    A number of industry commenters, including trade associations and 
program managers, as well as several employers and a local government 
agency commented on the proposed segregation provision, recommending 
that the Bureau eliminate the segregation requirements for payroll card 
account disclosures to permit inclusion in the short form and long form 
of State-required information for prepaid accounts. Some commenters 
said that much of this information could not be feasibly or lawfully 
disclosed on other parts of the packaging material or online and would 
require a third disclosure form in addition to the short form and long 
form disclosures just to disclose State-required information.
The Final Rule
    For the reasons set forth herein, the Bureau is adopting proposed 
Sec.  1005.18(b)(5), renumbered as Sec.  1005.18(b)(7)(iii), with 
technical modifications for conformity and clarity. The Bureau is also 
adopting new comment 18(b)(7)(iii)-1.
    As discussed in the proposal, to preserve the design integrity of 
the short form and long form disclosures, which the Bureau believes 
will facilitate consumer engagement and optimal consumer comprehension, 
it is necessary that the information in these disclosures be restricted 
to that required or permitted under this final rule. Thus, the final 
rule requires that the short form and long form disclosures required by 
final Sec.  1005.18(b)(2) and (4) must be segregated from other 
information and must contain only information that is required or 
permitted for those disclosures by final Sec.  1005.18(b).
    New comment 18(b)(7)(iii)-1 addresses information permitted outside 
the short form and long form disclosures. Specifically, the comment 
explains that the segregation requirement does not prohibit the 
financial institution from providing information elsewhere on the same 
page as the short form disclosure, such as the information required by 
final Sec.  1005.18(b)(5) (that is, the names of the financial 
institution and prepaid account program and any purchase price or 
activation fee), additional disclosures required by State law for 
payroll card accounts, or any other information the financial 
institution wishes to provide about the prepaid account. Similarly, the 
comment explains that the segregation requirement does not prohibit a 
financial institution from providing the long form disclosure on the 
same page as other disclosures or information, or as part of a larger 
document, such as the prepaid account agreement, cross-referencing 
Sec.  1005.18(b)(1) and (f)(1).
    Thus, as long as the long form disclosure remains intact and free 
of extraneous information not required or permitted within its 
structure, neither the segregation requirement nor any other part of 
the final rule prohibits disclosure of the long form as part of the 
cardholder agreement. Thus, the long form may be disclosed as a 
separate document or may be inserted intact within another document 
such as the cardholder agreement.
    The Bureau declines to exclude payroll card accounts from the 
segregation requirements of final Sec.  1005.18(b)(7)(iii), as 
requested by some commenters. The Bureau believes it is necessary to 
preserve the design integrity of the short form and long form 
disclosures for all types of prepaid accounts. The Bureau notes that, 
pursuant to final Sec.  1005.18(b)(4)(ii), all fees and conditions, 
including those required by State law, must be disclosed in the long 
form disclosure. Thus, inclusion of State-required information in the 
long form (with regard to fees and the conditions under which they may 
be imposed for the prepaid account) would not only not violate the 
segregation requirements of final Sec.  1005.18(b)(7)(iii) but 
exclusion of this information would violate the requirements of final 
Sec.  1005.18(b)(4)(ii) to disclose all fees and conditions. The Bureau 
acknowledges, however, that State laws may have other specific 
presentation requirements for their disclosures that may not correspond 
to the final rule's requirements for the long form as set forth in 
final Sec.  1005.18(b)(4)(ii) and (6)(iii)(A) and thus may necessitate 
additional disclosure in a format that complies with those 
requirements.
    With regard to the short form disclosure, see the section-by-
section analysis of Sec.  1005.18(b)(2)(xiv)(B) above for discussion of 
how State-required and other fee discounts and waivers may be disclosed 
in conjunction with the short form disclosure. Pursuant to final Sec.  
1005.18(b)(2)(xiv)(B), the final rule permits disclosure in the short 
form for payroll card accounts (and government benefit accounts 
pursuant to final Sec.  1005.15(c)(2)(ii)) of a statement directing 
consumers to State-required information and other fee discounts and 
waivers, whether this information is located on the same page as (but 
outside) the short form disclosure or in another location such as the 
cardholder agreement or on a Web site.
    Also, because payroll card accounts (and government benefit 
accounts) are not provided in retail locations where space may be 
limited, the Bureau is not persuaded by arguments that State-required 
information cannot be provided in other ways such as on the same page 
but outside the short form disclosure, on another portion of the 
packaging for the prepaid account, or in a package of information 
accompanying the account.
18(b)(8) Terminology of Pre-Acquisition Disclosures
    For the reasons set forth below, the Bureau is adopting the final 
rule with the addition of Sec.  1005.18(b)(8), which requires that fee 
names and other terms must be used consistently within and across the 
disclosures required by final Sec.  1005.18(b). New comment 18(b)(8)-1 
provides an example illustrating this requirement. The comment also 
clarifies that a financial institution may substitute the term prepaid 
``account'' for the term prepaid ``card'' as appropriate, wherever it 
is used in final Sec.  1005.18(b).
    A consumer group commenter recommended that the Bureau require 
uniform terms across disclosures to prevent use of a variety of 
terminology for certain required fees and information. The Bureau 
agrees that use of consistent terminology within and across the short 
form and long form disclosures for a particular prepaid account program 
will enhance consumer comprehension, and thus is adopting new Sec.  
1005.18(b)(8). The Bureau declines to eliminate the ``substantially 
similar'' requirement for various terms throughout final Sec.  
1005.18(b)(2) and replace it with a less flexible standard. Thus, the 
final rule generally does not require the uniform use of a specific 
term for particular fees across all short form disclosures. The Bureau 
believes it can achieve a degree of standardization across short form 
disclosures that will enhance consumer engagement and comprehension by

[[Page 84090]]

requiring that the terms used be substantially similar to the terms set 
forth in the rule and model forms without mandating universal use of a 
specific term. Moreover, the Bureau believes the safe harbor afforded 
to financial institutions using the short form disclosure model forms 
will encourage financial institutions to use the specific terminology 
in the model forms where appropriate.
    However, as set forth in the comment 18(b)(8)-1, a financial 
institution may use the terms prepaid ``account'' and prepaid ``card'' 
interchangeably in the short and long forms, as appropriate. The Bureau 
is allowing use of these terms because they may be used synonymously in 
the prepaid context, particularly in light of the terminology used in 
this final rule, but the Bureau recognizes that in some cases one of 
the terms may be more apt than the other.
18(b)(9) Prepaid Accounts Acquired in Foreign Languages
The Bureau's Proposal
    Regulation E generally permits, but does not require, that 
disclosures be made in a language other than English, provided that 
where foreign language disclosures are provided the disclosures are 
made available in English upon a consumer's request.\464\ When the 
Bureau issued its remittance transfer regulation (subpart B of 
Regulation E), it altered Regulation E's general requirement for 
foreign language disclosures to require disclosures be made in English 
in addition to a foreign language, if that foreign language is used 
principally by the remittance transfer provider to advertise, solicit, 
or market remittance transfer services at the office in which the 
sender conducts a transaction or asserts an error.\465\ The Bureau 
amended Regulation E in this way pursuant to a statutory mandate in 
section 1073 of the Dodd-Frank Act.
---------------------------------------------------------------------------

    \464\ Sec.  1005.4(a)(2).
    \465\ ICF Report II at 11.
---------------------------------------------------------------------------

    The Bureau proposed to modify the general Regulation E foreign 
language requirement for prepaid accounts such that proposed Sec.  
1005.18(b)(6) would have required that if a financial institution 
principally uses a foreign language on prepaid account packaging 
material, by telephone, in person, or on the Web site a consumer 
utilizes to acquire a prepaid account, the short form and long form 
disclosures made pursuant to proposed Sec.  1005.18(b)(2)(i) and (ii) 
would have to be provided in that same foreign language. Proposed Sec.  
1005.18(b)(6) would have also required a financial institution to 
provide the long form disclosure required by proposed Sec.  
1005.18(b)(2)(ii) in English upon a consumer's request and on any part 
of the Web site where it provides the long form disclosure in a foreign 
language. Proposed comment 18(b)(6)-1 would have provided several 
examples as to when financial institutions would have to provide the 
short form and long form disclosures in a foreign language.
Comments Received
    The Bureau received several comments from industry, consumer 
groups, and one State government agency addressing this aspect of the 
proposal. Specifically, the consumer groups and the State government 
agency generally supported requiring financial institutions to provide 
pre-acquisition disclosures in the foreign language the financial 
institution uses in connection with the acquisition of a prepaid 
account. Some of these commenters argued that, if financial 
institutions market prepaid accounts in a foreign language, or 
otherwise reach out to non- and limited-English speaking consumers, 
they should also be required to provide the disclosures in that 
language. One commenter urged the Bureau to require financial 
institutions to provide disclosures in commonly spoken languages. 
Another commenter explained that providing disclosures in a consumer's 
preferred language gives non- and limited-English speaking families 
accurate information regarding their prepaid accounts and creates an 
inclusive culture that consumers seek when making financial decisions. 
Another commenter requested that the Bureau extend this requirement to 
all required disclosures, not just the pre-acquisition disclosures.
    Some of the consumer groups urged the Bureau to further expand the 
proposed foreign language requirements to require foreign language 
support for live customer service calls in any language the financial 
institution uses in connection with the marketing or acquisition of a 
prepaid account. Some commenters stated that customer service 
representatives (and interpreters) should be both fluent in the spoken 
language and knowledgeable about prepaid accounts to ensure that 
communication with non- and limited-English speaking consumers is as 
effective as communication with other consumers. One commenter 
explained that deploying a customer service representative (or an 
interpreter) that does not have the necessary expertise can result in 
the dissemination of inaccurate information. Other commenters stated 
that customer service calls in foreign languages also enable non- and 
limited-English speaking consumers to obtain account balances, request 
transaction information, access general account information, and 
exercise dispute rights. See the section-by-section analysis of Sec.  
1005.18(c)(1) for a discussion of the comments received on foreign 
language support for customer service calls as it relates to accessing 
account information.
    Two industry trade associations and a coalition of prepaid account 
issuers agreed that, where a financial institution engages in a 
deliberate marketing program to solicit consumers in a foreign 
language, it may be reasonable to require disclosures in that same 
language. One of the commenters explained that, in those situations, 
financial institutions control the languages used in the marketing 
programs and can determine whether it makes business sense to develop 
and implement disclosures in a particular language.
    The Bureau received several comments from industry, including from 
industry trade associations, and a law firm writing on behalf of a 
coalition of prepaid issuers, arguing, however, that the foreign 
language disclosure requirement, as proposed, would discourage 
financial institutions from servicing non- and limited-English speaking 
consumers in their preferred languages, especially at branch locations 
and call centers. Several commenters argued that the ``by telephone'' 
and ``in person'' components of the proposed requirement could actually 
be detrimental to consumers because employees of a financial 
institution would be prohibited from engaging with them in their 
preferred languages if the financial institution did not have pre-
acquisition disclosures available in those languages. These commenters 
stated that the proposed requirement would also undermine financial 
institutions' efforts to service communities with a high number of non- 
and limited-English speaking consumers (by hiring staff with specific 
language abilities and establishing branches and offices in those 
areas), which they stated is generally supported by other bank 
regulators. Several commenters urged the Bureau to apply instead the 
current foreign language disclosure requirements under Regulation E to 
prepaid accounts.\466\ However, these commenters requested

[[Page 84091]]

that, if the Bureau proceeds with the proposed requirement, the term 
``principally uses a foreign language'' not cover certain situations, 
such as responses to consumer-initiated inquiries; interactions with 
consumers through the use of an interpreter; and interactions where the 
financial institution knows, based on a prior relationship or 
interaction, that the consumer prefers a language other than English.
---------------------------------------------------------------------------

    \466\ As discussed above, Regulation E generally permits, but 
does not require, that disclosures be made in a language other than 
English, provided that where foreign language disclosures are 
provided the disclosures are made available in English upon a 
consumer's request. See Sec.  1005.4(a)(2).
---------------------------------------------------------------------------

    These industry commenters argued that the requirement as proposed 
would also impose significant compliance burdens on financial 
institutions. These commenters explained that financial institutions 
would need to train their employees to speak only in English, or in the 
specific languages for which pre-acquisition disclosures are available, 
if the topic of prepaid accounts comes up while assisting consumers. 
These commenters stated that customer service interactions that are in 
person or over the telephone could implicate hundreds of languages, 
thereby making compliance with the proposed requirements virtually 
impossible. These commenters further stated that financial institutions 
cannot always control the languages spoken at a retail setting, by a 
program manager, or even at branch locations. In addition, these 
commenters stated that financial institutions cannot ensure that third-
party providers, such as employers and government agencies, will comply 
with the requirement because financial institutions might not know 
whether a language other than English is spoken at the time of 
acquisition.
    One industry commenter urged the Bureau not to require financial 
institutions to provide the long form disclosure in English upon 
request in addition to providing the disclosures in a foreign language, 
as it did not believe it would be necessary or customary to do so.
The Final Rule
    For the reasons set forth herein, the Bureau is finalizing proposed 
Sec.  1005.18(b)(6), renumbered as Sec.  1005.18(b)(9), pursuant to its 
authority under EFTA sections 904(a) and (c), 905(a), and section 
1032(a) of the Dodd-Frank Act, with several modifications explained 
below. The Bureau believes that certain foreign language disclosures 
are necessary and proper to effectuate the purposes of EFTA to provide 
a framework to establish the rights, liabilities, and responsibilities 
of prepaid account users, because the proposed revision will assist 
consumers' understanding of the terms and conditions of their prepaid 
accounts. In addition, consistent with section 1032(a) of the Dodd-
Frank Act, the foreign language disclosures will ensure that the 
features of the prepaid accounts are fully, accurately, and effectively 
disclosed to consumers in a manner that permits consumers to understand 
the costs, benefits, and risks associated with the account.
    Final Sec.  1005.18(b)(9)(i) sets forth the general foreign 
language disclosure requirements for prepaid accounts. Specifically, it 
requires a financial institution to provide the pre-acquisition 
disclosures required by Sec.  1005.18(b) in a foreign language, if the 
financial institution uses that same foreign language in connection 
with the acquisition of a prepaid account in the following 
circumstances: (1) The financial institution principally uses a foreign 
language on prepaid account packaging material; (2) the financial 
institution principally uses a foreign language to advertise, solicit, 
or market a prepaid account and provides a means in the advertisement, 
solicitation, or marketing material that the consumer uses to acquire 
the prepaid account by telephone or electronically; or (3) the 
financial institution provides a means for the consumer to acquire a 
prepaid account by telephone or electronically principally in a foreign 
language.
    The Bureau is finalizing in Sec.  1005.18(b)(9)(i) the general 
requirement from the proposal that a financial institution must provide 
the pre-acquisition disclosures in a foreign language, if the financial 
institution principally uses that foreign language on prepaid account 
packaging material, by telephone, or on the Web site a consumer uses to 
acquire a prepaid account. The Bureau is clarifying in final Sec.  
1005.18(b)(9)(i) that the requirement to provide the pre-acquisition 
disclosures in a foreign language applies only in connection with the 
acquisition of a prepaid account. In addition, the Bureau has replaced 
the phrase ``on the Web site'' with ``electronically'' in final Sec.  
1005.18(b)(9)(i) to more clearly cover all situations in which a 
consumer can electronically acquire a prepaid account, such as by 
clicking on a link provided by the financial institution on an 
advertisement accessed on a mobile device, for example. The Bureau 
continues to believe that if a financial institution provides a way for 
a consumer to acquire a prepaid account in a foreign language, the 
financial institution is making a deliberate effort to obtain the 
consumer's business and therefore should be required to provide the 
pre-acquisition disclosures in that foreign language. The Bureau also 
believes that if a financial institution principally uses a foreign 
language on the interface that a consumer sees or uses to initiate the 
process of acquiring a prepaid account, the consumer should receive 
pre-acquisition disclosures in that foreign language to ensure they are 
able to understand the required disclosures.
    However, the Bureau has removed from final Sec.  1005.18(b)(9)(i) 
the proposed requirement to provide the pre-acquisition disclosures in 
a foreign language if the financial institution principally uses that 
foreign language in person, as requested by several commenters. The 
Bureau agrees with commenters that servicing non- and limited-English 
speaking consumers in their preferred language is critical and would 
not want to discourage employees of financial institutions at branch 
locations from using their foreign language abilities to assist these 
consumers. Similarly, the Bureau understands the importance of 
servicing communities with a high number of non- and limited-English 
speaking consumers and does not seek to stifle efforts made by 
financial institutions to reach out to these communities.\467\ In 
addition, the Bureau understands that financial institutions cannot 
always know or control the languages that are spoken at branch 
locations or in other in-person environments (particularly when those 
locations are operated by third parties), and that providing 
disclosures in every possible language their employees speak might not 
be feasible. The Bureau believes that by not including the in-person 
trigger in final Sec.  1005.18(b)(9)(i), financial institutions will be 
able to better comply with this requirement while not discouraging them 
from servicing non- and limited-English speaking consumers.
---------------------------------------------------------------------------

    \467\ See CFPB's Financial Education Programs Serving Immigrant 
Populations (July 2016), available at https://www.consumerfinance.gov/data-research/research-reports/financial-education-programs-serving-immigrant-populations/.
---------------------------------------------------------------------------

    The Bureau has added a trigger for when a financial institution 
principally uses a foreign language to advertise, solicit, or market a 
prepaid account and provides a means in the advertisement, 
solicitation, or marketing material for the consumer to acquire a 
prepaid account by telephone or electronically, in response to the 
comments it received. The Bureau agrees with commenters that if a 
financial institution deliberately targets consumers by advertising, 
soliciting, or marketing to them in a foreign language, the financial 
institution should be required to provide the pre-acquisition 
disclosures in that same language. The Bureau

[[Page 84092]]

believes it is particularly important to require financial institutions 
to provide the disclosures in a foreign language, if in addition to 
deliberately targeting consumers, financial institutions use those same 
communications to drive consumers to a specific telephone number or Web 
site to acquire a prepaid account.
    Final Sec.  1005.18(b)(9)(ii) provides that a financial institution 
required to provide pre-acquisition disclosures in a foreign language 
pursuant to final Sec.  1005.18(b)(9)(i) must also provide the 
information required to be disclosed in its pre-acquisition long form 
disclosure pursuant to Sec.  1005.18(b)(4) in English upon a consumer's 
request and on any part of the Web site where it discloses this 
information in a foreign language. The Bureau believes that the ability 
to obtain the long form disclosure information in English will be 
beneficial to consumers in various situations, such as when a family 
member is assisting a non-English speaking consumer to manage his 
prepaid account but only reads English. Further, this requirement is 
consistent with existing Sec.  1005.4(a)(2), which requires that 
disclosures made under Regulation E in a language other than English be 
made available in English upon the customer's request. The Bureau has 
observed that many financial institutions that offer prepaid accounts 
in a foreign language already provide the pre-acquisition disclosures 
and the initial disclosures in both English and the foreign language 
without a request from the consumer, which the Bureau believes is 
beneficial for consumers. The Bureau has also revised the internal 
paragraph references within final Sec.  1005.18(b)(9) and related 
commentary to conform to numbering changes in this final rule and has 
made other technical revisions for organizational purposes.
    The Bureau is finalizing proposed comment 18(b)(6)-1, renumbered as 
comment 18(b)(9)-1, with examples that reflect the changes to Sec.  
1005.18(b)(9)(i) and that illustrate situations in which a financial 
institution must provide the pre-acquisition disclosures in a foreign 
language and situations in which it is not required to provide the 
disclosures.
    The Bureau is adopting new comment 18(b)(9)-2 to clarify when a 
foreign language is principally used. This comment explains that all 
relevant facts and circumstances determine whether a foreign language 
is principally used by the financial institution to advertise, solicit, 
or market under final Sec.  1005.18(b)(9). Whether a foreign language 
is principally used is determined at the packaging material, 
advertisement, solicitation, or marketing communication level, not at 
the prepaid account program level or across the financial institution's 
activities as a whole. A financial institution that advertises a 
prepaid account program in multiple languages would evaluate its use of 
foreign language in each advertisement to determine whether it has 
principally used a foreign language therein.
    The Bureau is adopting new comment 18(b)(9)-3 to explain the term 
``advertise, solicit, or market.'' This comment clarifies that any 
commercial message, appearing in any medium, that promotes directly or 
indirectly the availability of prepaid accounts constitutes 
advertising, soliciting, or marketing for purposes of Sec.  
1005.18(b)(9). This comment also provides examples illustrating 
advertising, soliciting, and marketing. The Bureau notes that 
advertising, soliciting, and marketing could include, for example, 
outreach via social media. New comment 18(b)(9)-3 resembles comment 
31(g)(1)-2, which corresponds to the foreign language disclosure 
requirements for remittance transfers in Sec.  1005.31(g)(1). However, 
new comment 18(b)(9)-3 has been altered to accommodate for the 
differences between how consumers acquire prepaid accounts and how they 
initiate remittance transfers. For example, the Bureau did not include 
in new comment 18(b)(9)-3 specific examples from comment 31(g)(1)-2 
related to advertisements, solicitations, and marketing communications 
at an office because scenarios at an office do not usually apply in the 
prepaid account context.\468\ In addition, the Bureau believes that 
leaving these examples out of new comment 18(b)(9)-3 avoids confusion 
related to the proposed in person trigger that was removed from this 
final rule. Thus, final Sec.  1005.18(b)(9) would not apply to general 
advertisements, solicitations, and marketing communications that are in 
a foreign language and displayed at a retail or branch location that do 
not meet any of the triggers in Sec.  1005.18(b)(9)(i)(A) through (C).
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    \468\ These examples include announcements in a foreign language 
on a public address system at an office; printed material in a 
foreign language on any exterior or interior sign at an office; and 
point-of-sale displays in a foreign language at an office. See 
comment 31(g)(1)-2.
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    The Bureau is adopting new comment 18(b)(9)-4 to explain the 
requirements in final Sec.  1005.18(b)(9)(ii), which states that a 
financial institution required to provide pre-acquisition disclosures 
in a foreign language pursuant to Sec.  1005.18(b)(9)(i) must also 
provide the information required to be disclosed in its pre-acquisition 
long form disclosure pursuant to Sec.  1005.18(b)(4) in English upon a 
consumer's request and on any part of the Web site where it discloses 
this information in a foreign language. New comment 18(b)(9)-4 
clarifies that a financial institution required to provide pre-
acquisition disclosures in a foreign language pursuant to Sec.  
1005.18(b)(9)(i) may, but is not required to, provide the English 
version of the pre-acquisition long form disclosure information 
required by final Sec.  1005.18(b)(4) in accordance with the 
formatting, grouping, size and other requirements set forth in final 
Sec.  1005.18(b) for the long form disclosure.
    The Bureau declines to implement at this time other suggestions 
made by several commenters, which include requiring foreign language 
support for customer service calls; requiring customer service 
representatives and interpreters to be both fluent in a foreign 
language and knowledgeable about prepaid accounts; and requiring all 
disclosures, not just pre-acquisition disclosures, to be provided in a 
foreign language. The Bureau believes these measures are beyond the 
scope of this rulemaking and therefore declines to adopt them now. The 
Bureau is also concerned that imposing additional requirements in this 
final rule would discourage financial institutions from servicing non- 
or limited-English speaking consumers and from offering prepaid 
accounts in foreign languages. The Bureau understands that the costs 
associated with such requirements involve hiring and retaining trained 
personnel fluent in other languages, which may be cost prohibitive for 
many financial institutions. In addition, the Bureau has focused on the 
pre-acquisition disclosures because it believes that they present a 
reasonable and appropriate step forward focusing on the most important 
information at the stage that the consumer is acquiring the prepaid 
account. But for the reasons discussed above, the Bureau declines to 
insert additional requirements in this final rule.
18(c) Access to Prepaid Account Information
    EFTA section 906(c) requires that a financial institution provide 
each consumer with a periodic statement for each account of such 
consumer that may be accessed by means of an EFT. Section 1005.9(b), 
which implements EFTA section 906(c), generally requires a periodic 
statement for each monthly cycle in which an EFT occurred or, if there 
are no such transfers, a periodic

[[Page 84093]]

statement at least quarterly.\469\ Financial institutions must deliver 
periodic statements in writing and in a form that the consumer can 
keep, unless consent is received for electronic delivery or unless 
Regulation E provides otherwise.\470\
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    \469\ The periodic statement must include transaction 
information for each EFT, the account number, the amount of any fees 
assessed, the beginning and ending account balance, the financial 
institution's address and telephone number for inquiries, and a 
telephone number for preauthorized transfers. Sec.  1005.9(b).
    \470\ See Sec. Sec.  1005.4(a)(1) and 1005.9(b).
---------------------------------------------------------------------------

    In the Payroll Card Rule, the Board modified the periodic statement 
requirement for payroll card accounts similar to what it had done 
previously for government benefit accounts under Sec.  1005.15. 
Pursuant to existing Sec.  1005.18(b), financial institutions can 
provide for payroll card accounts periodic statements that comply with 
the general provisions in Regulation E, or alternatively, the 
institution must make available to the consumer: (1) The account 
balance, through a readily available telephone line; (2) an electronic 
history of account transactions that covers at least 60 days (including 
all the information required in periodic statements by Sec.  
1005.9(b)); and (3) a written history of account transactions that is 
provided promptly in response to an oral or written request and that 
covers at least 60 days (including all the information required in 
periodic statements by Sec.  1005.9(b)).
    As discussed below, the Bureau proposed Sec.  1005.18(c)(1) and (2) 
to apply Regulation E's periodic statement requirement to prepaid 
accounts, and an alternative that would allow financial institutions to 
instead provide access to account balance by telephone, at least 18 
months of electronic account transaction history, and at least 18 
months written account transaction history upon request. Proposed Sec.  
1005.18(c)(3) would have required financial institutions to disclose 
all fees assessed against the account, in any electronic or written 
account transaction histories and on periodic statements. In addition, 
the Bureau proposed in Sec.  1005.18(c)(4) to require financial 
institutions to disclose, in any electronic or written account 
transaction histories and on periodic statements, monthly and annual 
summary totals of the amount of all fees imposed on the prepaid 
account, and the total amounts of deposits to and debits from the 
prepaid account.
    As discussed in detail in the section-by-section analyses that 
follow, the Bureau is finalizing Sec.  1005.18(c) generally as proposed 
with several modifications. Specifically, final Sec.  1005.18(c)(1) 
requires 12 months of electronic account transaction history and 24 
months of written account transaction history instead of 18 months for 
both. The Bureau is also adopting new Sec.  1005.18(c)(2) to provide a 
modified version of the periodic statement alternative for prepaid 
accounts when a consumer's identity cannot be or has not been verified 
by the financial institution. Furthermore, the Bureau is finalizing 
proposed Sec.  1005.18(c)(2), renumbered as Sec.  1005.18(c)(3), as 
proposed to require that the history of electronic and written account 
transactions include the information set forth in Sec.  1005.9(b), 
which lists the various items that must be included in a periodic 
statement, such as detailed transaction information and fees assessed. 
In addition, the Bureau is finalizing proposed Sec.  1005.18(c)(3), 
renumbered as Sec.  1005.18(c)(4), generally as proposed to require a 
financial institution to disclose the amount of any fees assessed 
against the account, whether for EFTs or otherwise, on any periodic 
statement provided pursuant to Sec.  1005.9(b) and on any history of 
account transactions provided or made available by the financial 
institution. Finally, the Bureau has modified proposed Sec.  
1005.18(c)(4), renumbered as Sec.  1005.18(c)(5), to require financial 
institutions to provide the summary totals of the amount of all fees 
assessed by the financial institution against the consumer's prepaid 
account for the prior calendar month and for the calendar year to date; 
the Bureau is not finalizing the proposed requirement that financial 
institutions provide summary totals of all deposits to and debits from 
a consumer's prepaid account.
18(c)(1) Periodic Statement Alternative
Periodic Statement Requirement Generally
The Bureau's Proposal
    As discussed above, existing Sec.  1005.18(b) states that financial 
institutions that issue payroll cards can provide periodic statements 
that comply with the general provisions in Regulation E, or 
alternatively, the institution must make available to the consumer: (1) 
The account balance, through a readily available telephone line; (2) an 
electronic history of account transactions that covers at least 60 days 
(including all the information required in periodic statements by Sec.  
1005.9(b)); and (3) a written history of account transactions that is 
provided promptly in response to an oral or written request and that 
covers at least 60 days (including all the information required in 
periodic statements by Sec.  1005.9(b)). The Bureau proposed to extend 
this alternative to all prepaid accounts, with certain modifications, 
as described in the section-by-section analyses of Sec.  
1005.18(c)(1)(i) through (iii) below.
Comments Received
    The Bureau received a number of comments regarding whether the 
Regulation E periodic statement requirement should be applied to 
prepaid accounts. Many consumer groups supported such a requirement, 
arguing that the periodic statement is an important tool for managing 
consumer finances, as consumers use information about their account 
usage when making financial decisions. One commenter also argued that 
receiving periodic statements encourages consumers to monitor their 
accounts on a regular basis for errors and unauthorized transactions. 
Another commenter requested that the Bureau require financial 
institutions to provide annual statements for record-keeping and tax-
preparation purposes.
    Several of these commenters and one State government agency argued 
that consumers should have the option to sign up for paper periodic 
statements for free or a nominal fee, instead of having to call each 
time to make a request--taking up customer service resources and 
possibly incurring a fee. These commenters argued that periodic 
statements in paper form are essential for recordkeeping purposes, 
especially for older consumers and consumers with no internet or 
electronic access. These commenters also argued that paper periodic 
statements are more convenient and easier to review for consumers who 
find it difficult to remember passwords or log into their online 
accounts, or for consumers who simply prefer paper over electronic 
statements. One commenter stated that a myriad of regulations, laws, 
and court procedures necessitate the continued availability of paper 
periodic statements and noted several circumstances in which it 
believed paper statements are necessary.
    Conversely, some industry commenters, including issuing banks, 
credit unions, and a credit union trade association, argued that 
periodic statements should not be required for prepaid accounts, 
considering the lifespan of a prepaid account is usually very short. 
One commenter added that statements would not make sense particularly 
for non-reloadable, low-value prepaid accounts, as these products are 
anonymous and do not have the functionality or associated fees of 
reloadable prepaid accounts, deposit

[[Page 84094]]

accounts, or other traditional bank accounts. Some commenters argued 
that a periodic statement requirement would impose unnecessary costs 
and recordkeeping burdens and provide consumers little value, as they 
prefer immediate, electronic access to their account information and 
transaction history. Regarding the form and content of the periodic 
statement, a few credit union trade associations requested a model 
form, and an issuing bank requested clarification regarding the 
information that would be required on the statement.
The Final Rule
    For the reasons set forth herein, the Bureau is finalizing the 
portion of the proposal that extends the Regulation E periodic 
statement requirement to prepaid accounts. As stated above, the 
requirement to provide consumers with a periodic statement for each 
account that may be accessed by means of an EFT is required by EFTA 
section 906(c), and the Bureau does not believe it would be appropriate 
to completely exempt prepaid accounts from this requirement. The Bureau 
also recognizes that access to account information--whether through a 
periodic statement or the periodic statement alternative pursuant to 
final Sec.  1005.18(c)(1) discussed below--is essential for consumers 
to manage their prepaid accounts and to monitor account transactions 
and fees on a regular basis.
    The Bureau declines to require financial institutions to provide 
periodic statements in paper form, as requested by several commenters. 
The Bureau notes that Sec.  1005.4(a)(1) allows disclosures, including 
periodic statements, required by Regulation E to be provided to the 
consumer in electronic form, subject to compliance with the consumer-
consent and other applicable provisions of the E-Sign Act.\471\ The 
Bureau does not believe it is necessary or appropriate at this time to 
mandate paper statements for prepaid accounts. Regarding one 
commenter's request for an annual statement, the Bureau believes 
consumers will have sufficient access to account information through 
periodic statements pursuant to Sec.  1005.9(b) or through electronic 
and written account transaction histories pursuant to the periodic 
statement alternative in final Sec.  1005.18(c)(1).
---------------------------------------------------------------------------

    \471\ 15 U.S.C. 7001 et seq.
---------------------------------------------------------------------------

    The Bureau does not believe it is necessary to provide additional 
information or guidance about the form and content of the periodic 
statement, as requested by some commenters. Because prepaid accounts 
are subject to Regulation E by virtue of this final rule, the 
requirements for periodic statements set forth in Sec.  1005.9(b), as 
well as the general disclosure requirements in Sec.  1005.4, apply to 
prepaid accounts.\472\ The Bureau reminds financial institutions that 
the requirement in final Sec.  1005.18(c)(5) to display the summary 
totals of fees for the prior calendar month and the calendar year to 
date applies to financial institutions providing periodic statements as 
well as those following the alternative, as discussed below. The 
requirement to provide a periodic statement under Regulation E is 
separate from the requirement under final Regulation Z Sec.  1026.7(b) 
with respect to a covered separate credit feature that is accessible by 
a hybrid prepaid-credit card. See the section-by-section analyses of 
Regulation Z Sec. Sec.  1026.6 and 1026.7(b) for additional information 
regarding the Regulation Z periodic statement requirement.
---------------------------------------------------------------------------

    \472\ As discussed below, final Sec.  1005.18(c)(3) requires 
that electronic and written account transaction histories under the 
periodic statement alternative include all of the information set 
forth in Sec.  1005.9(b).
---------------------------------------------------------------------------

Periodic Statement Alternative Generally
Comments Received
    The Bureau received several comments addressing the periodic 
statement alternative generally. Several consumer groups, a State 
government agency, industry trade associations, and a few credit unions 
supported the proposal, arguing that the alternative would benefit 
consumers and impose little to no additional burden on industry. These 
commenters explained that the requirements to provide account 
information by telephone and online are consistent with consumer 
preference. These commenters further stated that the alternative would 
impose no additional costs and burden for financial institutions that 
currently provide periodic statements. One of the consumer groups urged 
the Bureau to require all financial institutions to provide access to 
account information as would be required under the proposed 
alternative, even if financial institutions provide periodic statements 
pursuant to Sec.  1005.9(b).
    Conversely, several industry commenters, including credit union 
trade associations, a credit union, and a think tank, argued that the 
proposed alternative would provide no relief to financial institutions 
and could in fact be equally or more costly and burdensome than 
providing periodic statements, leaving financial institutions--
particularly credit unions--with few options. These commenters 
explained that financial institutions that do not have the proper 
infrastructure in place to meet the requirements of the alternative 
would need to invest in system upgrades and Web site development and 
coordinate with third-party data processors to obtain the information 
needed to provide periodic statements or account transaction history. 
Several of the credit union trade associations explained that most 
credit unions rely on third parties to maintain their Web sites and to 
provide the data for account transaction history; therefore, reliance 
on the third parties to capture the required information and to make 
necessary changes would require industry-wide coordination and may 
result in higher fees. Several other credit union trade associations 
argued that the proposed alternative would not be appropriate for 
prepaid accounts because prepaid accounts are generally seen as short-
term or disposable products, and the consumer relationship typically 
lasts as long as there are funds available on the account. Relatedly, 
one think tank argued that government agencies would find it difficult 
to manage beneficiaries' account transaction histories for 18 months.
The Final Rule
    For the reasons discussed herein, the Bureau is finalizing Sec.  
1005.18(c)(1) generally as proposed, with certain modifications as 
discussed below. To further the purposes of EFTA to provide a framework 
to establish the rights, liabilities, and responsibilities of prepaid 
account consumers, the Bureau believes it is necessary and proper to 
exercise its authority under EFTA section 904(c) to create an exception 
to the periodic statement requirements of EFTA section 906(c), because 
the periodic statement alternative will assist consumers' understanding 
of their prepaid account activity.
    The Bureau believes the periodic statement alternative adopted by 
the Board for payroll card accounts, with the modifications discussed 
below, is appropriate to extend to all prepaid accounts. The Bureau 
proposed to adopt the periodic statement alternative for prepaid 
accounts, which was based on the on the alternative under the Payroll 
Card Rule, to reduce some of the burden financial institutions would 
have otherwise experienced if required to provide periodic statements 
for prepaid accounts. The Bureau believes that the alternative it is 
adopting not only helps reduce costs, but also strikes the

[[Page 84095]]

appropriate balance between providing consumers with access to their 
account information and not unnecessarily burdening financial 
institutions. Specifically, financial institutions that wish to provide 
periodic statements may do so (either on paper or electronically with 
E-Sign consent \473\), while financial institutions that find such an 
approach problematic or undesirable--because of the cost, burden, or 
otherwise--may instead follow the alternative. Regardless of which 
option a financial institution chooses, consumers will have access to 
account information either by virtue of a periodic statement or through 
the methods required under the alternative (that is, account balance by 
telephone, electronic account transaction history, and written account 
transaction history upon request).
---------------------------------------------------------------------------

    \473\ See Sec.  1005.4(a)(1).
---------------------------------------------------------------------------

    The Bureau does not expect the alternative to be particularly 
burdensome for most financial institutions. As noted in the Bureau's 
Study of Prepaid Account Agreements and other public studies, many 
financial institutions already follow the existing alternative from the 
Payroll Card Rule.\474\ Because consumers need reliable access to 
account information to manage their prepaid accounts and to assist them 
when making financial decisions generally, the Bureau believes it is 
appropriate to require that financial institutions must either provide 
a periodic statement or follow the alternative. Reliable access to 
account information is especially important since prepaid accounts have 
become more prevalent in recent years and are increasingly being used 
as replacements for traditional checking accounts; that is, they are no 
longer universally seen or used as short-term or disposable products. 
Regarding commenters' concerns about the costs and burden associated 
with the alternative, the Bureau believes the modifications it has made 
to the length of time electronic and written account transaction 
histories must cover, as discussed below, will help alleviate those 
concerns.
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    \474\ See Study of Prepaid Account Agreements at 18 tbl.5. The 
Bureau found that almost all prepaid account agreements reviewed 
(including 99.03 percent of agreements reviewed for GPR card 
programs) provide electronic access to account information; a 
majority of programs reviewed (including 73.91 percent of agreements 
for GPR card programs) explicitly provide that transactional history 
is available for at least 60 days (which is consistent with the 
payroll card account alternative in existing Sec.  1005.18(b)); and 
most programs reviewed (including 88.41 percent of agreements for 
GPR card programs) make clear that paper statements or paper account 
histories are available upon request. See id. at 19 tbl.6 and 21 
tbl.8. See also Ctr. for Fin. Services Innovation, 2016 Prepaid 
Industry Scorecard: Assessing Quality in the Prepaid Industry with 
CFSI's Compass Principles, at 4 (Mar. 2016), available at https://www.cfsinnovation.com/Document-Library/2016-Prepaid-Scorecard (2016 
CFSI Scorecard); 2014 Pew Study at 19-20.
---------------------------------------------------------------------------

    The Bureau declines to require all financial institutions to 
provide access to account information as required under the 
alternative, even if they provide periodic statements, as requested by 
a commenter, as it does not believe it to be necessary or appropriate 
to do so at this time. As discussed above, the Bureau proposed to adopt 
the periodic statement alternative for prepaid accounts in order to 
reduce some of the burden financial institutions experience with regard 
to mailing periodic statements. Requiring a financial institution to 
provide access to account information pursuant to the alternative, 
despite its election to provide periodic statements, would contradict 
the intended purpose of the alternative.
Other Methods of Access to Account Information
Comments Received
    The Bureau sought comment on the methods of access consumers need 
to their account information and on other alternatives to the Payroll 
Card Rule's approach regarding access to account information. The 
Bureau received several industry and consumer group comments in 
response to this request. All of these commenters generally supported 
the idea that consumers should have access to their prepaid account 
information. However, commenters were divided on whether the Bureau 
should require other methods of access--in addition to the periodic 
statement requirement pursuant to Sec.  1005.9(b) and the periodic 
statement alternative provided by final Sec.  1005.18(c)(1)--and 
whether such access should be provided at no cost to the consumer.
    Several consumer groups urged the Bureau to require free text 
message and email alerts and free access to customer service, arguing 
that these methods are essential tools for consumers to successfully 
manage their accounts. These commenters argued that imposing fees to 
access account information discourages consumers, especially those 
experiencing financial hardship, from monitoring transactions and 
exercising their error resolution rights under Regulation E. These 
commenters explained that text messages and email alerts provide a 
quick and easy way for consumers to be notified about low account 
balances and transactions made. One commenter stated that offering text 
message updates available at no charge can help consumers that have 
limited internet access and also assist financial institutions in 
identifying fraud and other unauthorized transactions more quickly. In 
addition, these commenters explained that consumers need access to 
customer service for a variety of reasons, such as to ask questions, 
check balances, dispute charges, and verify the receipt of wages and 
other transactions. Several commenters requested that the Bureau 
require foreign language support for customer service calls, 
particularly if a financial institution uses a foreign language in 
connection with the marketing or acquisition of a prepaid account.
    On the other hand, industry commenters argued against a requirement 
to provide other methods of access for account information at no cost 
to the consumer. These commenters stated that text message and email 
alerts should be optional, so that financial institutions can determine 
the needs of their customers without unnecessary restrictions. These 
commenters also stated that providing various methods of access to 
account information can be costly to industry and therefore financial 
institutions should be permitted to charge consumers reasonable fees 
for certain methods of access.
The Final Rule
    The Bureau has considered the above comments and declines to 
require financial institutions to provide other methods of access to 
account information at this time. The Bureau is concerned that 
requiring financial institutions to provide free text message and email 
alerts and free access to customer service could increase technological 
and operational costs and burdens, including the hiring and training of 
additional customer service personnel. The Bureau also believes that 
financial institutions can assess the methods of access that best meet 
the needs of their customers. For example, the Bureau is aware that 
many financial institutions already provide free text message and email 
alerts and access to customer service, as the competitive nature of the 
industry is moving financial institutions to offer these services.\475\ 
However, the Bureau

[[Page 84096]]

believes that the periodic statement requirement of Sec.  1005.9(b) or 
the periodic statement alternative in final Sec.  1005.18(c)(1) is 
sufficient at this time to ensure that all prepaid consumers have 
access to their account information.
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    \475\ The CFSI found that 60 percent of the prepaid market 
sampled (11 of 22 cards) allows users to customize alerts (compared 
to 30 percent of the market sampled (7 of 18 cards) in 2014). The 
CFSI noted that 11 cards allow cardholders to set a ``low balance'' 
threshold and receive an email or text alert when their balance 
falls below that threshold. Five cards also allow users to select 
notifications of transactions or withdrawals over a certain dollar 
amount. See 2016 CFSI Scorecard at 2, 9. See also 2014 Pew Study at 
19-20.
---------------------------------------------------------------------------

    Regarding commenters' request that the Bureau require financial 
institutions to provide foreign language support for customer service, 
the Bureau does not believe such a requirement is necessary or 
appropriate at this time. The Bureau understands that financial 
institutions that market prepaid accounts in foreign languages 
generally offer customer service support in those languages and that 
some offer foreign language customer service support, particularly in 
Spanish, even if they do not engage in foreign language marketing. 
However, the Bureau has concerns about the costs and burdens to 
industry, if it were to formalize such a requirement in this final 
rule. While consumers will have the right to obtain, in certain 
situations, pre-acquisition disclosures in a foreign language pursuant 
to final Sec.  1005.18(b)(9), the Bureau is concerned that a foreign-
language customer-service requirement here could deter financial 
institutions from offering prepaid accounts in foreign languages 
because financial institutions would have to ensure, among other 
things, that live customer service in a foreign language is available 
at all times. However, the Bureau will continue to monitor industry 
practice in this area and may revisit this issue in a future 
rulemaking.
18(c)(1)(i)
The Bureau's Proposal
    As noted above, under the Payroll Card Rule, a financial 
institution is not required to furnish periodic statements pursuant to 
Sec.  1005.9(b) if it instead follows the periodic statement 
alternative for payroll card accounts in existing Sec.  1005.18(b)(1). 
Existing Sec.  1005.18(b)(1)(i) requires a financial institution to 
provide access to the consumer's account balance through a readily 
available telephone line. The Bureau proposed to extend this 
requirement as proposed Sec.  1005.18(c)(1)(i) to all prepaid accounts.
    As discussed in the section-by-section analysis of Sec.  
1005.15(d)(1)(i) above, the periodic statement alternative for 
government benefit accounts requires access to balance information 
through a readily available telephone line as well as at a terminal 
(such as by providing balance information at a balance-inquiry terminal 
or providing it, routinely or upon request, on a terminal receipt at 
the time of an EFT). The Bureau sought comment on whether a similar 
requirement to provide balance information at a terminal should be 
added to the requirements of proposed Sec.  1005.18(c)(1)(i) for 
prepaid accounts generally. The Bureau also requested comment on 
whether, alternatively, the requirement to provide balance information 
for government benefit accounts at a terminal should be eliminated from 
Sec.  1005.15, given the other enhancements proposed and for parity 
with proposed Sec.  1005.18.
Comments Received
    A number of commenters, including consumer groups, an office of a 
State Attorney General, a State government agency, and a credit union, 
supported the proposal to extend to prepaid accounts the first part of 
the periodic statement alternative to provide access to a consumer's 
account balance through a readily available telephone line. In 
addition, these commenters, as well as several labor organizations, 
urged the Bureau to require free access to balance information at a 
terminal for all prepaid accounts. They explained that terminals are 
convenient and easy to use, especially for non-English speakers and 
consumers who have difficulty navigating an automated menu over the 
telephone. These commenters also noted that terminals provide account 
balances in real-time and are valuable to consumers with limited 
telephone and internet access.
    Several consumer groups also argued that imposing fees to access 
balance information at a terminal discourages consumers, especially 
those experiencing financial hardship, from monitoring transactions and 
exercising their error resolution rights under Regulation E. These 
commenters noted that paying for such access is especially difficult 
for consumers who are already experiencing financial hardship and that 
consumers generally do not expect to be charged for checking their 
balance information. They suggested that the cost of providing balance 
information at a terminal is minimal and should be bundled with the 
cost of withdrawals. However, one program manager challenged this 
point, arguing that access to balance information at a terminal is the 
most expensive method to check account balances because these 
transactions would likely generate a cost to merchants and networks 
that would likely then be assessed back to financial institutions. 
Another program manager urged the Bureau not to require access to 
balance information at a terminal given the costs to industry, and a 
credit union specifically requested that financial institutions not be 
required to provide access to balance information by both telephone and 
at a terminal.
    One industry commenter requested that the Bureau allow online 
access to a digital wallet account balance as an alternative to 
providing access via a readily accessible telephone line. This 
commenter explained that consumers who use digital wallets must have a 
means to access their accounts electronically, and that digital wallet 
providers use email and other electronic communications as the primary 
way to provide information to consumers. This commenter further 
explained that, given the relationship between the consumer and the 
digital wallet provider, it does not believe consumers of such products 
wish to check their account balance via telephone.
The Final Rule
    For the reasons discussed herein, the Bureau is finalizing Sec.  
1005.18(c)(1)(i) as proposed. The Bureau believes that, as part of the 
periodic statement alternative, access to balance information is 
essential for consumers to use and manage their accounts, The Bureau 
understands that providing such access through a readily available 
telephone line is a common method of doing so. In addition, the Bureau 
believes that most financial institutions already provide balance 
information by telephone. Notwithstanding the consumer benefits of 
accessing balance information at a terminal, the Bureau does not 
believe that requiring such access for all prepaid accounts justifies 
the additional costs to industry at this time, given that consumers can 
obtain balance information through other, less expensive methods. The 
Bureau also declines to exempt digital wallets that are prepaid 
accounts from the requirement to provide balance information by 
telephone under the periodic statement alternative, as requested by one 
commenter, because balance information should be accessible by 
telephone in the event online access to such information is 
unavailable.
    As explained in the proposal, the Bureau expects that a readily 
available telephone line for providing balance information be a local 
or toll-free telephone line that, at a minimum, is available during 
standard business hours. Further, the Bureau expects that, in most 
cases, financial institutions would provide 24-hour access to

[[Page 84097]]

balance information through an automated line, which would ensure that 
consumers could access balance information at their convenience. The 
Bureau reminds financial institutions that neither they nor their 
service providers are permitted to charge consumers a fee for accessing 
balance information by telephone, when providing that information as 
part of the periodic statement alternative pursuant to final Sec.  
1005.18(c)(1)(i).
18(c)(1)(ii) and 18(c)(1)(iii)
The Bureau's Proposal
    Existing Sec.  1005.18(b)(1)(ii) requires financial institutions to 
provide an electronic history of the consumer's payroll card account 
transactions, such as through a Web site, that covers at least 60 days 
preceding the date the consumer electronically accesses the account.
    The Bureau proposed to extend this existing requirement in Sec.  
1005.18(b)(1)(ii) to prepaid accounts in proposed Sec.  
1005.18(c)(1)(ii) and to expand the length of time that online access 
must cover from 60 days to 18 months. The Bureau proposed to extend 
this time period because it believed that based on how consumers are 
currently using prepaid accounts, more than 60 days of account history 
may be, in many cases, beneficial for consumers. While recent account 
history is important for consumers tracking balances or monitoring for 
unauthorized transactions, a longer available account history serves a 
variety of potential purposes. For example, some consumers might need 
to demonstrate on-time bill payment or to compile year-end data for tax 
preparation purposes. The Bureau also believed that a consumer may 
realize during any given year that he or she needs financial records 
from the prior calendar year and that access to 18 months of prepaid 
account history would give the consumer six months into the next 
calendar year. In addition, based on pre-proposal outreach to prepaid 
account providers and publicly available studies, the Bureau believed 
that many prepaid accounts provide at least 12 months of account 
history and that, even if they do not, the cost of extending existing 
online histories to 18 months would be minimal.
    Existing Sec.  1005.18(b)(1)(iii) requires financial institutions 
to provide a written history of the consumer's payroll card account 
transactions promptly in response to an oral or written request, that 
covers at least 60 days preceding the date the financial institution 
receives the consumer's request. Similar to the requirement to provide 
electronic account transaction history, the Bureau proposed to extend 
this requirement to all prepaid accounts in proposed Sec.  
1005.18(c)(1)(iii) and to expand the length of time for which written 
history must be provided from 60 days to 18 months. The Bureau also 
proposed to extend to all prepaid accounts existing comment 18(b)-1, 
which requires that the account transactions histories provided under 
existing Sec.  1005.18(b)(1)(ii) and (iii) reflect transactions once 
they have been posted to the account, renumbered as proposed comment 
18(c)-1. In addition, the Bureau also proposed to extend to all prepaid 
accounts existing comment 18(b)-2 regarding retainability of electronic 
account history renumbered as proposed comment 18(c)-2.
    The Bureau recognized that in certain situations, consumers' 
requests for written account information may exceed what would be 
required under the proposal; therefore, the Bureau proposed to clarify 
in proposed comment 18(c)-3 those instances where a financial 
institution would be permitted to charge a fee for providing such 
information. Proposed comment 18(c)-3 would have included several 
examples of requests that exceed the requirements of proposed Sec.  
1005.18(c)(1) for providing account information and for which a 
financial institution would be permitted to charge a fee.
    Proposed comment 18(c)-4 would have explained that a financial 
institution may provide fewer than 18 months of written account 
transaction history if the consumer requests a shorter period of time. 
If a prepaid account has been open for fewer than 18 months, the 
financial institution need only provide account information pursuant to 
proposed Sec.  1005.18(c)(1)(ii) and (iii) since the time of account 
opening. If a prepaid account is closed or becomes inactive, as defined 
by the financial institution, the financial institution must continue 
to provide at least 18 months of account transaction information from 
the date the request is received. In addition, this comment would have 
explained that when a prepaid account has been closed or inactive for 
18 months, the financial institution is no longer required to make any 
account or transaction information available. The proposed comment 
would have referenced existing comment 9(b)-3, which provides that, 
with respect to written periodic statements, a financial institution 
need not send statements to consumers whose accounts are inactive as 
defined by the institution.
Comments Received
    The Bureau received many comments requesting that it modify the 
time period that must be covered in a consumer's electronic and written 
account transaction history. Most consumer groups supported the 
Bureau's proposal to provide at least 18 months of account transaction 
history, noting the consumer benefits of having a longer time period 
and arguing that the impact on industry should be minimal because data 
storage costs continue to decrease and consumers rarely request copies 
of their account transaction history. These commenters also argued 
that--contrary to the Bureau's proposal--financial institutions should 
not be permitted to charge a fee for providing written account 
transaction history that is older than the required time period, 
arguing that it should not cost more to print and mail older 
information than it is to print and mail newer information.
    A few consumer groups argued, however, that a 24-month time period 
would be more appropriate than 18 months because consumers could 
identify seasonal patterns, and October 15 tax filers could access 
transactions earlier than March 15 of the previous year. One of these 
commenters explained that it could take months for unauthorized 
transactions to be recognized and months or years to complete fraud 
investigations and resolve disputes with third parties. This commenter 
also stated that 24 months would allow consumers to access a longer 
period of account history, which would be particularly helpful to 
consumers who are unable to print or save transaction history on a 
regular basis. These commenters also requested that written account 
transaction histories go back at least seven years, which they said 
would be consistent with some document retention policies, so that 
consumers who use prepaid accounts as primary transaction accounts 
could look up older charges in the event of a tax audit or when 
applying for a mortgage.
    A number of industry commenters, including issuing banks and credit 
unions, trade associations, and program managers, urged the Bureau to 
shorten the proposed 18-month time period and, relatedly, stated that 
financial institutions would need longer than the proposed nine-month 
compliance period to implement the requirement as proposed. These 
commenters argued that the potential costs to industry would outweigh 
any consumer benefit, since, in their experience, consumers rarely 
request 18 months of transaction history and do not currently use 
account

[[Page 84098]]

transaction history for tax preparation purposes. Some industry 
commenters requested a 60-day time period, which they stated would be 
consistent with the current periodic statement alternative for payroll 
card accounts and with the error resolution and limited liability 
notification requirements under Regulation E. Other industry commenters 
requested a time period of no longer than 12 months, arguing that most 
financial institutions do not retain more than 12 months of account 
transaction history in a real-time online format, and therefore, 
requiring a longer time period would be problematic for financial 
institutions. These commenters also stated that 12 months would be 
sufficient for consumers to manage their accounts and would be 
consistent with consumer expectation. Several other industry commenters 
requested that the Bureau instead require financial institutions to 
provide consumers with a copy of their written account transaction 
history upon request once every 12 months at no cost and then allow 
financial institutions to charge a reasonable fee for any subsequent 
requests made during that 12-month time period. One of the credit union 
commenters argued that the time period to provide account transaction 
history should be left to the financial institution's discretion.
    Several of these industry commenters argued that maintaining 18 
months of account transaction history would result in significant costs 
to financial institutions. These commenters explained that storing and 
securing such information would lead to operational costs related to 
upgrading systems, changing record retention policies and procedures, 
and training personnel.\476\ Several credit union trade associations 
argued that the proposed time period would be especially problematic 
for credit unions because they retain limited historical account 
information in their systems and rely on periodic statements if a 
member requests information beyond what is in their systems.\477\
---------------------------------------------------------------------------

    \476\ These industry commenters also described specific actions 
that they believed would increase costs and burden. These included 
updating data processor systems (or developing interfaces with 
third-party providers' processing systems); purchasing data storage 
systems; and redesigning platforms and Web sites.
    \477\ Under the Bureau's proposal, however, if a financial 
institution provides a periodic statement, it would not have been 
required to make available 18 months of electronic account 
transaction history. The Bureau thus believes these commenters' 
concerns regarding issues related to retaining a longer period of 
account history are misplaced.
---------------------------------------------------------------------------

    Several industry commenters explained some of the differences 
between the types of information needed to make available and provide 
electronic and written account transaction histories and the costs 
associated with maintaining each. These commenters stated that 
generally, information in a real-time, online database is necessary to 
make available electronic account transaction history, and archived 
information is retrieved to provide written account transaction history 
that extends beyond the time period retained in the real-time database. 
These commenters stated that real-time information is usually archived 
after 12 months of the account being opened or when the account is 
closed, if sooner, and typically retained for several years. They 
explained that real-time information is easier to access, but more 
expensive to maintain than archived information, and archived 
information is inexpensive to maintain, but can be difficult to access. 
These commenters therefore concluded that maintaining 18 months of 
electronic account transaction information would be costly because 
maintaining that length of real-time information is expensive. These 
commenters further argued that responding to one-off requests from 
consumers for 18 months of written account transaction history would 
also be problematic because archived information, although inexpensive 
to maintain, is usually restricted to certain personnel or stored with 
a third-party processor, who typically charges a fee to retrieve the 
information. These commenters also argued that mailing account 
transaction histories that cover a time period longer than 60 days 
would increase printing and mailing costs.
    Despite the costs associated with retrieving archived information, 
these commenters stated that they would rather provide a longer period 
of written account transaction history than make available a longer 
period of electronic account transaction history, given that 
maintaining electronic history is more expensive. However, because of 
the cost and complexity associated with retrieving archived 
information, these commenters requested that the Bureau allow financial 
institutions to begin accumulating data as of the effective date of the 
final rule (until they have built up to 18 months of accumulated 
transaction history), rather than requiring financial institutions to 
make available or provide the full length of account transaction 
histories as of the effective date, to alleviate some of the compliance 
burden.
    A few program managers suggested further modifications that they 
believed would help reduce the costs associated with the proposed 
periodic statement alternative. Two of these program managers urged the 
Bureau to allow financial institutions to charge a fee for responding 
to requests for written account transaction histories. Another 
requested that the Bureau expressly allow financial institutions to 
inform consumers that they may request written history that covers less 
than the required time period.
The Final Rule
    For the reasons set forth herein, the Bureau is finalizing Sec.  
1005.18(c)(1)(ii) and (iii) with modifications to revise the time 
periods a consumer's electronic and written account transaction history 
must cover. Specifically, final Sec.  1005.18(c)(1)(ii) requires 
financial institutions to make available electronic account transaction 
history that covers at least 12 months preceding the date the consumer 
electronically accesses the account, instead of 18 months as proposed. 
Final Sec.  1005.18(c)(1)(iii) requires financial institutions to 
provide written account transaction history that covers at least 24 
months preceding the date the financial institution receives the 
consumer's request, instead of 18 months as proposed. The Bureau 
continues to believe that, based on how consumers are currently using 
prepaid accounts, access to more than 60 days of electronic and written 
account transaction history will be beneficial to consumers for a 
variety of reasons, such as monitoring for unauthorized transactions, 
tracking spending habits, demonstrating on-time bill payment, and 
compiling year-end data for tax preparation purposes.
    However, based on the response from industry commenters, the Bureau 
is persuaded that providing 18 months of electronic account transaction 
history could be particularly burdensome to industry, especially since 
costs related to retaining electronic history increase as the time 
period lengthens. The Bureau believes that 12 months of electronic 
account transaction history is consistent with the length of history 
consumers expect to access online and should not be problematic for 
financial institutions since many already provide at least 12 months of 
account transaction history, as discussed by industry commenters. The 
Bureau thus believes this revision strikes the appropriate balance 
between burden imposed on industry overall while, in conjunction with 
final Sec.  1005.18(c)(1)(iii), ensuring that additional transaction 
history will be available for consumers who need it. The Bureau reminds 
financial institutions that neither they nor their

[[Page 84099]]

service providers are permitted to charge consumers a fee for accessing 
electronic account transaction history when providing that information 
as part of the periodic statement alternative pursuant to Sec.  
1005.18(c)(1)(ii).
    Considering the costs associated with maintaining electronic 
account transaction history, as discussed by commenters, the Bureau 
declines at this time to require financial institutions to provide 
electronic account transaction history covering a time period longer 
than 12 months. However, under the final rule, consumers will be able 
to request 24 months of written account transaction history pursuant to 
Sec.  1005.18(c)(1)(iii), which the Bureau believes adequately 
addresses the various scenarios offered by consumer group commenters as 
to why consumers may need access to a longer period of account 
transaction history. In addition, the Bureau does not believe that the 
time period for electronic account transaction histories should be left 
to the financial institution's discretion, as requested by one 
commenter, because consistency across the market reduces any potential 
for consumer confusion and assures that sufficient history is available 
for all consumers.
    With regard to written account transaction histories, under the 
final rule, consumers will benefit from having access to two full years 
of transaction information if needed, without requiring industry to 
absorb the expense of making that length of information available 
electronically on an ongoing basis. The Bureau declines to require 
financial institutions to provide seven years of written account 
transaction history, as suggested by several commenters. The Bureau 
believes that 24 months of written history upon request is sufficient 
to meet the needs of consumers and does not believe it is necessary at 
this time to require financial institutions to provide an even longer 
written account history upon request at no cost. Based on information 
received from industry commenters, the Bureau believes the requirement 
to provide 24 months of written account transaction history, in 
conjunction with the requirement to provide 12 months of electronic 
account transaction history under final Sec.  1005.18(c)(1)(ii), 
strikes an appropriate balance in providing consumers with the 
information necessary to manage their accounts while not imposing undue 
burden on industry. As explained by these commenters, maintaining 
archived information, which a financial institution will likely need to 
retrieve to provide 24 months of written history, is less expensive 
than retaining the real-time information necessary for making 
electronic history available online. Moreover, because, as explained by 
some commenters, many financial institutions already retain several 
years of archived data and consumers do not typically request long 
periods of written history, the Bureau does not believe that 
maintaining, retrieving, and providing 24 months of written history 
upon request should be particularly burdensome to financial 
institutions. The Bureau notes that financial institutions are not 
required to provide written history for a longer period than what the 
consumer actually wants; a financial institution may, for example, 
inform consumers that they may request written history that covers less 
than 24 months.
    Furthermore, as explained in the proposal, the Bureau anticipates 
that, in general, written transaction account histories will be sent 
the next business day or soon after a financial institution receives 
the consumer's oral or written request. Financial institutions may also 
designate a specific telephone number for consumers to call and a 
specific address for consumers to write to request a written copy of 
their account transaction history.
    Regarding industry commenters' concerns about the proposed nine-
month compliance period, final Sec.  1005.18(h)(1) imposes a general 
effective date of October 1, 2017 for this final rule. However, final 
Sec.  1005.18(h)(3)(i) provides an accommodation for financial 
institutions that do not have readily accessible the data necessary to 
make available 12 months of electronic account transaction history 
pursuant to final Sec.  1005.18(c)(1)(ii) or 24 months of written 
account transaction history upon request pursuant to final Sec.  
1005.18(c)(1)(iii) on October 1, 2017. Specifically, in that case, the 
financial institution may make available or provide the electronic and 
written histories using the data for the time period it has until the 
financial institution has accumulated the data necessary to comply in 
full with the requirements of final Sec.  1005.18(c)(1)(ii) and (iii). 
See the section-by-section analysis of Sec.  1005.18(h) below for 
additional information about the final rule's effective dates and 
related accommodations.
    The Bureau received no comments specifically addressing proposed 
comment 18(c)-1. Accordingly, the Bureau is finalizing comment 18(c)-1 
as proposed. This comment explains that the electronic and written 
history of the consumer's account transactions provided under final 
Sec.  1005.18(c)(1)(ii) and (iii), respectively, shall reflect 
transfers once they have been posted to the account. Thus, a financial 
institution does not need to include transactions that have been 
authorized but that have not yet posted to the account.
    The Bureau received no comments regarding proposed comment 18(c)-2. 
Accordingly, the Bureau is finalizing comment 18(c)-2 as proposed. This 
comment explains that the electronic history required under final Sec.  
1005.18(c)(1)(ii) must be made available in a form that the consumer 
may keep, as required under Sec.  1005.4(a)(1). Financial institutions 
may satisfy this requirement if they make the electronic history 
available in a format that is capable of being retained. For example, a 
financial institution satisfies the requirement if it provides 
electronic history on a Web site in a format that is capable of being 
printed or stored electronically using a web browser.
    The Bureau is finalizing comment 18(c)-3 substantially as proposed, 
with minor modifications for consistency with the revised time periods 
in the regulatory text. Specifically, final comment 18(c)-3 clarifies 
that financial institutions may charge a fee for providing written 
account transaction history that is older than 24 months. This comment 
also provides examples of requests that exceed the requirements of 
final Sec.  1005.18(c)(1)(iii) and which therefore a financial 
institution may charge a fee. In addition, the Bureau has revised the 
internal paragraph references to conform to other numbering changes in 
this final rule.
    The Bureau declines at this time to permit financial institutions 
to charge consumers a fee for providing the written account transaction 
history required by final Sec.  1005.18(c)(1)(iii), as suggested by 
some commenters. As with the electronic account transaction history 
required by Sec.  1005.18(c)(1)(ii), the Bureau believes it is 
necessary for consumers to have free access to at least 24 months of 
written account transaction history to effectively manage their prepaid 
accounts. The Bureau believes that charging fees to consumers who make 
occasional requests for written histories could have a chilling effect 
on consumers' ability to obtain information about transactions and, 
thus, to exercise their error resolution rights. The Bureau reminds 
financial institutions that neither they nor their service providers 
are permitted to charge consumers a fee for requesting written account 
transaction history when providing that information as part

[[Page 84100]]

of the periodic statement alternative pursuant to Sec.  
1005.18(c)(1)(iii).
    For the final rule, the Bureau has divided proposed comment 18(c)-4 
into two, numbered as final comments 18(c)-4 and -5, to discuss the 
requirements for electronic and written account transaction history 
separately. The Bureau is finalizing the portion of comment 18(c)-4 
addressing electronic account transaction history, with several 
modifications. Specifically, final comment 18(c)-4 no longer explains 
that if a prepaid account is closed or becomes inactive, as defined by 
the financial institution, the financial institution must continue to 
provide at least 18 months of account transaction information from the 
date the request is received. In addition, final comment 18(c)-4 no 
longer states that when a prepaid account has been closed or inactive 
for 18 months, the financial institution is no longer required to make 
available any account or transaction information. Given the revised 
time periods that electronic and written account transaction histories 
must cover, the Bureau has also removed from final comment 18(c)-4 the 
references to written account transaction history and, as discussed 
below, is adopting new comment 18(c)-5 to explain separately the 
requirements for providing access to written account transaction 
history. In addition, the Bureau has revised the internal paragraph 
references in comment 18(c)-4 to conform to other numbering changes in 
this final rule and has made several other modifications for clarity.
    Specifically, final comment 18(c)-4 clarifies that, if a prepaid 
account has been opened for fewer than 12 months, the financial 
institution need only provide electronic account transaction history 
pursuant to final Sec.  1005.18(c)(1)(ii) since the time of account 
opening. Final comment 18(c)-4 also explains that, if a prepaid account 
is closed or becomes inactive, as defined by the financial institution, 
the financial institution need not make available electronic account 
transaction history. This comment cross-references comment 9(b)-3.\478\ 
However, if an inactive account becomes active, the financial 
institution must again make available 12 months of electronic account 
transaction history. The Bureau does not believe it is necessary to 
require financial institutions to continue making access to electronic 
history available for closed and inactive accounts because consumers do 
not typically expect to access this information electronically once an 
account is closed or becomes inactive. The Bureau also believes that 
not requiring financial institutions to provide electronic access for 
closed and inactive accounts will reduce burden on industry relative to 
the proposal, and consumers will still have access to such information, 
if needed, in writing upon request as required by final Sec.  
1005.18(c)(1)(iii).
---------------------------------------------------------------------------

    \478\ Existing comment 9(b)-3 provides that a financial 
institution is not required to send periodic statements to consumers 
whose accounts are inactive as defined by the financial institution.
---------------------------------------------------------------------------

    As noted above, the Bureau is adopting new comment 18(c)-5 to 
explain the requirements for providing access to written account 
transaction history that had been addressed in proposed comment 18(c)-
4. The Bureau is adopting the requirements substantially as proposed, 
with several minor modifications. Specifically, new comment 18(c)-5 
explains that a financial institution may provide fewer than 24 months 
of written account transaction history if the consumer requests a 
shorter period of time. This comment also clarifies that, if a prepaid 
account has been opened for fewer than 24 months, the financial 
institution need only provide written account transaction history 
pursuant to final Sec.  1005.18(c)(1)(iii) since the time of account 
opening. Even if a prepaid account is closed or becomes inactive, the 
financial institution must continue to provide upon request at least 24 
months of written account transaction history preceding the date the 
request is received. When a prepaid account has been closed or inactive 
for 24 months or longer, the financial institution is no longer 
required to make available any written account transaction history 
pursuant to final Sec.  1005.18(c)(1)(iii). In addition, the Bureau has 
revised the internal paragraph references in comment 18(c)-5 to conform 
to other numbering changes in this final rule and has made several 
other modifications for clarity.
18(c)(2) Periodic Statement Alternative for Unverified Prepaid Accounts
    The Bureau is adopting new Sec.  1005.18(c)(2) to provide a 
modified version of the periodic statement alternative for prepaid 
accounts that cannot be or have not been verified by the financial 
institution. Specifically, for prepaid accounts that are not payroll 
card accounts or government benefit accounts, the final rule does not 
require a financial institution to provide written account transaction 
history pursuant to final Sec.  1005.18(c)(1)(iii) for any prepaid 
account for which the financial institution has not completed its 
consumer identification and verification process as described in final 
Sec.  1005.18(e)(3)(i)(A) through (C).
    The Bureau did not receive any comments on this issue, but upon 
further consideration, believes this modification to the periodic 
statement alternative would be appropriate, particularly in light of 
the modifications the Bureau has made to the error resolution 
requirements for unverified accounts in final Sec.  1005.18(e)(3). The 
Bureau believes that the limited nature of prepaid accounts that cannot 
be or have not been verified by a financial institution does not 
justify requiring financial institutions to provide written account 
transaction histories upon request for these accounts. The Bureau 
believes that these accounts do not typically remain active for more 
than 12 months, and even if they do, they are usually only used to 
conduct a limited number of transactions. In addition, a financial 
institution will not likely have a physical address for an unverified 
prepaid account, and therefore, cannot mail a copy of the consumer's 
written account transaction history. The Bureau believes, however, that 
consumers of these accounts still need to have access to balance 
information by telephone as well as electronic account transaction 
history in order to manage their accounts.
    The Bureau is adopting new comment 18(c)-6 to provide further 
guidance on the periodic statement alternative for unverified accounts 
provided in Sec.  1005.18(c)(2). Specifically, comment 18(c)-6 explains 
that, if a prepaid account is verified, a financial institution must 
provide written account transaction history upon the consumer's request 
that includes the period during which the account was not verified, 
provided the period is within the 24-month time frame specified in 
final Sec.  1005.18(c)(1)(iii).
18(c)(3) Information Included on Electronic or Written Histories
    Under existing Sec.  1005.18(b)(2), the history of electronic and 
written account transactions for payroll card accounts must include the 
information set forth in Sec.  1005.9(b). Section 1005.9(b) lists the 
various items that must be included in periodic statements, including, 
but not limited to, detailed transaction information and fees assessed. 
The Bureau proposed to extend this existing requirement to all prepaid 
accounts as new Sec.  1005.18(c)(2) and revise the cross-references to 
correspond with proposed Sec.  1005.18(c)(1)(ii) and (iii), but 
otherwise leave the requirement unchanged.

[[Page 84101]]

    The Bureau received comments from an issuing bank, an industry 
trade association, and a program manager on this provision, stating 
that they agreed with the Bureau's proposal to leave this provision 
unchanged. Accordingly, the Bureau is finalizing Sec.  1005.18(c)(2), 
renumbered as Sec.  1005.18(c)(3), as proposed.
18(c)(4) Inclusion of All Fees Charged
    EFTA section 906(c), generally implemented in Sec.  1005.9(b), 
provides that, among other things, a periodic statement must include 
the amount of any fees assessed against an account for EFTs or account 
maintenance. The Bureau notes that Regulation DD requires that periodic 
statements disclose all fees debited to accounts covered by that 
regulation.\479\ Regulation DD defines ``account'' to mean ``a deposit 
account at a depository institution that is held by or offered to a 
consumer. It includes time, demand, savings, and negotiable order of 
withdrawal accounts.'' \480\ Because some prepaid accounts, as proposed 
to be defined under Regulation E, may not also constitute accounts as 
defined under Regulation DD (or the corresponding regulations 
applicable to credit unions),\481\ the Bureau proposed Sec.  
1005.18(c)(3) to ensure that periodic statements and histories of 
account transactions for all prepaid accounts include all fees, not 
just those related to EFTs and account maintenance.
---------------------------------------------------------------------------

    \479\ Regulation DD Sec.  1030.6(a)(3).
    \480\ Regulation DD Sec.  1030.2(a).
    \481\ See 12 CFR part 707.
---------------------------------------------------------------------------

    Proposed Sec.  1005.18(c)(3) would have stated that a periodic 
statement furnished pursuant to Sec.  1005.9(b) for a prepaid account, 
an electronic history of account transactions whether provided under 
proposed Sec.  1005.18(c)(1)(ii) or otherwise, and a written history of 
account transactions provided under proposed Sec.  1005.18(c)(1)(iii) 
must disclose the amount of any fees assessed against a prepaid 
account, whether for EFTs or otherwise. The Bureau received no comments 
on this portion of the proposal.
    For the reasons set forth herein, the Bureau is finalizing Sec.  
1005.18(c)(3), renumbered as Sec.  1005.18(c)(4), substantially as 
proposed, with several modifications for clarity. To further the 
purposes of EFTA to provide a framework to establish the rights, 
liabilities, and responsibilities of prepaid account consumers, the 
Bureau believes it is necessary and proper to exercise its authority 
under EFTA section 904(c) to modify the periodic statement requirements 
of EFTA section 906(c) to require inclusion of all fees charged. These 
revisions will assist consumers' understanding of their prepaid account 
activity. In addition, the Bureau is also using its disclosure 
authority pursuant to section 1032(a) of the Dodd-Frank Act because the 
Bureau believes that comprehensive disclosure of fee information will 
help ensure that the features of prepaid accounts are fully, 
accurately, and effectively disclosed to consumers, over the term of 
the product or service, in a manner that permits consumers to 
understand the costs, benefits, and risks associated with prepaid 
accounts.
    Final Sec.  1005.18(c)(4) states that a financial institution must 
disclose the amount of any fees assessed against the account, whether 
for EFTs or otherwise, on any periodic statement provided pursuant to 
Sec.  1005.9(b) and on any history of account transactions provided or 
made available by the financial institution.
    The Bureau is also adopting new comment 18(c)-7 to further clarify 
the requirements of final Sec.  1005.18(c)(4). Specifically, this 
comment explains that a financial institution that furnishes a periodic 
statement pursuant to Sec.  1005.9(b) for a prepaid account must 
disclose the amount of any fees assessed against the account, whether 
for EFTs or otherwise, on the periodic statement as well as on any 
electronic or written account transaction history the financial 
institution makes available or provides to the consumer. For example, 
if a financial institution sends periodic statements and also makes 
available the consumer's electronic account transaction history on its 
Web site, the financial institution must disclose the amount of any 
fees assessed against the account, whether for EFTs or otherwise, on 
the periodic statement and on the consumer's electronic account 
transaction history made available on its Web site. Likewise, a 
financial institution that follows the periodic statement alternative 
in final Sec.  1005.18(c)(1) must disclose the amount of any fees 
assessed against the account, whether for EFTs or otherwise, on the 
electronic history of the consumer's account transactions made 
available pursuant to final Sec.  1005.18(c)(1)(ii) and any written 
history of the consumer's account transactions provided pursuant to 
final Sec.  1005.18(c)(1)(iii).
    The Bureau sought comment on whether any other specific protections 
of Regulation DD, which may not apply to prepaid accounts provided by 
financial institutions (as defined in Regulation E) that are not 
depository institutions (as defined in Regulation DD), could be 
addressed for all prepaid accounts to ensure consistent protections for 
prepaid accounts regardless of who is providing the account. The Bureau 
received no comments on this issue and the Bureau is making no 
additional changes to final Sec.  1005.18(c)(4) other than those 
discussed herein.
18(c)(5) Summary Totals of Fees
The Bureau's Proposal
    Proposed Sec.  1005.18(c)(4) would have required financial 
institutions to provide a summary total of the amount of all fees 
assessed against the consumer's prepaid account, the total amount of 
all deposits to the account, and the total amount of all debits from 
the account, for the prior calendar month and for the calendar year to 
date. This information would have been disclosed on any periodic 
statement provided pursuant to Sec.  1005.9(b), in any electronic 
history of account transactions whether provided pursuant to proposed 
Sec.  1005.18(c)(1)(ii) or otherwise, and on any written history of 
account transactions provided pursuant to proposed Sec.  
1005.18(c)(1)(iii). The Bureau's proposed summary total of fees 
requirement was similar to the requirement to disclose fees and 
interest in open-end credit plans under Regulation Z.\482\
---------------------------------------------------------------------------

    \482\ See Regulation Z Sec.  1026.7(b)(6).
---------------------------------------------------------------------------

    Proposed comment 18(c)-5 would have explained that if a financial 
institution provides periodic statements pursuant to Sec.  1005.9(b), 
the total fees, deposits, and debits may be disclosed for each 
statement period rather than for each calendar month, if different. 
Proposed comment 18(c)-5 would have also explained that the fees that 
must be included in the summary total include those that are required 
to be disclosed pursuant to proposed Sec.  1005.18(b)(2)(ii)(A). For 
example, an institution would have been required to include the fee it 
charges a consumer for using an out-of-network ATM in the summary total 
of fees, but it would not have been required to include any fee charged 
by an ATM operator with whom the institution has no relationship for 
the consumer's use of that operator's ATM.
    In addition, proposed comment 18(c)-5 would have explained that the 
summary total of fees should be net of any fee reversals and that the 
total amount of all debits from the account should be exclusive of fees 
assessed against the account. Finally, proposed comment 18(c)-5 would 
have explained that the total deposits and total debits

[[Page 84102]]

must include all deposits to and debits from the prepaid account, not 
just those deposits and debits that are the result of EFTs.
Comments Received
    The Bureau received comments from several consumer groups, who 
supported this portion of the proposal and argued that setting apart 
monthly and year-to-date fee totals would help consumers understand the 
costs associated with their accounts and how to minimize fees. These 
commenters stated that financial institutions should also be required 
to include a statement that indicates actions consumers can take to 
lower their fees, such as using network ATMs.
    Several industry groups, including program managers, issuing banks, 
credit unions, and a trade association generally supported this portion 
of the proposal and the goal of providing consumers access to 
information needed to manage their prepaid accounts, but cautioned that 
implementing the requirement as proposed would require more time than 
the proposed nine-month compliance period and would require costly 
system updates. For example, a credit union explained that the proposed 
summary total of fees requirement would be complex and burdensome for a 
financial institution that houses its data with a third-party processor 
and stated that retrieving the data to perform the analysis would be 
costly. In addition, an issuing bank explained that the proposal would 
require changes to the prepaid account processing infrastructure design 
and stated that those changes would be inconsistent with how statements 
are calculated for checking and other consumer asset accounts that tend 
to share the same processing infrastructure. A government benefits card 
program manager argued that, because the summary totals requirement 
would take significant time and investments to implement, the Bureau 
should exempt government benefit accounts from this aspect of the 
proposal. A program manager argued that the summary totals requirement 
would not be appropriate for non-reloadable products. A program manager 
requested that, for financial institutions that do not have the data to 
calculate the summary totals as of the final rule's effective date, the 
requirement be implemented on a going-forward basis only.
    Regarding the proposed requirement to disclose the summary totals 
of fees specifically, these commenters stated that they recognize the 
value in providing aggregated fees paid over time and therefore support 
the overall goal the Bureau seeks to achieve by including this 
provision. However, several industry commenters, including program 
managers and issuing banks, urged the Bureau to require financial 
institutions to include in the summary totals of fees only fees that 
are discernible to the financial institution. These commenters 
explained that a transaction that includes a third-party fee, such as 
an out-of-network ATM fee, may not separate the fee portion from the 
total amount and therefore determining the fee amounts for each 
consumer would be costly and burdensome. These commenters also stated 
that financial institutions cannot provide details about or accurately 
disclose those fees. An issuing bank stated that a financial 
institution also cannot determine whether a fee was waived due to the 
consumer's relationship with the third party. One consumer group 
argued, however, that financial institutions can determine the amounts 
of third-party fees. This commenter explained that, if a consumer 
withdraws $40 in cash from an ATM that charges a $2.50 out-of-network 
fee, the withdrawal will appear as $42.50, and the financial 
institution would be able to discern the $2.50 third-party fee. A 
payroll card program manager requested that the Bureau allow financial 
institutions to provide a form disclaimer regarding fees that are 
outside of the financial institution's control or an example showing 
consumers when such fees may occur. Another program manager requested 
that the Bureau allow financial institutions to distinguish fees for 
using a prepaid account (such as per transaction fees), optional fees, 
and third-party fees.
    Several industry commenters also suggested other modifications to 
this aspect of the proposal, which they believed would minimize the 
costs and burdens to industry. For example, a credit union requested 
that financial institutions not be required to provide paper statements 
displaying the summary totals of fees and argued that displaying fees 
on electronic statements is sufficient and the most appropriate way to 
communicate with consumers. Another credit union and a program manager 
requested that the year-to-date calculation be eliminated. The credit 
union argued that consumers usually find year-to-date totals confusing 
and can instead calculate their own totals using the information 
available online. On the other hand, another program manager argued 
that that the proposed summary by calendar month is overly proscriptive 
and inconsistent with consumer usage and preference. This commenter 
explained that the transaction history begins on the date of the first 
transaction (not the first day of the month) and continues until the 
account is closed or becomes inactive for a period of time.
    One issuing bank opposed this portion of the proposal altogether, 
arguing that providing summary totals of fees would not help consumers 
understand how to limit such fees, unless the summary distinguishes 
behavior-based fees (i.e., fees that apply to certain conduct engaged 
in by the accountholder, such as out-of-network ATM fees) from service-
based fees (i.e., fees that apply to all accountholders without regard 
to conduct, such as monthly fees). This commenter also requested, if 
the Bureau decides to finalize this portion of the proposal, that the 
Bureau clarify definitions for the terms fee, deposit, and debit.
The Final Rule
    For the reasons set forth herein, the Bureau is finalizing proposed 
Sec.  1005.18(c)(4), renumbered as Sec.  1005.18(c)(5), with 
modifications as described below. To further the purposes of EFTA to 
provide a framework to establish the rights, liabilities, and 
responsibilities of prepaid account consumers, the Bureau believes it 
is necessary and proper to exercise its authority under EFTA section 
904(c) to modify the periodic statement requirements of EFTA section 
906(c) to require a summary total of both monthly and annual fees. 
These proposed revisions will assist consumers' understanding of their 
prepaid account activity. In addition, the Bureau is also using its 
disclosure authority pursuant to section 1032(a) of the Dodd-Frank Act 
because the Bureau believes that disclosure of these summary totals of 
fees will help ensure that the features of prepaid accounts, over the 
term of the product or service, are fully, accurately, and effectively 
disclosed to consumers in a manner that permits consumers to understand 
the costs, benefits, and risks associated with prepaid accounts.
    The Bureau is finalizing the requirement that financial 
institutions provide the summary totals of the amount of all fees 
assessed by the financial institution against the consumer's prepaid 
account for the prior calendar month and for the calendar year to date. 
The Bureau has removed the requirement that financial institutions 
provide summary totals of all deposits to and debits from a

[[Page 84103]]

consumer's prepaid account from the final rule.
    The Bureau believes the final rule will provide consumers important 
information for better understanding and managing their prepaid 
accounts. The Bureau agrees with commenters that displaying the summary 
totals of fees is valuable to consumers and believes the requirement 
will be an important consumer education and money management tool that 
will help consumers understand the actual costs of using their prepaid 
accounts. The Bureau believes that this requirement will be beneficial 
to consumers of all prepaid accounts, including government benefit 
accounts, and is therefore not exempting any accounts from this 
requirement. The Bureau is not, however, requiring financial 
institutions to include a statement that indicates actions consumers 
can take to lower their fees, as requested by consumer group 
commenters. The Bureau does not believe such a requirement justifies 
the additional costs to financial institutions at this time. However, 
the Bureau believes it is beneficial for financial institution to 
educate and inform consumers on how to avoid fees, as many do 
currently. The Bureau will continue to monitor industry practice and 
may revisit this issue at a later time.
    The Bureau believes that not requiring financial institutions to 
provide the summary totals of all deposits to and debits from a prepaid 
account will not harm consumers. The Bureau believes that consumers 
likely know how much money is deposited into and debited out of their 
accounts and can easily calculate this information by using the data 
from their transaction history and account balance. In addition, the 
Bureau believes that the modification to limit the summary totals 
requirement to fees only and the modifications to the rule's effective 
date discussed below addresses industry commenters' concerns about not 
having sufficient time to implement the requirement.
    The Bureau is finalizing the proposed portion of Sec.  
1005.18(c)(4) (renumbered as Sec.  1005.18(c)(5)) that requires the 
summary totals of fees to appear on any periodic statement for a 
prepaid account provided pursuant to Sec.  1005.9(b) and on any history 
of account transactions provided or made available by the financial 
institution pursuant to final Sec.  1005.18(c)(1)(ii) and (iii). As 
discussed in the section-by-section analysis of Sec.  1005.18(c)(1) 
above, consumers value receiving information about their accounts in 
both electronic and paper forms. The Bureau believes that it is 
important for consumers to have access to summary totals of fees for 
their accounts regardless of the method by which they access their 
account information.
    The Bureau is not requiring that third-party fees, such as out-of-
network ATM fees and cash reload fees, be included in the summary 
totals. Final Sec.  1005.18(c)(5) provides, in part, that the summary 
totals consist of fees assessed by the financial institution against 
the consumer's account, as explained further in comment 18(c)-8.ii, 
discussed below. The Bureau agrees with industry commenters that, even 
if financial institutions can determine whether third-party fees were 
assessed against a prepaid account, requiring them to extract details 
about such fees could be problematic for financial institutions, 
especially for transactions that involve foreign currency conversion 
calculations. The Bureau notes that third-party cash reload fees do not 
need to be included in the summary totals of fees. This is different 
from how cash reload fees are treated in the pre-acquisition 
disclosures context, where financial institutions must include third-
party cash reload fees on the short form disclosure.\483\
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    \483\ See final Sec.  1005.18(b)(2)(iv); see also final Sec.  
1005.18(b)(3)(v).
---------------------------------------------------------------------------

    Regarding a program manager's request to permit financial 
institutions to distinguish fees in the fee totals, noted above, the 
Bureau agrees that allowing some flexibility in how financial 
institutions display summary totals of fees may be beneficial to 
consumers. The Bureau has clarified in comment 18(c)-9, discussed 
below, that financial institutions may also include sub-totals of the 
types of fees that make up the summary totals of fees. The Bureau 
reminds financial institutions that all disclosures should be clear and 
readily understandable as required by Sec.  1005.4(a), including the 
summary totals of fees pursuant to final Sec.  1005.18(c)(5) and any 
sub-totals thereof.
    Regarding industry commenters' concerns about the proposed nine-
month effective date, final Sec.  1005.18(h)(1) imposes a general 
effective date of October 1, 2017 for this final rule. However, final 
Sec.  1005.18(h)(3)(ii) provides an accommodation for financial 
institutions that do not have readily accessible the data necessary to 
calculate the summary totals of fees pursuant to final Sec.  
1005.18(c)(5) on October 1, 2017. Specifically, in that case, the 
financial institution may provide the summary totals using the data it 
has until the financial institution has accumulated the data necessary 
to display the summary totals as required by final Sec.  1005.18(c)(5). 
See the section-by-section analysis of Sec.  1005.18(h) below for 
additional discussion regarding the final rule's effective date and 
related accommodations.
    The Bureau has modified proposed comment 18(c)-5, renumbered as 
comment 18(c)-8, to reflect the revision to the regulatory text 
discussed above, and to make several modifications for clarity. Also, 
for clarity, the Bureau has divided this comment into two parts: Final 
comment 18(c)-8.i explains the summary totals of fees requirement 
generally and final comment 18(c)-8.ii clarifies the requirements 
regarding third-party fees. Specifically, final comment 18(c)-8.i 
explains that a financial institution that furnishes a periodic 
statement pursuant to Sec.  1005.9(b) for a prepaid account must 
display the monthly and annual fee totals on the periodic statement, as 
well as on any electronic or written account transaction history the 
financial institution makes available or provides to the consumer. For 
example, if a financial institution sends periodic statements and also 
makes available the consumer's electronic account transaction history 
on its Web site, the financial institution must display the monthly and 
annual fee totals on the periodic statement and on the consumer's 
electronic account transaction history made available on its Web site. 
Likewise, a financial institution that follows the periodic statement 
alternative in final Sec.  1005.18(c)(1) must display the monthly and 
annual fee totals on the electronic history of the consumer's account 
transactions made available pursuant to final Sec.  1005.18(c)(1)(ii) 
and any written history of the consumer's account transactions provided 
pursuant to final Sec.  1005.18(c)(1)(iii). In addition, this comment 
clarifies that, if a financial institution provides periodic statements 
pursuant to Sec.  1005.9(b), fee totals may be disclosed for each 
statement period rather than each calendar month, if different. This 
comment also clarifies that the summary totals of fees should be net of 
any fee reversals.
    Final comment 18(c)-8.ii clarifies that a financial institution 
may, but is not required to, include third-party fees in its summary 
totals of fees provided pursuant to final Sec.  1005.18(c)(5). For 
example, a financial institution must include in the summary totals of 
fees the fee it charges a consumer for using an out-of-network ATM, but 
it need not include any fee charged by an ATM operator, with whom the 
financial institution has no relationship, for the consumer's use of 
that operator's ATM.

[[Page 84104]]

Similarly, a financial institution need not include in the summary 
totals of fees the fee charged by a third-party reload network for the 
service of adding cash to a prepaid account at a point-of-sale 
terminal.
    The Bureau is also adopting new comment 18(c)-9 to clarify that a 
financial institution may, but is not required to, also include sub-
totals of the types of fees that make up the summary totals of fees as 
required by final Sec.  1005.18(c)(5). For example, if a financial 
institution distinguishes optional fees (e.g., custom card design fees) 
from fees to use the account, in displaying the summary totals of fees, 
the financial institution may include sub-totals of those fees, 
provided the financial institution also presents the combined totals of 
all fees.
18(d) Modified Disclosure Requirements
    The Bureau proposed to extend the requirements in existing Sec.  
1005.18(c)(1) related to initial disclosures regarding access to 
account information and error resolution, and in existing Sec.  
1005.18(c)(2) regarding annual error resolution notices, to all prepaid 
accounts. The Bureau proposed to renumber existing Sec.  1005.18(c)(1) 
and (2) as Sec.  1005.18(d)(1) and (2) for organizational purposes and 
to separate the modified requirements related to disclosures in 
existing Sec.  1005.18(c)(1) and (2) from the modifications for 
limitations on liability and error resolution requirements in existing 
Sec.  1005.18(c)(3) and (4).
    EFTA section 905(a)(7) requires financial institutions to provide 
consumers with an annual error resolution notice. The annual error 
resolution notice provision for payroll card accounts in existing Sec.  
1005.18(c)(2) permits a financial institution, in lieu of providing an 
annual notice concerning error resolution, to include an abbreviated 
error resolution notice on or with each electronic and written history 
provided in accordance with existing Sec.  1005.18(b)(1). Financial 
institutions providing periodic statements are similarly permitted to 
provide an abbreviated error resolution notice on or with each periodic 
statement pursuant to Sec.  1005.8(b). In preparing the proposal, the 
Bureau considered limiting the requirement to provide annual error 
resolution notices to only active and registered prepaid accounts, but 
given this existing alternative for providing an abbreviated notice 
with electronic and written history, the Bureau did not believe such a 
modification was necessary.
    The Bureau requested comment on the application of these provisions 
for initial disclosures regarding access to account information and 
error resolution, and annual error resolution notices, to all prepaid 
accounts. Specifically, the Bureau sought comment on whether financial 
institutions would face particular challenges in providing annual error 
resolution notices to all prepaid consumers, as well as whether it 
should have required that annual error resolution notices be sent for 
prepaid accounts in certain circumstances, such as those accounts for 
which a consumer has not accessed an electronic history or requested in 
written history in an entire calendar year and thus would not have 
received any error resolution notice during the course of the year.
    Few commenters submitted feedback on this portion of the proposal. 
An issuing bank urged the Bureau to shorten the written error 
resolution notice it would be required to provide consumers by proposed 
Sec.  1005.18(d)(1)(ii), and to permit financial institutions to post 
the complete notice electronically instead of providing it in writing. 
The commenter argued that the initial disclosures were generally too 
lengthy, potentially leading to consumer inattention and confusion. A 
consumer group commenter similarly urged the Bureau to simplify the 
notice and require that it be distributed as a separate, stand-alone 
form.
    With respect to the annual error resolution notice and the 
alternative in proposed Sec.  1005.18(d)(2), several industry 
commenters, including trade associations, a program manager, and a 
payment processor, argued that the Bureau should eliminate the annual 
error resolution requirement, or narrow it to only apply to active and/
or registered prepaid accountholders. These commenters argued that 
consumers do not want to receive unsolicited paper notices. A trade 
association representing credit unions argued that both the annual and 
periodic notices were unnecessary since the terms of these notices 
remain static from year to year and could more simply be incorporated 
into the cardholder agreement. A consumer group commenter argued by 
contrast that the Bureau should retain a requirement to provide a 
written annual notice for dormant accounts.
    For the reasons set forth herein, the Bureau is finalizing Sec.  
1005.18(d) as proposed, with minor revisions for clarity and 
consistency. To further the purposes of EFTA to provide a framework to 
establish the rights, liabilities, and responsibilities of prepaid 
account users, the Bureau believes it is necessary and proper to 
exercise its authority under EFTA section 904(c) to adopt an adjustment 
to the error resolution notice requirement of EFTA section 905(a)(7), 
to permit notices for prepaid accounts as described in final Sec.  
1005.18(d)(2), in order to facilitate compliance with error resolution 
requirements.
    The Bureau has considered the modifications suggested by commenters 
but declines to adopt tailored requirements for how and when financial 
institutions must disclose information about consumers' rights related 
to error resolution, limited liability, and access to account 
information for prepaid accounts. The Bureau continues to believe that 
it is appropriate to apply to all prepaid accounts the account access 
and error resolution disclosure requirements that currently apply to 
payroll card accounts. The Bureau believes that the existing regime 
strikes an appropriate balance by providing consumers with enough 
information to know about and exercise their rights without 
overwhelming them with more information than they can process or put to 
use.
18(e) Modified Limitations on Liability and Error Resolution 
Requirements
    EFTA section 908 governs the timing and other requirements for 
consumers and financial institutions pertaining to error resolution, 
including provisional credit. EFTA section 909 governs consumer 
liability for unauthorized EFTs. The Bureau proposed to extend to all 
prepaid accounts the Payroll Card Rule's limited liability provisions 
and error resolution provisions, including provisional credit. The 
Bureau also proposed to reorganize existing Sec.  1005.18(c)(3) and (4) 
into proposed Sec.  1005.18(e)(1) and (2) and to revise the paragraph 
headings for proposed Sec.  1005.18(e), (e)(1) and (e)(2). Similar to 
the reorganization of existing Sec.  1005.18(c)(1) and (2) above into 
final Sec.  1005.18(d)(1) and (2), these changes were proposed to 
simplify the organization of proposed Sec.  1005.18 generally and to 
separate the modified requirements related to limited liability and 
error resolution from other modifications made for prepaid accounts.
    As discussed in detail in the section-by-section analyses of Sec.  
1005.18(e)(1), (2), and (3) below, the Bureau proposed to modify 
Regulation E's limited liability and error resolution timing 
requirements for prepaid accounts to accommodate how account 
information

[[Page 84105]]

would be delivered by financial institutions choosing to follow the 
periodic statement alternative in proposed Sec.  1005.18(c)(1), 
discussed above, and to except unverified prepaid accounts from the 
limited liability and error resolution requirements.
18(e)(1) Modified Limitations on Liability Requirements
    EFTA section 909 addresses consumer liability and is implemented in 
Sec.  1005.6. For accounts under Regulation E generally, including 
payroll card accounts and government benefit accounts, Sec.  1005.6(a) 
provides that a consumer may be held liable for an unauthorized EFT 
resulting from the loss or theft of an access device only if the 
financial institution has provided certain required disclosures and 
other conditions are met.\484\ Pursuant to Sec.  1005.6(b)(1), if the 
consumer provides timely notice to the financial institution within two 
business days of learning of the loss or theft of the access device, 
the consumer's liability is the lesser of $50 or the amount of 
unauthorized transfers made before giving notice. Pursuant to Sec.  
1005.6, if timely notice is not given, the consumer's liability is the 
lesser of $500 or the sum of (1) the lesser of $50 or the amount of 
unauthorized transfers occurring within two business days of learning 
of the loss/theft and (2) the amount of unauthorized transfers that 
occur after two business days but before notice is given to the 
financial institution. Section 1005.6(b)(3) provides, in part, that a 
consumer must report an unauthorized EFT that appears on a periodic 
statement within 60 days of the financial institution's transmittal of 
the statement in order to avoid liability for subsequent transfers.
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    \484\ The required disclosures for this purpose include a 
summary of the consumer's liability under Sec.  1005.6, or under 
State law or other applicable law or agreement, for unauthorized 
EFTs; the telephone number and address of the person or office to be 
notified when the consumer believes an unauthorized transfer has 
been or may be made; and the financial institution's business days. 
See Sec. Sec.  1005.6(a) and 1005.7(b)(1) through (3).
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    Existing Sec.  1005.18(c)(3)(i) provides that, for payroll card 
accounts following the periodic statement alternative in existing Sec.  
1005.18(b), the 60-day period in Sec.  1005.6(b)(3) for reporting 
unauthorized transfers begins on the earlier of (1) the date the 
consumer electronically accesses his account under Sec.  
1005.18(b)(1)(ii), provided that the electronic history made available 
to the consumer reflects the transfer, or (2) the date the financial 
institution sends a written history of the consumer's account 
transactions requested by the consumer under Sec.  1005.18(b)(1)(iii) 
in which the unauthorized transfer is first reflected. Alternatively, 
existing Sec.  1005.18(c)(3)(ii) provides that a financial institution 
may comply with the requirements of Sec.  1005.18(c)(3)(i) by limiting 
a consumer's liability for an unauthorized transfer as provided under 
Sec.  1005.6(b)(3) for any transfer reported by the consumer within 120 
days after the transfer was credited or debited to the consumer's 
account. The Bureau notes that this provision only modifies the 60-day 
period for consumers to report an unauthorized transfer and does not 
alter any other provision of Sec.  1005.6.
    The Bureau proposed to extend to all prepaid accounts the existing 
limited liability provisions of Regulation E with modifications to 
certain timing requirements for financial institutions following the 
periodic statement alternative in proposed Sec.  1005.18(c)(1).\485\ 
The text of proposed Sec.  1005.18(e)(1) featured certain minor 
modifications for consistency but otherwise was unchanged from existing 
Sec.  1005.18(c)(3).
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    \485\ The Bureau proposed an additional modification in Sec.  
1005.18(e)(3), discussed below, to provide an exception to the 
requirement to provide limited liability protection when a financial 
institution had not completed collection of consumer identifying 
information and identity verification for a prepaid account, 
assuming notice of the risk of not registering the prepaid account 
had been provided to the consumer.
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    Several consumer groups urged the Bureau to harmonize the liability 
limitations provided under Regulation E with those provided in 
Regulation Z for credit cards. Under Regulation Z Sec.  1026.12(b), a 
cardholder's liability for an unauthorized transfer cannot exceed $50; 
the payment networks' dispute rules, which apply to network-branded 
prepaid cards, generally apply the Regulation Z limitations on 
liability. The commenters argued that it is confusing to have different 
liability limitation amounts potentially apply to a transaction on the 
same card. The commenters argued that the limitation amounts in 
Regulation E should be reduced to $50, in line with the limitation 
amounts in Regulation Z.
    The Bureau is adopting Sec.  1005.18(e)(1) as proposed, with minor 
revisions for clarity and consistency. To further the purposes of EFTA 
to provide a framework to establish the rights, liabilities, and 
responsibilities of prepaid account users and to facilitate compliance 
with its provisions, the Bureau believes it is necessary and proper to 
exercise its authority under EFTA 904(c) to modify the timing 
requirements of EFTA 909(a). In addition, the Bureau has considered the 
modifications suggested by commenters, but declines to revise the 
liability limitations for prepaid accounts set forth in Sec.  
1005.18(e)(1). The dollar amount a consumer may be liable for an 
unauthorized transfer is specified by statute in EFTA section 909(a)(1) 
and (2). These limitations already apply to payroll card accounts and 
government benefit accounts. The Bureau is not persuaded that the 
process of identifying or resolving errors with respect to prepaid 
accounts is sufficiently different from the process applied with 
respect to payroll card accounts or government benefit accounts to 
warrant a separate limited liability regime. Further, the Bureau 
believes that adopting a different limited liability regime for prepaid 
accounts than the regime currently in existence accounts generally 
under Regulation E would require many financial institutions to change 
their practices, since, as the Bureau noted in the proposal, the vast 
majority of programs reviewed in the Bureau's Study of Prepaid Account 
Agreements already limit consumer liability in accordance with existing 
Regulation E provisions.\486\
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    \486\ The Bureau found in its Study of Prepaid Account 
Agreements that 87.44 percent of agreements for GPR card programs 
and 64.28 percent of all other programs' agreements provided full 
limited liability protections to consumers. See Study of Prepaid 
Account Agreements at 16 tbl.4. Similarly, CFSI found in its 2014 
study of the prepaid industry that all 18 programs in its review 
(representing an estimated 90 percent of the GPR card marketplace) 
had adopted the Payroll Card Rule's version of Regulation E error 
resolution and limited liability protections. See 2014 CFSI 
Scorecard at 12.
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18(e)(2) Modified Error Resolution Requirements
Overview of Existing Requirements
    EFTA section 908 governs the timing and other requirements for 
consumers and financial institutions on error resolution, including 
provisional credit, and is implemented for accounts under Regulation E 
generally, including payroll card accounts and government benefit 
accounts, in Sec.  1005.11. Specifically, Sec.  1005.11(c)(1) and 
(3)(i) requires that a financial institution, after receiving notice 
that a consumer believes an EFT from the consumer's account was not 
authorized, must investigate promptly and determine whether an error 
occurred (i.e., whether the transfer was unauthorized), within 10 
business days (20 business days if the EFT occurred within 30 days of 
the first deposit to the account). Upon completion of the 
investigation, the financial institution must report the 
investigation's results to the consumer

[[Page 84106]]

within three business days. After determining that an error occurred, 
the financial institution must correct an error within one business 
day.\487\ Under EFTA section 909(b), the burden of proof is on the 
financial institution to show that an alleged error was in fact an 
authorized transaction; if the financial institution cannot establish 
proof of valid authorization, the financial institution must credit the 
consumer's account.
---------------------------------------------------------------------------

    \487\ See Sec.  1005.11(c)(1).
---------------------------------------------------------------------------

    Existing Sec.  1005.11(c)(2) provides that if the financial 
institution is unable to complete the investigation within 10 business 
days, its investigation may take up to 45 days if it provisionally 
credits the amount of the alleged error back to the consumer's account 
within 10 business days of receiving the error notice.\488\ Pursuant to 
Sec.  1005.11(c)(2)(i)(A), provisional credit is not required if the 
financial institution requires but does not receive written 
confirmation within 10 business days of an oral notice by the consumer. 
Pursuant to Sec.  1005.11(d)(2), if the investigation establishes proof 
that the transaction was, in fact, authorized, the financial 
institution may reverse any provisional credit previously extended 
(assuming there are still available funds in the account).
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    \488\ The financial institution has 90 days (instead of 45) if 
the claimed unauthorized EFT was not initiated in a State, resulted 
from a point-of-sale debit card transaction, or occurred within 30 
days after the first deposit to the account was made. Sec.  
1005.11(c)(3)(ii).
---------------------------------------------------------------------------

    Existing Sec.  1005.18(c)(4) provides that, for payroll card 
accounts following the periodic statement alternative in existing Sec.  
1005.18(b), the period for reporting an unauthorized transaction is 
tied, in part, to the date the consumer electronically accesses the 
consumer's account pursuant to existing Sec.  1005.18(b)(1)(ii), 
provided that the electronic account history made available to the 
consumer reflects the alleged error, or the date the financial 
institution sends a written history of the consumer's account 
transactions requested by the consumer pursuant to existing Sec.  
1005.18(b)(1)(iii) in which the alleged error is first reflected. The 
Bureau notes that this provision only modifies the 60-day period for 
consumers to report an error and does not alter any other provision of 
Sec.  1005.11.
The Bureau's Proposal
    The Bureau proposed to extend to all prepaid accounts the error 
resolution provisions of Regulation E, including provisional credit, 
with modifications to the Sec.  1005.11 timing requirements in proposed 
Sec.  1005.18(e)(2) for financial institutions following the periodic 
statement alternative in proposed Sec.  1005.18(c)(1). The text of 
proposed Sec.  1005.18(e)(2) updated internal paragraph citations to 
reflect other numbering changes made in the proposal, but otherwise was 
unchanged from existing Sec.  1005.18(c)(4). Notably, as set forth in 
greater detail in the section-by-section analysis of Sec.  
1005.18(e)(3) below, the Bureau also proposed an exception to the 
requirement to provide limited liability and error resolution when a 
financial institution had not completed collection of consumer 
identifying information and identity verification for a prepaid 
account, assuming appropriate notice of the risk of not registering the 
prepaid account had been provided to the consumer. The Bureau proposed 
to extend to all prepaid accounts existing comment 18(c)-1 regarding 
the 120-day error resolution safe harbor provision, renumbered as 
comment 18(e)-1 and with the reference to payroll card accounts changed 
to prepaid accounts. The Bureau also proposed to extend existing 
comment 18(c)-2, regarding consumers electronically accessing their 
account history, to all prepaid accounts, renumbered as comment 18(e)-
2. In that proposed comment, the reference to payroll card account was 
changed to prepaid account, plus one substantive modification to 
clarify that access to account information via a mobile application, as 
well as through a web browser, would constitute electronic access to an 
account for purposes of the timing provisions in proposed Sec.  
1005.18(e)(1) and (2). The Bureau also proposed to add an additional 
sentence to the end of proposed comment 18(e)-2 to explain that a 
consumer would not be deemed to have accessed a prepaid account 
electronically when the consumer receives an automated text message or 
other automated account alert, or checks the account balance by 
telephone.
    The Bureau proposed to extend existing comment 18(c)-3, regarding 
untimely notice of error by a consumer, to all prepaid accounts, 
renumbered as comment 18(e)-3 and with internal paragraph citations 
updated to reflect other numbering changes made in the proposal. The 
last sentence of the existing comment currently provides that where the 
consumer's assertion of error involves an unauthorized EFT, the 
institution must comply with Sec.  1005.6 before it may impose any 
liability on the consumer. The Bureau proposed to specifically note 
that compliance with Sec.  1005.6 included compliance with the 
extension of time limits provided in Sec.  1005.6(b)(4).
Comments Received
    Most industry commenters and all consumer group commenters 
generally supported the proposal to extend to all prepaid accounts the 
error resolution provisions currently applicable to payroll card 
accounts. At the same time, several industry commenters argued that 
prepaid accounts may have a higher incidence of fraudulently asserted 
errors than other accounts covered by Regulation E for a number of 
reasons, including that prepaid accounts are often purchased 
anonymously; prepaid cards are easier to abandon and are more 
frequently abandoned by consumers who quickly spend down the balance 
and discard the card; and prepaid consumers may not have any other 
ongoing relationship with the issuing bank or program manager. 
Requiring financial institutions to provide error resolution rights to 
all prepaid accounts, they argued, would thus result in unsustainable 
fraud losses for industry, leading to market exit and rising consumer 
costs. These commenters did not, however, provide any data or 
particular details in support of their assertions. To avoid this 
result, these commenters urged the Bureau to limit the application of 
the error resolution provisions to prepaid accounts in certain 
respects.
    Several industry commenters, including issuing banks, program 
managers, a payment network, and an industry trade association, urged 
the Bureau not to require error resolution for certain types of prepaid 
accounts, such as reload packs or cards that cannot be reloaded.\489\ 
These commenters argued that these products are not transaction account 
substitutes, and as such should not receive the same protections as 
other accounts covered under Regulation E. In addition, the commenters 
argued that fraudulently asserted error claims are more likely to occur 
on non-reloadable cards, since the cards are mostly unregistered and 
used for a short period of time. The commenters also stated that the 
operating margins on these types of cards are slim and argued that, 
therefore, the costs of providing complete limited liability and error

[[Page 84107]]

resolution protections, including provisional credit, would outweigh 
any profits and thus force providers of such products to pass on costs 
to consumers or exit the market.
---------------------------------------------------------------------------

    \489\ Several industry commenters requested that the Bureau 
exempt all non-reloadable prepaid cards, including reload packs, 
from the definition of prepaid account in proposed Sec.  
1005.2(b)(3), thereby excluding such cards from all rule 
requirements, including error resolution and limited liability 
requirements. These comments are discussed in the section-by-section 
analysis of Sec.  1005.2(b)(3) above.
---------------------------------------------------------------------------

    Some industry commenters, including several issuing banks, a 
payment network, and a number of trade associations, expressed 
particular concern about the requirement to extend provisional credit 
to prepaid accounts. The issuing bank commenters confirmed that they 
currently extend provisional credit where appropriate for most types of 
prepaid accounts. These issuing banks and other industry commenters 
argued, however, that a mandate requiring them to extend provisional 
credit would increase their fraud-related costs by emboldening 
wrongdoers to submit more fraudulent error claims. The commenters urged 
the Bureau to take one of several approaches to limit the provisional 
credit requirement. One group of commenters, including several issuing 
banks and a trade association, suggested that the provisional credit 
requirement be limited to prepaid accounts held by consumers with whom 
the issuer has an ``ongoing relationship,'' as evidenced, for example, 
by repeated electronic deposits to the prepaid account. Another group 
of commenters, including an industry trade association and an issuing 
bank, urged the Bureau not to require provisional credit for accounts 
or transaction types that exhibit characteristics correlated with a 
heightened risk of fraud. Commenters suggested varied and at times 
inconsistent ideas about what these characteristics might be, ranging 
from, for example, the age of the account, how soon after account 
opening the alleged error occurred, or whether the transaction occurred 
at the point of sale or at an ATM.
    Commenters who recommended limiting provisional credit also argued 
that the aggregate amount of fraud losses related to provisional credit 
increases as the time period within which a financial institution must 
provide provisional credit decreases, and that 10 business days is not 
long enough to complete an investigation for errors asserted on prepaid 
accounts. Accordingly, a number of commenters urged the Bureau to 
extend the 10 business days permitted under Sec.  1005.11(c)(1) to 20 
business days for all prepaid accounts, and 30 business days for 
prepaid accounts held by consumers who do not have an ongoing 
relationship with the financial institution. Similarly, a payment 
network and a law firm writing on behalf of a coalition of prepaid 
issuers requested that financial institutions have flexibility to delay 
granting provisional credit beyond 10 business days where a factors-
based test indicated that there was a significant risk of loss related 
to the extension of provisional credit.
    Consumer advocates, by contrast, argued against rolling back the 
provisional crediting requirements. They noted that prepaid accounts 
are used in substantially similar ways as traditional consumer 
transaction accounts and thus should receive protections for funds lost 
due to unauthorized use in the same timeframe as other accounts covered 
by Regulation E. The commenters repeatedly emphasized how important 
provisional credit can be for consumers, noting that many consumers who 
use prepaid cards have limited liquid assets and may put a substantial 
portion of those assets into their prepaid accounts. Without 
provisional credit, in the event of an unauthorized transfer, a 
consumer could be without critical funds for the duration of the 
financial institution's investigation--up to 45 days, or 90 days in 
certain circumstances.
    Several consumer groups also commented on the timelines in proposed 
Sec.  1005.18(e)(2) governing when a consumer must report an 
unauthorized transfer in order to receive error resolution protections, 
arguing that the current regime is confusing. For example, they noted 
that the 120-day safe harbor in proposed Sec.  1005.18(e)(2)(ii) is not 
disclosed on the error resolution notice required by proposed Sec.  
1005.18(d)(1)(ii).\490\ Consumers may not be aware, therefore, that a 
different time limit applies to their prepaid account, and may believe 
their error was timely reported when in fact it was not, or they may 
fail to report an error that they believed was no longer timely when in 
fact it was. In addition, the commenters stated that many consumers do 
not receive paper statements and never access their account information 
online, so, they argued, a timeline that runs from the date they access 
their account information should not apply to them. For these reasons, 
the consumer groups urged the Bureau to adopt a single, uniform time 
limit of 120 days from the date the transaction was posted to the 
consumer's account. A number of trade associations representing credit 
unions also argued that the error resolution reporting timeline should 
run from the date the transaction was posted to the consumer's account, 
for the reason that the posting date is an objective and easily 
discernible point in time. These commenters, however, urged the Bureau 
to make the timeline a uniform 60 days from the date the transaction 
was posted.
---------------------------------------------------------------------------

    \490\ As discussed above, these provisions were proposed largely 
unchanged from existing Sec.  1005.18(c)(4)(ii) and (2), 
respectively. See also appendix A-7.
---------------------------------------------------------------------------

The Final Rule
    For the reasons set forth herein, the Bureau is finalizing Sec.  
1005.18(e)(2) and comments 18(e)-1, -2, and -3 largely as proposed, 
with minor revisions for clarity and consistency. To further the 
purposes of EFTA to provide a framework to establish the rights, 
liabilities, and responsibilities of prepaid account users and to 
facilitate compliance with its provisions, the Bureau believes it is 
necessary and proper to exercise its authority pursuant to EFTA section 
904(c) to modify the timing requirements of EFTA section 909(a).
    The Bureau has considered the comments regarding the implications 
of extending all of Regulation E's error resolution requirements to 
prepaid accounts. The Bureau acknowledged in the proposal that prepaid 
accounts might present unique fraud risks that other transaction 
accounts may not. The Bureau also acknowledges that these risks may be 
especially heightened with respect to prepaid accounts that have not 
been or cannot be registered or whose cardholder identity has not or 
cannot be verified. It was for these reasons that the Bureau proposed 
in Sec.  1005.18(e)(3) to exempt financial institutions from the 
requirement to provide limited liability or error resolution 
protections, including provisional credit, for accounts with respect to 
which the financial institution had not completed its consumer 
identification and verification process. The Bureau is finalizing a 
limited exemption as to provisional credit, as discussed in the 
section-by-section analysis of Sec.  1005.18(e)(3) below, but is not 
exempting financial institutions from the general requirement to 
provide limited liability and error resolution protections for such 
accounts.
    The Bureau is not persuaded by commenters that the unique risks 
posed by prepaid accounts warrant modifications to Regulation E's 
limited liability and error resolution regime beyond the final rule's 
accommodation for provisional credit on unverified accounts. Indeed, 
the Bureau understands that most prepaid issuers already provide error 
resolution with respect to most prepaid accounts, in compliance with 
the Payroll Card

[[Page 84108]]

Rule \491\ (though, as discussed in the section-by-section analysis of 
Sec.  1005.18(e)(3) below, the Bureau understands that most financial 
institutions do not provide provisional credit for accounts that cannot 
be registered). Indeed, in its Study of Prepaid Account Agreements, the 
Bureau found that across all agreements reviewed, 77.85 percent 
provided full error resolution with provisional credit protections; 
12.31 percent provided error resolution with limitations on provisional 
credit; 9.23 percent provided error resolution without provisional 
credit; and 0.62 provided no error resolution protections.\492\ The 
Bureau notes that industry commenters did not dispute the findings of 
the Bureau's Study nor did they provide any data or particular details 
in support of their premise that the Bureau's codification of their own 
existing practices would result in unsustainable fraud losses for the 
industry. The Bureau thus does not believe that modifications to 
Regulation E's limited liability and error resolution regime for all 
prepaid accounts is necessary, and in fact the Bureau has scaled back 
the exclusion for unverified accounts in proposed Sec.  1005.18(e)(3), 
discussed below.
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    \491\ As discussed above, the FMS Rule requires that the issuer 
of a prepaid card that receives a Federal payment must comply with 
the error resolution and provisional credit requirements for payroll 
cards accounts in Regulation E. See 31 CFR 210.5(b)(5). The Bureau 
understands that prepaid cards that receive Federal payments and, as 
discussed previously, by extension many other prepaid cards that are 
eligible to receive Federal payments if the consumer so chooses, 
already comply with these provisions. In addition, the Bureau notes 
that the four major payment card networks' rules all impose some 
form of zero liability protections for cardholders in certain 
circumstances. At least one network, for example, requires 
provisional credit to be given after five days for unauthorized 
transactions occurring over its network, unless certain exceptions 
apply.
    \492\ See Study of Prepaid Account Agreements at 13 tbl.3. 
Because these statistics weight all agreements equally, and thus do 
not reflect individual programs' or providers' market shares, the 
Bureau also specifically analyzed the 22 agreements for GPR card 
programs in the Study that belong to five of the largest program 
managers in the GPR card market. The Bureau found that 17 of these 
agreements provided full error resolution protections with 
provisional credit, three provided error resolution with limitations 
on provisional credit, and two provided error resolution without 
provisional credit. See id.
---------------------------------------------------------------------------

    The Bureau also declines to categorically exempt non-reloadable 
cards from the error resolution requirements, as some industry 
commenters had urged. The Bureau notes that non-reloadable cards can be 
used to disburse large sums of money to consumers. For example, prepaid 
accounts that are used to disburse insurance proceeds, tax refunds, or 
non-recurring employment benefits such as bonuses or termination 
payments are--or could be--non-reloadable. The funds held in such 
accounts may be particularly important to a consumer, who may have, for 
example, lost a home or a job; error resolution is especially critical 
for a consumer in that position who has been victimized by fraud. The 
Bureau does not anticipate that the requirement to provide error 
resolution rights to non-reloadable cards specifically should place a 
significant regulatory burden on industry.\493\
---------------------------------------------------------------------------

    \493\ Pursuant to final Sec.  1005.2(b)(3)(i)(D) and comment 
2(b)(3)(i)-8.v, an account whose only function is to make a one-time 
transfer of funds into a separate prepaid account, such as a reload 
pack, is excluded from the final rule. As such, the request to 
specifically exempt them from Sec.  1005.18(e) is moot.
---------------------------------------------------------------------------

    Likewise, the Bureau declines to exempt certain types of accounts 
or transactions from the requirement to provisionally credit a 
consumer's account in the event a financial institution takes longer 
than permitted by Sec.  1005.11(c)(1) (or Sec.  1005.11(c)(3)(i), as 
applicable) to investigate an error. The Bureau understands, as noted 
by consumer group commenters, that consumers who use prepaid accounts 
may have limited liquid assets and may place or hold a substantial 
portion of those assets in the prepaid account. Without provisional 
credit, in the event of an unauthorized transaction or other error, a 
consumer could be without access to those funds for as long as 90 days, 
a period of time that could cause a significant disruption to the 
consumer's household finances. In addition, the Bureau notes that there 
appears to be no industry consensus around the criteria the Bureau 
should use as a proxy for an account or transaction's relative 
riskiness for purposes of determining whether it should be excluded 
from the provisional credit requirements.\494\ Finally, although a 
significant proportion of industry comment letters voiced some 
opposition to the proposed provisional crediting requirements, the 
Bureau understands that most financial institutions are already 
providing error resolution, including provisional credit, for most 
prepaid accounts. Therefore, once again, the Bureau does not believe 
that requiring provisional credit for most prepaid account types should 
add significant additional costs or otherwise be problematic for 
industry.
---------------------------------------------------------------------------

    \494\ The Bureau recognized this issue in the proposal. In 
discussing potential alternatives to the proposed limited liability 
and error resolution regime, the Bureau considered and rejected 
several criteria for evaluating an account's riskiness, such as 
whether the account had been opened for a certain period of time or 
whether it received direct deposits, concluding that each had 
serious drawbacks. See 79 FR 77102, 77184 (Dec. 23, 2014).
---------------------------------------------------------------------------

    With respect to the suggestions that the Bureau extend the time 
periods that apply before a financial institution must extend 
provisional credit, the Bureau notes that, under both the proposal and 
the final rule, the 20-day time frame requested by some commenters 
already applies in some circumstances--specifically, financial 
institutions may take up to 20 business days to investigate errors 
asserted with respect to transfers that occurred within 30 days of the 
date of the first deposit into the account.\495\ In other words, new 
accounts, which some commenters indicated are more prone to fraudulent 
error claims, are already given a longer provisional crediting time 
frame under Regulation E.
---------------------------------------------------------------------------

    \495\ See Sec.  1005.11(c)(3)(i).
---------------------------------------------------------------------------

    With respect to the suggestion that financial institutions have 30 
business days to investigate errors before provisionally crediting the 
consumer's account, the Bureau notes that, depending on calendar 
timing, 30 business days could be nearly as long or longer than the 45 
calendar days financial institutions currently have to investigate 
claims when provisional credit is provided.\496\ Thus, a rule that 
extended the pre-provisional credit investigation period to 30 business 
days would in effect be doing away with the provisional credit 
requirement altogether for prepaid accounts. For the reasons stated 
above, the Bureau believes that provisional credit is an important 
consumer protection, especially for consumers who rely on a prepaid 
account as the primary means to store and transact with their funds. 
The Bureau declines to adjust the investigation time periods in such a 
way as to essentially obviate the provisional credit requirements for 
prepaid accounts. Finally, with respect to the time limits that apply 
to a consumer's timely reporting of an error, the Bureau also declines 
to revise the applicable limits as requested by some commenters. Again, 
the Bureau notes that the 60-day limit governing how long a consumer 
has to report an unauthorized transfer is set by statute in EFTA 
section 908(a). The Bureau did not intend to generally revise that 
timeline in this rulemaking.
---------------------------------------------------------------------------

    \496\ Depending on holiday schedules and other factors, 30 
business days could be longer than 45 calendar days. For example, 30 
business days from December 1, 2016 would end on January 17, 2017, 
whereas 45 calendar days from December 1, 2016 would end two days 
earlier, on January 15, 2017.
---------------------------------------------------------------------------

    The Bureau is adopting proposed comment 18(e)-3 with a revision to 
correct an existing scrivener's error.

[[Page 84109]]

That comment previously stated that financial institutions were not 
required to comply with the requirements of Sec.  1005.11 with respect 
to transfers that occurred more than 60 days prior to when a consumer 
accessed the account or the financial institution sent a written 
account history. This is a misstatement of existing Sec.  
1005.18(c)(4)(i)(A) and (B) (renumbered in this final rule as Sec.  
1005.18(e)(2)(i)(A) and (B)), which state that financial institutions 
must comply with Sec.  1005.11 with respect to notices of error 
received by the earlier of 60 days after the consumer accesses the 
account or 60 days after the financial institution sends a written 
history of the account upon the consumer's request.
18(e)(3) Error Resolution for Unverified Accounts
The Bureau's Proposal
    Proposed Sec.  1005.18(e)(3) would have provided that for prepaid 
accounts that are not payroll card accounts or government benefit 
accounts, if a financial institution disclosed to the consumer the 
risks of not registering a prepaid account using a notice that is 
substantially similar to the proposed notice contained in paragraph (c) 
of appendix A-7, a financial institution would not be required to 
comply with the liability limits and error resolution requirements 
under Sec. Sec.  1005.6 and 1005.11 for any prepaid account for which 
it has not completed its collection of consumer identifying information 
and identity verification.\497\ However, once the consumer's identity 
had been verified, a financial institution would have had to limit the 
consumer's liability for unauthorized EFTs and resolve any errors that 
occurred prior to verification subject to the timing requirements of 
existing Sec. Sec.  1005.6 or 1005.11, or the modified timing 
requirements in proposed Sec.  1005.18(e), as applicable.
---------------------------------------------------------------------------

    \497\ Relatedly, the Bureau proposed to require that financial 
institutions include on the short form disclosure for all prepaid 
accounts a statement emphasizing the importance of registering the 
prepaid account. See the section-by-section analysis of Sec.  
1005.18(b)(2)(xi) above.
---------------------------------------------------------------------------

    Proposed comment 18(e)-4 would have explained that for the purpose 
of compliance with proposed Sec.  1005.18(e)(3), consumer identifying 
information could include the consumer's full name, address, date of 
birth, and Social Security number or other government-issued 
identification number. The comment would have also explained that for 
an unauthorized transfer or an error asserted on a previously 
unverified prepaid account, whether a consumer has timely reported the 
unauthorized transfer or alleged error was based on the date the 
consumer contacted the financial institution to report the unauthorized 
transfer or alleged error, not the date the financial institution 
completed its customer identification and verification process. Comment 
18(e)-4 would have further explained that for an error asserted on a 
previously unverified prepaid account, the time limits for a financial 
institution's investigation of errors pursuant to Sec.  1005.11(c) 
began on the day following the date the financial institution completed 
its customer identification and verification process. A financial 
institution may not delay completing its customer identification and 
verification process, or refuse to verify a consumer's identity, based 
on the consumer's assertion of an error.
    The Bureau stated its understanding that financial institutions 
often conduct customer identification and verification at the onset of 
a relationship with a consumer, such as at the time a consumer signs up 
to receive wages via a payroll card account or when a consumer requests 
a GPR card online. For GPR cards purchased at retail stores, the 
financial institution may--but does not always--obtain customer-
identifying information and perform verification at the time the 
consumer calls or goes online to activate the card. Because of 
restrictions imposed by FinCEN's Prepaid Access Rule \498\ and the 
payment card networks' operating rules, among other things, the Bureau 
understood that customer identification and verification was almost 
always performed before a card can be reloaded, used to make cash 
withdrawals, or used to receive cash back at the point of sale. The 
Bureau believed that providers thus had an incentive to encourage 
consumers to register their cards to increase the functionality and 
thus the longevity of the consumer's use of the account.
---------------------------------------------------------------------------

    \498\ See 31 CFR 1022.210(d)(1)(iv).
---------------------------------------------------------------------------

    Collection of consumer identifying information and verification of 
identity under proposed Sec.  1005.18(e)(3) would have included 
information collected, and identities verified, by a financial 
institution directly as well as by a service provider or agent of the 
institution. Thus, the Bureau expected that financial institutions 
providing prepaid accounts for purposes such as student financial aid 
disbursements or property or casualty insurance payments would likely 
not be able to avail themselves of the exclusion in Sec.  1005.18(e)(3) 
because consumer identifying information was collected and consumers' 
identities verified by the financial institution, or a service provider 
or agent of the institution, prior to distribution of such prepaid 
accounts. The Bureau proposed to adopt the exemption for unverified 
accounts because it understood that a financial institution could face 
difficulties in determining whether an unauthorized transaction 
occurred if it did not know a prepaid accountholder's identity. For 
example, a financial institution could have a video recording provided 
by a merchant or ATM operator showing the card user, but without having 
identified the accountholder, it would have no way of knowing if the 
individual conducting the transaction is authorized to do so.
    The Bureau believed that financial institutions would follow the 
customer identification and verification requirements set forth in 
FinCEN's CIP requirements for banks in 31 CFR 1020.220 or for providers 
and sellers of prepaid access in 31 CFR 1022.210(d)(1)(iv). However, it 
sought comment on whether FinCEN's regulations, as discussed above, 
were the appropriate standard to use for identification and 
verification of prepaid accountholders, or whether some other standard 
should be used. Further, the Bureau anticipated that when a consumer 
called to assert an error on an unverified account, the financial 
institution would inform the consumer of its policy regarding error 
resolution on unverified accounts and would begin the customer 
identification and verification process at that time. As noted 
previously, the Bureau believed that providers had an incentive to 
encourage consumers to register their cards to increase the 
functionality and thus the longevity of the consumer's use of the 
account. However, the Bureau sought comment on the accuracy of this 
assumption, and on whether the Bureau should impose a time limit for 
completion of the customer identification and verification process.
Comments Received
    All consumer group commenters expressed support for the Bureau's 
decision to extend error resolution and limited liability protections 
to prepaid accounts. Several consumer group commenters detailed at 
great length the importance of providing consumers--especially 
consumers who may have a hard time making ends meet--with recourse if 
their accounts are subject to error or fraud. Thus, while a number of 
consumer groups expressed cautious support for the proposed limitation 
on protections for unregistered accounts, stating that they believed it 
struck a

[[Page 84110]]

good balance between protecting consumers and ensuring that the rule 
does not encourage additional fraudulent activity, a number of consumer 
groups urged the Bureau to revise proposed Sec.  1005.18(e)(3) to 
require complete limited liability and error resolution for additional 
account or transaction types. Specifically, one consumer group urged 
the Bureau to always require limited liability and error resolution 
where the consumer has a proof of purchase, while another consumer 
group urged the Bureau to always require the protections with respect 
to send-money transactions since, it asserted, innocent errors were 
more likely to occur with respect to that type of transaction. Two 
other consumer groups asked the Bureau to expand the exclusion of 
government benefit accounts and payroll card accounts in proposed Sec.  
1005.18(e)(3) to explicitly extend to other account types with respect 
to which the financial institution collects personally identifiable 
information in order to disburse the funds. For example, they noted 
that, for accounts such as those used to disburse student loans or 
insurance proceeds, the financial institution must collect personally 
identifiable information about the account recipient before 
distributing the access device. For such accounts, the financial 
institution has the information it needs to verify a consumer's 
identity, and as such, should not be eligible for the exemption from 
the requirement to provide limited liability and error resolution 
protections.
    In addition, two consumer groups expressed concern that the 
Bureau's decision to exempt unregistered accounts from the requirement 
to provide error resolution and limited liability protections would 
incentivize issuers to avoid registering accounts. They urged the 
Bureau to require registration for all prepaid accounts, arguing that, 
if registration were not a requirement, financial institutions may try 
to prevent consumers from registering, and then use the fact of an 
account's non-registration and verification as a pretext for not 
providing that account with complete limited liability and error 
resolution protections. Going further, a city government agency for 
consumer affairs objected to any limitation on protections for 
unregistered accounts, arguing that consumers who do not have a chance 
to register their accounts before becoming victims of fraud nonetheless 
deserve equal protections under Regulation E.
    Several industry commenters expressed support for the Bureau's 
approach in proposed Sec.  1005.18(e)(3) of not requiring limited 
liability or error resolution for accounts for which the financial 
institution had not completed its collection and verification of 
consumer identifying information. By contrast, there was significant 
industry opposition to the provision requiring that, once an account 
was registered and verified, financial institutions provide limited 
liability and error resolution rights, including provisional credit, 
for transactions that occurred prior to registration. One trade 
association stated that, for prepaid accounts for which customer 
identification and verification is attempted but cannot be completed, 
it would support those accounts receiving some error resolution 
protections pending completion of the process, but not provisional 
credit. Other commenters, including a number of trade associations, a 
program manager, and a payment processor, argued on the one hand that 
applying limited liability and error resolution provisions to pre-
registration errors would greatly increase fraud losses, since it was 
extremely difficult to investigate an error that occurred before the 
financial institution knew the identity of the cardholder. On the other 
hand, these commenters argued that requiring full limited liability and 
error resolution protections for pre-registration errors would not 
confer significant additional benefits on consumers since it was 
unlikely that an error or fraudulent transaction would occur prior to 
registration.
    A program manager and a credit union objected to proposed Sec.  
1005.18(e)(3) for slightly different reasons: They viewed it as a 
requirement that financial institutions conduct consumer identification 
and identity verification for all prepaid accounts. The program 
manager, which manages non-reloadable, non-registrable prepaid cards, 
among other products, argued that not only did the exemption require 
financial institutions to offer account registration, but it 
essentially obligated financial institutions to undertake a robust 
identity verification process with respect to each consumer. Otherwise, 
consumers could register their accounts with fake names and still be 
entitled to provisional credit. The Bureau's proposal, the commenter 
argued, would therefore extend an account registration requirement to 
accounts that are not currently required to perform such a process 
under FinCEN regulations, such as single-use or non-reloadable 
accounts. Such a change to industry practice, it argued, would 
necessitate major software and systems revisions at a great cost to 
financial institutions and their customers.
    With respect to the Bureau's request for comment on whether it 
should require financial institutions to adopt a specific standard for 
collecting and verifying a consumer's identity, several industry 
commenters, including program managers and a trade association, argued 
that financial institutions should retain discretion with respect to 
which registration standard they adopt. They argued further that, 
whereas the FinCEN standard is effective and should be deemed 
sufficient for purposes of analyzing whether the financial institution 
had adequate consumer identification procedures in place, it should not 
be adopted as the required standard because the goals underlying the 
FinCEN customer identification requirements--preventing money 
laundering--differ from those of the proposed rule. Another industry 
commenter disagreed, arguing that the Bureau should require a single 
uniform standard for consumer identification and verification, and that 
the FinCEN standard should be the standard adopted. According to this 
commenter, the FinCEN standard has been effective in monitoring and 
preventing fraud for other transaction account types, and as such 
should prove effective for screening the identities of prepaid 
accountholders as well.
The Final Rule
    For the reasons discussed herein, the Bureau is finalizing Sec.  
1005.18(e)(3) and related commentary with several substantive 
revisions. Specifically, the Bureau has revised the limitation on a 
financial institution's requirement to provide limited liability and 
error resolution protections for unregistered accounts. Under the final 
rule, financial institutions must provide limited liability and error 
resolution protections for all accounts, regardless of whether the 
financial institution has completed its consumer identification and 
verification process with respect to the account. However, for accounts 
with respect to which the financial institution has not completed its 
identification and verification process (or for which the financial 
institution has no process), the financial institution may take up to 
the maximum length of time permitted under Sec.  1005.11(c)(2)(i) or 
(3)(ii), as applicable, from receipt of a notice of error to 
investigate and determine whether an error occurred without 
provisionally crediting a consumer's account. The Bureau has made 
several changes to Sec.  1005.18(e)(3) and its commentary to conform 
the

[[Page 84111]]

proposed text to this revised formulation. In addition, it has added 
regulatory text and commentary, explained in more detail below, to 
address when a financial institution has completed its consumer 
identification and verification process, and to clarify that if, at the 
time the financial institution was required to provisionally credit an 
account, the financial institution had not yet completed its 
identification and verification process, the financial institution need 
not provisionally credit the account.
    To further the purposes of EFTA to provide a framework to establish 
the rights, liabilities, and responsibilities of prepaid account users 
and to facilitate compliance with its provisions, the Bureau believes 
it is necessary and proper to exercise its authority under EFTA section 
904(c) to finalize Sec.  1005.18(e)(3) with a modified limitation on 
financial institutions' requirement to provide limited liability and 
error resolution for accounts that have not completed the consumer 
identification and verification process.
    As explained in greater detail below, the Bureau is adopting Sec.  
1005.18(e)(3) revisions to clarify, in response to industry comments, 
that it is not requiring financial institutions to adopt a consumer 
identification and verification process for all prepaid accounts. 
Because it is concerned that this revision, on its own, would result in 
a class of un-registrable prepaid accounts that do not receive any 
limited liability or error resolution protections, however, the Bureau 
has also revised the scope of the exception in proposed Sec.  
1005.18(e)(3). Under the final rule, financial institutions must 
provide limited liability and error resolution protections for all 
accounts, regardless of whether the financial institution has completed 
its consumer identification and verification process with respect to 
the account. However, for accounts with respect to which the financial 
institution has not completed its identification and verification 
process (or for which the financial institution has no process), the 
financial institution may take up to the maximum length of time 
permitted under Sec.  1005.11(c)(2)(i) or (3)(ii), as applicable, from 
receipt of a notice of error to investigate and determine whether an 
error occurred without provisionally crediting a consumer's account.
    The Bureau agrees with commenters that the proposed rule left open 
the question of whether financial institution had to adopt a consumer 
identification and verification process, or whether certain prepaid 
account types that do not offer or require an account registration 
process could continue to allow their customers to use the cards 
anonymously. The Bureau believes that there are legitimate reasons a 
consumer may opt for a particular account type--such as certain non-
reloadable cards--that allows him or her to remain anonymous. 
Similarly, the Bureau is sensitive to industry's concerns that 
requiring financial institutions to adopt a consumer identification and 
verification regime where they previously did not have one would result 
in increased costs and, potentially, decreased consumer access to 
certain prepaid account products. Accordingly, the Bureau has declined 
to finalize a requirement that all prepaid accounts offer some sort of 
registration process.
    However, the Bureau is also concerned that financial institutions 
will choose not to offer registration or to delay completing 
registration as a way to avoid having to provide provisional credit. To 
that end, the Bureau is adopting new comment 18(e)-5, which provides an 
example of when a financial institution has not concluded the consumer 
identification and verification process with respect to a particular 
consumer: The example describes a financial institution that initiates 
the identification and verification process by collecting identifying 
information about a consumer and informing the consumer of the nature 
of the outstanding information, but, despite efforts to obtain 
additional information from the consumer, is unable to conclude the 
process because of conflicting information about the consumer. For the 
same reasons, the Bureau is finalizing a clarification in new comment 
18(e)-5 stating that a financial institution may not delay completing 
its customer identification and verification process or refuse to 
verify a consumer's identity based on a consumer's assertion of an 
error. The Bureau believes that, as stated above, financial 
institutions have an incentive to encourage consumers to register their 
accounts to increase the functionality and thus the longevity of 
consumers' use of their accounts.
    To clarify that it is not requiring financial institutions to adopt 
a consumer identification and verification process for prepaid 
accounts, the Bureau has finalized a provision that makes clear that 
financial institutions that do not offer a process by which a 
consumer's identifying information is collected and identity verified 
have not completed the consumer identification and verification process 
with respect to that account. As such, and as described in more 
specific detail below, with respect to such accounts that cannot be 
registered, the financial institution may avail itself of the limited 
exemption from the provisional credit requirements.
    The Bureau is concerned, however, that adding this clarification 
would expand the scope of the limited exemption in proposed Sec.  
1005.18(e)(3) in ways that would leave many vulnerable consumers 
unprotected. The Bureau agrees with the numerous consumer groups that 
emphasized the importance of limited liability and error resolution for 
prepaid consumers. In addition, while it is true that consumers may not 
generally use non-reloadable products as transaction account 
substitutes given that the funds will eventually be spent down in their 
entirety, the Bureau believes that extending protections to all broadly 
usable prepaid accounts is necessary to avoid consumer confusion as to 
what protections apply to similar accounts. Indeed, the Bureau notes 
that its testing showed that prepaid consumers currently expect prepaid 
products to be accompanied by protections for error or unauthorized 
use.\499\
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    \499\ See, e.g., ICF Report I at 10 (noting that ``When asked 
what would happen if there were a fraudulent or inaccurate charge on 
their prepaid account, most participants believed that their prepaid 
card provider would credit the funds to their account. This belief 
seemed to be based almost exclusively on prior experiences with 
prepaid card providers and other financial institutions, rather than 
an understanding of any legal protections that may or may not 
exist.'').
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    The Bureau is concerned, therefore, that Sec.  1005.18(e)(3), as 
revised by the clarification discussed above regarding un-registrable 
accounts, would leave such accounts without any limited liability and 
error resolution protections enforceable under Federal law during its 
entire existence, instead of only during the limited time before which 
a consumer registers his or her card. The Bureau did not intend to 
leave this entire class of prepaid accounts without such consumer 
protections. At the same time, as stated above, the Bureau acknowledges 
industry's concerns about the potential costs of having to extend 
provisional credit for accounts where the financial institution does 
not know and has not verified the consumer's identity.
    To balance these concerns, the Bureau has revised the proposed 
limitation on the requirement to provide limited liability and error 
resolution protections in proposed Sec.  1005.18(e)(3). Rather than 
limit the requirement to provide any limited liability and error 
resolution protections, the final rule only limits the requirement to 
extend provisional credit for accounts with respect to which the

[[Page 84112]]

financial institution has not completed its consumer identification and 
verification process. Thus, under new Sec.  1005.18(e)(3)(i), with 
respect to accounts other than payroll card or government benefit 
accounts, a financial institution may take up to the maximum length of 
time permitted under Sec.  1005.11(c)(2)(i) or (3)(ii), as applicable, 
from receipt of a notice of error to investigate and determine whether 
an error occurred without provisionally crediting a consumer's account 
if the financial institution has not completed its consumer 
identification and verification process with respect to that prepaid 
account. In effect, revised Sec.  1005.18(e)(3)(i) now operates as an 
additional exception to Sec.  1005.11(c)(2)(i), akin to existing Sec.  
1005.11(c)(2)(i)(A) and (B). As discussed above, the Bureau has added a 
new Sec.  1005.11(c)(2)(i)(C) to make that clear. The Bureau is 
likewise adding a reference to new Sec.  1005.11(c)(2)(i)(C) in Sec.  
1005.18(e)(3)(i) to clarify its operation.
    The Bureau believes this revision is necessary to ensure that all 
prepaid account consumers have some recourse when they experience an 
unauthorized or erroneous transfer. While the Bureau considered whether 
to require limited liability and error resolution for unregistered 
accounts only when the accounts cannot be registered, the Bureau 
believes it is preferable to treat all unregistered accounts uniformly. 
Once again, the Bureau also believes this approach will help reduce 
consumer confusion as to what protections apply to similar accounts, 
especially in light of the Bureau's observations that prepaid consumers 
currently expect prepaid products to be protected against unauthorized 
use and other errors. Furthermore, the Bureau understands that, by 
revising the proposed limitation on the requirement to provide limited 
liability and error resolution as described herein, the Bureau is 
aligning Sec.  1005.18(e)(3) with current industry practice. The Bureau 
believes the narrower limitation in revised Sec.  1005.18(e)(3)(i) 
addresses the majority of industry's concerns. Again, the Bureau 
understands that most prepaid issuers already offer limited liability 
and error resolution protections with respect to most account types 
they offer.\500\ Indeed, many issuing bank commenters confirmed that 
they provide some limited liability and error resolution protections--
but no provisional credit--for accounts that have not or cannot be 
registered. As such, the Bureau believes that the final rule generally 
reflects current industry practice and should not place a significant 
increased burden on financial institutions.
---------------------------------------------------------------------------

    \500\ See Study of Prepaid Account Agreements at 16 tbl.4; 2014 
CFSI Scorecard at 12.
---------------------------------------------------------------------------

    The Bureau is also revising the scope of the exclusion in Sec.  
1005.18(e)(3) beyond government benefit and payroll card accounts. As 
it noted in the proposal, the Bureau agrees with commenters that 
financial institutions providing prepaid accounts for purposes such as 
student financial aid disbursement or insurance payments should not be 
able to avail themselves of the exclusion in Sec.  1005.18(e)(3), 
because consumer identifying information is typically collected and 
verified by the financial institution or its service provider prior to 
or as part of the acquisition process for those accounts.\501\ In the 
proposal, the Bureau expressly excluded government benefit and payroll 
card accounts from Sec.  1005.18(e)(3) for a similar reason--that is, 
because it believed financial institutions often conduct the consumer 
identification and verification at the onset of the relationship with a 
government benefit or payroll card account customer.\502\ However, it 
did not expressly exclude from Sec.  1005.18(e)(3) other types of 
accounts that similarly collect and verify consumer information prior 
to or during the acquisition process. The Bureau is now finalizing 
commentary that clarifies that such accounts cannot avail themselves of 
Sec.  1005.18(e)(3).
---------------------------------------------------------------------------

    \501\ 79 FR 77102, 77185 (Dec. 23, 2014).
    \502\ Id. The Bureau also wanted to ensure that payroll card and 
government benefit accounts maintained the same level or limited 
liability and error resolution protections they had under existing 
Regulation E.
---------------------------------------------------------------------------

    Specifically, new comment 18(e)-6 states that a financial 
institution that collects and verifies consumer identifying 
information, or that obtains such information after it has been 
collected and verified by a third party, prior to or as part of the 
account acquisition process, is deemed to have completed its consumer 
identification and verification process with respect to that account. 
The reference to a third party collecting the verified information is 
intended to codify the Bureau's understanding, stated in the proposal, 
that collection and verification of information can be done by the 
financial institution directly, as well as by a service provider or 
agent of the institution. The comment provides an example of a 
financial institution that obtains from a university the identifying 
information necessary to disburse funds to students via the financial 
institution's prepaid account. Such a financial institution, the 
example states, would be deemed to have completed its consumer 
identification and verification process with respect to those students' 
accounts.
    Next, the Bureau believes that financial institutions should 
maintain discretion with respect to the type of consumer identification 
and verification process they adopt. As such, the Bureau is not 
finalizing a requirement that financial institutions adopt the FinCEN 
registration process, nor any other specific process for how to 
identify and verify an account, except that it is finalizing the 
guidance in proposed comment 18(e)-4 that consumer identifying 
information may include the consumer's full name, address, date of 
birth, and Social Security number, or other government-issued 
identification number. The Bureau notes, however, that on March 21, 
2016, the Board, the FDIC, the NCUA, the OCC, and FinCEN issued 
interagency guidance to clarify that the FinCEN registration 
requirements apply to the cardholders of general purpose prepaid cards 
that have the features of an account and are issued by a bank.\503\ 
Specifically, the guidance states that a general purpose prepaid card 
should be treated as an account if it provides a customer with the 
ability to reload funds or provides a consumer with access to credit or 
overdraft features.
---------------------------------------------------------------------------

    \503\ Bd. of Governors of the Fed. Reserve Sys., Fed. Deposit 
Ins. Corp., Nat'l Credit Union Admin., Office of the Comptroller of 
the Currency, Fin. Crimes Enforcement Network, Interagency Guidance 
to Issuing Banks Applying Customer Identification Program 
Requirements to Holders of Prepaid Cards (Mar. 21, 2016), available 
at https://www.federalreserve.gov/bankinforeg/srletters/sr1607.pdf.
---------------------------------------------------------------------------

    Instead of adopting a single standard for consumer registration, 
the Bureau is adopting several provisions and commentary to clarify 
when, for purposes of Sec.  1005.18(e)(3)(i), a financial institution 
can assert that it has not completed its consumer identification and 
verification process. Together, the new provisions are intended to make 
clear that a financial institution is only required to extend 
provisional credit for accounts where it actually knows and has 
verified the consumer's identity.
    Specifically, pursuant to new Sec.  1005.18(e)(3)(ii)(A), a 
financial institution has not completed its consumer identification and 
verification process where it has not concluded its consumer 
identification and verification process, provided the financial 
institution has disclosed to the consumer the risks of not registering 
the account using a notice that is substantially similar to the model 
notice contained in paragraph (c) of appendix

[[Page 84113]]

A-7. Next, new Sec.  1005.18(e)(3)(ii)(B) states that a financial 
institution has not completed the identification and verification 
process where it has concluded the process but could not verify the 
consumer's identity, again provided the financial institution has 
disclosed to the consumer the risks of not registering the account 
using a notice that is substantially similar to the model notice 
contained in paragraph (c) of appendix A-7. Although consumers will now 
receive limited liability and error resolution protections, except 
provisional credit, before their account is registered with the 
financial institution, the Bureau believes it is still important that 
consumers understand that their protections are more limited until they 
register their accounts. As such, the Bureau is still requiring 
financial institutions to provide a notice substantially similar to the 
model notice contained in paragraph (c) of appendix A-7 in order to 
qualify for Sec.  1005.18(e)(3)(ii)(A) and (B).\504\
---------------------------------------------------------------------------

    \504\ The Bureau has revised the content of the notice to 
reflect the revisions to Sec.  1005.18(e)(3) discussed herein. Those 
changes are discussed in the section-by-section analysis of appendix 
A-7 below.
---------------------------------------------------------------------------

    Finally, as stated earlier, new Sec.  1005.18(e)(3)(ii)(C) sets 
forth that a financial institution has not completed the process where 
the financial institution does not have a consumer identification and 
registration process by which the consumer can register the prepaid 
account. To qualify for this provision, a financial institution need 
not provide the notice in paragraph (c) of appendix A-7 since the 
consumer cannot register his or her card to obtain provisional credit 
protections. For the same reason, the Bureau has revised proposed 
comment 18(e)-4. The proposed comment would have recounted that 
proposed Sec.  1005.18(e)(3) provided that, in order to take advantage 
of the exception from the requirement to comply with the limited 
liability and error resolution requirements, a financial institution 
would have had to disclose to the consumer the risks of not registering 
a prepaid account using a notice substantially similar to paragraph (c) 
of appendix A-7. Since the requirement to provide the notice in 
paragraph (c) of appendix A-7 now appears in Sec.  1005.18(e)(3)(ii)(A) 
and (B), but not in Sec.  1005.18(e)(3)(ii)(C), the statement is no 
longer accurate, and as such has been removed.
    With respect to the requirement in proposed Sec.  1005.18(e)(3) 
that, once an account is verified, financial institutions must provide 
limited liability and error resolution protections for pre-verification 
errors, the Bureau has considered the comments objecting to this aspect 
of the proposal, but is finalizing the general approach in new Sec.  
1005.18(e)(3)(iii). To conform the proposed provision to the revisions 
discussed above (narrowing the scope of the exclusion set forth in 
final Sec.  1005.18(e)(3)(i)), new Sec.  1005.18(e)(3)(iii) states 
that, if a consumer's account has been verified, a financial 
institution must comply with the provisions set forth in Sec.  
1005.11(c) in full with respect to any errors that satisfy the timing 
requirements of Sec.  1005.11, or the modified timing requirements of 
Sec.  1005.18(e), as applicable, including with respect to errors that 
occurred prior to verification. Thus, under the revised exclusion 
approach, once an account has been verified, financial institutions 
that take longer than 10 business days (or 20 business days, as 
applicable) to investigate a timely error report must provisionally 
credit the account with respect to an error, whether it occurred before 
or after the account was verified, in compliance with the applicable 
time limitations set forth in Sec.  1005.11(c).
    The Bureau agrees with industry commenters that it is unlikely that 
there will be many unauthorized transfers between the time a consumer 
acquires a prepaid account and the time the consumer is able to 
register the account.\505\ As such, the Bureau does not believe that a 
requirement to provide provisional credit protections for pre-
registration transactions on a previously unregistered account should 
place a substantial burden on industry. The Bureau believes, however, 
that to the extent there are errors prior to verification, these could 
be significant--they could, for example, involve the initial amount the 
consumer loaded onto the account at acquisition, which could be a 
significant sum. Further, the Bureau notes that existing provisions in 
Sec.  1005.11 already accommodate for potential fraudulent error claims 
asserted with respect to new accounts. Under both the proposed and 
final rule, new accounts would receive the benefit of the extended 20-
business day investigation timeline set forth in Sec.  
1005.11(c)(3)(i).\506\ Further, as set forth below, if, at the time the 
financial institution was supposed to provisionally credit the account, 
the financial institution had not yet completed its consumer 
identification and verification process, the financial institution is 
not required to extend provisional credit to that account.
---------------------------------------------------------------------------

    \505\ Existing customer identification requirements, such as 
those imposed under the FinCEN Prepaid Access Rule, limit the 
functionality of most prepaid accounts prior to registration. Most 
GPR prepaid cards purchased online or by telephone require full 
customer identification and verification before a card is mailed to 
the consumer. For GPR cards purchased at retail, some financial 
institutions require the cardholder to call or go online to provide 
identifying information before the card can be used; if the 
verification process fails, the card functionality is limited to 
that of a gift card.
    \506\ The Bureau notes further that Regulation E permits 
financial institutions to ask for written confirmation of a 
consumer's oral error notification; if the institution does not 
receive the confirmation it seeks within 10 business days of an oral 
notice of error, the financial institution is not required to 
provide provisional credit with respect to that error claim. See 
Sec.  1005.11(c)(2)(i)(A).
---------------------------------------------------------------------------

    The Bureau has made two other substantive revisions to address the 
timing requirements governing a financial institution's obligation to 
provide limited liability and error resolution rights once a consumer's 
account has been verified. First, the Bureau has removed a large 
portion of proposed comment 18(e)-4, which addressed the timelines for 
a consumer's timely report and a financial institution's timely 
investigation of an unauthorized transfer for accounts that were 
previously unverified. Because the final rule requires financial 
institutions to provide limited liability and error resolution rights 
to accounts regardless of whether or not they have been verified, the 
substance of that portion of the proposed comment is no longer 
applicable.
    Second, as referenced above, the Bureau is adopting new Sec.  
1005.18(e)(3)(iii)(A) to address circumstances where a financial 
institution verifies an account after a consumer reports an 
unauthorized transfer. Specifically, new Sec.  1005.18(e)(3)(iii)(A) 
addresses a situation where, at the time the financial institution is 
required to provisionally credit the account, the financial institution 
has not yet completed its identification and verification process with 
respect to that account. New Sec.  1005.18(e)(3)(iii)(A) states that, 
under that circumstance, the financial institution may take up to the 
maximum length of time permitted under Sec.  1005.11(c)(2)(i) (45 days) 
or (3)(ii) (90 days) to investigate and determine whether an error 
occurred, without provisionally crediting the account. The Bureau 
believes this clarification is necessary, as without it, a financial 
institution could be retroactively liable for failing to extend 
provisional credit in a timely manner pursuant to Sec.  1005.11(c)(1), 
even though, under new Sec.  1005.18(e)(3)(i), it was not required to 
extend such credit yet since it had not

[[Page 84114]]

completed its consumer identification and verification process.
    In addition to the changes outlined above, the Bureau has made 
several minor revisions for clarity and conformity with revisions to 
other parts of the rule.
18(f) Disclosure of Fees and Other Information
The Bureau's Proposal
    EFTA section 905(a)(4) requires that financial institutions 
disclose to consumers, as part of an account's terms and conditions, 
any charges for EFTs or for the right to make such transfers. Existing 
Sec.  1005.7(b)(5) implements this requirement by stating that, as part 
of the initial disclosures, any fees imposed by a financial institution 
for EFTs or for the right to make transfers must be disclosed.
    Proposed Sec.  1005.18(f) would have required a financial 
institution to disclose any fees imposed by a financial institution for 
EFTs or the right to make such transfers and to include in its initial 
disclosures given pursuant to Sec.  1005.7(b)(5) all other fees imposed 
by the financial institution in connection with a prepaid account. For 
each fee, a financial institution would have been required to disclose 
the amount of the fee, the conditions, if any, under which the fee may 
be imposed, waived, or reduced, and, to the extent known, whether any 
third-party fees may apply. Proposed Sec.  1005.18(f) would have also 
required a financial institution to include all of the information 
required to be disclosed in the long form disclosure and be provided in 
a form substantially similar to proposed Sample Form A-10(e).
Comments Received
    The Bureau received comments from an industry trade association, 
issuing banks and a credit union, and program managers on this aspect 
of the proposal. These commenters generally supported full disclosure 
of all fees, not just fees related to EFTs. However, some expressed 
concern that proposed Sec.  1005.18(f)'s inclusion of the long form 
disclosure would be duplicative, given that prepaid accounts would also 
be subject to other disclosure requirements under Regulation E as well. 
Specifically, these commenters argued that requiring financial 
institutions to provide the short form, long form, and initial 
disclosures is redundant and would result in information overload and 
consumer confusion. One issuing credit union urged the Bureau not to 
require financial institutions to include the long form disclosure in 
the initial disclosures, while an issuing bank suggested that the 
Bureau require the long form disclosure be delivered only as part of 
the initial disclosures. See the section-by-section analysis of Sec.  
1005.18(b) above for a more detailed discussion of the comments 
received on the pre-acquisition long form disclosure generally.
The Final Rule
    For the reasons set forth herein, the Bureau is finalizing proposed 
Sec.  1005.18(f), renumbered as Sec.  1005.18(f)(1), generally as 
proposed, with certain modifications for clarity as explained below. 
The Bureau is adopting this provision pursuant to its authority under 
EFTA section 904(c) to adjust the requirement in EFTA section 
905(a)(4), which is implemented in existing Sec.  1005.7(b)(5), for 
prepaid accounts, and its authority under section 1032(a) of the Dodd-
Frank Act. The Bureau believes that disclosure of all fees for prepaid 
accounts will, consistent with EFTA section 902 and section 1032(a) of 
the Dodd-Frank Act, assist consumers' understanding of the terms and 
conditions of their prepaid accounts, and ensure that the features of 
prepaid accounts are fully, accurately, and effectively disclosed to 
consumers in a manner that permits consumers to understand the costs, 
benefits, and risks associated with a prepaid account.
    The Bureau believes that it is important that the initial account 
disclosures provided to consumers list all fees that may be imposed in 
connection with a prepaid account. The Bureau believes that because 
consumers will likely reference these disclosures throughout their 
ongoing use of their prepaid accounts, it is important that these 
disclosures include all relevant fee information, not just those fees 
related to EFTs. In addition, the Bureau believes that most financial 
institutions are already disclosing all fees in the terms and 
conditions accompanying prepaid accounts. Regulation DD, which 
implements the Truth in Savings Act, requires that initial disclosures 
for deposit accounts include the amount of any fee that may be imposed 
in connection with the account (or an explanation of how the fee will 
be determined) and the conditions under which the fee may be 
imposed.\507\ Because some prepaid accounts as defined by this final 
rule may not also constitute accounts as defined under Regulation DD 
(or the corresponding regulations applicable to credit unions),\508\ 
final Sec.  1005.18(f)(1) in conjunction with the long form disclosure 
requirements in final Sec.  1005.18(b)(4) will ensure that prepaid 
account consumers receive fee disclosures that include all fees, not 
just those related to EFTs or the right to make transfers.
---------------------------------------------------------------------------

    \507\ Regulation DD Sec.  1030.4(b)(4).
    \508\ See 12 CFR part 707.
---------------------------------------------------------------------------

    Final Sec.  1005.18(f)(1) provides that a financial institution 
must include, as part of the initial disclosures given pursuant to 
Sec.  1005.7, all of the information required to be disclosed in its 
pre-acquisition long form disclosure pursuant to final Sec.  
1005.18(b)(4). The Bureau is adopting new comment 18(f)-1, which 
clarifies that a financial institution may, but is not required to, 
disclose the information required by final Sec.  1005.18(b)(4) in 
accordance with the formatting, grouping, size and other requirements 
set forth in final Sec.  1005.18(b) for the long form disclosure as 
part of its initial disclosures provided pursuant to Sec.  1005.7; a 
financial institution may choose to do so, however, in order to satisfy 
other requirements in final Sec.  1005.18.\509\ The Bureau believes 
these revisions streamline the proposed language and make clearer the 
Bureau's intent as to when the long form disclosure itself must be 
provided.
---------------------------------------------------------------------------

    \509\ See, e.g., final Sec.  1005.18(b)(1)(ii) regarding the 
retail location exception.
---------------------------------------------------------------------------

    Relatedly, the Bureau is adopting new Sec.  1005.18(f)(2) to avoid 
any uncertainty as to when a change-in-terms notice is required. 
Specifically, this provision makes clear that the change-in-terms 
notice provisions in Sec.  1005.8(a) apply to any change in a term or 
condition that is required to be disclosed under Sec.  1005.7 or final 
Sec.  1005.18(f)(1). New Sec.  1005.18(f)(2) also provides, however, 
that if a financial institution discloses the amount of a third-party 
fee in its pre-acquisition long form disclosure pursuant to final Sec.  
1005.18(b)(4)(ii) and initial disclosures pursuant to final Sec.  
1005.18(f)(1), the financial institution is not required to provide a 
change-in-terms notice solely to reflect a change in that fee amount 
imposed by the third party.
    New Sec.  1005.18(f)(2) also states that if a financial institution 
provides pursuant to Sec.  1005.18(f)(1) the Regulation Z disclosures 
required by Sec.  1005.18(b)(4)(vii) for an overdraft credit feature, 
the financial institution is not required to provide a change-in-terms 
notice solely to reflect a change in the fees or other terms disclosed 
therein.\510\ New comment 18(f)-2

[[Page 84115]]

explains that the exception provided in new Sec.  1005.18(f)(2) does 
not extend to any finance charges imposed on the prepaid account as 
described in final Regulation Z Sec.  1026.4(b)(11)(ii) in connection 
with a covered separate credit feature accessible by a hybrid prepaid-
credit card as defined in new Sec.  1026.61 that are required to be 
disclosed pursuant to Sec.  1005.18(b)(4)(ii). This comment also 
references comment 18(b)(4)(ii)-1. See the section-by-section analysis 
of Sec.  1005.18(b)(4)(vii) above for a detailed discussion of this 
disclosure requirement in the final rule.
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    \510\ The Bureau notes that Regulation Z, 12 CFR 1026.60(e)(4) 
requires that the disclosures given pursuant to Sec.  1026.60(e)(1), 
which are required to be provided when an overdraft credit feature 
is offered in connection with a prepaid account pursuant to Sec.  
1005.18(b)(4)(vii), must be accurate as of the date of printing. A 
variable APR is accurate if it was in effect within 30 days before 
printing.
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18(f)(3) Disclosures on Prepaid Account Access Devices
    The Bureau proposed Sec.  1005.18(b)(7) to require a financial 
institution to disclose on the prepaid account device itself the name 
of the financial institution, a Web site URL, and a telephone number 
that a consumer can use to access information about the prepaid 
account. Proposed Sec.  1005.18(b)(7) would have provided that, if a 
financial institution did not provide a physical access device in 
connection with a prepaid account, this disclosure would have been 
required to appear at the URL or other entry point a consumer must 
visit to access the prepaid account electronically. Proposed Sec.  
1005.18(b)(7) would have also stated that a disclosure made on an 
accompanying document, such as a terms and conditions document, on 
packaging material surrounding an access device, or on a sticker or 
other label affixed to an access device would not constitute a 
disclosure on the access device. Proposed comment 18(b)(7)-1 would have 
clarified that a consumer might use this information disclosed on the 
access device to contact a financial institution with a question about 
a prepaid account's terms and conditions, or to report when an 
unauthorized transaction has occurred involving a prepaid account.
    The Bureau received no comments regarding these proposed 
requirements for disclosures on prepaid account devices. The Bureau is 
thus finalizing proposed Sec.  1005.18(b)(7), renumbered as Sec.  
1005.18(f)(3), substantially as proposed, with modifications as to the 
location of this disclosure at an electronic entry point to the 
account. The Bureau has also removed from the regulatory text the 
explanation regarding disclosures made on an accompanying document and 
included it in final comment 18(f)-3, as discussed below. The Bureau is 
finalizing this provision pursuant to its authority under EFTA sections 
904(a) and (c), and 905(a), and section 1032(a) of the Dodd-Frank Act, 
because it will assist consumers in better understanding the terms and 
conditions of their prepaid accounts, even after they have acquired the 
account.
    The Bureau is also finalizing proposed comment 18(b)(7)-1, 
renumbered as comment 18(f)-3, with modifications to clarify the 
examples for why a consumer might use the information disclosed on an 
access device to contact the financial institution. Specifically, this 
comment now clarifies that the financial institution must provide this 
information to allow consumers to, for example, contact the financial 
institution to learn about the terms and conditions of the prepaid 
account, obtain prepaid account balance information, request a copy of 
transaction history pursuant to final Sec.  1005.18(c)(1)(iii) if the 
financial institution does not provide periodic statements pursuant to 
Sec.  1005.9(b), or notify the financial institution when the consumer 
believes that an unauthorized EFT occurred as required by Sec.  
1005.7(b)(2) and final Sec.  1005.18(d)(1)(ii). Final comment 18(f)-3 
also clarifies that a disclosure made on an accompanying document, such 
as a terms and conditions document, on packaging material surrounding 
an access device, or on a sticker or other label affixed to an access 
device does not constitute a disclosure on the access device. The 
Bureau believes it is important for a consumer to be able to access fee 
information, as well as check an account's balance, and have a means 
for reporting unauthorized transactions, even after a consumer has 
acquired a prepaid account. Disclosing telephone numbers on an access 
device will allow consumers to access this information, even if they 
are not in the location where they retained the disclosures or are 
unable to access disclosures via the internet.
18(g) Prepaid Accounts Accessible by Hybrid Prepaid-Credit Cards
The Bureau's Proposal
    The proposal would have added proposed Sec.  1005.18(g)(1) to set 
forth timing rules related to when a credit card plan under Regulation 
Z could be linked to a prepaid account. The proposal also would have 
added proposed Sec.  1005.18(g)(2) to set forth rules related to the 
terms applicable to a prepaid account when a credit card plan could be 
is linked to a prepaid account. For the reasons discussed below, the 
Bureau has not adopted proposed Sec.  1005.18(g)(1). The Bureau is 
finalizing proposed Sec.  1005.18(g)(2) as Sec.  1005.18(g) with 
revisions, as discussed below. For organizational purposes, proposed 
Sec.  1005.18(g)(2) is discussed first, followed by a discussion of 
proposed Sec.  1005.18(g)(1).
    Proposed Sec.  1005.18(g)(2) would have set forth rules related to 
the terms applicable to a prepaid account when a credit card plan could 
be linked to a prepaid account. Specifically, proposed Sec.  
1005.18(g)(2) would have provided that where a credit card plan subject 
to Regulation Z may be offered at any point to the consumer with 
respect to a prepaid account that is accessed by an access device for 
the prepaid account where the access device is a credit card under 
Regulation Z, a financial institution that establishes or holds such a 
prepaid account may not apply different terms and conditions to a 
consumer's account that do not relate to an extension of credit, 
carrying a credit balance, or credit availability, depending on whether 
the consumer elects to link such a credit card plan to the prepaid 
account.
    The proposal would have added proposed comment 18(g)-1 to cross-
reference provisions in Regulation Z that would have provided guidance 
on when a program would have constituted a credit plan under the 
proposal (see proposed Regulation Z Sec.  1026.2(a)(20) and proposed 
Regulation Z comment 2(a)(20)-2.ii) and would have provided guidance on 
when an access device for a prepaid account would have been a credit 
card under the proposal (see existing Regulation Z Sec.  
1026.2(a)(15)(i), and proposed Regulation Z comment 2(a)(15)-2.i.F).
    Proposed comment 18(g)-2.i would have provided guidance on the 
applicability of the restriction in proposed Sec.  1005.18(g)(2). 
Specifically, proposed comment 18(g)-2.i would have explained that a 
financial institution may offer different terms on different prepaid 
account products, where the terms may differ between a prepaid account 
product where a credit card plan subject to Regulation Z cannot be 
linked to the prepaid account, and a prepaid account product where a 
credit card plan subject to Regulation Z can be linked to the prepaid 
account. Nonetheless, on the prepaid account product where a credit 
card plan subject to Regulation Z may be offered at any point to the 
consumer that is accessed by an access device for the prepaid account 
that is a credit card under Regulation Z, a financial institution that 
establishes or holds such a prepaid

[[Page 84116]]

account would have been prohibited from applying different terms and 
conditions to a consumer's account that do not relate to an extension 
of credit, carrying a credit balance, or credit availability, depending 
on whether the consumer elects to link such a credit card plan to the 
prepaid account. Proposed comment 18(g)-2.ii would have explained that 
proposed Sec.  1005.18(g)(2) prevents a financial institution from 
waiving fees or reducing the amount of fees that do not relate to an 
extension of credit, carrying a credit balance, or credit availability, 
if the consumer elects to link the prepaid account to a credit card 
plan.
    Proposed comment 18(g)-2.ii would have provided examples of account 
terms and conditions that would be subject to the restrictions in 
proposed Sec.  1005.18(g)(2). The proposed examples in comment 18(g)-
2.ii would have included fees assessed on the prepaid account that do 
not relate to an extension of credit, carrying a credit balance, or 
credit availability, including any transaction fees for transactions 
that are completely funded by the prepaid account and any one-time or 
periodic fees imposed for opening or holding a prepaid account. The 
proposed comment also would have cross-referenced proposed Regulation Z 
Sec.  1026.4(b)(2) and proposed Regulation Z comment 4(b)(2)-1.iii and 
iv, which would have provided additional guidance on fees that would 
have related to an extension of credit, carrying a credit balance, or 
credit availability.
    Proposed comment 18(g)-2.iii also would have provided examples of 
account terms and conditions that are not subject to the restrictions 
in proposed Sec.  1005.18(g)(2) because these terms and conditions 
would have related to an extension of credit, carrying a credit 
balance, or credit availability. The proposed examples would have 
included (1) fees or charges assessed on the prepaid account applicable 
to transactions that access the credit card plan subject to Regulation 
Z, including transaction fees for transactions that either access just 
the credit card plan, or access both the prepaid account and the credit 
card plan; and (2) any one-time or periodic fees imposed for the 
issuance or availability of the credit card plan subject to Regulation 
Z. Proposed comment 18(g)-2.iv would have provided examples that 
illustrate the prohibition in proposed Sec.  1005.18(g)(2).
Comments Received
    The Bureau did not receive any industry comments on this specific 
aspect of the proposal. One consumer group commenter expressed concern 
that under proposed comment 18(g)-2.i, a financial institution may 
offer different terms on two separate card programs, one that has the 
potential for a credit feature accessed by prepaid card that is a 
credit card and one that does not. This commenter expressed concern 
that a financial institution could steer consumers who want to activate 
such a credit feature to an entirely different prepaid account that has 
additional fees or other features, including one that is not even 
offered to the general public, but is only offered to consumers who 
have asked about or likely to opt in to such a credit feature.
    This commenter also noted the partial list of terms and conditions 
set forth in proposed comment 18(g)-2 where a financial institution 
under the proposal would not have been able to vary these terms and 
conditions between consumers who do and do not link a credit feature to 
the prepaid account that would make the prepaid card into a credit 
card. The commenter urged the Bureau to add load or transfer fees to 
this list of fees. The commenter believed that a financial institution 
should not be permitted to charge a higher or lower fee on the prepaid 
account for loading funds if the consumer links the credit feature to 
his or her prepaid account.
The Final Rule
    The Bureau is finalizing proposed Sec.  1005.18(g)(2), renumbered 
as Sec.  1005.18(g), with revisions for consistency with final 
Regulation Z Sec. Sec.  1026.4 and 1026.61.\511\ The Bureau is not 
adopting proposed Sec.  1005.18(g)(1), for reasons discussed below. New 
Sec.  1005.18(g)(1) provides that except as provided in new Sec.  
1005.18(g)(2), with respect to a prepaid account program where 
consumers may be offered a covered separate credit feature accessible 
by a hybrid prepaid-credit card as defined by new Regulation Z Sec.  
1026.61, a financial institution must provide to any prepaid account 
without a covered separate credit feature the same account terms, 
conditions, and features that it provides on prepaid accounts in the 
same prepaid account program that have such a credit feature. New Sec.  
1005.18(g)(2) provides that a financial institution is not prohibited 
under new Sec.  1005.18(g)(1) from imposing a higher fee or charge on 
the asset feature of a prepaid account with a covered separate credit 
feature accessible by a hybrid prepaid-credit card than the amount of a 
comparable fee or charge that it imposes on any prepaid account in the 
same prepaid account program that does not have such a credit feature. 
As discussed in the section-by-section analysis of Regulation Z Sec.  
1026.4(b)(11)(ii) below, new Regulation Z Sec.  1026.4(b)(11)(ii) 
provides that with regard to a covered separate credit feature and an 
asset feature on a prepaid account that are both accessible by a hybrid 
prepaid-credit card as defined in new Regulation Z Sec.  1026.61, any 
fee or charge imposed on the asset feature of the prepaid account is a 
finance charge to the extent that the amount of the fee or charge 
exceeds comparable fees or charges imposed on prepaid accounts in the 
same prepaid account program that do not have a credit feature 
accessible by a hybrid prepaid-credit card.
---------------------------------------------------------------------------

    \511\ The Regulation Z proposal would have provided that the 
term ``credit card'' includes an account number that is not a 
prepaid card that may be used from time to time to access a credit 
plan that allows deposits directly only into particular prepaid 
accounts specified by the creditor. Proposed Sec.  1005.18(g)(2) 
would have provided that where a credit card plan subject to 
Regulation Z that is accessed by such an account number may be 
offered at any point to the consumer, a financial institution that 
establishes or holds such a prepaid account may not apply different 
terms and conditions to a consumer's account that do not relate to 
an extension of credit, carrying a credit balance, or credit 
availability, depending on whether the consumer elects to link such 
a credit card plan to the prepaid account. Proposed comment 18(g)-1 
would have discussed when these account numbers were credit cards 
under Regulation Z. Proposed comment 18(g)-2 would have provided 
guidance how proposed Sec.  1005.18(g)(2) would have applied to 
credit card plans accessed by these account numbers. For the reasons 
set forth in the section-by-section analysis of Regulation Z Sec.  
1026.2(a)(15)(i) below, the final rule does not adopt the provisions 
related to the account numbers that would have made these account 
numbers into credit cards under Regulation Z. Thus, provisions in 
proposed Sec.  1005.18(g)(2) and proposed comments 18(g)-1 and -2 
related to these account numbers have not been adopted.
---------------------------------------------------------------------------

    As discussed in more detail in the section-by-section analysis of 
Regulation Z Sec.  1026.61(a)(2) below, a covered separate credit 
feature accessible by a hybrid prepaid-credit card includes an 
overdraft credit feature offered by a prepaid account issuer, its 
affiliate, or its business partner that can be accessed by a prepaid 
card (except as provided in new Regulation Z Sec.  1026.61(a)(4)). The 
prepaid card is a hybrid prepaid-credit card under new Regulation Z 
Sec.  1026.61 and a credit card under final Regulation Z Sec.  
1026.2(a)(15)(i) with respect to the covered separate credit feature.
    The Bureau is adopting new Sec.  1005.18(g) pursuant to its 
authority under EFTA sections 904(a) and (c). In implementing its 
overdraft opt-in rule under Sec.  1005.17, the Board required that 
``[a] financial institution shall provide to consumers who do not 
affirmatively consent to the institution's overdraft service for ATM 
and one-time debit card

[[Page 84117]]

transactions the same account terms, conditions, and features that it 
provides to consumers who affirmatively consent, except for the 
overdraft service for ATM and one-time debit card transactions.'' \512\ 
The Board recognized that without this requirement, ``some institutions 
could otherwise effectively compel the consumer to provide affirmative 
consent to the institution's payment of overdrafts for ATM and one-time 
debit card transactions by providing consumers who do not opt in with 
less favorable terms, conditions, or features than consumers who do opt 
in.'' \513\
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    \512\ See existing Sec.  1005.17(b)(3), which was numbered as 
Sec.  205.17(b)(3) in the Board's rules.
    \513\ 74 FR 59033, 59044 (Nov. 17, 2009).
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    The Bureau believes that a similar requirement should be extended 
here for similar reasons. As discussed in the section-by-section 
analysis of Regulation Z Sec.  1026.12(a)(1) below, a covered separate 
credit feature may be added to a previously issued prepaid card only 
upon the consumer's application or specific request and only in 
compliance with new Regulation Z Sec.  1026.61(c). New Regulation Z 
Sec.  1026.61(c) requires that with respect to a covered separate 
credit feature that could be accessible by a hybrid prepaid-credit card 
at any point, a card issuer must not do any of the following until 30 
days after the prepaid account has been registered: (1) Open a covered 
separate credit feature accessible by the hybrid prepaid-credit card; 
(2) make a solicitation or provide an application to open a covered 
separate credit feature accessible by the hybrid prepaid-credit card; 
or (3) allow an existing credit feature that was opened prior to the 
consumer obtaining the prepaid account to become a covered separate 
credit feature accessible by the hybrid prepaid-credit card.
    The Bureau believes some institutions could otherwise effectively 
compel the consumer to apply for or request a covered separate credit 
feature as described above by providing consumers who do not make such 
an application or request with less favorable terms, conditions, or 
features than consumers who do make such applications or requests. For 
example, an institution could waive the monthly fee for holding a 
prepaid account for consumers who apply for or request that a covered 
separate credit feature be connected to the prepaid account, but not 
waive the monthly fee for consumers who do not make such an application 
or request.
    The Bureau is revising the commentary to Sec.  1026.18(g) from the 
proposal to be consistent with new Regulation Z Sec. Sec.  
1026.4(b)(11)(ii) and 1026.61. New comment 18(g)-1 provides that new 
Regulation Z Sec.  1026.61 defines the term covered separate credit 
feature accessible by a hybrid prepaid-credit card. The Bureau also is 
adding new comment 18(g)-2.i to provide that new Regulation Z Sec.  
1026.61(a)(5)(ii) defines the term ``asset feature.'' Under new 
Regulation Z Sec.  1026.61(a)(5)(ii), the term ``asset feature'' means 
an asset account that is a prepaid account, or an asset subaccount of a 
prepaid account. New comment 18(g)-2.ii provides that new Sec.  
1005.18(g) applies to account terms, conditions, and features that 
apply to the asset feature of the prepaid account. New Sec.  1005.18(g) 
does not apply to the account terms, conditions, or features that apply 
to the covered separate credit feature, regardless of whether it is 
structured as a separate credit account or as a credit subaccount of 
the prepaid account that is separate from the asset feature of the 
prepaid account.
    The final rule moves proposed comment 18(g)-2.i to comment 18(g)-3 
and revises it to be consistent with new Regulation Z Sec.  1026.61. 
New comment 18(g)-3 provides that under new Sec.  1005.18(g), a 
financial institution may offer different terms on different prepaid 
account programs. For example, the terms may differ between a prepaid 
account program where a covered separate credit feature accessible by a 
hybrid prepaid-credit card is not offered in connection with any 
prepaid accounts within the prepaid account program, and a prepaid 
account program where a covered separate credit feature accessible by a 
hybrid prepaid-credit card may be offered to some consumers in 
connection with their prepaid accounts. The Bureau notes concerns 
expressed by the consumer group commenter that financial institutions 
could steer consumers who want to activate a credit feature accessible 
by a prepaid card that is a credit card to an entirely different 
prepaid account that has additional fees or other features, including 
one that is not even offered to the general public, but is only offered 
to consumers who have asked about or likely to opt in to such a credit 
feature. Nonetheless, at this time, the Bureau retains the flexibility 
for financial institutions to impose different fees on different 
prepaid account programs. The Bureau will monitor whether financial 
institutions are structuring prepaid account programs in an attempt to 
evade the provisions in new Sec.  1005.18(g).
    The final rule moves proposed comment 18(g)-2.ii to new comment 
18(g)-4 and revises it to be consistent with new Regulation Z Sec.  
1026.61. New comment 18(g)-4 provides that account terms, conditions, 
and features subject to new Sec.  1005.18(g) include, but are not 
limited to (1) interest paid on funds deposited into the asset feature 
of the prepaid account, if any; (2) fees or charges imposed on the 
asset feature of the prepaid account; \514\ (3) the type of access 
device provided to the consumer. For instance, an institution may not 
provide a PIN-only card on prepaid accounts without a covered separate 
credit feature that is accessible by a hybrid prepaid-credit card, 
while providing a prepaid card with both PIN and signature-debit 
functionality for prepaid accounts in the same prepaid account program 
with such a credit feature; (4) minimum balance requirements on the 
asset feature of the prepaid account; or (5) account features offered 
in connection with the asset feature of the prepaid account, such as 
online bill payment services.
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    \514\ See new comment 18(g)-5 discussed below for additional 
guidance on how new Sec.  1005.18(g) applies to fees or charges 
imposed on the asset feature of the prepaid account.
---------------------------------------------------------------------------

    The final rule moves proposed comment 18(g)-2.iii through iv to new 
comment 18(g)-5 and revises it to be consistent with final Regulation Z 
Sec. Sec.  1026.4 and 1026.61. New comment 18(g)-5.i provides that with 
respect to a prepaid account program where consumers may be offered a 
covered separate credit feature accessible by a hybrid prepaid-credit 
card as defined by new Regulation Z Sec.  1026.61, new Sec.  1005.18(g) 
only permits a financial institution to charge the same or higher fees 
on the asset feature of a prepaid account with a covered separate 
credit feature than the amount of a comparable fee it charges on 
prepaid accounts in the same prepaid account program that do not have a 
such a credit feature. This comment explains that new Sec.  1005.18(g) 
prohibits a financial institution from imposing a lower fee or charge 
on prepaid accounts with a covered separate credit feature than the 
amount of a comparable fee or charge it charges on prepaid accounts in 
the same prepaid account program without such a credit feature. This 
comment also states that with regard to a covered separate credit 
feature and an asset feature of a prepaid account that are both 
accessible by a hybrid prepaid-credit card as defined in new Regulation 
Z Sec.  1026.61, a fee or charge imposed on the asset feature of the 
prepaid account generally is a finance charge under final Regulation Z 
Sec.  1026.4(b)(11)(ii) to the extent that the amount of the fee or

[[Page 84118]]

charge exceeds the amount of a comparable fee or charge imposed on 
prepaid accounts in the same prepaid account program that do not have 
such a credit feature.
    As discussed in more detail below, new comment 18(g)-5.ii through 
iv also provides illustrations of how new Sec.  1005.18(g) applies to 
fees or charges imposed on the asset feature of a prepaid account with 
regard to a covered separate credit feature and an asset feature on a 
prepaid account that are both accessible by a hybrid prepaid-credit 
card as defined in new Regulation Z Sec.  1026.61.
Transaction Fees To Access Prepaid Account Funds
    New comment 18(g)-5.ii provides three examples that illustrate how 
new Sec.  1005.18(g) applies to per transaction fees for each 
transaction to access funds available in the asset feature of the 
prepaid account. For example, assume that a consumer has selected a 
prepaid account program where a covered separate credit feature 
accessible by a hybrid prepaid-credit card may be offered. For prepaid 
accounts without such a credit feature, the financial institution 
charges $0.50 for each transaction conducted that accesses funds 
available in the prepaid account. For prepaid accounts with a credit 
feature, the financial institution also charges $0.50 on the asset 
feature for each transaction conducted that accesses funds available in 
the asset feature of the prepaid account. New comment 18(g)-5.ii.A 
provides that for purposes of new Sec.  1005.18(g), the financial 
institution is imposing the same fee for each transaction that accesses 
funds in the asset feature of the prepaid account, regardless of 
whether the prepaid account has a covered separate credit feature 
accessible by a hybrid prepaid-credit card. New comment 18(g)-5.ii.A 
also states that with regard to a covered separate credit feature and 
an asset feature of a prepaid account that are both accessible by a 
hybrid prepaid-credit card as those terms are defined in new Regulation 
Z Sec.  1026.61, the $0.50 per transaction fee imposed on the asset 
feature for each transaction that accesses funds available in the asset 
feature of the prepaid account is not a finance charge under new Sec.  
1026.4(b)(11)(ii). This comment cross-references new Regulation Z Sec.  
1026.4(b)(11)(ii) and comment 4(b)(11)(ii)-1 for a discussion of the 
definition of finance charge with respect to fees or charges imposed on 
the asset feature of a prepaid account with regard to a covered 
separate credit feature and an asset feature of a prepaid account that 
are both accessible by a hybrid prepaid-credit card as defined in new 
Regulation Z Sec.  1026.61.
    As set forth in new comment 18(g)-5.ii.B, if in the above example 
with respect to prepaid accounts with a covered separate credit 
feature, the financial institution imposes a $1.25 fee for each 
transaction conducted that accesses funds available in the asset 
feature of the prepaid account for prepaid accounts with a covered 
separate credit feature, the financial institution is permitted to 
charge a higher fee under new Sec.  1005.18(g)(2) on prepaid accounts 
with a covered separate credit feature than it charges on prepaid 
accounts without such a credit feature. The $0.75 excess in this 
example is a finance charge under new Regulation Z Sec.  
1026.4(b)(11)(ii).
    Nonetheless, as discussed in new comment 18(g)-5.ii.C, if in the 
above example for prepaid accounts with a covered separate credit 
feature, the financial institution imposes a $0.25 fee for each 
transaction conducted that accesses funds available in the asset 
feature of the prepaid account, the financial institution is in 
violation of new Sec.  1005.18(g) because it is imposing a lower fee on 
the asset feature of a prepaid account with a covered separate credit 
feature than it imposes on prepaid accounts in the same program without 
such a credit feature.
Fees Related to Covered Separate Credit Features
    New comment 18(g)-5.iii and iv provides additional guidance on the 
type of fees that are considered comparable fees to fees imposed on 
prepaid accounts for credit extensions from covered separate credit 
features accessible by hybrid prepaid-credit cards. This guidance is 
consistent with the guidance provided in Regulation Z comment 
4(b)(11)(ii)-1.ii and iii with respect to the definition of finance 
charge in new Regulation Z Sec.  1026.4(b)(11)(ii).
    In developing these rules, as set forth in new Regulation Z Sec.  
1026.61(a)(2)(i)(B) and comment 61(a)(2)-4.ii, the Bureau was conscious 
that there were two potentially distinct types of credit extensions 
that could occur on a covered separate credit feature. The first type 
of credit extension is where the hybrid prepaid-credit card accesses 
credit in the course of authorizing, settling, or otherwise completing 
a transaction conducted with the card to obtain goods or services, 
obtain cash, or conduct P2P transfers. The second type of credit 
extension is where a consumer makes a standalone draw or transfer of 
credit from the covered separate credit feature, outside the course of 
any transactions conducted with the card to obtain goods or services, 
obtain cash, or conduct P2P transfers. For example, a consumer may use 
the prepaid card at the prepaid account issuer's Web site to load funds 
from the covered separate credit feature outside the course of a 
transaction conducted with the card to obtain goods or services, obtain 
cash, or conduct P2P transfers. Because the two scenarios involve 
different sets of activities, the range of fees that are likely to be 
triggered is also likely to be different. New comment 18(g)-5.iii and 
iv therefore provides separate guidance on the comparable fees under 
new Sec.  1005.18(g) with respect to each of the two types of credit 
extensions.
    Credit extensions from the covered separate credit feature within 
the course of a transaction. Comment 18(g)-5.iii provides guidance for 
credit extensions where the hybrid prepaid-credit card accesses credit 
from the covered separate credit feature in the course of authorizing, 
settling, or otherwise completing a transaction conducted with the card 
to obtain goods or services, obtain cash, or conduct P2P transfers. 
Specifically, comment 18(g)-5.iii provides that where the hybrid 
prepaid-credit card accesses credit from a covered separate credit 
feature in the course of authorizing, settling, or otherwise completing 
such a transaction, any per transaction fees imposed on the asset 
feature of the prepaid account, including load and transfer fees, with 
such a credit feature should be compared to the per transaction fees 
for each transaction to access funds in the asset feature of a prepaid 
account that is in the same prepaid account program but does not have 
such a credit feature. Thus, per transaction fees for a transaction 
that is conducted to load or draw funds into a prepaid account from 
some other source are not comparable for purposes of new Sec.  
1005.18(g).
    To illustrate these principles, comment 18(g)-5.iii sets forth a 
set of several examples explaining how new Sec.  1005.18(g) applies in 
situations in which credit is accessed from a covered separate credit 
feature in the course of authorizing, settling, or otherwise completing 
a transaction conducted with the card to obtain goods or services, 
obtain cash, or conduct P2P transfers.
    New comment 18(g)-5.iii.A provides the following example: Assume 
that a prepaid account issuer charges $0.50 on prepaid accounts for 
each transaction that accesses funds in the asset feature of the 
prepaid accounts without a covered separate credit feature. Also,

[[Page 84119]]

assume that the prepaid account issuer charges $0.50 per transaction on 
the asset feature of prepaid accounts in the same prepaid program where 
the hybrid prepaid-credit card accesses credit from a covered separate 
credit feature in the course of a transaction. In this case, for 
purposes of new Sec.  1005.18(g), the financial institution is imposing 
the same fee for each transaction it pays, regardless of whether the 
transaction accesses funds available in the asset feature of the 
prepaid accounts without a covered separate credit feature, or is paid 
from credit from a covered separate credit feature in the course of 
authorizing, settling or otherwise completing a transaction conducted 
with the card to obtain goods or services, obtain cash, or conduct P2P 
transfers. Also, for purposes of new Regulation Z Sec.  
1026.4(b)(11)(ii), the $0.50 per transaction fee imposed on the asset 
feature of the prepaid account with a covered separate credit feature 
is not a finance charge.
    As described in new comment 18(g)-5.iii.B, if the prepaid account 
issuer in the above example instead charged $1.25 on the asset feature 
of a prepaid account for each transaction where the hybrid prepaid-
credit card accesses credit from the covered separate credit feature in 
the course of the transaction, the financial institution is permitted 
to charge the higher fee under new Sec.  1005.18(g) for transactions 
that access the covered separate credit feature in the course of the 
transaction than the amount of the comparable fee it charges for each 
transaction that accesses funds available in the asset feature of the 
prepaid accounts without such a credit feature. The $0.75 excess is a 
finance charge under new Regulation Z Sec.  1026.4(b)(11)(ii).
    Nonetheless, as discussed in new comment 18(g)-5.iii.C, if in the 
above example, the financial institution imposes $0.25 on the asset 
feature of the prepaid account for each transaction conducted where the 
hybrid prepaid-credit card accesses credit from the covered separate 
credit feature in the course of the transaction, the financial 
institution is in violation of new Sec.  1005.18(g) because it is 
imposing a lower fee on the asset feature of a prepaid account with a 
covered separate credit feature than the amount of the comparable fee 
it imposes on prepaid accounts in the same program without such a 
credit feature.
    Comment 18(g)-5.iii.D provides another example. Assume a prepaid 
account issuer charges $0.50 on prepaid accounts for each transaction 
that accesses funds in the asset feature of the prepaid accounts 
without a covered separate credit feature. Assume also that the prepaid 
account issuer charges both a $0.50 per transaction fee and a $1.25 
transfer fee on the asset feature of prepaid accounts in the same 
prepaid program where the hybrid prepaid-credit card accesses credit 
from a covered separate credit feature in the course of a transaction. 
In this case, both fees charged on a per-transaction basis for the 
credit transaction (i.e., a combined fee of $1.75 per transaction) must 
be compared to the $0.50 per transaction fee to access funds in the 
asset feature of the prepaid account without a covered separate credit 
feature. The financial institution is permitted to charge a higher fee 
under new Sec.  1005.18(g) for transactions that access the covered 
separate credit feature in the course of the transaction than the 
amount of the comparable fee it charges for each transaction that 
accesses funds available in the asset feature of the prepaid accounts 
without such a credit feature. The $1.25 excess is a finance charge 
under new Regulation Z Sec.  1026.4(b)(11)(ii).
    Comment 18(g)-5.iii.E provides the last in this set of examples. 
Assume a prepaid account issuer charges $0.50 on prepaid accounts for 
each transaction that accesses funds in the asset feature of the 
prepaid accounts without a covered separate credit feature, and charges 
a load fee of $1.25 whenever funds are transferred or loaded from a 
separate asset account, such as from a deposit account via a debit 
card, in the course of a transaction on prepaid accounts without a 
covered separate credit feature. Assume also that the prepaid account 
issuer charges both a $0.50 per transaction fee and a $1.25 transfer 
fee on the asset feature of prepaid accounts in the same prepaid 
program where the hybrid prepaid-credit card accesses credit from a 
covered separate credit feature in the course of a transaction. In this 
case, both fees charged on a per-transaction basis for the credit 
transaction (i.e., a combined fee of $1.75 per transaction) must be 
compared to the per transaction fee (i.e., the fee of $0.50) to access 
funds available in the asset feature of the prepaid accounts on a 
prepaid account without a covered separate credit feature. Per 
transaction fees for a transaction that is conducted by drawing funds 
into a prepaid account from some other source (i.e., the fee of $1.25) 
are not comparable for purposes of new Sec.  1005.18(g). The financial 
institution is permitted to charge a higher fee under new Sec.  
1005.18(g) for transactions that access the covered separate credit 
feature in the course of the transaction than the amount of the 
comparable fee it charges for each transaction to access funds 
available in the asset feature of the prepaid accounts without such a 
credit feature. The $1.25 excess is a finance charge under new 
Regulation Z Sec.  1026.4(b)(11)(ii).
    For the reasons set forth in more detail in the section-by-section 
analysis of Regulation Z Sec.  1026.4(b)(11)(ii) below, the Bureau 
believes that the above standard for determining comparable fees with 
respect to fees or charges imposed on the asset feature of prepaid 
accounts accessible by hybrid prepaid-credit cards will help prevent 
evasion of the rules set forth in the final rule with respect to hybrid 
prepaid-credit cards. The Bureau believes that many prepaid cardholders 
who wish to use covered separate credit features may not have other 
deposit accounts or savings accounts from which they can transfer funds 
to prevent an overdraft on the prepaid account in the course of 
authorizing, settling, or otherwise completing a transaction conducted 
with the card to obtain goods or services, obtain cash, or conduct P2P 
transfers to prevent an overdraft on the prepaid account. As a result, 
the Bureau does not believe that a per transaction fee for credit drawn 
or transferred from a covered separate credit feature accessible by a 
hybrid prepaid-credit card during the course of a transaction should be 
allowed to be compared with a per transaction fee for a service that 
many prepaid cardholders who wish to use covered separate credit 
features may not be able to use. For this reason, the Bureau believes 
that it is appropriate to limit the comparable fee in this case to per 
transaction fees imposed on prepaid accounts for transactions that 
access funds in the prepaid account in the same prepaid account program 
that does not have a covered separate credit feature. All prepaid 
accountholders can use prepaid accounts to make transactions that 
access available funds in the prepaid account, so these types of 
transactions will be available to all prepaid accountholders.
    Credit extensions from a covered separate credit feature outside 
the course of a transaction. Comment 18(g)-5.iv provides guidance for 
credit extensions where a consumer draws or transfers credit from the 
covered separate credit feature outside the course of a transaction 
conducted with the card to obtain goods or services, obtain cash, or 
conduct P2P transfers. For example, a consumer may use the prepaid card 
at the prepaid account issuer's Web site to load funds from the covered 
separate credit feature outside the course of a transaction conducted

[[Page 84120]]

with the card to obtain goods or services, obtain cash, or conduct P2P 
transfers.
    Comment 18(g)-5.iv provides that load or transfer fees imposed for 
draws or transfers of credit from the covered separate credit feature 
outside the course of a transaction are compared only with fees, if 
any, to load funds as a direct deposit of salary from an employer or a 
direct deposit of government benefits that are charged on prepaid 
accounts without a covered separate credit feature. Fees imposed on 
prepaid accounts without a covered separate credit feature for a one-
time load or transfer of funds from a separate asset account or from a 
non-covered separate credit feature are not comparable for purposes of 
new Sec.  1005.18(g).
    Comment 18(g)-5.iv provides examples to illustrate this guidance. 
The first example set forth in comment 18(g)-5.iv.A relates to loads to 
transfer funds from a non-covered separate credit feature. 
Specifically, assume a prepaid account issuer charges a $1.25 load fee 
to transfer funds from a non-covered separate credit feature, such as a 
non-covered separate credit card account, into prepaid accounts that do 
not have a covered separate credit feature and does not charge a fee 
for a direct deposit of salary from an employer or a direct deposit of 
government benefits on those prepaid accounts. Assume the prepaid 
account issuer charges $1.25 on the asset feature of a prepaid account 
with a covered separate credit feature to load funds from the covered 
separate credit feature outside the course of a transaction. In this 
case, the load or transfer fees imposed for draws or transfers of 
credit from the covered separate credit feature outside the course of a 
transaction (i.e., the fee of $1.25) are compared with the fees to load 
funds as a direct deposit of salary from an employer or a direct 
deposit of government benefits that are charged on prepaid accounts 
without a covered separate credit feature (i.e., the fee of $0). Fees 
imposed on prepaid accounts without a covered separate credit feature 
for a one-time load or transfer of funds from a separate asset account 
(i.e., the fee of $1.25) is not comparable for purposes of new Sec.  
1005.18(g). In this case, the financial institution is permitted to 
charge a higher fee under new Sec.  1005.18(g) for transactions that 
access the covered separate credit feature on prepaid accounts with a 
credit feature than the amount of the comparable fee it charges on 
prepaid accounts in the same program without such a credit feature. The 
$1.25 fee imposed on the asset feature of the prepaid account with a 
separate credit feature is a finance charge under new Regulation Z 
Sec.  1026.4(b)(11)(ii).
    As set forth in comment 18(g)-5.iv.B, a second example relates to a 
one-time transfer of funds from a separate asset account. In this 
second example, assume that a prepaid account issuer charges a $1.25 
load fee for a one-time transfer of funds from a separate asset 
account, such as from a deposit account via a debit card, to a prepaid 
account without a covered separate credit feature and does not charge a 
fee for a direct deposit of salary from an employer or a direct deposit 
of government benefits on those prepaid accounts. Assume the prepaid 
account issuer charges $1.25 on the asset feature of a prepaid account 
with a covered separate credit feature to load funds from the covered 
separate credit feature outside the course of a transaction. In this 
case, the load or transfer fees imposed for draws or transfers of 
credit from the covered separate credit feature outside the course of a 
transaction (i.e., the fee of $1.25) are compared with the fees to load 
funds as a direct deposit of salary from an employer or a direct 
deposit of government benefits that are charged on prepaid accounts 
without a covered separate credit feature (i.e., the fee of $0). Fees 
imposed on prepaid accounts without a covered separate credit feature 
for a one-time load or transfer of funds from a separate asset account 
(i.e., the fee of $1.25) is not comparable for purposes of new Sec.  
1005.18(g). In this case, the financial institution is permitted to 
charge a higher fee under new Sec.  1005.18(g) for transactions that 
access the covered separate credit feature on prepaid accounts with a 
credit feature than the amount of the comparable fee it charges on 
prepaid accounts in the same program without such a credit feature. The 
$1.25 fee imposed on the asset feature of the prepaid account with a 
covered separate credit feature is a finance charge under new 
Regulation Z Sec.  1026.4(b)(11)(ii).
    For the reasons set forth in more detail in the section-by-section 
analysis of Regulation Z Sec.  1026.4(b)(11)(ii) below, the Bureau 
believes that many prepaid accountholders who wish to use covered 
separate credit features may not have other asset accounts, such as 
checking accounts or savings accounts, or other credit accounts, from 
which they can draw or transfer asset funds or credit for deposit into 
the prepaid account outside the course of a transaction conducted with 
the card to obtain goods or services, obtain cash, or conduct P2P 
transfers. As a result, the Bureau does not believe that load or 
transfer fees for credit from a covered separate credit feature 
accessible by a hybrid prepaid-credit card outside the course of a 
transaction should be allowed to be compared with a load or transfer 
fees from an asset account, or non-covered separate credit feature, 
outside the course of a transaction. For this reason, the Bureau 
believes that it is appropriate to limit the comparable fee in this 
case to fees, if any, to load funds as a direct deposit of salary from 
an employer or a direct deposit of government benefits that are charged 
on prepaid accounts without a covered separate credit feature. The 
Bureau believes that such direct deposit methods commonly are offered 
on most types of prepaid accounts and that most prepaid accountholders 
who wish to use covered separate credit feature are able to avail 
themselves of these methods.\515\
---------------------------------------------------------------------------

    \515\ The Bureau understands that prepaid account issuers 
currently offering overdraft services condition consumer eligibility 
on receipt of a regularly-occurring direct deposit in excess of a 
specified threshold.
---------------------------------------------------------------------------

Proposed Sec.  1005.18(g)(1)
    The proposal would have added proposed Sec.  1005.18(g)(1) that 
generally would have restricted financial institutions that establish 
or hold prepaid accounts from linking a credit card plan under 
Regulation Z to a prepaid account, or allowing the prepaid account to 
be linked to such a credit card plan, until 30 days after the prepaid 
account has been registered. Specifically, proposed Sec.  
1005.18(g)(1)(i) would have restricted financial institutions that 
establish or hold prepaid accounts from providing solicitations or 
applications to holders of prepaid accounts to open credit card 
accounts subject to Regulation Z, prior to 30 days after the prepaid 
accounts have been registered. For purposes of proposed Sec.  
1005.18(g)(1), the term solicitation would have meant an offer by the 
person to open a credit or charge card account subject to Regulation Z 
that does not require the consumer to complete an application. A ``firm 
offer of credit'' as defined in section 603(l) of the Fair Credit 
Reporting Act \516\ for a credit or charge card would be a solicitation 
for purposes of proposed Sec.  1005.18(g)(1).
---------------------------------------------------------------------------

    \516\ 15 U.S.C. 1681a(l).
---------------------------------------------------------------------------

    Proposed Sec.  1005.18(g)(1)(ii) would have restricted financial 
institutions that establish or hold prepaid accounts of consumers from 
allowing prepaid access devices to access credit card plans subject to 
Regulation Z that would make the prepaid access devices into credit 
cards at any time prior to 30 days

[[Page 84121]]

after the prepaid accounts have been registered. Proposed Sec.  
1005.18(g)(1)(iii) would have restricted financial institutions that 
establish or hold prepaid accounts of consumers from allowing credit 
extensions from credit card plans subject to Regulation Z to be 
deposited in prepaid accounts, where the credit plans are accessed by 
account numbers that are credit cards under Regulation Z where 
extensions of credit are permitted to be deposited directly only into 
particular prepaid accounts specified by the creditor, prior to 30 days 
after the prepaid account has been registered. Proposed Sec.  
1005.18(g)(1)(iii) was intended to address situations where (1) a 
separate line of credit is linked to a prepaid account where extensions 
of credit are permitted to be deposited directly only into particular 
prepaid accounts specified by the creditor, (2) the consumer requests 
an advance on the open-end account using an account number only, and 
(3) the advance is deposited into the prepaid account.
    Proposed Sec.  1005.18(g)(1) would have complemented a similar 
proposed provision in Regulation Z, proposed Sec.  1026.12(h) 
(renumbered as new Sec.  1026.61(c) in the final rule), which would 
have required credit card issuers to wait at least 30 days after the 
prepaid account has been registered before the card issuer may provide 
a solicitation or an application to the holder of the prepaid account 
to open a credit or charge card account that will be accessed by the 
prepaid card that is a credit card under Regulation Z, or by an account 
number that is a credit card under Regulation Z where extensions of 
credit are permitted to be deposited directly only into particular 
prepaid accounts specified by the creditor.
    In the proposal, the Bureau noted that proposed Sec.  1005.18(g)(1) 
and proposed Regulation Z Sec.  1026.12(h) would have overlapped in 
cases where the credit card plan is accessed by a prepaid card or the 
credit card plan is being offered by a financial institution that holds 
the prepaid account and is accessed by an account number where 
extensions of credit are permitted to be deposited directly only into 
particular prepaid accounts specified by the creditor. In those cases, 
the financial institution would have been a ``card issuer'' under 
existing Regulation Z Sec.  1026.2(a)(7) \517\ and the Bureau proposed 
that both the requirements of proposed Regulation Z Sec.  1026.12(h) 
and proposed Regulation E Sec.  1005.18(g)(1) would have applied to the 
financial institution who also is a card issuer. Nonetheless, the 
Bureau intended proposed Regulation E Sec.  1005.18(g)(1) and proposed 
Regulation Z Sec.  1026.12(h) to impose the same restrictions in those 
situations. In cases where the credit card account is being offered by 
a person other than the person who holds the prepaid account and is 
being accessed by an account number as described above, the person 
issuing the account number that is a credit card (i.e., card issuer) 
would have been required to comply with proposed Regulation Z Sec.  
1026.12(h). In addition, the financial institution that holds the 
prepaid account would have been required to comply with proposed Sec.  
1005.18(g)(1).
---------------------------------------------------------------------------

    \517\ Under the proposal, with respect to a prepaid card that is 
a credit card where the card accesses a credit plan that is offered 
by a third party, a person offering the credit plan that is accessed 
by the prepaid card would be an agent of the person issuing the 
prepaid card and thus would be a card issuer with respect to the 
prepaid card that is a credit card. See Regulation Z proposed 
comment 2(a)(7)-1.ii. In this case, both the person offering the 
credit plan and the financial institution issuing the prepaid card 
would be card issuers under Regulation Z Sec.  1026.2(a)(7).
---------------------------------------------------------------------------

    The Bureau has not finalized proposed Sec.  1005.18(g)(1) because 
the Bureau believes the amendment is unnecessary in light of other 
revisions in the final rule, as discussed below. As discussed in more 
detail in the section-by-section analysis of Regulation Z Sec.  
1026.2(a)(15)(i) below, the Regulation Z proposal provided that the 
term ``credit card'' would have included an account number that is not 
a prepaid card that may be used from time to time to access a credit 
plan that allows deposits directly into particular prepaid accounts 
specified by the creditor. For the reasons set forth in the section-by-
section analysis of Regulation Z Sec.  1026.2(a)(15)(i) below, the 
Bureau has decided not to adopt the provisions related to the account 
numbers that would have made these account numbers into credit cards 
under Regulation Z. Thus, the Bureau believes that the provisions in 
proposed Sec.  1005.18(g)(1) are not needed to address covered separate 
credit features accessible by hybrid prepaid-credit cards because those 
credit features are addressed in new Regulation Z Sec.  1026.61(c).
    As discussed in more detail in the section-by-section analysis of 
Regulation Z Sec.  1026.61(a)(2) below, a covered separate credit 
feature accessible by a hybrid prepaid-credit card includes an 
overdraft credit feature offered by a prepaid account issuer, its 
affiliate, or its business partner that can be accessed by a prepaid 
card (except as provided in new Regulation Z Sec.  1026.61(a)(4)). The 
prepaid card is a hybrid prepaid-credit card under new Regulation Z 
Sec.  1026.61 and a credit card under final Regulation Z Sec.  
1026.2(a)(15)(i) with respect to the covered separate credit feature.
    New Regulation Z Sec.  1026.61(c) provides that with respect to a 
covered separate credit feature that could be accessible by a hybrid 
prepaid-credit card at any point, a card issuer must not do any of the 
following until 30 days after the prepaid account has been registered: 
(1) Open a covered separate credit feature accessible by the hybrid 
prepaid-credit card; (2) make a solicitation or provide an application 
to open a covered separate credit feature accessible by the hybrid 
prepaid-credit card; or (3) allow an existing credit feature that was 
opened prior to the consumer obtaining the prepaid account to become a 
covered separate credit feature accessible by the hybrid prepaid-credit 
card.
    With respect to a hybrid prepaid-credit card, the financial 
institution would be a ``card issuer'' under final Regulation Z Sec.  
1026.2(a)(7).\518\ The Bureau does not believe that it is necessary to 
include similar provisions to proposed Sec.  1005.18(g)(1) in 
Regulation E that would cover a financial institution that offers a 
hybrid prepaid-credit card that accesses a covered separate credit 
feature. In this case, the financial institution is a card issuer under 
final Regulation Z Sec.  1026.2(a)(7) and is covered by the provisions 
in Regulation Z that apply to card issuers, including new Regulation Z 
Sec.  1026.61(c).
---------------------------------------------------------------------------

    \518\ Under the final rule in Regulation Z comment 2(a)(7)-1.ii, 
with respect to a covered separate credit feature accessible by a 
hybrid prepaid-credit card as defined in new Regulation Z Sec.  
1026.61where that credit feature is offered by an affiliate or 
business partner of the prepaid account issuer as those terms are 
defined in new Regulation Z Sec.  1026.61, the affiliate or business 
partner offering the credit feature is an agent of the prepaid 
account issuer and thus, is itself a card issuer with respect to the 
hybrid prepaid-credit card. In this case, both the person offering 
the covered separate credit feature and the financial institution 
issuing the prepaid card are card issuers under final Regulation Z 
Sec.  1026.2(a)(7).
---------------------------------------------------------------------------

18(h) Effective Date
The Bureau's Proposal
    The Bureau proposed, in general, a nine-month effective date for 
its rulemaking on prepaid accounts. Specifically, proposed Sec.  
1005.18(h)(1) would have stated that, except as provided in proposed 
Sec.  1005.18(h)(2), the requirements of EFTA and Regulation E, as 
modified by proposed Sec.  1005.18, would have applied to prepaid 
accounts nine months following the publication of the Bureau's final 
rule

[[Page 84122]]

in the Federal Register. This would have included the disclosure 
requirements in proposed Sec.  1005.18(b) and (f)(2), and would have 
applied to prepaid account packaging, access devices, and other 
physical materials that are manufactured, printed, or otherwise 
prepared in connection with a prepaid account on or after nine months. 
Thus, proposed Sec.  1005.18(h)(1) would have generally made applicable 
to all prepaid accounts the requirements of EFTA and Regulation E, as 
modified by the provisions of proposed Sec.  1005.18, including those 
governing disclosures, access to prepaid account information, limited 
liability and error resolution, among others, after nine months. For 
instance, the new disclosure requirements would have applied 
immediately at the nine-month mark for disclosures and other 
information made available to consumers online or by telephone.
    However, this first proposed effective date would not have required 
immediate destruction or removal of previously printed materials 
because it would have only required packages, cards, and other 
materials printed on or after the nine month date to comply with the 
rule's disclosure requirements in proposed Sec.  1005.18(b) and (f)(2). 
Instead, the Bureau proposed a delayed effective date for certain 
additional packaging-related changes, which would have been 12 months 
following the publication of the final rule in the Federal Register. 
This second date, in proposed Sec.  1005.18(h)(2), would have required 
full compliance with the rule's disclosure requirements and would have 
prohibited the offering, sale, or otherwise making available of prepaid 
accounts and related packaging, access devices, or other printed 
materials without such disclosures. As a result, by 12 months, 
financial institutions and their third-party distribution agents would 
have had to remove from retail store shelves and other distribution 
channels any prepaid accounts with disclosures not fully in compliance 
with the rule.
    For prepaid account packaging, access devices, and other printed 
materials created prior to this first effective date, the Bureau 
believed that nothing it proposed would trigger requirements under 
existing Regulation E to provide a change-in-terms notice insofar as 
the proposal would not have required increased fees, liability, or 
fewer types of available EFTs for consumers.\519\ If, however, 
financial institutions wished to avail themselves of the more limited 
error resolution or limited liability requirements for existing 
unregistered prepaid accounts where their existing terms provide 
greater protections, the Bureau noted that a change-in-terms notice 
might be required.
---------------------------------------------------------------------------

    \519\ See Sec.  1005.8(a) and 12 CFR 1030.5(a)(1).
---------------------------------------------------------------------------

    The Bureau also noted that, independent of the proposed rule, 
financial institutions that wish to make substantive changes to prepaid 
account fees or terms are often required by other laws to remove from 
retail stores and other distribution channels prepaid account 
packaging, access devices, and other printed materials that their 
changes render inaccurate, and to provide notice of those changes to 
consumers with existing prepaid accounts. Such laws may include 
operative state consumer protection and contract laws.
Comments Received
    The Bureau received many comments from industry, including trade 
associations, issuing banks, credit unions, program managers, payment 
networks, a payment processor, and a law firm writing on behalf of a 
coalition of prepaid issuers, arguing that the proposed nine- and 12-
month compliance periods would be insufficient to implement the changes 
that would be required under the proposal.
    These commenters argued that, due to the perceived complexity of 
the proposal, industry would need more time to review the requirements 
of the final rule and implement extensive system and operational 
changes, which would include, among other things, revising internal 
procedures and training staff. Commenters recommended a range of time 
periods, starting at 12 months but generally converging around 18 to 24 
months. One trade association, however, said that it found the proposed 
nine- and 12-month effective dates reasonable. Commenters stated that 
the rule will affect the entire prepaid industry at the same time and 
will require coordination and planning among all industry participants, 
including third-party vendors. They explained that high demand for 
packaging manufacturers would strain resources and suppliers and cause 
significant delays in the production process. Industry commenters also 
expressed concern about the costs and waste associated with pulling and 
replacing packaging with non-compliant disclosures. These commenters 
stated that a longer compliance period would ensure that industry has 
time to comprehensively implement the required changes, with minimal 
business disruption, and avoid the destruction of millions of card 
packages. These commenters also urged the Bureau to consider holiday 
season system freezes and peak time demands when setting an effective 
date for the final rule, as well as impacts related to the roll-out of 
EMV-enabled cards and POS terminals. These commenters explained that, 
as an industry practice, various entities involved in the prepaid value 
chain observe a ``freeze period'' during which no major system updates 
should take place, often due to increased volumes during certain times 
of the year. The exact periods may differ for financial institutions, 
program managers, data processors, and retail stores, but combined 
generally span October through April.
    Several commenters explained that industry would need more time 
than the Bureau proposed to implement necessary system and operational 
changes, in order to comply with specific aspects of the proposal. For 
example, with respect to disclosures, several commenters stated that 
the proposed requirements would, among other things, require industry 
to design new disclosures that would appear on packaging materials, 
which would need to be newly produced, and on Web sites and mobile 
applications, which would need to be redesigned and reprogrammed. These 
commenters explained that providing disclosures prior to the 
acquisition of government benefit accounts, payroll card accounts, and 
campus cards would require revisions to current procedures, training of 
third parties and employees, enhanced monitoring of third-party 
practices, and the removal and replacement of preprinted card stock. To 
help mitigate the costs that would be associated with destroying unused 
packaging material, several credit unions and credit union trade 
associations urged the Bureau to consider a compliance period driven by 
the expiration date on the card stock. These commenters explained that 
some credit unions purchase card stock four years in advance of the 
last expiration date, as cards are sold with a three-year expiration 
date range. One industry trade association suggested that the Bureau 
grant a safe harbor for any prepaid account packaging manufactured in 
the ordinary course of business within 90 days of publication of the 
final rule in the Federal Register. Another industry trade association 
suggested that the Bureau grant an exemption for cards issued before a 
certain date, allow financial institutions to exhaust the card stock 
and notify consumers in a reasonable manner that additional rights 
apply to the existing

[[Page 84123]]

cards, or impose a ``manufacture date'' after which all cards 
manufactured must comply with the final rule. A payment network 
suggested that the Bureau grant a safe harbor and allow financial 
institutions to keep existing physical cards stocked at retail 
locations and notify consumers of any changes either by sending change-
in-terms notices or by obtaining consumer consent upon registration. 
This commenter added that this approach would both cure outdated 
pricing on card packaging and also allow financial institutions to 
introduce new features that have a fee.
    Regarding the proposed access to account information requirements, 
several commenters stated that displaying the proposed summary totals 
of fees, deposits, and debits for the prior calendar month and the 
calendar year to date in proposed Sec.  1005.18(c)(4) would require 
financial institutions to map the fee information for each cardholder, 
redesign online transaction history pages, and change the formatting 
for paper statements. With respect to the proposed requirement to 
provide 18 months of account transaction history under the periodic 
statement alternative in proposed Sec.  1005.18(c)(1)(ii) and (iii), 
several industry commenters stated that making the changes necessary to 
provide 18 months of account history nine months after publication of 
the final rule would be problematic and time-consuming. These 
commenters explained that financial institutions may not currently have 
18 months of account transaction history for prepaid accounts and, if 
they do, older information is likely archived and not easily 
accessible. These commenters also explained that financial institutions 
would need to redesign systems to be capable of supporting 18 months of 
account transaction history and would need to train staff on the new 
systems and capabilities.
    Several commenters stated that submitting prepaid account 
agreements to the Bureau and posting agreements on the issuer's Web 
site pursuant to proposed Sec.  1005.19(b) and (c), respectively, would 
require financial institutions to create a process for updating 
agreements on a quarterly basis, develop a periodic monitoring process 
to ensure accuracy of these agreements, create a location on their Web 
sites for the posting of agreements, and develop a process for 
maintaining inventory of these agreements.
    Regarding the proposed changes to the treatment of overdraft 
services and certain other credit plans for prepaid accounts, several 
industry commenters explained that, to avoid coverage under the rule as 
proposed for inadvertent overdrafts such as those resulting from force 
pay transactions, financial institutions would either need to block 
authorization requests where the final transaction amount is not known 
in advance (such as gasoline purchases at automated fuel dispensers) 
and require cardholders to pay in advance for every transaction that 
could potentially result in an inadvertent overdraft, or add 
transaction audit steps for merchant-initiated transactions to ensure 
that merchants have a current, accurate authorization before any 
prepaid card transaction is processed. One program manager that 
currently offers overdraft services on some of its prepaid accounts 
requested a compliance period of at least 24 months to develop and test 
new systems for delivering the required disclosures (e.g., periodic 
statements for prepaid cards that are also deemed a credit card) and to 
perform underwriting for complying with ability-to-pay requirements 
under Regulation Z. For existing prepaid accounts that offer overdraft 
services, this commenter urged the Bureau to establish at least a 6-
month period during which overdraft services could continue to be 
offered without being subject to the final rule, so that consumers 
could be given sufficient notice regarding the changes to allow them to 
make alternative financial arrangements as necessary. This commenter 
explained, however, that if the Bureau established an effective date 
for a period longer than nine months (such as 24 months), the 6-month 
wind-down period would be less important.
    Several commenters suggested modifications to the proposed 
effective dates that they believed would reduce the potential 
compliance burden on industry. A few industry commenters suggested a 
longer compliance period for products sold at retail and for portions 
of the rule that require system changes. One payment network and a law 
firm writing on behalf of a coalition of prepaid issuers urged the 
Bureau to allow consumers to continue using their existing prepaid 
cards until the card expires, which the payment network believed would 
allow financial institutions to avoid destroying millions of cards 
consistent with the spirit of what is commonly referred to as the ``ECO 
Card Act.'' \520\ For existing vendor contracts that may be in 
violation of the final rule, one state employment department and an 
industry commenter urged the Bureau to either grandfather in existing 
contracts until they expire, or provide a reasonable timeframe in which 
to amend or rebid the contracts. One industry commenter requested that 
the final rule clearly state when revisions to Regulation Z will become 
effective to avoid confusion for financial institutions that are also 
subject to 32 CFR part 232, the regulation implementing the MLA,\521\ 
which the DOD proposed shortly before the Bureau released its proposed 
rulemaking on prepaid accounts.
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    \520\ Public Law 111-209 (2010). This act amended the statutory 
date by which the Board's regulations implementing of the gift card 
provisions of the Credit CARD Act were required to become effective. 
The Credit CARD Act had originally called for an effective date of 
August 22, 2010 for the Gift Card Rule; the ECO Card Act, which was 
enacted on July 27, 2010, extended that effective date. 
Specifically, the ECO Card Act extended the effective date to 
January 31, 2011 for gift certificates, store gift cards, and 
general-use prepaid cards that were produced prior to April 1, 2010, 
provided certain conditions (including regarding in-store signage) 
were met. See also 75 FR 66644 (Oct. 29, 2010); Press Release, 
Network Branded Prepaid Card Ass'n, Senate Passed, By Unanimous 
Consent, NBPCA Backed H.R. 5502, the ECO Card Act (July 14, 2010), 
available at https://www.nbpca.com/en/News-Room/Press-Releases/ECO-Card-Act.aspx (stating that passage of the ECO Card Act granted 
industry ``a meaningful period to transition until January 31, 2011 
thereby avoiding the needless destruction of hundreds of millions of 
cards and packaging that would have resulted in millions of dollars 
in losses . . . .'')
    \521\ See 79 FR 58602 (Sept. 29, 2014). The DOD subsequently 
finalized this rulemaking, which became effective on October 1, 2015 
(compliance required by October 3, 2016). See 80 FR 43560 (July 22, 
2015) and part II.C above.
---------------------------------------------------------------------------

    The Bureau received few comments from consumer groups regarding 
this portion of the proposal. One consumer group suggested that the 
Bureau could allow financial institutions to implement the access to 
account information requirements set forth in Sec.  1005.18(c) on a 
rolling basis. This commenter explained that under such scenario, a 
financial institution would not be required to provide account 
information from prior to the final rule's effective date, but instead 
could begin accumulating it on the effective date until the financial 
institution has the information needed for the full time periods 
required by the rule.
The Final Rule
    Upon consideration of the comments received, the Bureau believes it 
is appropriate to provide a longer implementation period in light of 
some of the logistical issues raised by industry. The Bureau believes 
it is important to ensure that industry has sufficient time to 
implement the changes required by this final rule, but it is also 
important not to delay the important consumer protections the rule sets 
forth any longer than necessary. The Bureau has thus extended the 
general effective date of this final rule from the proposed nine months

[[Page 84124]]

following the publication of the rule in the Federal Register to 
approximately 12 months following issuance of the final rule. The 
Bureau has also made a number of modifications and accommodations in 
the rule to address particular concerns raised by commenters.
    Specifically, the Bureau's final rule on prepaid accounts, as set 
forth herein, will generally become effective on October 1, 2017, with 
a few exceptions as discussed below. Under this final rule (unlike the 
proposal), financial institutions are not required to pull and replace 
prepaid account access devices and packaging materials with non-
compliant disclosures that were produced in the normal course of 
business prior to October 1, 2017. The final rule also includes 
specific provisions addressing how financial institutions should 
provide notices of changes and updated initial disclosures in certain 
circumstances. Further, this final rule includes an accommodation for 
financial institutions that do not have readily available the data 
necessary to comply fully with the periodic statement alternative 
requirements in final Sec.  1005.18(c)(1)(ii) and (iii) or the summary 
totals of fees requirement in final Sec.  1005.18(c)(5) as of October 
1, 2017. In addition, the requirement to submit prepaid account 
agreements to the Bureau pursuant to final Sec.  1005.19(b) is delayed 
until October 1, 2018.
    The Bureau has included several provisions in regulatory text and 
commentary to make clearer these specific modifications to the rule's 
general October 1, 2017 effective date. Specifically, final Sec.  
1005.18(h) establishes a general effective date as well as special 
transition rules for certain disclosure provisions. The delayed 
effective date for submission of prepaid account agreements to the 
Bureau is addressed in Sec.  1005.19(f).
    The Bureau notes that nothing in this final rule changes the 
existing requirements for payroll card accounts or government benefit 
accounts prior to October 1, 2017. Financial institutions offering 
payroll card accounts or government benefit accounts must comply with 
all existing requirements applicable to those accounts under EFTA and 
Regulation E until October 1, 2017. Beginning October 1, 2017, 
financial institutions must comply with modified requirements in 
subpart A of Regulation E for such accounts as set forth in this final 
rule.
    Final Sec.  1005.18(h)(1) provides that except as provided in Sec.  
1005.18(h)(2) and (3), the requirements of the final rule apply to 
prepaid accounts beginning October 1, 2017. Final Sec.  
1005.18(h)(2)(i) establishes an exception for non-compliant disclosures 
on existing prepaid account access devices and packaging materials to 
eliminate the proposed pull and replace requirement. In return, final 
Sec.  1005.18(h)(2)(ii) requires that financial institutions provide 
notices of certain changes and updated initial disclosures to consumers 
who acquire prepaid accounts on or after October 1, 2017 via non-
compliant packaging materials printed prior to the effective date. 
Final Sec.  1005.18(h)(2)(iii) clarifies the requirements for providing 
notice of changes to consumers who acquired prepaid accounts before 
October 1, 2017. Final Sec.  1005.18(h)(2)(iv) facilitates the delivery 
of the notices of changes and updated initial disclosures for prepaid 
accounts governed by Sec.  1005.18(h)(2)(ii) or (iii). Finally, Sec.  
1005.18(h)(3) sets forth the accommodation for financial institutions 
that do not have readily accessible the data necessary to comply fully 
with the periodic statement alternative or summary totals of fees 
requirements. These provisions are each discussed in detail below.
    18(h)(1). Final Sec.  1005.18(h)(1) explains, that except as 
provided in Sec.  1005.18(h)(2) and (3), the requirements of subpart A 
of Regulation E, as modified by final Sec.  1005.18, apply to prepaid 
accounts as defined in final Sec.  1005.2(b)(3), including government 
benefit accounts subject to final Sec.  1005.15, beginning October 1, 
2017, which is approximately 12 months following the Bureau's issuance 
of this final rule.
    The Bureau believes 12 months is an appropriate compliance period 
for this final rule in general, particularly given the modifications 
and accommodations discussed below, and should provide financial 
institutions sufficient time to review the requirements of the final 
rule, implement the necessary system and operational changes, and for 
coordination and planning among all industry participants. The Bureau 
has specified an October 1, 2017 effective date for the final rule in 
general, rather than making it contingent on publication of the final 
rule in the Federal Register, for several reasons. The Bureau believes 
an October 1, 2017 effective date will not interfere with holiday 
season system freezes and peak time demands, which commenters stated 
generally spans October through April, and setting a date certain in 
this context will provide more clarity and comfort to industry in this 
regard. (In response to related concerns raised by commenters, the 
Bureau believes that, given the modification to eliminate the proposed 
pull and replace requirement, and given that the liability shift for 
EMV cards took place in late 2015, the impact regarding the roll-out of 
EMV-enabled cards will be minimal, if at all.) In addition, the Bureau 
has included in regulatory text and commentary several detailed 
provisions and examples involving dates that it believes will be easier 
for industry to understand if a particular effective date is 
specified.\522\ Finally, with respect to the Regulation Z portion of 
this final rule, TILA section 105(d) generally provides that a 
regulation requiring any disclosure that differs from the disclosures 
previously required by parts A, D, or E of TILA ``shall have an 
effective date of that October 1 which follows at least six months the 
date of promulgation.'' \523\
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    \522\ See, e.g., final Sec. Sec.  1005.18(b)(2)(ix) and 1005.19. 
See also the specific accommodations surrounding the effective date 
in final Sec.  1005.18(h)(2) and (3) discussed herein.
    \523\ 15 U.S.C. 1604(d). This section also provides, however, 
that the Bureau may at its discretion lengthen the period of time 
permitted for creditors or lessors to adjust their forms to 
accommodate new requirements or shorten the length of time for 
creditors or lessors to make such adjustments when it makes a 
specific finding that such action is necessary to comply with the 
findings of a court or to prevent unfair or deceptive disclosure 
practices. Id.
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    The Bureau seeks to ensure that consumers receive the benefit of 
the protections in this final rule as soon as possible and therefore 
declines to provide financial institutions additional time beyond the 
12-month compliance period, except as discussed herein, to comply with 
specific portions of the rule, as suggested by commenters. With respect 
to an industry commenter's request to continue overdraft services for 
six months after the effective date without being subject to the final 
rule in order to inform consumers of changes to those services, the 
Bureau believes the overall change to a 12-month effective date should 
provide sufficient time to provide such notice to consumers. The Bureau 
does not believe any further modifications or extensions to the 
effective date are necessary or appropriate. Regarding commenters' 
concern about the time needed to handle inadvertent overdrafts such as 
those resulting from force pay transactions, the Bureau has generally 
excluded such transactions from coverage under Regulation Z.\524\
---------------------------------------------------------------------------

    \524\ See final Regulation Z Sec.  1026.61(a)(4).
---------------------------------------------------------------------------

    Regarding commenters' request to grandfather in or provide a 
timeframe to amend or rebid existing vendor contracts, the Bureau does 
not believe this is necessary and thus declines to do so; however, the 
Bureau believes the

[[Page 84125]]

modification to eliminate the proposed pull and replace requirement for 
preprinted packaging materials will help ameliorate commenters' 
concerns until new contracts can be executed.
    The Bureau believes a 12-month compliance period is sufficient for 
financial institutions to make system and operational changes to comply 
with this final rule, especially given the modifications and 
accommodations discussed herein. Regarding commenters' concern about 
the time needed to design new disclosures, the Bureau is providing 
native design files (for print disclosures) and source code (for web-
based disclosures) for all of the model and sample disclosures forms 
included in the final rule to aid in their development.\525\ The Bureau 
is also committed to working with industry to help address and 
alleviate burden through regulatory implementation support and 
guidance.\526\ With respect to commenters' concern about the time 
needed to change the process for providing disclosures prior to the 
acquisition of government benefit accounts, payroll card accounts, and 
campus cards, the final rule specifically clarifies the timing of 
acquisition requirements in final comment 18(b)(1)(i)-1 for payroll 
card accounts and prepaid accounts generally, and in final comments 
15(c)-1 and -2 for government benefit accounts. These revisions are 
consistent with the current practices of many employers and government 
agencies and therefore should not necessitate significant modifications 
to current procedures. See the section-by-section analyses of 
Sec. Sec.  1005.18(b)(1)(i) and 1005.15(c) for additional information 
regarding the timing for delivery of pre-acquisition disclosures.
---------------------------------------------------------------------------

    \525\ These files are available at www.consumerfinance.gov/prepaid-disclosure-files.
    \526\ See, e.g., https://www.consumerfinance.gov/policy-compliance/guidance/implementation-guidance/prepaid.
---------------------------------------------------------------------------

    Regarding commenters' concern about the time needed to implement 
changes to comply with the periodic statement alternative in Sec.  
1005.18(c)(1) and the summary totals of fees requirement in Sec.  
1005.18(c)(5), the Bureau believes the modifications made to those 
provisions should aid industry in coming into compliance with those 
requirements. Specifically, the Bureau has modified Sec.  
1005.18(c)(1)(ii) to require at least 12 months of electronic account 
transaction history, which commenters stated many financial 
institutions already make available, and therefore any changes needed 
to comply with that portion of the rule should be minimal. Likewise, 
providing at least 24 months of written account transaction history 
pursuant to final Sec.  1005.18(c)(1)(iii) should have minimal impact 
on existing business processes because many financial institutions 
currently archive several years of account information.\527\ Moreover, 
the Bureau has modified Sec.  1005.18(c)(4), renumbered as Sec.  
1005.18(c)(5), to require financial institutions to provide the summary 
totals of fees only and has removed the proposed requirement to provide 
summary totals of all deposits to and debits from a consumer's prepaid 
account. The Bureau also believes the accommodation set forth in Sec.  
1005.18(h)(3) for financial institutions that do not have readily 
available the data necessary to comply fully with the periodic 
statement alternative or summary totals of fees requirements as of the 
effective date should provide financial institutions the time needed to 
comply with the final rule. See the section-by-section analysis of 
Sec.  1005.18(c) for additional information regarding the periodic 
statement alternative and the summary totals of fees requirement.
---------------------------------------------------------------------------

    \527\ See the section-by-section analyses of Sec.  
1005.18(c)(1)(ii) and (iii) above.
---------------------------------------------------------------------------

    The Bureau has also made several revisions to address commenters' 
concerns regarding the time needed to comply with the requirements to 
submit prepaid account agreements to the Bureau pursuant to final Sec.  
1005.19(b) and to post agreements on the issuer's Web site pursuant to 
final Sec.  1005.19(c). With respect to the submission requirement, the 
final rule sets forth a delayed effective date in final Sec.  
1005.19(f)(2), which will provide issuers the time needed to develop 
and implement their own internal processes and procedures for 
submitting agreements to the Bureau. Regarding the posting requirement, 
the Bureau believes the modification in final Sec.  1005.19(c) to 
require issuers to post on their Web sites only agreements that are 
offered to the general public will reduce the number of agreements at 
least some issuers must post and therefore should decrease the amount 
of time needed to comply with this requirement relative to the 
proposal. In addition, the Bureau believes many issuers already post 
these agreements to their Web sites. See the section-by-section 
analysis of Sec.  1005.19 for additional information about the prepaid 
account agreement submission and posting requirements and the related 
effective dates.
    18(h)(2)(i). Final Sec.  1005.18(h)(2)(i) establishes an exception 
for non-compliant disclosures on existing prepaid account access 
devices and packaging materials. Specifically, it provides that the 
disclosure requirements of subpart A of Regulation E, as modified by 
final Sec.  1005.18, shall not apply to any disclosures that are 
provided, or that would otherwise be required to be provided, on 
prepaid account access devices, or on, in, or with prepaid account 
packaging materials that were manufactured, printed, or otherwise 
produced in the normal course of business prior to October 1, 2017.
    The Bureau is not adopting the proposed requirement that financial 
institutions and their third-party distribution agents remove from 
retail store shelves and other distribution channels any prepaid 
accounts with disclosures not fully in compliance with the final rule 
as of the effective date. Thus, financial institutions are not required 
to pull and replace prepaid account access devices and packaging 
materials that do not contain new disclosures required by this final 
rule (such as the short form disclosure) or that contain disclosures 
that are no longer accurate as a result of this final rule (such as a 
disclosure stating that at least 60 days of electronic and written 
account transaction history are available under the periodic statement 
alternative, rather than 12 and 24 months of history, respectively, as 
required by this final rule). Likewise, financial institutions are not 
required to retrieve from consumers prepaid account access devices, 
such as prepaid cards, that were distributed prior to the effective 
date. The Bureau believes this modification will help to reduce the 
demand on packaging manufacturers, which commenters stated would have 
strained resources and caused delays in the production process, and 
will also mitigate the waste that would have been associated with 
pulling and replacing packaging with non-compliant disclosures. 
Financial institutions are not required to provide the pre-acquisition 
disclosures pursuant to final Sec.  1005.18(b) prior to October 1, 
2017.
    The Bureau is adopting new comment 18(h)-1 to explain that the 
October 1, 2017 effective date applies to disclosures made available or 
provided to consumers electronically, orally by telephone, or in a form 
other than on pre-printed materials, such as disclosures printed on 
paper by a financial institution upon a consumer's request. In 
addition, the Bureau is adopting new comment 18(h)-2 to provide 
examples of disclosures that would fall under the exception set forth 
in Sec.  1005.18(h)(2)(i) and to make clear that disclosures and access 
devices that

[[Page 84126]]

are manufactured, printed, or otherwise produced on or after October 1, 
2017 must comply with all the requirements of subpart A of Regulation 
E.
    18(h)(2)(ii). Because the final rule does not require financial 
institutions to pull and replace packaging materials manufactured, 
printed, or otherwise produced before October 1, 2017, the Bureau 
believes it is appropriate to require financial institutions to provide 
a notice of certain changes and updated initial disclosures to 
consumers who acquire prepaid accounts on or after October 1, 2017 via 
such non-compliant packaging materials. Specifically, new Sec.  
1005.18(h)(2)(ii)(A) requires that, if a financial institution has 
changed a prepaid account's terms and conditions as a result of this 
final rule taking effect such that a change-in-terms notice would have 
been required under Sec.  1005.8(a) or Sec.  1005.18(f)(2) for existing 
customers, the financial institution must provide to the consumer a 
notice of the change within 30 days of obtaining the consumer's contact 
information. Separately, Sec.  1005.18(h)(2)(ii)(B) requires that the 
financial institution mail or deliver to the consumer initial 
disclosures pursuant to Sec.  1005.7 and Sec.  1005.18(f)(1) that have 
been updated as a result of this final rule taking effect, within 30 
days of obtaining the consumer's contact information. The Bureau notes 
that financial institutions must mail or deliver initial disclosures 
pursuant to Sec.  1005.18(h)(2)(ii)(B) even if Sec.  
1005.18(h)(2)(ii)(A) does not apply.
    Because of changes made in the final rule relative to the proposal, 
the Bureau believes that it is even less likely that financial 
institutions will make broad changes to their prepaid programs as a 
result of the final rule taking effect of the kind that would trigger 
requirements to provide a change-in-terms notice to existing customers 
under Sec.  1005.8(a) or Sec.  1005.18(f)(2). Those rules require that 
existing customers be provided with an advance notice in writing only 
for changes that would result for the consumer in increased fees, 
increased liability, fewer types of available EFTs, or stricter 
limitations on the frequency or dollar amount of transfers. For 
instance, because the final rule requires that Regulation E limited 
liability and error resolution requirements apply to all accounts, even 
if they are not registered or verified, the Bureau no longer 
anticipates that financial institutions would be making changes to 
their account agreements that would increase liability for consumers. 
However, based on comments the Bureau received from industry, the 
Bureau is aware that some financial institutions anticipate 
discontinuing an available EFT service as it is currently offered as a 
result of the final rule taking effect, in that the new requirements 
imposed on overdraft credit features offered in conjunction with 
prepaid accounts would require certain program restructuring in ways 
that may affect availability in certain circumstances or for certain 
consumers.
    In light of these circumstances, the Bureau believes it is 
appropriate to impose a requirement (in Sec.  1005.18(h)(2)(ii)(A)) on 
financial institutions that is parallel to the spirit of Regulation E 
change-in-terms requirements to notify consumers who acquire a prepaid 
account after the effective date of the final rule via non-compliant 
packaging if such changes to the prepaid account's terms and conditions 
are being made as a result of the rule taking effect. Accordingly, 
Sec.  1005.18(h)(2)(ii) requires such notice to be provided, via the 
method specified in Sec.  1005.18(h)(2)(iv), within 30 days of 
obtaining the consumer's contact information.
    While the Bureau believes that changes to existing programs' terms 
and conditions as a result of this final rule taking effect that would 
trigger change-in-terms requirements under Regulation E for existing 
customers will be rare, the Bureau expects that financial institutions 
will make other types of changes to their initial disclosures pursuant 
to Sec. Sec.  1005.7 and 1005.18(f)(1) in response to this final rule. 
Accordingly, in light of the decision not to require that outdated 
packaging be pulled and replaced, the Bureau believes it is appropriate 
to require (in Sec.  1005.18(h)(2)(ii)(B)) that consumers who acquire a 
prepaid account with packaging that was printed prior to the effective 
date receive updated initial disclosures that accurately describe the 
account's terms, conditions, and related information as required under 
the final rule.
    The Bureau is adopting Sec.  1005.18(h)(2)(ii) pursuant to its 
authority under EFTA sections 904(a) and (c) and 905(a), and section 
1032 of the Dodd-Frank Act. The Bureau believes that the notices 
required pursuant to new Sec.  1005.18(h)(2)(ii) will, consistent with 
section 1032(a) of the Dodd-Frank Act, ensure that the features of the 
prepaid accounts are fully, accurately, and effectively disclosed to 
consumers in a manner that permits consumers to understand the costs, 
benefits, and risks associated with the account. In addition, 
consistent with EFTA sections 904 and 905(a), the Bureau believes the 
updated initial disclosures will help consumers understand the new 
terms of their prepaid accounts, as authorized under EFTA section 
904(a) and (c) to effectuate the purposes of EFTA.\528\
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    \528\ The Bureau notes that this approach is similar to EFTA 
section 905(c), which provided that for any account of a consumer 
made accessible prior to EFTA's effective date, the initial 
disclosures required by EFTA section 905(a) were required to have 
been disclosed not later than the earlier of (1) the first periodic 
statement required by EFTA section 906(c) after EFTA's effective 
date or (2) 30 days after EFTA's effective date.
---------------------------------------------------------------------------

    Because financial institutions generally mail to consumers a 
personalized prepaid card embossed with the consumer's name, and other 
informational materials, after the account is registered, the Bureau 
believes that requiring financial institutions to include a notice of 
the applicable changes to the prepaid account's terms and conditions 
and the updated initial disclosures in that mailing will impose very 
little burden on industry. Further, as discussed under new Sec.  
1005.18(h)(2)(iv) below, a financial institution is permitted to 
deliver the notice and disclosures electronically, without regard to E-
Sign consent, if it is not otherwise already mailing or delivering to 
the consumer written account-related communications within the time 
periods specified in new Sec.  1005.18(h)(2)(ii). The Bureau believes 
that the combined effect of new Sec.  1005.18(h)(2)(i) and (ii) will 
help reduce compliance burden on industry relative to the proposal, 
while still providing appropriate transparency to consumers.
    18(h)(2)(iii). The Bureau is adopting new Sec.  1005.18(h)(2)(iii) 
to specify and balance burden concerns with respect to providing 
notices of changes to prepaid accounts' terms and conditions to 
consumers who acquired prepaid accounts before October 1, 2017. As with 
Sec.  1005.18(h)(2)(ii) discussed above, the Bureau recognizes that 
some financial institutions may make changes to prepaid account terms 
and conditions as a result of this final rule taking effect that would 
otherwise require a change-in-terms notice under Regulation E, in that 
the new requirements imposed on overdraft credit features offered in 
conjunction with prepaid accounts would require certain program 
restructuring in ways that may affect availability in certain 
circumstances or to certain consumers. The Bureau believes that 
financial institutions that offer such features typically require 
consumers to consent to delivery of electronic disclosures pursuant to 
the E-Sign Act before any credit is extended, but there may be other 
consumers with prepaid accounts in the same prepaid account program who 
have never sought

[[Page 84127]]

to activate that feature on their prepaid accounts and who have not 
specifically consented to electronic delivery.
    In light of these unusual circumstances and other considerations 
with regard to general implementation of the final rule, the Bureau 
believes that financial institutions may choose to effectuate such 
changes in terms as of October 1, 2017, or may want to do so earlier 
depending on operational convenience. New Sec.  1005.18(h)(2)(iii), 
which applies to prepaid accounts acquired by consumers before October 
1, 2017, is designed to address both scenarios. Specifically, it 
provides that if a financial institution has changed a prepaid 
accounts' terms and conditions as a result of this final rule taking 
effect such that a change-in-terms notice would have been required 
under Sec.  1005.8(a) or Sec.  1005.18(f)(2) for existing customers, 
the financial institution must provide to the consumer a notice of the 
change at least 21 days in advance of the change becoming effective, 
provided the financial institution has the consumer's contact 
information. If the financial institution obtains the consumer's 
contact information less than 30 days in advance of the change becoming 
effective or after it has become effective, the financial institution 
is permitted instead to notify the consumer of the change in accordance 
with the timing requirements set forth in Sec.  1005.18(h)(2)(ii)(A). 
The financial institution is not required to send a change-in-terms 
notice for such change pursuant to Sec.  1005.8(a) or Sec.  
1005.18(f)(2). As discussed under new Sec.  1005.18(h)(2)(iv) below, a 
financial institution may provide the notice pursuant to Sec.  
1005.18(h)(2)(iii) in electronic form without regard to the consumer 
notice and consent requirements of section 101(c) of the E-Sign Act in 
certain circumstances.
    The Bureau believes this special notice requirement provides 
appropriate flexibility to financial institutions in informing 
consumers with regard to changes to their accounts as a result of the 
final rule taking effect. The Bureau emphasizes, however, that all 
changes to a prepaid account's terms and conditions as a result of this 
final rule taking effect must nevertheless become effective by October 
1, 2017. That is, if a financial institution were to provide to a 
consumer a notice of a change that is subject to Sec.  
1005.18(h)(2)(iii) on September 20, the change must nonetheless become 
effective by October 1; a financial institution is not permitted to 
delay the effective date of such a change until October 11 (i.e., 21 
days after the financial institution notified the consumer).
    The Bureau is adopting Sec.  1005.18(h)(2)(iii) pursuant to its 
authority under EFTA sections 904(a) and (c), and section 1032 of the 
Dodd-Frank Act. EFTA section 905(b) requires financial institutions to 
notify consumers in writing at least 21 days prior to the effective 
date of any change in any term or condition of the consumer's account 
if such change would result in greater cost or liability for such 
consumer or decreased access to the consumer's account. Because of the 
unique circumstances involved in effectuating the final rule 
particularly with regard to consumers who have never sought to activate 
a credit or overdraft feature in conjunction with a prepaid account and 
consumers who may be acquiring prepaid accounts close to the date that 
certain services are discontinued or restricted, the Bureau is 
exempting financial institutions in this limited circumstance from 
complying with the change-in-terms notice requirements in Sec.  
1005.8(a) and Sec.  1005.18(f)(2). Instead, financial institutions must 
notify consumers of the change, using the method specified in Sec.  
1005.18(h)(2)(iv), 21 days in advance of the change taking effect or, 
in some circumstances, within 30 days of obtaining the consumer's 
contact information. Pursuant to EFTA section 904(c), the Bureau 
believes that exemption from the change-in-terms notice requirement is 
necessary and proper to effectuate the purposes of EFTA to provide a 
framework to establish the rights, liabilities, and responsibilities of 
prepaid account consumers and to facilitate compliance, by assisting 
consumers' understanding of the new terms and conditions of their 
prepaid accounts that are purchased in outdated packaging. In addition, 
the Bureau believes that the notice to consumers regarding changes to 
terms and conditions pursuant to Sec.  1005.18(h)(2)(iii) will, 
consistent with section 1032(a) of the Dodd-Frank Act, ensure that the 
features of the prepaid accounts are fully, accurately, and effectively 
disclosed to consumers in a manner that permits consumers to understand 
the costs, benefits, and risks associated with the account.
    Although the Bureau did not propose, nor is it finalizing, a 
requirement that financial institutions to provide updated initial 
disclosures to all consumers who opened prepaid accounts prior to the 
effective date of this final rule, the Bureau notes that it believes it 
would nonetheless be beneficial for financial institutions to provide 
updated initial disclosures to existing customers so that they will 
understand their rights under the new regime and to avoid potential 
consumer confusion. Accordingly, as discussed in connection with Sec.  
1005.18(h)(2)(iv) below, the Bureau has provided a special rule to 
facilitate delivery of such communications.
    18(h)(2)(iv). The Bureau is adopting new Sec.  1005.18(h)(2)(iv) to 
facilitate delivery of notices of certain changes and updated initial 
disclosures for prepaid accounts governed by Sec.  1005.18(h)(2)(ii) or 
(iii). Specifically, it provides that for these accounts, if a 
financial institution has not obtained a consumer's consent to provide 
disclosures in electronic form pursuant to the E-Sign Act, or is not 
otherwise already mailing or delivering to the consumer written 
account-related communications within the respective time periods 
specified in Sec.  1005.18(h)(2)(ii) or (iii), the financial 
institution may provide to the consumer a notice of a change in terms 
and conditions pursuant to Sec.  1005.18(h)(2)(ii) or (iii) or required 
or voluntary updated initial disclosures as a result of this final rule 
taking effect in electronic form without regard to the consumer notice 
and consent requirements of section 101(c) of the E-Sign Act.
    As discussed above, the Bureau has decided, in response to 
comments, that financial institutions should not be required to pull 
and replace prepaid account packaging materials with non-compliant 
disclosures that were produced in the normal course of business prior 
to October 1, 2017. In addition, the Bureau believes specific 
provisions are necessary to address how financial institutions should 
provide notices of certain changes to prepaid account terms and 
conditions and updated initial disclosures for prepaid accounts that 
are acquired via outdated packaging. As discussed above, the Bureau 
believes that most financial institutions will be able to send the 
notices and disclosures pursuant to Sec.  1005.18(h)(2)(ii) and (iii) 
at the same time it sends an embossed card following account 
registration, and therefore there should be little additional burden. 
For existing customers from whom the financial institution has not 
already obtained consent to receive disclosures electronically pursuant 
to the E-Sign Act, or for customers to whom the financial institution 
is not otherwise mailing or delivering written account-related 
communications during the relevant time period, the Bureau believes 
that permitting electronic delivery of notices of changes in terms and 
conditions pursuant to Sec.  1005.18(h)(2)(ii) or (iii) or required or

[[Page 84128]]

voluntary updated initial disclosures as a result of this final rule 
taking effect will minimize compliance burden while still facilitating 
consumers' understanding of the new terms and conditions of their 
prepaid accounts in a timely way. Accordingly, new Sec.  
1005.18(h)(2)(iv) addresses delivery of voluntary disclosures as well 
as disclosures that are specifically required under final rule Sec.  
1005.18(h)(2)(ii) and (iii) in order to incentivize and facilitate such 
communications.
    The Bureau is adopting new comments 18(h)-3, -4, and -5 to provide 
further guidance regarding the provision of consumers with notices 
pursuant to final Sec.  1005.18(h)(2). Specifically, new comment 18(h)-
3 explains that a financial institution that is required to notify 
consumers of a change in terms and conditions pursuant to Sec.  
1005.18(h)(2)(ii) or (iii), or that otherwise provides updated initial 
disclosures as a result of this final rule taking effect, may provide 
the notice or disclosures either as a separate document or included in 
another notice or mailing that the consumer receives regarding the 
prepaid account to the extent permitted by other laws and regulations. 
New comment 18(h)-4 explains that a financial institution that has not 
obtained the consumer's contact information is not required to comply 
with the requirements set forth in Sec.  1005.18(h)(2)(ii) or (iii). A 
financial institution is able to contact the consumer when, for 
example, it has the consumer's mailing address or email address.
    The Bureau is adopting new comment 18(h)-5 to explain the 
requirements for closed and inactive accounts. Specifically, new 
comment 18(h)-5 explains that the requirements of Sec.  
1005.18(h)(2)(iii) do not apply to prepaid accounts that are closed or 
inactive, as defined by the financial institution. However, if an 
inactive account becomes active, the financial institution must comply 
with the applicable portions of those provisions within 30 days of the 
account becoming active again in order to avail itself of the timing 
requirements and accommodations set forth in Sec.  1005.18(h)(2)(iii) 
and (iv).
    18(h)(3). As discussed above, the Bureau is adopting new Sec.  
1005.18(h)(3) and new comment 18(h)-6 to provide an accommodation for 
financial institutions that do not have sufficient data in a readily 
accessible form in order to fully comply with the requirements for 
providing electronic and written account transaction history pursuant 
to final Sec.  1005.18(c)(1)(ii) and (iii) and the summary totals of 
fees pursuant to final Sec.  1005.18(c)(5) by October 1, 2017. New 
Sec.  1005.18(h)(3)(i) provides that if, on October 1, 2017, a 
financial institution does not have readily accessible the data 
necessary to make available 12 months of electronic account transaction 
history pursuant to final Sec.  1005.18(c)(1)(ii) or to provide 24 
months of written account transaction history upon request pursuant to 
final Sec.  1005.18(c)(1)(iii), the financial institution may make 
available or provide such histories using the data for the time period 
it has until the financial institution has accumulated the data 
necessary to comply in full with the requirements set forth in Sec.  
1005.18(c)(1)(ii) and (iii).
    New comment 18(h)-6.i provides the following example to illustrate 
the provisions of final Sec.  1005.18(h)(3)(i): a financial institution 
that had been retaining only 60 days of account history before October 
1, 2017 would provide 60 days of written account transaction history 
upon a consumer's request on October 1, 2017. If, on November 1, 2017, 
the consumer made another request for written account transaction 
history, the financial institution would be required to provide three 
months of account history. The financial institution must continue 
provide as much account history as it has accumulated at the time of a 
consumer's request until it has accumulated 24 months of account 
history. Thus, all financial institutions must fully comply with the 
electronic account transaction history requirement set forth in Sec.  
1005.18(c)(1)(ii) no later October 1, 2018 and must fully comply with 
the written account transaction history requirement set forth in Sec.  
1005.18(c)(1)(iii) no later October 1, 2019.
    Similarly, new Sec.  1005.18(h)(3)(ii) provides that if, on October 
1, 2017, the financial institution does not have readily accessible the 
data necessary to calculate the summary totals of the amount of all 
fees assessed by the financial institution on the consumer's prepaid 
account for the prior calendar month and for the calendar year to date 
pursuant to Sec.  1005.18(c)(5), the financial institution may display 
the summary totals using the data it has until the financial 
institution has accumulated the data necessary to display the summary 
totals as required by Sec.  1005.18(c)(5). New comment 18(h)-6.ii 
explains that if, on October 1, 2017, the financial institution does 
not have readily accessible the data necessary to calculate the summary 
totals of fees for the prior calendar month or the calendar year to 
date, the financial institution may provide the summary totals using 
the data it has until the financial institution has accumulated the 
data necessary to display the summary totals as required by Sec.  
1005.18(c)(5). That is, the financial institution would first display 
the monthly fee total beginning on November 1, 2017 for the month of 
October, and the year-to-date fee total beginning on October 1, 2017, 
provided the financial institution discloses that it is displaying the 
year-to-date total beginning on October 1, 2017 rather than for the 
entire calendar year 2017. On January 1, 2018, financial institutions 
must begin displaying year-to-date fee totals for calendar year 2018.
    19(f). The effective dates for the prepaid account agreement 
submission and posting requirements in final Sec.  1005.19 are 
discussed in more detail in the section-by-section analysis of Sec.  
1005.19(f) below. Final Sec.  1005.19(f)(1) provides that the 
requirements of final Sec.  1005.19 apply to prepaid accounts beginning 
on October 1, 2017, except as provided in final Sec.  1005.19(f)(2), 
which sets forth a delayed effective date of October 1, 2018 for the 
requirement to submit prepaid account agreements to the Bureau on a 
rolling basis pursuant to final Sec.  1005.19(b).
Section 1005.19 Internet Posting of Prepaid Account Agreements
    In 2009, section 204 of the Credit CARD Act added new TILA section 
122(d) to require creditors to post agreements for open-end consumer 
credit card plans on the creditor's Web sites and to submit those 
agreements to the Board for posting on a publicly-available Web site 
established and maintained by the Board.\529\ The Board implemented 
these provisions in what is now Regulation Z Sec.  1026.58.\530\ The 
Bureau's receipt of credit card agreements pursuant to Regulation Z 
Sec.  1026.58 has aided the Bureau in its market monitoring functions, 
and the Bureau's posting of those credit card agreements on its Web 
site may, among other things, enable consumers to more effectively 
compare credit cards.
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    \529\ 15 U.S.C. 1632(d).
    \530\ In 2015, the Bureau suspended temporarily the requirement 
that credit card issuers submit agreements to the Bureau. See 
Regulation Z Sec.  1026.58(g); 80 FR 21153 (Apr. 17, 2015). The 
temporary suspension expired one year later. See 81 FR 19467 (Apr. 
5, 2016).
---------------------------------------------------------------------------

    The Bureau proposed and is finalizing Sec.  1005.19 for 
substantially the same reasons with respect to prepaid accounts. 
Specifically, the Bureau proposed Sec.  1005.19 to require prepaid 
account issuers to submit agreements for prepaid accounts to the Bureau 
for posting on a publicly-available Web site established and maintained 
by the

[[Page 84129]]

Bureau. The Bureau also proposed to require issuers to make prepaid 
account agreements available to the public on the issuers' own Web 
sites or, in certain limited circumstances, provide agreements directly 
to consumers holding prepaid accounts via a restricted Web site or in 
writing upon request. The Bureau expects to use the prepaid account 
agreements it receives from issuers pursuant to Sec.  1005.19 to assist 
in its market monitoring efforts pursuant to its authority under Dodd-
Frank Act section 1022(c)(1) and (4). In addition, the Bureau believes 
that posting prepaid account agreements on the Bureau's Web site in the 
future will allow consumers to more easily compare terms of prepaid 
accounts currently in the marketplace as well as facilitate third 
parties' analysis of prepaid accounts and the development of online 
shopping tools. Consumers will also benefit from having access to their 
prepaid account agreements available through the issuers' Web sites (or 
available upon request in limited instances).
    The specific requirements in proposed Sec.  1005.19 largely 
mirrored existing provisions in Regulation Z Sec.  1026.58. The final 
rule mirrors Regulation Z Sec.  1026.58 in many respects as well, 
although the final rule deviates from the proposal and Regulation Z 
Sec.  1026.58 in some instances, as discussed below. The Bureau expects 
these rules to generally function in the same manner, albeit with 
certain modifications made in proposed Sec.  1005.19 to address 
differences between the credit card and prepaid account markets. 
However, the requirements of Regulation Z Sec.  1026.58 and those of 
Sec.  1005.19 are distinct and independent of one another. In other 
words, issuers must comply with both as appropriate. The Bureau notes, 
however, that it does not believe it is likely that any agreement will 
constitute both a credit card agreement and a prepaid account agreement 
and thus be required to be submitted under both Sec.  1005.19 and 
Regulation Z Sec.  1026.58. Given the requirement in new Regulation Z 
Sec.  1026.61(b) that credit features accessible by hybrid prepaid-
credit cards generally must be structured as separate sub-accounts or 
accounts distinct from the prepaid asset account, in conjunction with 
the account-opening disclosure requirements in existing Regulation Z 
Sec.  1026.6 and the initial disclosure requirements in existing Sec.  
1005.7(b) as well as final Sec.  1005.18(f)(1), the Bureau believes it 
is unlikely that an issuer would use a single agreement to provide all 
such disclosures for both a prepaid account and for a covered separate 
credit feature.
    The Bureau proposed and is finalizing Sec.  1005.19 pursuant to its 
disclosure authority in EFTA section 905(a), its adjustment authority 
in EFTA section 904(c), and its authority in section 1032(a) of the 
Dodd-Frank Act. The Bureau believes collection and disclosure of the 
agreements allows for clear and accessible disclosure of the terms and 
conditions of prepaid accounts, and is necessary and proper to 
effectuate the purposes of EFTA to provide a framework to establish the 
rights, liabilities, and responsibilities of prepaid account consumers, 
because the final rule will assist consumers' understanding of and 
shopping for prepaid accounts based on the terms and conditions of 
those accounts. In addition, collection and disclosure of the 
agreements will, consistent with section 1032(a) of the Dodd-Frank Act, 
permit the Bureau to prescribe rules to ensure that the features of any 
consumer financial product or service, both initially and over the term 
of the product or service, are fully, accurately, and effectively 
disclosed to consumers in a manner that permits consumers to understand 
the costs, benefits, and risks associated with the product or service, 
in light of the facts and circumstances. The Bureau also proposed and 
is finalizing Sec.  1005.19 pursuant to its authority in section 
1022(c)(4) of the Dodd-Frank Act. Section 1022(c)(1) of the Dodd-Frank 
Act directs the Bureau to monitor for risks to consumers in the 
offering or provision of consumer financial products or services, 
including developments in markets for such products or services. In 
support of this function, the Bureau has authority under section 
1022(c)(4) to gather information from time to time regarding the 
organization, business conduct, markets, and activities of covered 
persons and service providers. Thus, pursuant to the Bureau's authority 
under section 1022(c), the Bureau is finalizing a requirement that 
prepaid account issuers submit prepaid account agreements to the Bureau 
on a rolling basis, subject to certain exceptions, in order to aid the 
Bureau's monitoring for risks to consumers in the offering or provision 
of consumer financial products or services under section 1022(c)(1) and 
(4) of the Dodd-Frank Act.
    In the future, the Bureau intends to publish on its Web site a 
database of the prepaid account agreements collected, similar to the 
database currently available for credit card agreements. Under section 
1022(c)(3) of the Dodd-Frank Act, the Bureau ``shall publish not fewer 
than 1 report of significant findings of its monitoring required by 
this subsection in each calendar year,'' and ``may make public such 
information obtained by the Bureau under this section as is in the 
public interest.'' The Bureau is not finalizing proposed Sec.  
1005.19(b)(7) regarding posting of agreements on the Bureau's Web site, 
however, given that the requirement speaks to the Bureau's actions and 
not to regulated entities, and thus there is no need to finalize the 
provision through regulatory text.
    For the reasons discussed below, the Bureau is generally finalizing 
Sec.  1005.19 as proposed with certain modifications as summarized here 
and discussed in detail below. Specifically, the Bureau is finalizing 
Sec.  1005.19(a) largely as proposed, but is adopting new Sec.  
1005.19(a)(6) to define the term ``offers to the general public'' to 
accommodate a revision in final Sec.  1005.19(c) to require only 
agreements that are offered to the general public to be posted to the 
issuer's publicly available Web site. The Bureau is also finalizing 
Sec.  1005.19(b) with several modifications to revise the time period 
in which issuers must submit agreements to the Bureau from a quarterly 
basis to a rolling basis. Furthermore, the Bureau is adopting new Sec.  
1005.19(b)(1)(v) to add to the list of criteria set forth in Sec.  
1005.19(b)(1)(i) through (iv) that issuers must also include in their 
submission any other identifying information about each agreement, as 
required by the Bureau, which may include the effective date, the name 
of the program manager, and the name of other relevant parties, if 
applicable, such as the employer for a payroll card program. In 
addition, as discussed above, the Bureau has removed proposed Sec.  
1005.19(b)(7) regarding posting of agreements on the Bureau's Web site, 
though the Bureau still intends to publish the agreements it receives 
in the future. The Bureau is finalizing the general requirement in 
Sec.  1005.19(c) that issuers post and maintain prepaid account 
agreements on their publicly available Web sites, except if those 
agreements are not available to the general public or if they qualify 
for one of the proposed exceptions. The Bureau is also finalizing the 
general requirement in Sec.  1005.19(d) to provide consumers with 
access to their individual prepaid account agreements. Furthermore, the 
Bureau is finalizing Sec.  1005.19(e) as proposed to waive the 
requirement that issuers obtain E-Sign consent from consumers in order 
to provide prepaid account agreements in electronic form pursuant

[[Page 84130]]

to Sec.  1005.19(c) and (d). Finally, the Bureau is adopting new Sec.  
1005.19(f) to state that the requirements of final Sec.  1005.19 apply 
to prepaid accounts beginning on October 1, 2017, except for the 
requirement to submit prepaid account agreements to the Bureau on a 
rolling basis pursuant to final Sec.  1005.19(b), which has a delayed 
effective date of October 1, 2018.
19(a) Definitions
    The Bureau proposed in Sec.  1005.19(a) certain definitions 
specific to proposed Sec.  1005.19. The Bureau is largely finalizing 
Sec.  1005.19(a) as proposed, with several modifications as discussed 
below.
19(a)(1) Agreement
    The Bureau proposed Sec.  1005.19(a)(1) to define ``agreement'' or 
``prepaid account agreement'' for purposes of proposed Sec.  1005.19 as 
the written document or documents evidencing the terms of the legal 
obligation, or prospective legal obligation, between a prepaid account 
issuer and a consumer for a prepaid account. An agreement or prepaid 
account agreement would have also included fee information, as defined 
in proposed Sec.  1005.19(a)(3), discussed below. Proposed Sec.  
1005.19(a)(1) would have mirrored the definition of ``agreement'' or 
``credit card agreement'' in Regulation Z Sec.  1026.58(b)(1).
    Proposed comment 19(a)(1)-1 would have explained that an agreement 
may consist of several documents that, taken together, define the legal 
obligation between the issuer and the consumer. The Bureau did not 
include the second part of Regulation Z comment 58(b)(1)-2, which gives 
the example of provisions that mandate arbitration or allow an issuer 
to unilaterally alter the terms of the card issuer's or consumer's 
obligation are part of the agreement even if they are provided to the 
consumer in a document separate from the basic credit contract. The 
Bureau did not believe that prepaid account agreements contain 
arbitration clauses or provisions allowing the issuer to unilaterally 
alter contract terms in documents that are separate from the main 
agreement, and therefore does not believe such examples are necessary 
to include in proposed comment 19(a)(1)-1. The Bureau also did not 
include a comment similar to Regulation Z comment 58(b)(1)-1, which 
addresses inclusion of certain pricing information in a credit card 
agreement, as the Bureau did not believe such a comment was relevant to 
prepaid accounts.
    The Bureau received no comments regarding this portion of the 
proposal. Accordingly, the Bureau is finalizing Sec.  1005.19(a)(1) and 
comment 19(a)(1)-1 as proposed.
19(a)(2) Amends
    The Bureau proposed Sec.  1005.19(a)(2) to provide that for 
purposes of proposed Sec.  1005.19, an issuer ``amends'' an agreement 
if it makes a substantive change (an ``amendment'') to the agreement. A 
change would have been considered substantive if it alters the rights 
or obligations of the issuer or the consumer under the agreement. Any 
change in the fee information, as defined in proposed Sec.  
1005.19(a)(3) would have been deemed to be substantive. Proposed Sec.  
1005.19(a)(2) mirrors the definition of the term amends in Regulation Z 
Sec.  1026.58(b)(2).
    With respect to Regulation Z Sec.  1026.58, the Board had 
determined that requiring resubmission of credit card agreements 
following minor, technical changes would impose a significant 
administrative burden with no corresponding benefit of increased 
transparency.\531\ The Bureau believed the same would be true for 
prepaid account issuers and therefore proposed a similar definition 
here.
---------------------------------------------------------------------------

    \531\ 75 FR 7658, 7760 (Feb. 22, 2010).
---------------------------------------------------------------------------

    Proposed comment 19(a)(2)-1 would have given examples of changes, 
other than changes to fee information, that generally would be 
considered substantive, including: (i) addition or deletion of a 
provision giving the issuer or consumer a right under the agreement, 
such as a clause that allows an issuer to unilaterally change the terms 
of an agreement; (ii) addition or deletion of a provision giving the 
issuer or consumer an obligation under the agreement, such as a clause 
requiring the consumer to pay an additional fee; (iii) changes that may 
affect the cost of the prepaid account to the consumer, such as changes 
in a provision describing how the prepaid account's monthly fee will be 
calculated; (iv) changes that may affect how the terms of the agreement 
are construed or applied, such as changes in a choice-of-law provision; 
and (v) changes that may affect the parties to whom the agreement may 
apply, such as provisions regarding authorized users or assignment of 
the agreement.
    Proposed comment 19(a)(2)-2 would have given examples of changes 
that generally would not be considered substantive, such as: (i) 
Correction of typographical errors that do not affect the meaning of 
any terms of the agreement; (ii) changes to the issuer's corporate 
name, logo, or tagline; (iii) changes to the format of the agreement, 
such as conversion to a booklet from a full-sheet format, changes in 
font, or changes in margins; (iv) changes to the name of the prepaid 
account to which the program applies; (v) reordering sections of the 
agreement without affecting the meaning of any terms of the agreement; 
(vi) adding, removing, or modifying a table of contents or index; and 
(vii) changes to titles, headings, section numbers, or captions.
    The Bureau received comments from two consumer groups regarding 
whether certain changes, such as to an issuer's corporate name or to 
the name of the prepaid account program to which the agreement applies, 
should be considered substantive for the purposes of Sec.  1005.19. 
These commenters argued that such changes should be deemed substantive, 
explaining that they could impact a consumer's or researcher's ability 
to find an agreement if it was searched for using a different name.
    For the reasons set forth herein, the Bureau is finalizing Sec.  
1005.19(a)(2) as proposed. The Bureau is also finalizing comment 
19(a)(2)-1 with several revisions. The Bureau has modified comment 
19(a)(2)-1 to include the following as examples of changes that would 
generally be considered substantive: changes to the corporate name of 
the issuer or program manager, or to the issuer's address or 
identifying number, such as its RSSD ID number or tax identification 
number; and changes to the names of other relevant parties, such as the 
employer for a payroll card program or the agency for a government 
benefit program; and changes to the name of the prepaid account program 
to which the agreement applies. In addition, the Bureau is finalizing 
comment 19(a)(2)-2 with corresponding revisions to remove changes to 
the name of the prepaid account program to which the agreement applies 
as an example of a change that generally would not be considered 
substantive. The Bureau agrees with commenters that if changes to the 
corporate name of the issuer or program manager and changes to the name 
of the prepaid account program to which the agreement applies are not 
reflected in agreements posted to the issuer's Web site or to the 
Bureau's Web site in the future, a consumer might not be able to locate 
an agreement for an existing prepaid account or effectively compare 
agreements when shopping for a new prepaid account. Other parties, such 
as researchers, would likely also find it difficult to locate 
particular agreements.
19(a)(3) Fee Information
    The Bureau proposed Sec.  1005.19(a)(3) to define ``fee 
information'' for purposes

[[Page 84131]]

of proposed Sec.  1005.19 as the information listed in the long form 
fee disclosure in proposed Sec.  1005.18(b)(2)(ii).
    Proposed Sec.  1005.19(a)(3) was similar to the definition of 
pricing information in Regulation Z Sec.  1026.58(b)(7), but omitted 
the exclusion for temporary or promotional rates and terms or rates and 
terms that apply only to protected balances, as the Bureau did not 
believe there is currently an equivalent to such rates and terms for 
prepaid accounts.
    The Bureau received comments from several consumer groups regarding 
whether issuers should be required to include the short form disclosure 
(required by proposed Sec.  1005.18(b)(2)(i)) in the definition of fee 
information and thus be required to submit it to the Bureau and post it 
on the issuer's Web site. Two consumer groups requested that issuers be 
required to submit short form disclosures to the Bureau for posting on 
the Bureau's Web site. Another consumer group stated that the short 
form disclosure should be required to be placed on either the issuer's 
homepage or the landing page for the product.
    The Bureau is finalizing Sec.  1005.19(a)(3) with several 
modifications. The Bureau is retaining the general definition of fee 
information from the proposal, but is modifying it to also include the 
short form disclosure. The Bureau has also made changes to the internal 
paragraph citations to reflect other numbering changes made in this 
final rule. Specifically, final Sec.  1005.19(a)(3) provides that the 
term fee information means the short form disclosure for the prepaid 
account pursuant to Sec.  1005.18(b)(2) and the fee information and 
statements required to be disclosed in the pre-acquisition long form 
disclosure for the prepaid account pursuant to final Sec.  
1005.18(b)(4).
    The Bureau continues to believe that to enable consumers to shop 
for prepaid accounts and to compare information about various prepaid 
accounts in an effective manner, it is necessary that the agreements 
posted to the issuer's Web site and on the Bureau's Web site in the 
future include fees and other pricing information. The Bureau expects 
that most issuers will include the long form disclosure itself as 
required by final Sec.  1005.18(b)(4) (or the long form information 
pursuant to final Sec.  1005.18(f)(1)) directly in their prepaid 
account agreements. Others may perhaps maintain the long form 
disclosure as an addendum or other supplement to their prepaid account 
agreements.
    Upon further consideration, the Bureau believes it is necessary 
that issuers also submit the short form disclosure to the Bureau and 
post it to their Web sites, as suggested by some commenters. The Bureau 
believes submitting the short form disclosure, in addition to the 
information on the long form disclosure, will be useful to both the 
Bureau in its market monitoring efforts and to consumers and other 
parties in the future when prepaid account agreements are posted to the 
Bureau's Web site. The Bureau believes the short form disclosure, 
particularly the disclosures related to additional fee types pursuant 
to final Sec.  1005.18(b)(2)(viii) and (ix), will provide the Bureau 
with insight into industry practices in implementing this final rule's 
disclosure requirements across a range of prepaid account types. In 
addition, the Bureau does not believe the requirement to submit this 
one additional document will be particularly burdensome or complicated 
for issuers, especially because the Bureau believes that issuers will 
generally maintain their short form disclosures in a readily 
accessible, electronic format.
19(a)(4) Issuer
The Bureau's Proposal
    The Bureau proposed Sec.  1005.19(a)(4) to define ``issuer'' or 
``prepaid account issuer'' for purposes of proposed Sec.  1005.19 as 
the entity to which a consumer is legally obligated, or would be 
legally obligated, under the terms of a prepaid account agreement. 
Proposed Sec.  1005.19(a)(4) would have mirrored the definition of card 
issuer in Regulation Z Sec.  1026.58(b)(4).
    In some cases, more than one financial institution is involved in 
the administration of a prepaid program. For example, a smaller bank 
may partner with a larger bank to market prepaid accounts to the 
smaller bank's customers, or a bank may partner with a program manager 
to offer prepaid accounts. The Bureau understands that the terms of the 
arrangements can vary, for example with respect to which party uses its 
name and brand in marketing materials, sets fees and terms, conducts 
customer identification and verification, provides access to account 
information, holds the pooled account, and absorbs the risk of default 
or fraud.
    The Board believed that with respect to the definition of card 
issuer in what is now Regulation Z Sec.  1026.58(b)(4), without a 
bright-line rule defining which institution is the issuer, institutions 
might find it difficult to determine their obligations under Sec.  
1026.58.\532\ Similarly, absent clarification from the Bureau, the 
Bureau was concerned that it may be difficult to determine which entity 
would be responsible for compliance with proposed Sec.  1005.19 for a 
particular prepaid account. For example, if two financial institutions 
are involved in issuing a prepaid program, one may have fewer than 
3,000 open accounts while the other has more than 3,000 open accounts. 
It may be difficult to determine whether, for example, the de minimis 
exception in proposed Sec.  1005.19(b)(4) applies in such cases. In 
addition, it may be unclear which institution is obligated to post and 
maintain the agreements on its Web site pursuant to proposed Sec.  
1005.19(c) or (d)(1)(i) or respond to telephone requests for copies of 
agreements pursuant to proposed Sec.  1005.19(d)(1)(ii), discussed 
below. The Bureau therefore believed it would be beneficial to clarify 
which institution would be the prepaid account issuer for purposes of 
proposed Sec.  1005.19. The Bureau thus proposed to define the term 
issuer in proposed Sec.  1005.19(a)(4) as described above.
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    \532\ See 76 FR 22948, 22987 (Apr. 25, 2011).
---------------------------------------------------------------------------

    Proposed comment 19(a)(4)-1, which mirrors Regulation Z comment 
58(b)(4)-1, would have provided an example of how the definition of 
issuer would have applied when more than one bank is involved in a 
prepaid program.
    Proposed comment 19(a)(4)-2, which mirrors Regulation Z comment 
58(b)(4)-2, would have explained that while an issuer has a legal 
obligation to comply with the requirements of proposed Sec.  1005.19, 
it generally may use a third-party service provider to satisfy its 
obligations under proposed Sec.  1005.19, provided that the issuer acts 
in accordance with regulatory guidance regarding the use of third-party 
service providers and other applicable regulatory guidance. In some 
cases, an issuer may wish to arrange for the entity with which it 
partners to issue prepaid accounts to fulfill the requirements of 
proposed Sec.  1005.19 on the issuer's behalf. Proposed comment 
19(a)(4)-2 would have provided an example describing such an 
arrangement between a bank and a program manager.
    Proposed comment 19(a)(4)-3, which mirrors Regulation Z comment 
58(b)(4)-3.i, would have noted that, as explained in proposed comment 
19(c)-2, if an issuer provides consumers with access to specific 
information about their individual accounts, such as providing 
electronic history of consumers' account transactions pursuant to Sec.  
1005.18(c)(1)(ii), through a third-party Web site, the issuer would 
have been

[[Page 84132]]

deemed to maintain that Web site for purposes of proposed Sec.  
1005.19. Such a Web site would have been deemed to be maintained by the 
issuer for purposes of proposed Sec.  1005.19 even where, for example, 
an unaffiliated entity designs the Web site and owns and maintains the 
information technology infrastructure that supports the Web site, 
consumers with prepaid accounts from multiple issuers can access 
individual account information through the same Web site, and the Web 
site is not labeled, branded, or otherwise held out to the public as 
belonging to the issuer. A partner institution's Web site would have 
been considered an example of a third-party Web site that may be deemed 
to be maintained by the issuer for purposes of proposed Sec.  1005.19. 
Proposed comment 19(a)(4)-3 would have provided an example describing 
such an arrangement between a bank and a program manager.
    The Bureau did not propose a comment similar to that of Regulation 
Z comment 58(b)(4)-3.ii which addresses Web site posting of private 
label credit card plans, as the Bureau did not believe such a comment 
was relevant for prepaid accounts, as discussed below.
Comments Received
    In the proposal, the Bureau acknowledged that an institution that 
partners with multiple other entities to issue prepaid accounts, such 
as in the payroll card account context, will in many cases use the same 
agreement for all of the prepaid accounts issued in connection with 
those arrangements. Therefore, while the number of prepaid accounts 
issued with a given partner may be small, the total number of consumers 
subject to the corresponding agreement may be quite large. The Bureau 
solicited comment on whether submission of a separate agreement for 
each issuer is the best approach in this situation or whether such 
agreements should be submitted in some other manner. The Bureau 
received comments from one consumer group regarding this issue, stating 
that a single agreement could be submitted as long as the agreement is 
labeled and searchable in such a way that the names of the multiple 
entities are listed on it. This commenter explained that this approach 
would enable the public to see that the agreement is the same for 
several entities, without having to spend time reviewing each 
agreement. The Bureau did not receive any other comments on this 
portion of the proposal.
The Final Rule
    For the reasons set forth herein, the Bureau is finalizing Sec.  
1005.19(a)(4) and its related commentary substantially as proposed, 
with several revisions for clarity. The Bureau has also changed the 
name of final comment 19(a)(4)-3 from Partner Institution Web sites as 
proposed to Third-Party Web sites because the content of the comment is 
primarily related to third-party Web sites; a partner institution Web 
site is merely an example of a third-party Web site that may be deemed 
to be maintained by the issuer for purposes of final Sec.  1005.19.
    The Bureau continues to believe that the definition of issuer 
creates a bright-line rule that will enable institutions involved in 
issuing prepaid accounts to determine their obligations under final 
Sec.  1005.19. The Bureau also believes that the definition is 
consistent with the actual legal relationship into which a consumer 
enters under a prepaid account agreement. In addition, the Bureau 
believes that the institution to which the consumer is legally 
obligated under the agreement may be in the best position to provide 
accurate, up-to-date agreements to both the Bureau and consumers.
    Regarding situations in which an institution partners with multiple 
other entities to issue prepaid accounts, the Bureau is adopting new 
comment 19(b)(1)-2, to explain that if a program manager offers prepaid 
account agreements in conjunction with multiple issuers, each issuer 
must submit its own agreement to the Bureau. This comment also explains 
that each issuer may use the program manager to submit the agreement on 
its behalf, in accordance with final comment 19(a)(4)-2. Because the 
number and the role of the entities involved in a particular prepaid 
account agreement may vary, the Bureau believes it is clearer to 
require issuers, not program managers (or other parties), to submit 
these agreements to the Bureau. In addition, the Bureau believes that 
submitting a separate agreement for each issuer, rather than submitting 
one agreement with multiple issuers listed, as suggested by one 
commenter, will be less confusing to consumers and other parties 
reviewing agreements on the Bureau's Web site in the future.
19(a)(5) Offers
    The Bureau proposed Sec.  1005.19(a)(5) to provide that for 
purposes of proposed Sec.  1005.19, an issuer ``offers,'' or ``offers 
to the public,'' a prepaid account agreement if the issuer solicits 
applications for or otherwise makes available prepaid accounts that 
would be subject to that agreement.
    Proposed comment 19(a)(5)-1 would have explained that an issuer is 
deemed to offer a prepaid account agreement to the public even if the 
issuer solicits applications for or otherwise makes available prepaid 
accounts only to a limited group of persons. For example, agreements 
for affinity cards marketed to students and alumni of a particular 
institution of higher education, or agreements offered only to 
residents of a specific geographic location for a particular prepaid 
account, would have been considered to be offered to the public. 
Similarly, agreements for prepaid accounts issued by a credit union 
would have been considered to be offered to the public even though such 
prepaid accounts are available only to credit union members. Agreements 
for payroll card accounts, government benefit accounts, or for prepaid 
accounts used to distribute student financial aid disbursements, or 
property and casualty insurance payouts, and other similar programs 
would have also been considered to be offered to the public.
    Proposed Sec.  1005.19(a)(5) was similar to the definition of the 
term ``offers'' in Regulation Z Sec.  1026.58(b)(5). Regulation Z Sec.  
1026.58(b)(5) provides that an issuer ``offers'' or ``offers to the 
public'' an agreement if the issuer is soliciting or accepting 
applications for accounts that would be subject to that agreement. The 
Bureau did not believe that prepaid account issuers solicit or accept 
applications for prepaid accounts in the same manner as credit card 
issuers do for credit card accounts, and thus modified this language 
for purposes of proposed Sec.  1005.19(a)(5). Proposed comment 
19(a)(5)-1 was similar to Regulation Z comment 58(b)(5)-1 but would 
have included several additional examples of prepaid accounts offered 
to the public. The Bureau did not propose an equivalent comment to 
Regulation Z comment 58(b)(5)-2, which provides that a card issuer is 
deemed to offer a credit card agreement to the public even if the terms 
of that agreement are changed immediately upon opening to terms not 
offered to the public, as the Bureau did not believe that prepaid 
account terms are modified in this manner.
    The Bureau received no comments regarding this portion of the 
proposal. Accordingly, the Bureau is finalizing Sec.  1005.19(a)(5) 
with modifications to accommodate the revision in final Sec.  
1005.19(c), discussed below, to require only agreements that are 
offered to the general public to be posted to the issuer's publicly 
available Web site. Specifically, the Bureau has removed the phrase 
``offers to the public'' from Sec.  1005.19(a)(5) and, as discussed 
below, is adopting new Sec.  1005.19(a)(6) to define

[[Page 84133]]

the term ``offers to the general public.'' Final Sec.  1005.19(a)(5) 
provides that an agreement is ``offered'' if the issuer markets, 
solicits applications for, or otherwise makes available a prepaid 
account that would be subject to that agreement, regardless of whether 
the issuer offers the prepaid account to the general public. 
Furthermore, because proposed comment 19(a)(5)-1 described agreements 
that are offered to the public, which is now discussed in new Sec.  
1005.19(a)(6), the Bureau has renumbered this comment as comment 
19(a)(6)-1 and has made revisions for consistency with new Sec.  
1005.19(a)(6) discussed below.
19(a)(6) Offers to the General Public
    As noted above, the Bureau is adopting new Sec.  1005.19(a)(6) to 
define the term ``offers to the general public.'' Specifically, new 
Sec.  1005.19(a)(6) provides that for purposes of final Sec.  1005.19, 
an issuer ``offers to the general public'' a prepaid account agreement 
if the issuer markets, solicits applications for, or otherwise makes 
available to the general public a prepaid account that would be subject 
to that agreement.
    The Bureau is finalizing proposed comment 19(a)(5)-1, renumbered as 
comment 19(a)(6)-1, with modifications for consistency with new Sec.  
1005.19(a)(6). Specifically, final comment 19(a)(6)-1 explains that an 
issuer is deemed to offer a prepaid account agreement to the general 
public even if the issuer markets, solicits applications for, or 
otherwise makes available prepaid accounts only to a limited group of 
persons. This comment explains that if, for example, an issuer solicits 
only residents of a specific geographic location for a particular 
prepaid account, the agreement would be considered to be offered to the 
general public. In addition, this comment explains that agreements for 
prepaid accounts issued by a credit union are considered to be offered 
to the general public even though such prepaid accounts are available 
only to credit union members.
    The Bureau is also adopting new comment 19(a)(6)-2 to explain 
prepaid account agreements not offered to the general public. 
Specifically, this comment explains that a prepaid account agreement is 
not offered to the general public when a consumer is offered the 
agreement only by virtue of the consumer's relationship with a third 
party. This comment provides that agreements for payroll card accounts, 
government benefit accounts, or for prepaid accounts used to distribute 
student financial aid disbursements, or property and casualty insurance 
payouts, and other similar programs are examples of agreements that are 
not offered to the general public.
19(a)(7) Open Account
    The Bureau proposed Sec.  1005.19(a)(6) to provide that for 
purposes of proposed Sec.  1005.19, a prepaid account is an ``open 
account,'' or ``open prepaid account,'' if (i) there is an outstanding 
balance in the prepaid account; (ii) if the consumer can load funds to 
the account even if the account does not currently hold a balance; or 
(iii) the consumer can access credit through a credit plan that would 
be a credit card account under Regulation Z (12 CFR part 1026) that is 
offered in connection with a prepaid account. A prepaid account that 
has been suspended temporarily (for example, due to a report by the 
consumer of unauthorized use of the card) would have been considered an 
open account or open prepaid account.
    Proposed comment 19(a)(6)-1 would have explained that a prepaid 
account that meets any of the criteria set forth in proposed Sec.  
1005.19(a)(6) is considered open even if the issuer considers the 
account inactive. The term open account was used in the provisions 
regarding the de minimis and product testing exceptions in proposed 
Sec.  1005.19(b)(4) and (5) and the requirements in proposed Sec.  
1005.19(d) for agreements not submitted to the Bureau, discussed below.
    Proposed Sec.  1005.19(a)(6) was similar to the definition of open 
account or open credit card account in Regulation Z Sec.  
1026.58(b)(6). While Regulation Z Sec.  1026.58(b)(6) defines an open 
credit card account as one in which the cardholder can obtain 
extensions of credit on the account, or there is an outstanding balance 
on the account that has not been charged off, the Bureau modified the 
definition to better reflect what it believed constitutes an open 
account in the prepaid context. Proposed Sec.  1005.19(a)(6) would have 
included the explanation used in Regulation Z Sec.  1026.58(b)(6), 
which provides that an account that has been suspended temporarily (for 
example, due to a report by the consumer of unauthorized use of the 
card) is nonetheless considered an open account. Proposed comment 
19(a)(6)-1 was similar to Regulation Z comment 58(b)(6)-1, with 
modifications to reflect the terms of proposed Sec.  1005.19(a)(6).
    The Bureau received no comments regarding this portion of the 
proposal. Accordingly, the Bureau is finalizing Sec.  1005.19(a)(6), 
renumbered as Sec.  1005.19(a)(7), largely as proposed, with revisions 
to reflect the changes in final Regulation Z Sec.  1026.61 regarding 
hybrid prepaid-credit cards. Specifically, final Sec.  1005.19(a)(6) 
provides, in part, that for the purposes of Sec.  1005.19, a prepaid 
account is an ``open account'' or ``open prepaid account'' if the 
consumer can access credit from a covered separate credit feature 
accessible by a hybrid prepaid-credit card as defined in Regulation Z 
Sec.  1026.61, in connection with the account. The Bureau is also 
finalizing comment 19(a)(6)-1, renumbered as comment 19(a)(7)-1, as 
proposed, with minor revisions for clarity.
19(a)(8) Prepaid Account
    The Bureau proposed Sec.  1005.19(a)(7) to provide that for 
purposes of proposed Sec.  1005.19, ``prepaid account'' means a prepaid 
account as defined in proposed Sec.  1005.2(b)(3). Proposed comment 
19(a)(7)-1 would have explained that for purposes of proposed Sec.  
1005.19, a prepaid account includes, among other things, a payroll card 
account as defined in proposed Sec.  1005.2(b)(3)(iii) and a government 
benefit account as defined proposed Sec. Sec.  1005.2(b)(3)(iv) and 
1005.15(a)(2).
    The Bureau received comments from several industry commenters, 
including issuing banks, industry trade associations, program managers, 
a think tank, and a law firm writing on behalf of a coalition of 
prepaid issuers, in response to the Bureau's request for comment 
regarding whether there were any types of prepaid accounts as defined 
in proposed Sec.  1005.2(b)(3) that should be excluded from the 
definition of prepaid account for purposes of Sec.  1005.19, or that 
should be excluded from certain requirements in Sec.  1005.19. These 
commenters urged the Bureau to exclude prepaid account agreements that 
are not offered to the public (such as for payroll card, government 
benefit, and campus card accounts) from the requirement in proposed 
Sec.  1005.19(b) to submit agreements to the Bureau for posting on the 
Bureau's publicly available Web site and the requirement in proposed 
Sec.  1005.19(c) to post agreements on the issuer's publicly available 
Web site. These commenters explained that for these types of accounts, 
an issuer could have thousands of agreements that have been negotiated 
between the issuer and a third party (such as an employer, a government 
agency, or a university) and that are often tailored to fit the needs 
of individual programs. These commenters stated that such volume and 
variety would clutter the Bureau's and issuer's Web sites, overwhelm 
consumers, and cause confusion because consumers might not understand 
which agreement

[[Page 84134]]

applies to their account or why the terms differ. These commenters 
stated that even if consumers could navigate the volume of agreements, 
the third party--not the consumers--chooses these agreements, so 
comparison shopping would not be an option. In addition, these 
commenters stated that the public posting of these agreements raises 
confidentiality concerns regarding the disclosure of proprietary 
account features, which would compromise the issuer's ability to 
negotiate customized account agreements. The commenters also argued 
that a public posting requirement would undermine competition because 
it would inhibit the incentive for companies to develop novel products.
    Several consumer groups and the office of a State Attorney General 
urged the Bureau not to exclude any prepaid account agreements from the 
requirement to submit agreements to the Bureau for posting on the 
Bureau's publicly available Web site and the requirement to post 
agreements on the issuer's publicly available Web site. These 
commenters argued that publicly posting these agreements would 
encourage competition and transparency, which they stated would help 
lower fees, and facilitate comparison shopping, which they stated would 
result in more informed consumer decisions. One consumer group argued 
that the public posting of agreements would assist the Bureau, 
researchers, and consumer advocates in compiling information to issue 
reports and shed light on inappropriate practices by market 
participants. This commenter explained that the payroll card market, in 
particular, is secretive and issuers and employers in this market do 
not generally provide fee schedules when asked. This commenter added 
that when it began issuing reports on unemployment compensation cards, 
fees started to come down. This commenter also argued that employers, 
government agencies, nonprofit organizations, and other entities 
considering a prepaid card program would be able to see and compare the 
various terms offered in the market. This commenter further argued 
that, while payroll card issuers may have confidentiality clauses in 
their contracts with employers, those clauses do not bind employees 
because once a card is issued to an employee, the agreement is no 
longer confidential. Finally, the office of a State Attorney General 
argued that even though consumers who enroll in payroll card programs 
are not typically able to comparison shop because the employer selects 
their program, they would still be able to compare their plan with 
other wage payment options, such as a checking account, direct deposit, 
and other prepaid accounts.
    For the reasons set forth herein, the Bureau is finalizing Sec.  
1005.19(a)(7), renumbered as Sec.  1005.19(a)(8), as proposed. The 
Bureau is also finalizing comment 19(a)(7)-1, renumbered as comment 
19(a)(8)-1, with minor revisions for clarity and an updated internal 
paragraph citation to reflect numbering changes made in this final 
rule.
    The Bureau believes that the submission of all prepaid account 
agreements, including payroll card, government benefit, campus card, 
and other account agreements that are not available to the general 
public, is essential for the Bureau's market monitoring efforts. 
Furthermore, the Bureau's posting of these agreements to its Web site 
in the future will increase transparency in the terms of these 
agreements and the types and amounts of the fees imposed in these 
programs. The increased transparency will allow the public, including 
consumers, to become better informed about these accounts, which will 
likely encourage competition and improve fees in the various markets. 
In addition, the public posting to the Bureau's Web site in the future 
will allow entities such as employers, government agencies, and 
universities considering making prepaid account programs available to 
their constituencies to review similar agreements with other 
institutions and compare the various terms before entering into their 
own agreements. The Bureau also agrees that consumers of accounts with 
agreements that are not available to the general public, such as 
payroll card accounts, will be able to make meaningful comparisons with 
other wage payment options, such as a checking account, direct deposit, 
and other prepaid accounts. For these reasons, the Bureau declines to 
exclude payroll card, government benefit, campus card, and other 
account agreements that are not available to the general public from 
the final rule's submission requirement, as requested by some 
commenters.
    The Bureau is persuaded, however, that posting agreements that are 
not offered to the general public to the issuer's publicly available 
Web site may impose unnecessary administrative burden and have little 
consumer benefit. The Bureau has thus modified Sec.  1005.19(c), 
discussed below, to exempt agreements that are not offered to the 
general public from the posting requirement. The final rule does not 
require issuers to post on the issuer's publicly available Web site 
agreements that are not offered to the general public, such as payroll 
card, government benefit, and campus card agreements. However, issuers 
of these agreements are still required to provide consumers with access 
to their specific agreements, as required by final Sec.  1005.19(d). 
See the section-by-section analysis of Sec.  1005.19(c) below for 
additional information regarding the posting requirement.
Private Label Credit Cards
    The Board defined the term ``private label credit card account'' in 
what is now Regulation Z Sec.  1026.58(b)(8)(i) as a credit card 
account under an open-end (not home-secured) consumer credit plan with 
a credit card that can be used to make purchases only at a single 
merchant or an affiliated group of merchants. The term ``private label 
credit card plan'' in Regulation Z Sec.  1026.58(b)(8)(ii) is similarly 
defined as all of the private label credit card accounts issued by a 
particular issuer with credit cards usable at the same single merchant 
or affiliated group of merchants. Regulation Z contains an exception 
and other specific provisions tailored specifically to private label 
credit card accounts and plans.\533\
---------------------------------------------------------------------------

    \533\ See, e.g., Regulation Z Sec.  1026.58(b)(8), (c)(6); 
comments 58(b)(8)-1 through -4; comments 58(c)(6)-1 through -6; and 
comment 58(d)-3.
---------------------------------------------------------------------------

    The Bureau did not believe that equivalent provisions were 
necessary or appropriate for proposed Sec.  1005.19, as the equivalent 
of a private label credit card in the prepaid context would be a 
closed-loop gift card. Such gift cards were outside the scope of the 
term prepaid account, as defined in proposed Sec. Sec.  1005.2(b)(3) 
and 1005.19(a)(7). The Bureau did not receive any comments on this 
issue.
19(b) Submission of Agreements to the Bureau
    Proposed Sec.  1005.19(b) would have required each issuer to 
electronically submit to the Bureau prepaid account agreements offered 
by the issuer on a quarterly basis for the Bureau to post on its Web 
site pursuant to proposed Sec.  1005.19(b)(7).
    The Bureau received many comments from consumer groups and industry 
on this portion of the proposal. Consumer groups generally supported 
the proposal, arguing that it would provide important consumer benefits 
and impose little burden on industry. On the other hand, industry 
commenters, including trade associations, issuing banks, credit unions, 
a payment

[[Page 84135]]

network, and a law firm writing on behalf of a coalition of prepaid 
issuers, cited reasons for why they believed the proposal would be 
burdensome and unnecessary. Several of these commenters also argued 
that the submission requirement in proposed Sec.  1005.19(b) should be 
suspended until the Bureau develops an automated, streamlined 
submission process and system. A few of these commenters stated that 
submitting agreements to the Bureau should be manageable, assuming the 
process is similar to the process for submitting credit card agreements 
to the Bureau pursuant to Regulation Z Sec.  1026.58. Other commenters 
argued, however, that the submission process should not be compared to 
the submission process for credit card agreements because there are 
many more prepaid account agreements than credit card agreements.
    For the reasons set forth herein, the Bureau is finalizing Sec.  
1005.19(b) with several modifications. The final rule also establishes 
a delayed effective date of October 1, 2018 for final Sec.  1005.19(b), 
as discussed in the section-by-section analysis of Sec.  1005.19(f)(2) 
below. The Bureau is finalizing Sec.  1005.19(b)(1) with revisions to 
change the time period in which issuers must submit prepaid account 
agreements to the Bureau from a quarterly basis to a rolling basis and 
to clarify the information that each submission must contain. The 
Bureau is finalizing Sec.  1005.19(b)(2) and (3), regarding the 
submission requirements for amended and withdrawn agreements, 
substantially as proposed. The Bureau is also finalizing Sec.  
1005.19(b)(4) and (5), regarding the de minimis and product testing 
exceptions, with modifications to clarify that whether an issuer or 
agreement qualifies for either exception is determined as of the last 
day of the calendar quarter. Moreover, the Bureau is finalizing Sec.  
1005.19(b)(6), regarding the form and content requirements for 
submissions to the Bureau, generally as proposed. Finally, the Bureau 
is not adopting Sec.  1005.19(b)(7) at this time, as discussed below. 
The Bureau notes that due to the change requiring submissions to be 
made on a rolling, rather than quarterly, basis, as well as other 
modifications the Bureau has made for this final rule, the Bureau 
believes that the Regulation Z Sec.  1026.58 guidance referenced in a 
number of the proposed comments would no longer be particularly useful 
to prepaid account issuers and thus the Bureau has modified the 
comments accordingly to include examples specific to prepaid directly 
in the commentary text.
19(b)(1) Submissions on a Rolling Basis
The Bureau's Proposal
    The Bureau proposed Sec.  1005.19(b)(1) to require issuers to make 
quarterly submissions of prepaid account agreements to the Bureau, in 
the form and manner specified by the Bureau, unless certain exceptions 
applied. Such quarterly submissions would have been required to be sent 
to the Bureau no later than the first business day on or after January 
31, April 30, July 31, and October 31 of each year. Proposed comment 
19(b)(1)-1 would have referred to Regulation Z comment 58(c)(1)-1 for 
additional guidance as to the quarterly submission timing requirement.
    Regulation Z Sec.  1026.58(b)(3) defines the term ``business day,'' 
for purposes of Sec.  1026.58, to mean a day on which the creditor's 
offices are open to the public for carrying on substantially all of its 
business functions. Section 1005.2(d) contains a similar definition of 
the term business day (any day on which the offices of the consumer's 
financial institution are open to the public for carrying on 
substantially all business functions). Because that definition applies 
generally in subpart A and the Bureau believed it was appropriate for 
use in proposed Sec.  1005.19, the Bureau believed it was unnecessary 
to define the term again within proposed Sec.  1005.19.
    Proposed Sec.  1005.19(b)(1) would have required that each 
quarterly submission contain the following four items. First, a 
quarterly submission would have been required to contain identifying 
information about the issuer and the agreements submitted, including 
the issuer's name, address, and identifying number (such as an RSSD ID 
number or tax identification number), and the name of the program 
manager, if any, for each agreement.
    Second, the quarterly submission would have been required to 
contain the prepaid account agreements that the issuer offered to the 
public as of the last business day of the preceding calendar quarter 
that the issuer had not previously submitted to the Bureau.
    Third, the quarterly submission would have been required to contain 
any prepaid account agreement previously submitted to the Bureau that 
was amended during the previous calendar quarter and that the issuer 
offered to the public as of the last business day of the preceding 
calendar quarter, as described in proposed Sec.  1005.19(b)(2).
    Finally, the quarterly submission would have been required to 
contain notification regarding any prepaid account agreement previously 
submitted to the Bureau that the issuer was withdrawing, as described 
in proposed Sec.  1005.19(b)(3), (4)(iii), and (5)(iii).
    Proposed comment 19(b)(1)-2.i would have explained that an issuer 
would not be required to make any submission to the Bureau at a 
particular quarterly submission deadline if, during the previous 
calendar quarter, the issuer did not take any of the following actions: 
(A) Offering a new prepaid account agreement that was not submitted to 
the Bureau previously; (B) amending an agreement previously submitted 
to the Bureau; or (C) ceasing to offer an agreement previously 
submitted to the Bureau. Proposed comment 19(b)(1)-2.ii would have 
referred to Regulation Z comment 58(c)(1)-2.ii for additional guidance 
as to when a quarterly submission is not required.
    Proposed comment 19(b)(1)-3 would have explained that proposed 
Sec.  1005.19(b)(1) permits an issuer to submit to the Bureau on a 
quarterly basis a complete, updated set of the prepaid account 
agreements the issuer offers to the public. Proposed comment 19(b)(1)-3 
would have also referred to Regulation Z comment 58(c)(1)-3 for 
additional guidance regarding quarterly submission of a complete set of 
updated agreements.
    Proposed Sec.  1005.19(b)(1) generally mirrored Regulation Z Sec.  
1026.58(c)(1), except for the addition of the program manager's name 
into proposed Sec.  1005.19(b)(1)(i). Proposed comments 19(b)(1)-1, -2, 
and -3 were similar to Regulation Z comments 58(c)(1)-1, -2, and -3 
except that proposed comments 19(b)(1)-1, -2.ii and -3 were shortened 
to cross-reference the parallel comments in Regulation Z for specific 
examples regarding quarterly submission of agreements as the Bureau 
intended that these provisions would function the same for prepaid 
accounts as they do for credit card accounts.
Comments Received
    The Bureau received comments from both consumer groups and industry 
regarding whether the submission of agreements on a quarterly basis 
would be appropriate. The consumer groups and most of the industry 
commenters urged the Bureau to require issuers to submit agreements 
whenever changes are made. A few other industry commenters requested an 
annual submission. The industry commenters stated that because prepaid 
account agreements do not change often, imposing a quarterly submission 
requirement would result in burden associated with constantly 
monitoring

[[Page 84136]]

agreements for updates and ensuring that updated agreements are 
submitted to the Bureau. The consumer groups argued that a quarterly 
submission would not ensure that the Bureau has the most recent 
agreements, which they believed could erode consumer confidence and the 
value posting the agreements to the Bureau's Web site.
    Several consumer groups and a labor organization requested that 
submissions to the Bureau include the names of the issuing bank, 
program manager, and branding entity (such as an employer, government 
agency, or institute of higher education), and other names that might 
be associated with a prepaid account (such as the entity that provides 
customer support). One of these commenters explained that many issuers 
use marketing or other affinity-related names that make it difficult 
for a consumer to know which entity issued the prepaid account. Another 
commenter suggested that submissions also include employer information 
and the effective date of the agreement. Conversely, one credit union 
trade association objected to providing to the Bureau the issuer's 
identifying information, arguing that such information is provided on 
the agreement as well as the disclosures, and the tax identification 
number and program manager are irrelevant.
The Final Rule
    For the reasons set forth herein, the Bureau is finalizing Sec.  
1005.19(b)(1) with modifications to revise the time period in which 
issuers must make prepaid account agreement submissions to the Bureau 
from a quarterly basis to a rolling basis. Specifically, final Sec.  
1005.19(b)(1)(i) provides that an issuer must make submissions of 
prepaid account agreements to the Bureau on a rolling basis, in the 
form and manner specified by the Bureau. Final Sec.  1005.19(b)(1)(i) 
also provides that submissions must be made to the Bureau no later than 
30 days after an issuer offers, amends, or ceases to offer a prepaid 
account agreement, as described in final Sec.  1005.19(b)(1)(ii) 
through (iv).
    The Bureau believes that requiring submission of a prepaid account 
agreement on a rolling basis will help alleviate potential compliance 
burden related to the submission requirement. Specifically, the Bureau 
believes it will be less burdensome for issuers to submit agreements as 
they are offered or amended (or notification when an agreement is being 
withdrawn) than it would be for issuers to wait to submit agreements on 
a fixed schedule, especially since prepaid account agreements do not 
change often. Furthermore, the Bureau expects that issuers will 
incorporate the agreement submission process into their own internal 
business processes and believes the revision to require submission on a 
rolling basis (rather than quarterly) will help align those processes. 
In addition, the Bureau believes that requiring submission no later 
than 30 days after an issuer offers, amends, or ceases to offer an 
agreement will help ensure that the most up-to-date agreements are 
available to the Bureau for its market monitoring purposes, as well as 
on the Bureau's Web site in the future.
    As noted above, Sec.  1005.19(b)(1)(i) through (iv) lists the items 
that each submission to the Bureau must contain. Based on the comments 
it received, the Bureau has revised Sec.  1005.19(b)(1)(i) to require 
that each submission also contain the effective date of the prepaid 
agreement, the name of the program manager, and the names of other 
relevant parties, if applicable, such as the employer for a payroll 
card program or the agency for a government benefit program. The Bureau 
believes that providing this identifying information about each 
agreement will help the Bureau, consumers, and other parties locate 
agreements quickly and more effectively. For example, submitting the 
name of each employer that offers a payroll card account under a 
specific agreement will assist consumers in identifying the agreement 
to which their payroll card account is subject. The Bureau notes, 
however, that submissions should not contain personally identifiable 
information relating to any consumer, such as the consumer's name, 
address, telephone number, or account number.
    The Bureau is finalizing comment 19(b)(1)-1, with modifications for 
clarity and consistency with the revisions to Sec.  1005.19(b)(1). This 
comment does not refer to Regulation Z comment 58(c)(1)-1 for 
additional guidance because, given that final Sec.  1005.19(b)(1) 
requires submission of prepaid account agreements on a rolling rather 
than quarterly basis, the Bureau does not believe that comment would 
provide useful guidance. The Bureau is therefore adopting new comment 
19(b)(1)-1 to provide examples illustrating the 30-day time period in 
which issuers must submit agreements.
    The Bureau is not finalizing proposed comments 19(b)(1)-2 and -3, 
which would have provided clarification for the quarterly submission 
requirement, because the Bureau has revised Sec.  1005.19(b)(1) to 
require issuers to make submissions of prepaid account agreements to 
the Bureau on a rolling basis.
    As noted in the section-by-section analysis of Sec.  1005.19(a)(4) 
above, the Bureau is adopting new comment 19(b)(1)-2 to explain the 
submission requirement for an institution that partners with multiple 
other entities to issue prepaid accounts. This comment explains that if 
a program manager offers prepaid account agreements in conjunction with 
multiple issuers, each issuer must submit its own agreement to the 
Bureau. This comment further explains that each issuer may use the 
program manager to submit the agreement on its behalf, in accordance 
with comment 19(a)(4)-2. Because the number and role of the parties 
involved in a particular prepaid account agreement may vary, the Bureau 
believes it is clearer to require issuers, not program managers (or 
other parties), to submit these agreements to the Bureau. In addition, 
the Bureau believes that submitting separate agreements for each 
issuer, rather than submitting one agreement with multiple issuers as 
suggested by one commenter, will be less confusing to consumers and 
other parties reviewing agreements on the Bureau's Web site in the 
future.
19(b)(2) Amended Agreements
The Bureau's Proposal
    The Bureau proposed Sec.  1005.19(b)(2) to provide that if a 
prepaid account agreement has been submitted to the Bureau, the 
agreement has not been amended, and the issuer continues to offer the 
agreement to the public, no additional submission regarding that 
agreement is required. Proposed comment 19(b)(2)-1 would have referred 
to Regulation Z comment 58(c)(3)-1 for additional guidance regarding no 
requirement to resubmit agreements that have not been amended.
    Proposed Sec.  1005.19(b)(2) would have also required that if a 
prepaid account agreement that previously has been submitted to the 
Bureau is amended, and the issuer offered the amended agreement to the 
public as of the last business day of the calendar quarter in which the 
change became effective, the issuer must submit the entire amended 
agreement to the Bureau, in the form and manner specified by the 
Bureau, by the first quarterly submission deadline after the last day 
of the calendar quarter in which the change became effective. Proposed 
comment 19(b)(2)-2 would have further explained that the issuer is 
required to submit the amended agreement to the Bureau only if the 
issuer offered the amended agreement to the public as of the last 
business day of

[[Page 84137]]

the calendar quarter in which the change became effective and would 
have referred to Regulation Z comment 58(c)(3)-2 for additional 
guidance regarding the submission of amended agreements. Proposed 
comment 19(b)(2)-3 would have reiterated that agreements that are not 
offered to the public as of the last day of the calendar quarter should 
not be submitted to the Bureau and would have referred to Regulation Z 
comment 58(c)(3)-3 for additional guidance on agreements that have been 
amended but are no longer offered to the public.
    Finally, proposed comment 19(b)(2)-4 would have explained that an 
issuer may not fulfill the requirement in proposed Sec.  1005.19(b)(2) 
to submit the entire amended agreement to the Bureau by submitting a 
change-in-terms or similar notice covering only the terms that have 
changed. In addition, amendments would have been required to be 
integrated into the text of the agreement (or the optional addendum 
described in proposed Sec.  1005.19(b)(6)), not provided as separate 
riders. Proposed comment 19(b)(2)-4 would have also referred to 
Regulation Z comment 58(c)(3)-4 for additional guidance as to the 
submission of revised agreements.
    Proposed Sec.  1005.19(b)(2) mirrored the Regulation Z provisions 
regarding submission of amended agreements in Regulation Z Sec.  
1026.58(c)(3). Proposed comments 19(b)(2)-1 through -4 mirrored 
Regulation Z comments 58(c)(3)-1 through -4, although the proposed 
19(b)(2) comments were shortened to cross-reference the parallel 
comments in Regulation Z for specific examples of submission of amended 
agreements as the Bureau intended that these provisions would function 
the same for prepaid accounts as they do for credit card accounts.
The Final Rule
    The Bureau received no comments on this portion of the proposal. 
Accordingly, the Bureau is finalizing Sec.  1005.19(b)(2) as proposed, 
with several modifications for clarity and consistency with the 
revisions to Sec.  1005.19(b)(1) to change the time period in which 
issuers must submit agreements to the Bureau from quarterly to rolling. 
Specifically, final Sec.  1005.19(b)(2) provides that if a prepaid 
account agreement previously submitted to the Bureau is amended, the 
issuer must submit the entire amended agreement to the Bureau, in the 
form and manner specified by the Bureau, no later than 30 days after 
the change comes effective. Given the revisions to Sec.  1005.19(b)(1), 
the Bureau has removed proposed comments 19(b)(2)-1 and -2, which would 
have explained the requirement to submit amended agreements on a 
quarterly basis.
    The Bureau is not finalizing proposed comment 19(b)(2)-3, which 
would have provided guidance for issuers submitting amended agreements 
that are no longer offered, because under the revised rolling 
submission requirement, an issuer would not likely amend an agreement 
and less than 30 days later decide to stop offering that agreement. If 
the issuer stopped offering the agreement, the issuer would be required 
to notify the Bureau that it is withdrawing the agreement, as required 
by final Sec.  1005.19(b)(3) and as explained in final comment 
19(b)(3)-1.
    The Bureau is finalizing comment 19(b)(2)-4, renumbered as comment 
19(b)(2)-1, largely as proposed, with several minor revisions for 
clarity and conformity with the revisions to Sec.  1005.19(b)(1). Final 
comment 19(b)(2)-1 explains that if an agreement previously submitted 
to the Bureau is amended, final Sec.  1005.19(b)(2) requires the issuer 
to submit the entire revised agreement to the Bureau. This comment 
further explains that an issuer may not fulfill this requirement by 
submitting a change-in-terms or similar notice covering only the terms 
that have changed. Amendments must be integrated into the text of the 
agreement (or the optional addendum described in Sec.  1005.19(b)(6)), 
not provided as separate riders. This comment does not refer to 
Regulation Z comment 58(c)(3)-4 for additional guidance because the 
Bureau does not believe the example illustrated in comment 58(c)(4)-4 
regarding APRs would be useful for prepaid account issuers. The Bureau 
continues to believe that permitting issuers to submit change-in-terms 
notices or riders containing amendments or revisions would make it 
difficult to determine a prepaid account's current fees and terms. 
Consumers could be required to sift through change-in-terms notices and 
riders in an attempt to assemble a coherent picture of the terms 
currently offered. The Bureau believes that issuers are better placed 
than consumers to assemble this information and customarily incorporate 
revised terms into their prepaid account agreements on a regular basis 
rather than only issue separate riders or notices.
19(b)(3) Withdrawal of Agreements No Longer Offered
    The Bureau proposed Sec.  1005.19(b)(3) to provide that if an 
issuer no longer offers to the public a prepaid account agreement that 
previously has been submitted to the Bureau, the issuer must notify the 
Bureau, in the form and manner specified by the Bureau, by the first 
quarterly submission deadline after the last day of the calendar 
quarter in which the issuer ceased to offer the agreement. Proposed 
Sec.  1005.19(b)(3) mirrored the Regulation Z provisions regarding 
withdrawal of agreements previously submitted to the Bureau in 
Regulation Z Sec.  1026.58(c)(4). Proposed comment 19(b)(3)-1 would 
have referenced Regulation Z comment 58(c)(4)-1 for a specific example 
regarding withdrawal of submitted agreements as the Bureau intended 
that this provision would function the same for prepaid accounts as it 
does for credit card accounts.
    With respect to credit cards, the Board found that the number of 
credit card agreements currently in effect but no longer offered to the 
public was extremely large, and thus providing such agreements to the 
Board would have posed a significant burden on issuers as well as 
diluted the active agreements posted on the Board's Web site to such an 
extent that they might no longer be useful to consumers.\534\ The 
Bureau did not believe that prepaid issuers have open prepaid accounts 
subject to agreements no longer offered to the public the same way that 
credit card issuers do. However, the Bureau believed that the primary 
benefit of making prepaid account agreements available on the Bureau's 
Web site would be to assist consumers in comparing prepaid account 
agreements offered by various issuers when shopping for a new prepaid 
account; including agreements that are no longer offered to the public 
would not facilitate comparison shopping by consumers because consumers 
could not obtain the accounts subject to these agreements.
---------------------------------------------------------------------------

    \534\ 74 FR 54124, 54189 (Oct. 21, 2009).
---------------------------------------------------------------------------

    The Bureau received one comment from a consumer group on this 
aspect of the proposal. The consumer group argued that issuers with 
programs that have a significant number of open accounts whose 
agreements are no longer offered to the public should be required to 
submit such agreements to the Bureau, with a notation that the 
agreement is no longer offered. This commenter explained that doing so 
would avoid confusion about active programs that would otherwise be 
absent from the Bureau's Web site and would allow users to compare 
those programs to newer programs. The Bureau does not believe such a 
requirement is necessary at this time in light of the limited benefits 
to consumers, and thus declines to require

[[Page 84138]]

the submission of agreements of open accounts that are no longer 
offered to the public.
    The Bureau is therefore finalizing Sec.  1005.19(b)(3) and its 
related commentary substantially as proposed, with several 
modifications for clarity and consistency with the revisions to Sec.  
1005.19(b)(1) to change the time period in which issuers must submit 
agreements to the Bureau from a quarterly basis to a rolling basis. The 
Bureau has also made several revisions to conform with the changes made 
to the proposed definition of ``offers,'' reflected in final Sec.  
1005.19(a)(5) and (6), discussed above. Specifically, final Sec.  
1005.19(b)(3) provides that if an issuer no longer offers a prepaid 
account agreement that was previously submitted to the Bureau, the 
issuer must notify the Bureau, in the form and manner specified by the 
Bureau, no later than 30 days after the issuer ceases to offer the 
agreement that it is withdrawing the agreement. Upon further 
consideration, the Bureau believes that it is necessary to provide 
clarification on what it means for a prepaid account to no longer be 
offered. Therefore, the Bureau has revised comment 19(b)(3)-1 to 
clarify that an issuer no longer offers an agreement when it no longer 
allows a consumer to activate or register a new account in connection 
with that agreement. In addition, final comment 19(b)(3)-1 does not 
refer to Regulation Z comment 58(c)(4)-1 for additional guidance 
because comment 58(c)(4)-1 describes a scenario in which an issuer must 
notify the Bureau that it is withdrawing an agreement by a quarterly 
submission deadline, which is not relevant to final Sec.  
1005.19(b)(3).
19(b)(4) De Minimis Exception
The Bureau's Proposal
    The Bureau proposed Sec.  1005.19(b)(4) to provide a de minimis 
exception for the requirement to submit prepaid account agreements to 
the Bureau. Proposed Sec.  1005.19(b)(4)(i) would have stated that an 
issuer is not required to submit any prepaid account agreements to the 
Bureau if the issuer had fewer than 3,000 open prepaid accounts as of 
the last business day of the calendar quarter. As in Regulation Z, this 
de minimis exception would have applied to all open prepaid accounts of 
the issuer, not to each of the issuer's prepaid account programs 
separately.
    For Regulation Z, the Board was not aware of a way to define a 
``credit card plan'' that would not divide issuers' portfolios into 
such small units that large numbers of credit card agreements could 
fall under the de minimis exception.\535\ The Board therefore 
established a de minimis exception based on an issuer's total number of 
open accounts in what is now Regulation Z Sec.  1026.58(c)(5). The 
Bureau believed that the same issues apply in attempting to define a 
``prepaid account program'' for purposes of a de minimis threshold, and 
therefore similarly proposed to adopt a de minimis threshold that 
applies to all of an issuer's prepaid programs, rather than on a 
program-by-program basis.
---------------------------------------------------------------------------

    \535\ 74 FR 54124, 54191 (Oct. 21, 2009).
---------------------------------------------------------------------------

    The Bureau proposed to use a lower de minimis threshold of 3,000 
open prepaid accounts, in place of the 10,000 open accounts threshold 
used in Regulation Z. The prepaid accounts market is smaller than the 
credit card market (based on number of open accounts) and there are 
some indications that smaller issuers (i.e., with small numbers of open 
accounts rather than small based on entity size) may account for more 
of the prepaid market than do smaller issuers in the credit card 
market. The Bureau sought to create a de minimis threshold that would 
exempt a similar portion of open prepaid accounts from this requirement 
as are exempted by the current analogous requirement for credit cards. 
However, at the time of the proposal, the Bureau did not have specific 
data that would permit it to accurately determine a comparable 
threshold for prepaid accounts.
    As the Bureau explained in the proposal, recent public data 
indicated that none of the top 100 Visa and MasterCard credit card 
issuers (ranked by dollar amount of outstandings, and which covers both 
consumer and commercial credit cards) came close to falling below the 
10,000 Regulation Z de minimis threshold, even as those issuers (when 
combined with Discover and American Express, which are the two largest 
U.S. issuers that are not MasterCard or Visa issuers) amount to more 
than 92 percent of total general purpose credit card loans 
outstanding.\536\ The smallest credit card issuers in this top-100 
list, based on total accounts and total active accounts, exceed the de 
minimis threshold by a factor of between two (for active accounts) and 
nearly four (for total accounts).
---------------------------------------------------------------------------

    \536\ HSN Consultants, Inc., The Nilson Report, Issue 1035, at 
8, 10-11 (Feb. 2014), and HSN Consultants, Inc., The Nilson Report, 
Issue 1038, at 10-11 (Apr. 2014). Public data for the next tranche 
of credit card issuers does not include account volume, but it does 
include outstandings volume. The lowest outstandings for an issuer 
in the third 50 cohort are more than 60 percent of the outstandings 
for the smallest issuer by total account volume in the top-100. See 
HSN Consultants, Inc., The Nilson Report, Issue 1042 at 11 (June 
2014). As the smallest issuer by total account volume in the top-100 
exceeded the de minimis threshold by several factors, the available 
indications are that the third 50 cohort would not fall below the de 
minimis threshold either.
---------------------------------------------------------------------------

    In comparison, the same public source indicated that three of the 
top 50 Visa and MasterCard prepaid account issuers would fall below a 
10,000 threshold, and one of these is right at the proposed 3,000 
threshold.\537\ Furthermore, the data in this report included a number 
of other types of prepaid products beyond commercial cards that were 
outside the proposed definition of prepaid account, such as consumer 
gift, healthcare, and rebates/rewards, creating the likelihood that 
additional top-50 prepaid issuers could fall below a de minimis 
threshold of 10,000 open prepaid accounts.\538\ Although it is not 
straightforward to calculate exactly how much of the market these top-
50 prepaid issuers represent, available indications are that it is 
significantly below the 92 percent accounted for by the top-100 credit 
card issuers.\539\
---------------------------------------------------------------------------

    \537\ HSN Consultants, Inc., The Nilson Report, Issue 1043, at 
10 (June 2014). One issuer had 9,000 cards in circulation, another 
had 8,000, and a third had only 3,000.
    \538\ One issuer was reported to have 14,000 cards in 
circulation, another had 16,000, and a third had 18,000.
    \539\ Nilson reports that the top-50 prepaid issuers accounted 
for some $118 billion in purchase volume in 2013. HSN Consultants, 
Inc., The Nilson Report, Issue 1043, at 1 (June 2014). One leading 
consultancy estimated load on open-loop prepaid products for that 
year at over $242 billion. Mercator Advisory Group, Eleventh Annual 
U.S. Prepaid Cards Market Forecasts, 2014-2017 (Nov. 2014).
---------------------------------------------------------------------------

    Proposed comment 19(b)(4)-1 would have explained that the de 
minimis exception in proposed Sec.  1005.19(b)(4) is distinct from the 
product testing exception in proposed Sec.  1005.19(b)(5). The de 
minimis exception provides that an issuer with fewer than 3,000 open 
prepaid accounts is not required to submit any agreements to the 
Bureau, regardless of whether those agreements qualify for the product 
testing exception. In contrast, the product testing exception provides 
that an issuer is not required to submit to the Bureau agreements 
offered solely in connection with certain types of prepaid account 
programs with fewer than 3,000 open accounts, regardless of the 
financial institution's total number of open accounts. Proposed comment 
19(b)(4)-2 would refer to Regulation Z comment 58(c)(5)-2 for 
additional guidance on the de minimis exception.
    Proposed Sec.  1005.19(b)(4)(ii) would have stated that if an 
issuer that previously qualified for the de minimis

[[Page 84139]]

exception ceases to qualify, the issuer must begin making quarterly 
submissions to the Bureau no later than the first quarterly submission 
deadline after the date as of which the issuer ceased to qualify. 
Proposed comment 19(b)(4)-3 would have referred to Regulation Z comment 
58(c)(5)-3 for additional guidance on the date for determining whether 
an issuer qualifies for the de minimis exception. Proposed comment 
19(b)(4)-4 would have also referred to Regulation Z comment 58(c)(5)-4 
for additional guidance on the date for determining whether an issuer 
ceases to qualify for the de minimis exception.
    Finally, proposed Sec.  1005.19(b)(4)(iii) would have stated that 
if an issuer that did not previously qualify for the de minimis 
exception newly qualifies for the de minimis exception, the issuer must 
continue to make quarterly submissions to the Bureau until the issuer 
notifies the Bureau that it is withdrawing all agreements it previously 
submitted to the Bureau. Proposed comment 19(b)(4)-5 would have also 
referred to Regulation Z comment 58(c)(5)-5 for additional guidance on 
an issuer's option to withdraw its agreements submitted to the Bureau.
    Proposed Sec.  1005.19(b)(4) mirrored the provisions regarding the 
de minimis exception in Regulation Z Sec.  1026.58(c)(5), except for 
the lower proposed de minimis threshold figure. Proposed comments 
19(b)(4)-1 to -5 mirrored Regulation Z comments 58(c)(5)-1 to -5, 
although proposed comments 19(b)(1)-2 to -5 were shortened to cross-
reference the parallel comments in Regulation Z for specific examples 
regarding the de minimis exception as the Bureau intended that these 
provisions would function the same for prepaid accounts as they do for 
credit card accounts. In addition, the references to the private label 
credit card exception in Regulation Z comment 58(c)(5)-1 were removed 
as the Bureau did not believe that exception was relevant in the 
prepaid card context, as discussed above.
Comments Received
    The Bureau received comments from several credit unions, a credit 
union trade association, and consumer groups regarding this portion of 
the proposal. The credit unions and the trade association indicated 
that they appreciated the Bureau's proposal to include a de minimis 
threshold but argued that the proposed de minimis threshold was too low 
and that overregulating prepaid accounts will negatively impact the 
dynamic and growing market. These commenters urged the Bureau to raise 
the threshold to 10,000 open accounts, which they believed would help 
alleviate burden, especially for small credit unions.
    The consumer groups requested that the Bureau either lower the 
threshold or eliminate the proposed de minimis exception altogether. 
Responding to the argument about the impact to small issuers, one 
consumer group stated that small issuers can have some of the highest 
fees and need public scrutiny. This commenter also stated that 
submitting agreements to the Bureau is not time-consuming and should 
not overburden small issuers. Another consumer group argued that the 
threshold should be lowered to 500 ``active'' accounts, which the 
commenter defined as any account with a transaction in the prior 
quarter. This commenter also stated that large banks with ample 
resources should not be permitted to qualify for a de minimis 
exception, regardless of the number of accounts they have.
The Final Rule
    For the reasons set forth herein, the Bureau is finalizing Sec.  
1005.19(b)(4) with several revisions explained below. The Bureau has 
modified Sec.  1005.19(b)(4)(i) to make clear that whether an issuer 
qualifies for the de minimis exception is determined by the number of 
open prepaid accounts it has as of the last day of the calendar 
quarter. Despite changing the submission requirement from quarterly to 
rolling, the Bureau believes it is appropriate to keep the de minimis 
exception on a quarterly schedule so that issuers have a measurable 
time frame to determine whether they qualify for the exception. Final 
Sec.  1005.19(b)(4)(i) provides that an issuer is not required to 
submit any prepaid account agreements to the Bureau if the issuer has 
fewer than 3,000 open prepaid accounts. Final Sec.  1005.19(b)(4)(i) 
makes clear that if the issuer has 3,000 or more open prepaid accounts 
as of the last day of the calendar quarter, the issuer must submit to 
the Bureau its prepaid account agreements no later than 30 days after 
the last day of that calendar quarter. The Bureau has eliminated 
proposed Sec.  1005.19(b)(4)(ii), which would have explained an 
issuer's obligation to make quarterly submissions to the Bureau if it 
ceased to qualify for the de minimis exception, because this concept is 
now addressed in final Sec.  1005.19(b)(4)(i). The Bureau is finalizing 
Sec.  1005.19(b)(4)(iii), renumbered as Sec.  1005.19(b)(4)(ii), which 
provides that if an issuer that did not previously qualify for the de 
minimis exception newly qualifies for the de minimis exception, the 
issuer must continue to make submissions to the Bureau on a rolling 
basis until the issuer notifies the Bureau that the issuer is 
withdrawing all agreements it previously submitted to the Bureau. In 
addition, the Bureau has removed the term ``business'' from the phrase 
``last business day'' from the regulatory text of final Sec.  
1005.19(b)(4) and its related commentary to simplify the de minimis 
exception. The Bureau has also made several modifications for clarity 
and consistency with the revisions to Sec.  1005.19(b)(1) requiring 
submission to the Bureau on a rolling basis.
    The Bureau declines to modify the proposed threshold of 3,000 open 
prepaid accounts, as requested by some commenters. A more recent 
version of the public data described above continues to indicate that 
none of the top 100 Visa and MasterCard credit card issuers (ranked by 
dollar amount of outstandings, and which covers both consumer and 
commercial credit cards) come close to falling below the 10,000 
Regulation Z de minimis threshold. Those issuers (when combined with 
Discover and American Express, which are the two largest U.S. issuers 
that are not MasterCard or Visa issuers) now amount to more than 93 
percent of total general purpose credit card loans outstanding.\540\ 
The smallest credit card issuers in this top-100 list, based on total 
accounts and total active accounts, exceed the de minimis threshold by 
a factor of between two (for active accounts) and nearly three (for 
total accounts).
---------------------------------------------------------------------------

    \540\ HSN Consultants, Inc., The Nilson Report, Issue 1081, at 
1, 8, 10-11 (Feb. 2016), and HSN Consultants, Inc., The Nilson 
Report, Issue 1083, at 10-11 (Mar. 2016). Public data for the next 
tranche of credit card issuers, i.e., issuers 101-150, does not 
include account volume, but it does include outstandings volume. The 
lowest outstandings for an issuer in this third 50 cohort are more 
than 60 percent of the outstandings for the smallest issuer by total 
account volume in the top-100. See HSN Consultants, Inc., The Nilson 
Report, Issue 1090, at 9 (July 2016). As the smallest issuer by 
total account volume in the top-100 exceeded the de minimis 
threshold by several factors, the available indications are that the 
third 50 cohort would not fall below the de minimis threshold 
either.
---------------------------------------------------------------------------

    In comparison, the same public source now indicates that three of 
the top 50 Visa and MasterCard prepaid account issuers would fall below 
a 10,000 threshold, and two of these fall below the 3,000 
threshold.\541\ Furthermore, as noted above, the data in this report 
includes a number of other types of prepaid products beyond commercial 
cards that are outside this

[[Page 84140]]

final rule's definition of prepaid account, such as healthcare and 
rebates/rewards, creating the likelihood that additional top-50 prepaid 
issuers would fall below a de minimis threshold of 10,000 open prepaid 
accounts.\542\ Although it remains not straightforward to calculate 
exactly how much of the market these top-50 prepaid issuers represent, 
available indications are that it is significantly below the 93 percent 
accounted for by the top-100 credit card issuers.\543\ As noted in the 
proposal, the de minimis threshold is meant to exempt issuers based on 
the number of open accounts they have, not on their asset size. 
Therefore, larger entities (based on asset size) with fewer than 3,000 
open accounts as of the last day of the calendar quarter would qualify 
for the de minimis exception, whereas smaller entities (based on asset 
size) with 3,000 or more open accounts as of the last day of the 
calendar quarter would not qualify.
---------------------------------------------------------------------------

    \541\ HSN Consultants, Inc., The Nilson Report, Issue 1091, at 
8-9 (July 2016). One issuer had 3,000 cards in circulation, another 
had 2,000, and a third had only 1,000.
    \542\ Id. at 8. One issuer was reported to have 13,000 cards in 
circulation and another had 14,000.
    \543\ Nilson reports that the top-50 prepaid issuers accounted 
for some $145 billion in purchase volume in 2015. HSN Consultants, 
Inc., The Nilson Report, Issue 1091, at 1, 8-9 (July 2016). One 
leading consultancy has projected load on open-loop prepaid products 
for that year at over $280 billion. See Mercator 12th Annual Market 
Forecasts at 8.
---------------------------------------------------------------------------

    The Bureau has made several changes to the commentary explaining 
the de minimis exception. Specifically, the Bureau is finalizing 
comment 19(b)(4)-1, which explains that the de minimis exception in 
final Sec.  1005.19(b)(4) is distinct from the product testing 
exception in final Sec.  1005.19(b)(5), as proposed. The de minimis 
exception provides that an issuer with fewer than 3,000 open prepaid 
accounts is not required to submit any agreements to the Bureau, 
regardless of whether those agreements qualify for the product testing 
exception. In contrast, the product testing exception provides that an 
issuer is not required to submit to the Bureau agreements offered 
solely in connection with a product test for a prepaid account program 
with fewer than 3,000 open accounts, regardless of the issuer's total 
number of open accounts.
    The Bureau is also finalizing comment 19(b)(4)-2, with several 
modifications for consistency with the revisions to Sec.  
1005.19(b)(4). This comment also provides an example of an issuer that 
qualifies for the de minimis exception. This comment does not refer to 
Regulation Z comment 58(c)(5)-2 for additional guidance because the 
Bureau believes it is clearer to include an example that specifically 
addresses the de minimis exception for prepaid accounts.
    Furthermore, the Bureau is finalizing comment 19(b)(4)-3, with 
modifications for consistency with the revisions to Sec.  
1005.19(b)(4). This comment also provides an example illustrating how 
an issuer determines whether it qualifies for the de minimis exception. 
This comment does not refer to Regulation Z comment 58(c)(5)-3 for 
additional guidance because the Bureau believes it is clearer to 
include an example that explains how an issuer determines whether it 
qualifies for the de minimis exception for prepaid accounts. The Bureau 
has also removed from final comment 19(b)(4)-3 the word ``business'' 
from the phrase ``last business day,'' as explained above.
    In addition, the Bureau is finalizing comment 19(b)(4)-4 with 
modifications for consistency with the revisions to Sec.  
1005.19(b)(4). This comment also provides an example illustrating how 
an issuer determines whether it ceases to qualify for the de minimis 
exception. This comment does not refer to Regulation Z comment 
58(c)(5)-4 for additional guidance because the Bureau believes it is 
clearer to include an example that explains how an issuer determines 
whether it ceases to qualify for the de minimis exception for prepaid 
accounts. The Bureau has also removed from final comment 19(b)(4)-4 the 
word ``business'' from the phrase ``last business day,'' as explained 
above.
    Finally, the Bureau is finalizing comment 19(b)(4)-5 with 
modifications for clarity and consistency with the revisions to Sec.  
1005.19(b)(1) and (4). This comment does not refer to Regulation Z 
comment 58(c)(5)-5 for additional guidance because the Bureau believes 
it is clearer to include an example regarding the issuer's option to 
withdraw agreements when it qualifies for the de minimis exception for 
prepaid accounts. Thus, final comment 19(b)(4)-5 explains that if an 
issuer qualifies for the de minimis exception, the issuer has two 
options. The issuer may either notify the Bureau that it is withdrawing 
the agreements and cease making rolling submissions to the Bureau or 
not notify the Bureau and continue making rolling submissions to the 
Bureau as required by final Sec.  1005.19(b).
19(b)(5) Product Testing Exception
The Bureau's Proposal
    The Bureau proposed Sec.  1005.19(b)(5) to provide a product 
testing exception to the requirement to submit prepaid account 
agreements to the Bureau. Proposed Sec.  1005.19(b)(5) mirrored the 
provisions regarding the product testing exception in Regulation Z 
Sec.  1026.58(c)(7).
    Proposed Sec.  1005.19(b)(5)(i) would have provided that an issuer 
is not required to submit to the Bureau a prepaid account agreement if, 
as of the last business day of the calendar quarter, the agreement: (A) 
is offered as part of a product test offered to only a limited group of 
consumers for a limited period of time; (B) is used for fewer than 
3,000 open prepaid accounts; and (C) is not offered to the public other 
than in connection with such a product test.
    Proposed Sec.  1005.19(b)(5)(ii) would have provided that if an 
agreement that previously qualified for the product testing exception 
ceases to qualify, the issuer must submit the agreement to the Bureau 
no later than the first quarterly submission deadline after the date as 
of which the agreement ceased to qualify. Finally, proposed Sec.  
1005.19(b)(5)(iii) would have provided that if an agreement that did 
not previously qualify for the product testing exception newly 
qualifies for the exception, the issuer must continue to make quarterly 
submissions to the Bureau with respect to that agreement until the 
issuer notifies the Bureau that the agreement is being withdrawn.
Comments Received
    Two consumer groups commented on the Bureau's proposed product 
testing exception. One of the consumer groups requested that the 
product testing exception be limited to three months and not be 
available to a payroll card account program if substantially all of a 
company's employees are enrolled in that program. The other consumer 
group stated that the exception should only be granted in response to 
the Bureau's review.
The Final Rule
    For the reasons set forth herein, the Bureau is finalizing Sec.  
1005.19(b)(5) with several revisions discussed below. The Bureau has 
modified Sec.  1005.19(b)(5)(i) to make clear that whether an agreement 
qualifies for the product testing exception is determined based on 
whether it meets certain criteria as of the last day of the calendar 
quarter. Despite changing the submission requirement from quarterly to 
rolling, the Bureau believes it is appropriate to keep the product 
testing exception on a quarterly schedule so that issuers have a 
measurable time frame to determine whether they qualify for the 
exception. Final Sec.  1005.19(b)(5)(i) provides that an issuer is not 
required to submit a prepaid account agreement to the Bureau if as of 
the last day of the calendar quarter the agreement is

[[Page 84141]]

offered as part of a product test offered to only a limited group of 
consumers for a limited period of time; is used for fewer than 3,000 
open prepaid accounts; and is not offered other than in connection with 
such a product test. Final Sec.  1005.19(b)(5)(i) makes clear that if 
an agreement fails to meet the product testing criteria set forth in 
final Sec.  1005.19(b)(5)(i)(A) through (C) as of the last day of the 
calendar quarter, the issuer must submit to the Bureau that agreement 
no later than 30 days after the last day of that calendar quarter. The 
Bureau has eliminated proposed Sec.  1005.19(b)(5)(ii), which would 
have explained an issuer's obligation to make quarterly submissions to 
the Bureau if an agreement ceased to qualify for the product testing 
exception, because this concept is now addressed in final Sec.  
1005.19(b)(5)(i). Furthermore, the Bureau is finalizing Sec.  
1005.19(b)(5)(iii), renumbered as final Sec.  1005.19(b)(5)(ii), which 
provides that if an agreement that did not previously qualify for the 
product testing exception newly qualifies for the exception, the issuer 
must continue to make submissions to the Bureau on a rolling basis with 
respect to that agreement until the issuer notifies the Bureau that the 
issuer is withdrawing the agreement. In addition, the Bureau has 
removed the term ``business'' from the phrase ``last business day'' 
from final Sec.  1005.19(b)(5)(i) to simplify the product testing 
exception. The Bureau has also made several modifications for clarity 
and consistency with the revisions to Sec.  1005.19(b)(1) requiring 
submission to the Bureau on a rolling basis.
    The Bureau believes that requiring issuers to submit agreements 
that would qualify for the product testing exception would provide 
little benefit at this time. Specifically, consumers would not benefit 
from comparison shopping as the agreements would only be offered to 
discrete, targeted groups for a limited period of time. For similar 
reasons, the submission of these agreements would only minimally assist 
the Bureau's market monitoring efforts. In addition, the Bureau 
understands that preparing and submitting agreements used for a small 
number of prepaid accounts in connection with a product test could 
result in administrative burden to issuers that would likely not be 
justified by the consumer benefit at this time.
    The Bureau declines to add to additional requirements or 
modifications to this portion of the final rule, as requested by some 
commenters. The Bureau does not believe it is necessary at this time to 
disallow a payroll card account program from qualifying for the product 
testing exception if most of a company's employees are enrolled in that 
program, as suggested by one commenter. The Bureau also declines to 
limit the product testing exception to three months, as requested by 
another commenter, because efforts to test new prepaid account 
strategies and products can vary significantly, and the Bureau does not 
have the necessary data at this time to determine what an appropriate 
time frame would be. The Bureau notes, however, that this exception is 
intended for the testing of new products and strategies that spans a 
limited period of time, and the Bureau expects issuers will avail 
themselves of the exception only when their agreements meet the 
specific criteria set forth in final Sec.  1005.19(b)(5). Finally, the 
Bureau also declines to grant the product testing exception only in 
response to the Bureau's review, as recommended by a commenter, because 
it does not believe it is necessary to do so at this time. However, the 
Bureau intends to monitor industry practices in this area and will 
consider modifications in future rulemakings, if warranted.
19(b)(6) Form and Content of Agreements Submitted to the Bureau
    Section 1005.19(b)(6) sets forth the form and content requirements 
for prepaid account agreements submitted to the Bureau. The Bureau is 
finalizing Sec.  1005.19(b)(6) largely as proposed, with several 
modifications as discussed below.
19(b)(6)(i) Form and Content Generally
    The Bureau proposed Sec.  1005.19(b)(6)(i) to provide that each 
prepaid account agreement must contain the provisions of the agreement 
and the fee information in effect as of the last business day of the 
preceding calendar quarter. Proposed comment 19(b)(6)-1 would have 
provided the following example to aid in determining the ``as of'' date 
of an agreement: On June 1, an issuer decides to decrease the out-of-
network ATM withdrawal fee associated with one of the agreements it 
offers to the public. The change in that fee will become effective on 
August 1. If the issuer submits the agreement to the Bureau on July 31 
(for example, because the agreement has been otherwise amended), the 
agreement submitted should not include the new lower out-of-network ATM 
withdrawal fee because that lower fee was not in effect on June 30, the 
last business day of the preceding calendar quarter. Proposed comment 
19(b)(6)-1 was similar to Regulation Z comment 58(c)(8)-1.
    Proposed Sec.  1005.19(b)(6)(i) would have also stated that 
agreements must not include any personally identifiable information 
relating to any consumer, such as name, address, telephone number, or 
account number. Proposed Sec.  1005.19(b)(6)(i) would have also stated 
that the following would not be deemed to be part of the agreement for 
purposes of proposed Sec.  1005.19, and therefore are not required to 
be included in submissions to the Bureau: (1) ancillary disclosures 
required by State or Federal law, such as affiliate marketing notices, 
privacy policies, or disclosures under the E-Sign Act; (2) solicitation 
or marketing materials; (3) periodic statements; and (4) documents that 
may be sent to the consumer along with the prepaid account or prepaid 
account agreement such as a cover letter, a validation sticker on the 
card, or other information about card security. Finally, proposed Sec.  
1005.19(b)(6)(i) would have required that agreements must be presented 
in a clear and legible font.
    Proposed Sec.  1005.19(b)(6)(i) generally mirrored the provisions 
in Regulation Z Sec.  1026.58(c)(8)(i) regarding the form and content 
of agreements that would be submitted to the Bureau. This provision 
would have excluded, however, two additional items listed in Regulation 
Z Sec.  1026.58(c)(8)(i)(C) that are not deemed to be part of a credit 
card agreement--ancillary agreements between the issuer and the 
consumer, such as debt cancellation contracts or debt suspension 
agreements, and offers for credit insurance or other optional products 
and other similar advertisements--because the Bureau did not believe 
these items were relevant in the prepaid account context.
    The Bureau received no comments specifically addressing Sec.  
1005.19(b)(6)(i) and is therefore finalizing it as proposed, with 
modifications for consistency with the revisions to proposed Sec.  
1005.19(b)(1) to change the time period in which issuers must submit 
agreements to the Bureau from a quarterly basis to a rolling basis. The 
Bureau notes that final Sec.  1005.19(b)(6)(i) is not intended to 
provide an exhaustive list of the ancillary State and Federal law 
disclosures that are not deemed to be part of an agreement under final 
Sec.  1005.19. As indicated by the use of the term ``such as,'' the 
listed disclosures are merely examples of ``ancillary disclosures 
required by Federal or State law.'' The Bureau does not believe it is 
feasible to include in this paragraph a comprehensive list of all such 
disclosures, as such a list would be extensive and would change as 
State and Federal laws and regulations are amended. The Bureau notes 
that an

[[Page 84142]]

issuer would not be prohibited by this or any other provision of Sec.  
1005.19 from choosing to include these items in submitted agreements.
    The Bureau received comments from several consumer groups and one 
credit union trade association regarding the Bureau's request for 
comment about whether issuers should be required to post agreements on 
their Web sites in an electronic format that is readily usable by the 
general public, or whether issuers should be required to provide 
agreements using, for example, a machine-readable text format, such as 
JSON or XML, that could be used by the Bureau or third parties to more 
easily create comparison shopping tools.\544\ The consumer groups 
argued that agreements should be submitted in a machine-readable text 
format because this format would allow researchers and other third 
parties to analyze information more easily and create comparison 
shopping tools. The credit union trade association disagreed, however, 
arguing that requiring agreements to be submitted in a format other 
than PDF would impose substantial software engineering fees on issuers. 
The Bureau appreciates the comments it received and continues to 
believe that it is important for issuers to submit agreements in a 
machine-readable format for these agreements to be useful to both the 
Bureau in its market monitoring efforts and to the consumers and other 
parties reviewing agreements on the Bureau's Web site in the future. 
The Bureau will provide technical specifications that will include 
details regarding appropriate file formats that the Bureau expects 
issuers will use when submitting new agreements and amended agreements 
following a substantive change.
---------------------------------------------------------------------------

    \544\ The Bureau solicited comment on this issue in the section-
by-section analysis of proposed Sec.  1005.19(b)(2); however, the 
Bureau believes it is more appropriate to discuss this issue here in 
the section-by-section analysis Sec.  1005.19(b)(6)(i), regarding 
the requirements for the form and content of the agreements 
submitted to the Bureau.
---------------------------------------------------------------------------

    The Bureau also received comments from several consumer groups and 
a labor organization requesting that in addition to including with each 
submission the names of the bank issuer, program manager, and branding 
entity (such as an employer, organization, institution of higher 
education), and other names that might be associated with a prepaid 
account (such as the entity that provides customer support), agreements 
should be searchable by such information. One of these commenters 
explained that many issuers use marketing or other affinity related 
names that make it difficult for a consumer to know which entity issued 
the prepaid account. The Bureau has considered these comments will 
consider incorporating such search functionality into its Web site.
    The Bureau is finalizing comment 19(b)(6)-1 substantially as 
proposed, with several modifications for clarity and consistency with 
the revisions to Sec.  1005.19(b)(1). In addition, the Bureau has 
removed from final comment 19(b)(6)-1 the reference to ``offers to the 
public'' and leaving only the term ``offers'' to reflect the changes to 
Sec.  1005.19(a)(5) as discussed. Specifically, final comment 19(b)(6)-
1 explains that agreements submitted to the Bureau must contain the 
provisions of the agreement and fee information currently in effect. 
For example, on June 1, an issuer decides to decrease the out-of-
network ATM withdrawal fee associated with one of the agreements it 
offers. The change in that fee will become effective on August 1. The 
issuer must submit and post the amended agreement with the decreased 
out-of-network ATM withdrawal fee to the Bureau by August 31 as 
required by final Sec.  1005.19(b)(2) and (c).
19(b)(6)(ii) Fee Information
    The Bureau proposed Sec.  1005.19(b)(6)(ii) to provide that fee 
information must be set forth either in the prepaid account agreement 
or in a single addendum to that agreement. The agreement or addendum 
thereto would have been required to contain all of the fee information, 
which was defined by proposed Sec.  1005.19(a)(3) as the information 
listed for the long-form fee disclosure in proposed Sec.  
1005.18(b)(2)(ii).
    Proposed Sec.  1005.19(b)(6)(ii) deviated from the provisions 
governing pricing information in Regulation Z Sec.  1026.58(c)(8)(ii) 
in that the proposed language would have permitted, but did not 
require, prepaid account fee information to be provided in an addendum 
to the prepaid account agreement. Proposed Sec.  1005.19(b)(6)(ii) also 
omitted the provisions contained in Regulation Z Sec.  
1026.58(c)(8)(ii)(B) and (C) that address how to disclose pricing 
information that varies from one cardholder to another (such as APRs) 
and how to disclose variable rates and margins. Because prepaid account 
fees and terms currently do not vary between consumers based on 
creditworthiness or other factors in the same way that credit card 
account pricing and other terms do, the Bureau did not believe these 
provisions were either applicable or necessary with respect to prepaid 
account agreements. The Bureau likewise did not propose an equivalent 
to Regulation Z Sec.  1026.58(c)(8)(iii) which allows for an optional 
variable terms addendum that allows provisions other than those related 
to pricing information that may vary from one cardholder to another 
depending on the cardholder's creditworthiness, State of residence or 
other factors to be set forth in a single addendum separate from the 
pricing information addendum. The Bureau likewise did not propose a 
comment equivalent to that of Regulation Z comment 58(c)(8)-2 regarding 
pricing information, nor that of Regulation Z comment 58(c)(8)-4 
regarding the optional variable terms addendum.
    With credit cards, issuers offer a range of terms and conditions 
and issuers may make those terms and conditions available in a variety 
of different combinations, particularly with respect to items included 
in the pricing information. In Regulation Z, pricing information is 
required to be set out in a separate pricing information addendum, 
regardless of whether pricing information is also contained in the main 
text of the agreement. The Board concluded that it could be difficult 
for consumers to find pricing information if it is integrated into the 
text of the credit card agreement. The Board believed that requiring 
pricing information to be attached as a separate addendum would ensure 
that this information is easily accessible to consumers.\545\ The 
Bureau did not believe that prepaid account agreements vary in the same 
manner.
---------------------------------------------------------------------------

    \545\ 75 FR 7658, 7769 (Feb. 22, 2010).
---------------------------------------------------------------------------

    Proposed comment 19(b)(6)-2, which is largely similar to Regulation 
Z comment 58(c)(8)-3, would have explained that fee agreement 
variations do not constitute separate agreements. Fee information that 
may vary from one consumer to another depending on the consumer's State 
of residence or other factors would have been required to be disclosed 
by setting forth all the possible variations or by providing a range of 
possible variations. Two agreements that differ only with respect to 
variations in the fee information would not have constituted separate 
agreements for purposes of proposed Sec.  1005.19. For example, an 
issuer offers two types of prepaid accounts that differ only with 
respect to the monthly fee. The monthly fee for one type of account is 
$4.95, while the monthly fee for the other type of account is $0 if the 
consumer regularly receives direct deposit to the prepaid account. The 
provisions of the agreement and fee information for the two types of 
accounts are otherwise identical. Under

[[Page 84143]]

the proposal, the issuer should not submit to the Bureau one agreement 
with fee information listing a $4.95 monthly fee and another agreement 
with fee information listing a $0 monthly fee. Instead, the issuer 
should submit to the Bureau one agreement with fee information listing 
possible monthly fees of $4.95 or $0, including the explanation that 
the latter fee is dependent upon the consumer regularly receiving 
direct deposit.
    The Bureau received comments from several consumer groups 
requesting that fee information be searchable separately from the terms 
and conditions. These commenters argued that consumers and other 
parties reviewing agreements on the Bureau's Web site will only want to 
compare fee schedules and that many will only be interested in the 
short form disclosures, which should include most of the relevant fees.
    For the reasons set forth herein, the Bureau is finalizing Sec.  
1005.19(b)(6)(ii) as proposed, with modifications for consistency with 
the revisions to Sec.  1005.19(b)(1) to change the time period in which 
issuers must submit agreements to the Bureau from quarterly to rolling. 
The Bureau continues to believe that permitting issuers to submit fee 
information either in a prepaid account agreement or in a single 
addendum to that agreement provides issuers flexibility in submitting 
the fee information, while ensuring that consumers and other users of 
the database have access to such information. For example, for some 
issuers, requiring fee information to be provided in a separate 
addendum to the agreement might increase the administrative burden 
related to submitting a separate document to the Bureau.
    In addition, the Bureau continues to believe that, unlike credit 
card issuers, prepaid account issuers do not typically offer a range of 
terms and conditions or make those terms and conditions available in a 
variety of different combinations, particularly with respect to items 
included in the pricing information. Therefore, the Bureau does not 
believe it would be difficult for consumers to find fee information if 
it is integrated into the text of the agreement.
    The Bureau is finalizing comment 19(b)(6)-2 with several 
modifications to explain that issuers are not permitted to disclose fee 
information that varies from one consumer to another by providing a 
range of the possible fee variations; rather, issuers must disclose 
such fee information by setting forth all the possible variations. Upon 
further consideration, the Bureau believes that providing a range of 
possible fee variations would not present a clear picture of what the 
actual fees are and therefore would not be as helpful to the Bureau in 
its market monitoring, or to consumers or third parties in the future 
when prepaid account agreements are posted to the Bureau's Web site. 
Therefore, final comment 19(b)(6)-2 explains that fee information that 
may vary from one consumer to another depending on the consumer's State 
of residence or other factors must be disclosed by setting forth all 
the possible variations. The Bureau has removed from final comment 
19(b)(6)-2 the explanation that two agreements that differ only with 
respect to variations in the fee information do not constitute separate 
agreements, as the Bureau does think the comment is necessary. The 
Bureau has also revised the example in final comment 19(b)(6)-2 to 
explain that if an issuer offers a prepaid account with a monthly fee 
of $4.95 or $0 if the consumer regularly receives direct deposit to the 
prepaid account, the issuer must submit to the Bureau one agreement 
with fee information listing the possible monthly fees of $4.95 or $0 
and including an explanation that the latter fee is dependent upon the 
consumer regularly receiving direct deposit.
19(b)(6)(iii) Integrated Agreement
    The Bureau proposed Sec.  1005.19(b)(6)(iii) to prohibit issuers 
from providing provisions of the agreement or fee information to the 
Bureau in the form of change-in-terms notices or riders (other than the 
optional fee information addendum). Changes in provisions or fee 
information would have been required to be integrated into the text of 
the agreement, or the optional fee information addendum, as 
appropriate. Proposed comment 19(b)(6)-3 would have provided the 
following example illustrating this requirement: It would be 
impermissible for an issuer to submit to the Bureau an agreement in the 
form of a terms and conditions document dated January 1, 2015, four 
subsequent change-in-terms notices, and two addenda showing variations 
in fee information. Instead, the issuer must submit a document that 
integrates the changes made by each of the change-in-terms notices into 
the body of the original terms and conditions document and a single 
optional addendum displaying variations in fee information.
    Proposed Sec.  1005.19(b)(6)(iii) was similar to Regulation Z Sec.  
1026.58(c)(8)(iv) in that they both prohibit providing agreements and 
fee (or pricing) information to the Bureau in the form of change-in-
terms notice or riders, but the Bureau modified the proposed language 
to reflect that prepaid account fee information may, but is not 
required to be, provided in an optional fee information addendum. 
Proposed comment 19(b)(6)-3 was similar to Regulation Z comment 58(b)-
5.
    The Bureau received no comments on this aspect of the proposal and 
is therefore finalizing Sec.  1005.19(b)(6)(iii) as proposed with minor 
revisions for clarity. The Bureau continues to believe that permitting 
issuers to submit agreements that include change-in-terms notices or 
riders containing amendments and revisions would be confusing for 
consumers and would greatly lessen the usefulness of the agreements 
posted on the Bureau's Web site. In addition, the Bureau believes that 
prepaid account issuers customarily incorporate revised terms into 
their prepaid account agreements on a regular basis.
    In addition, the Bureau believes that, unlike credit card 
agreements, a single prepaid account agreement does not typically 
contain a variety of variable terms predicated on the consumer's credit 
worthiness or other factors. With respect to Regulation Z Sec.  
1026.58(c)(8)(iv), the Board believed that there could potentially be 
significant burden on issuers for updating credit card agreements 
following changes in terms because of the potential variety in terms 
offered under a single agreement.\546\ The Bureau does not believe a 
similar burden exists for prepaid account agreements because a single 
prepaid account agreement would not contain a variety of variable terms 
predicated on the consumer's credit worthiness or other factors. 
Furthermore, the Bureau does not believe that prepaid account issuers 
modify the terms of prepaid account agreements as frequently as credit 
card issuers do. Therefore, the Bureau does not believe this 
requirement would significantly burden issuers.
---------------------------------------------------------------------------

    \546\ See 75 FR 7658, 7770 (Feb. 22, 2010).
---------------------------------------------------------------------------

    The Bureau is finalizing comment 19(b)(6)-3 substantially as 
proposed, with revisions to simplify the example that explains that an 
issuer would not be permitted to submit to the Bureau an agreement in 
the form of a terms and conditions document and subsequently submit a 
change-in-terms notice or an addendum to indicate amendments to the 
previously submitted agreement.

[[Page 84144]]

Bureau Posting of Prepaid Account Agreements
The Bureau's Proposal
    The Bureau proposed Sec.  1005.19(b)(7) to provide that the Bureau 
shall receive prepaid account agreements submitted by prepaid account 
issuers pursuant to proposed Sec.  1005.19(b) and shall post such 
agreements on a publicly available Web site established and maintained 
by the Bureau. There is no equivalent to proposed Sec.  1005.19(b)(7) 
in Regulation Z Sec.  1026.58 as the Bureau's posting of credit card 
agreements it receives is directed by TILA section 122(d).\547\
---------------------------------------------------------------------------

    \547\ 15 U.S.C. 1632(d).
---------------------------------------------------------------------------

Comments Received
    The Bureau received several comments from consumer groups, State 
government agencies, and industry, including industry and credit union 
trade associations and credit unions, regarding the proposal to post 
prepaid account agreements to the Bureau's publicly available Web 
site.\548\ The industry commenters opposed this portion of the 
proposal, arguing that it is unnecessary and would provide little to no 
consumer benefit. These commenters argued that consumers would not 
likely visit the Bureau's Web site to compare prepaid account 
agreements, especially when consumers can obtain agreements from other 
sources, such as the issuer's Web site or otherwise prior to 
acquisition. These commenters also expressed concern that the version 
of an agreement on the Bureau's Web site might differ from the version 
on the issuer's Web site, causing consumer confusion.
---------------------------------------------------------------------------

    \548\ Commenters generally addressed the public posting 
requirements in proposed Sec.  1005.19(b) and (c) together. There 
are thus some overlaps between the comments summarized here and 
those in the section-by-section analysis of Sec.  1005.19(c) below.
---------------------------------------------------------------------------

    Furthermore, as discussed in the section-by-section analysis of 
Sec.  1005.19(a)(8) above, several industry commenters, including 
issuing banks, industry trade associations, program managers, a think 
tank, and a law firm writing on behalf of a coalition of prepaid 
issuers, urged the Bureau to exclude agreements that are not offered to 
the public (such as payroll card, government benefit, and campus card 
accounts) from being posted to the Bureau's publicly available Web 
site. These commenters explained that for these types of accounts, an 
issuer could have thousands of agreements that have been negotiated 
between the issuer and a third party (such as an employer, a government 
agency, or a university) and that are often tailored to fit the needs 
of individual programs. These commenters stated that such volume and 
variety would clutter the Bureau's Web site, overwhelm consumers, and 
cause confusion because consumers might not understand which agreement 
applies to their account or why the terms differ. These commenters 
stated that even if consumers could navigate the volume of agreements, 
the third party--not the consumers--chooses these agreements, so 
comparison shopping would not be an option. In addition, these 
commenters stated that the public posting of these agreements raises 
confidentiality concerns regarding the disclosure of proprietary 
account features, which would compromise the issuer's ability to 
negotiate customized account agreements. These commenters also argued 
that a public posting requirement would undermine competition because 
it would inhibit the incentive for companies to develop novel products.
    Several consumer groups and the office of a State Attorney General 
supported a requirement to post all agreements, including agreements 
that are not offered to the public, on the Bureau's publicly available 
Web site because they believed it would encourage competition and 
transparency, which they stated would help lower fees, and facilitate 
comparison shopping, which they said would result in more informed 
consumer decisions. One consumer group argued that the public posting 
of agreements would assist the Bureau, researchers, and consumer 
advocates in compiling information to issue reports and shed light on 
inappropriate practices by market participants.
    With respect to publicly posting agreements that are not offered to 
the public, one consumer group asserted that the payroll card market, 
in particular, is secretive and issuers and employers in this market do 
not generally provide fee schedules when asked. This commenter added 
that when it began issuing reports on unemployment compensation cards, 
fees started to come down. This commenter also argued that employers, 
government agencies, nonprofit organizations, and other entities 
considering a prepaid card program would be able to see and compare the 
various terms offered in the market. This commenter further argued 
that, while payroll card issuers may have confidentiality clauses in 
their contracts with employers, those clauses do not bind employees 
because once a card is issued to an employee, the agreement is no 
longer confidential. Finally, the office of a State Attorney General 
argued that even though consumers who enroll in payroll card programs 
are not typically able to comparison shop because the employer selects 
their program, they would still be able to compare their plan with 
other wage payment options, such as a checking account, direct deposit, 
and other prepaid accounts.
    One trade association argued that the Bureau lacks authority to 
post prepaid account agreements to its Web site. This commenter argued 
that EFTA is concerned specifically with EFTs, not bank accounts 
generally or non-electronic transactions, such as cash and check 
deposits, which are features of prepaid accounts. This commenter also 
argued that EFTA focuses on the rights, liabilities, and 
responsibilities of participants with regard to EFTs, not the 
consumer's ability to shop for bank accounts or understand the cost of 
the accounts. This commenter further stated that if EFTA was intended 
to ensure that consumers could understand the costs of their prepaid 
accounts and to be able to shop, EFTA would require the disclosure of 
all fees, not just charges associated with EFTs and certain ATM fees. 
Furthermore, this commenter argued that the Bureau's authority under 
section 1022 of the Dodd-Frank Act to monitor risk for consumers in 
financial products and to gather information regarding financial 
service markets does not allow the Bureau to post agreements on its Web 
site. Regarding the Bureau's authority under section 1032(a) of the 
Dodd-Frank Act, this commenter stated that consumers will already have 
the ability to understand the costs, benefits, and risks associated 
with prepaid accounts by obtaining the information from the issuer's 
Web site or otherwise prior to acquisition, and therefore, posting the 
agreements on the Bureau's Web site is unnecessary. This commenter 
further stated that, if Congress had intended for issuers to submit 
agreements to the Bureau (as it did for credit card agreements under 
TILA), it would have specifically required it in the Dodd-Frank Act.
The Final Rule
    Upon further consideration, the Bureau believes it is unnecessary 
to finalize Sec.  1005.19(b)(7). Consistent with its request for 
comment, the Bureau intends to publish on its Web site in the future 
the agreements that issuers have submitted pursuant to final Sec.  
1005.19(b). Given that the requirement speaks to the Bureau's actions 
and not to regulated entities, however, there is no need to finalize 
the provision through regulatory text.
    The Bureau continues to believe that posting prepaid accounts 
agreements

[[Page 84145]]

that are offered will benefit consumers, as it will allow consumers to 
more easily compare terms of prepaid accounts currently in the 
marketplace as well as facilitate third parties' analysis of prepaid 
accounts and the development of online shopping tools. The Bureau 
believes it is important to publicly post the agreements of all prepaid 
accounts, including accounts whose agreements are not offered to the 
general public, such as payroll cards, government benefit, and campus 
card accounts, because publicly posting these agreements will encourage 
competition and increase transparency. Regarding agreements that are 
not offered to the public, the Bureau agrees with one of the commenters 
that consumers can still compare these agreements with other wage 
payment options, despite not being able to choose their program. The 
Bureau also agrees with another commenter that publicly posting these 
agreements will allow employers, government agencies, and nonprofit 
organizations, and other entities considering a prepaid account program 
to see and compare the various terms offered in the market.
    As discussed above, the Bureau proposed and is finalizing Sec.  
1005.19 pursuant to its authority in section 1022(c)(4) of the Dodd-
Frank Act. Under section 1022(c)(3) of the Dodd-Frank Act, the Bureau 
``shall publish not fewer than 1 report of significant findings of its 
monitoring required by this subsection in each calendar year,'' and 
``may make public such information obtained by the Bureau under this 
section as is in the public interest.'' As discussed above, the Bureau 
is requiring submission of this information to the Bureau under section 
1022(c)(1) of the Dodd-Frank Act, which directs the Bureau to monitor 
for risks to consumers in the offering or provision of consumer 
financial products or services, including developments in markets for 
such products or services, and section 1022(c)(4), which provides the 
Bureau with authority to gather information from time to time regarding 
the organization, business conduct, markets, and activities of covered 
persons and service providers.
19(c) Posting of Agreements Offered to the General Public
The Bureau's Proposal
    The Bureau proposed Sec.  1005.19(c) to require an issuer to post 
and maintain on its publicly available Web site the prepaid account 
agreements that the issuer would be required to submit to the Bureau 
under proposed Sec.  1005.19(b). Agreements posted pursuant to proposed 
Sec.  1005.19(c) would have been required to conform to the form and 
content requirements for agreements submitted to the Bureau specified 
in proposed Sec.  1005.19(b)(6)(i)(B) through (D) and would have been 
permitted to be posted in any electronic format that is readily usable 
by the general public. Agreements posted pursuant to proposed Sec.  
1005.19(c) would have been required to be accurate and updated whenever 
changes are made. Agreements would have been required to be placed in a 
location that is prominent and readily accessible by the public and 
without submission of personally identifiable information.
    Regulation Z Sec.  1026.58(d)(1) requires credit card issuers to 
update the agreements posted on their Web sites at least as frequently 
as the quarterly schedule required for submission of agreements to the 
Bureau, but permits an issuer to update its agreements more frequently 
if it so chooses. For Regulation Z, the Board considered a consumer 
group comment requesting that the online agreement be updated within a 
specific period of time no greater than 72 hours. The Board declined to 
adopt such a requirement because it believed that the burden to card 
issuers of updating agreements in such a short time would outweigh the 
benefit. In addition, the Board noted that if a consumer applies or is 
solicited for a credit card, the consumer will receive the updated 
disclosure under existing rules in Regulation Z subpart B.\549\ The 
Bureau believed that prepaid account issuers generally update their 
agreements posted online as changes are made. The Bureau did not 
believe that prepaid account issuers would face the same burdens as 
credit card issuers in updating prepaid account agreements posted 
online because the terms of such agreements do not vary in the same 
manner as credit card agreement terms, which may offer a variety of 
rates and fees depending on the creditworthiness of the consumer. Thus, 
for prepaid account agreements, the Bureau proposed in Sec.  
1005.19(c)(3) that prepaid account agreements posted only be accurate 
and that issuers update their agreements whenever changes are made.
---------------------------------------------------------------------------

    \549\ 75 FR 7658, 7772 (Feb. 22, 2010).
---------------------------------------------------------------------------

    Proposed comment 19(c)-1 would have explained that an issuer's 
obligation to post and maintain prepaid account agreements on its Web 
site pursuant to proposed Sec.  1005.19(c) is distinct from that of 
Sec.  1005.7, which requires an issuer to provide certain disclosures 
at the time a consumer contracts for an EFT service or before the first 
EFT is made involving the consumer's account, as well as the change-in-
terms notice required under Sec.  1005.8(a). This requirement would 
have also been distinct from that of proposed Sec.  1005.18(b)(2)(ii), 
which would have required issuers to make the long form disclosure 
available to consumers prior to prepaid account acquisition and which, 
depending on the methods an issuer offers prepaid accounts to 
consumers, would have required posting of the long form disclosure on 
the issuer's Web site. If, for example, an issuer is not required to 
submit any agreements to the Bureau because the issuer qualifies for 
the de minimis exception under proposed Sec.  1005.19(b)(4), the issuer 
would not have been required to post and maintain any agreements on its 
Web site under proposed Sec.  1005.19(c). The issuer would have still 
been required to provide each individual consumer with access to his or 
her specific prepaid account agreement under proposed Sec.  1005.19(d), 
discussed below, by posting and maintaining the agreement on the 
issuer's Web site or by providing a copy of the agreement upon the 
consumer's request. The issuer may have also been required to post the 
long form disclosure required by proposed Sec.  1005.18(b)(2)(ii) 
online as well, depending on the methods by which the issuer offers 
prepaid accounts to consumers.
    Proposed comment 19(c)-2 would have explained that if an issuer 
provides consumers with access to specific information about their 
individual accounts, such as balance information or copies of 
statements, through a third-party Web site, the issuer would have been 
considered to maintain that Web site for purposes of proposed Sec.  
1005.19. Such a third-party Web site would have been deemed to be 
maintained by the issuer for purposes of proposed Sec.  1005.19(c) even 
where, for example, an unaffiliated entity designs the Web site and 
owns and maintains the information technology infrastructure that 
supports the Web site, consumers with prepaid accounts from multiple 
issuers can access individual account information through the same Web 
site, and the Web site is not labeled, branded, or otherwise held out 
to the public as belonging to the issuer. Therefore, issuers that 
provide consumers with access to account-specific information through a 
third-party Web site would have been able to comply with proposed Sec.  
1005.19(c) by ensuring that the agreements the issuer submits to the 
Bureau are posted on the third-party Web site in accordance with 
proposed Sec.  1005.19(c).

[[Page 84146]]

    Proposed Sec.  1005.19(c) was similar to Regulation Z Sec.  
1026.58(d), but did not include provisions regarding private label 
credit cards, as discussed above. Specifically, the Bureau did not 
propose an equivalent to the provision addressing the Web site to be 
used for posting private label credit card agreements in Regulation Z 
Sec.  1026.58(d)(1) as well as Regulation Z Sec.  1026.58(d)(4) 
requiring quarterly updates of credit card agreements posted on card 
issuers' Web sites, as discussed above. Proposed comment 19(c)-1 was 
similar to Regulation Z comment 58(d)-1, although the Bureau had 
modified it to distinguish the requirement in proposed Sec.  1005.19(c) 
from other disclosure-related obligations in Regulation E. Proposed 
comment 19(c)-2 would have mirrored Regulation Z comment 58(d)-2, 
although the Bureau had modified both it and proposed comment 19(c)-1 
to remove the portions discussing the private label credit card 
exception. An equivalent to Regulation Z comment 58(d)-3, regarding 
private label credit card plans, was likewise omitted.
Comments Received
    The Bureau received comments from consumer groups, State government 
agencies, and industry commenters (including trade associations, credit 
unions, a program manager, and a payment network) regarding the 
proposed posting requirement in Sec.  1005.19(c).\550\ The industry 
commenters argued that the proposed posting requirement would burden 
industry and provide little to no consumer benefit. These commenters 
explained that the proposed requirement would be problematic for 
issuers as they would have to constantly update their Web site with new 
and revised agreements. One of the credit unions argued that the 
requirement would be an intrusion into its business practices, but also 
stated that issuers already post agreements online without direction 
from the Bureau. Several commenters expressed concern that the version 
of an agreement on the Bureau's Web site might differ from the version 
on the issuer's Web site, causing consumer confusion.
---------------------------------------------------------------------------

    \550\ These commenters generally addressed the public posting 
requirements in proposed Sec.  1005.19(b) and (c) together. There 
are thus some overlaps between the comments summarized here and 
those in the section-by-section analysis of Sec.  1005.19(b) under 
Bureau Posting of Prepaid Account Agreements above.
---------------------------------------------------------------------------

    Furthermore, as discussed in the section-by-section analysis of 
Sec.  1005.19(a)(8) above, several industry commenters, including 
issuing banks, industry trade associations, program managers, a think 
tank, and a law firm writing on behalf of a coalition of prepaid 
issuers, urged the Bureau to exclude agreements that are not offered to 
the public (such as payroll card, government benefit, and campus card 
accounts) from the requirement in proposed Sec.  1005.19(c) to post 
agreements to the issuer's publicly available Web site. These 
commenters explained that for these types of accounts, an issuer could 
have thousands of agreements that have been negotiated between the 
issuer and a third party (such as an employer, a government agency, or 
a university) and that are often tailored to fit the needs of 
individual programs. These commenters stated that such volume and 
variety would clutter the issuer's Web site, overwhelm consumers, and 
cause confusion because consumers might not understand which agreement 
applies to their account or why the terms differ. These commenters 
stated that even if consumers could navigate the volume of agreements, 
the third party--not the consumers--chooses these agreements, so 
comparison shopping would not be an option. In addition, these 
commenters stated that the public posting of these agreements raises 
confidentiality concerns regarding the disclosure of proprietary 
account features, which would compromise the issuer's ability to 
negotiate customized account agreements. These commenters also argued 
that a public posting requirement would undermine competition because 
it would inhibit the incentive for companies to develop novel products.
    Several consumer groups and the office of a State Attorney General 
supported a requirement to post all agreements, including agreements 
that are not offered to the public, on the issuer's public Web site 
because they believed it would encourage competition and transparency, 
which they stated would help lower fees, and facilitate comparison 
shopping, which they stated would result in better informed consumer 
decisions. One consumer group argued that the public posting of 
agreements would assist the Bureau, researchers, and consumer advocates 
in compiling information to issue reports and shed light on 
inappropriate practices by some market participants.
    With respect to publicly posting agreements that are not offered to 
the public, one consumer group explained that the payroll card market, 
in particular, is secretive and issuers and employers in this market do 
not generally provide fee schedules when asked. This commenter added 
that when it began issuing reports on unemployment compensation cards, 
fees started to come down. This commenter also argued that employers, 
government agencies, nonprofit organizations, and other entities 
considering a prepaid card program would be able to see and compare the 
various terms offered in the market. This commenter further argued 
that, while payroll card issuers may have confidentiality clauses in 
their contracts with employers, those clauses do not bind employees 
because once the card is issued to an employee, the agreement is no 
longer confidential. Finally, the office of a State Attorney General 
argued that even though consumers who enroll in payroll card programs 
are not typically able to comparison shop because the employer selects 
their program, they would still be able to compare their plan with wage 
other payment options, such as a checking account, direct deposit, and 
other prepaid accounts.
    Regarding whether the Bureau should specify a timeframe for 
updating agreements posted on the issuer's Web site, one credit union 
requested that the Bureau not designate a timeframe, and one consumer 
group requested that the Bureau require issuers to post agreements 
within seven business days of issuing the agreement.
The Final Rule
    For the reasons set forth herein, the Bureau is finalizing Sec.  
1005.19(c) generally as proposed, with several modifications. The 
Bureau has revised Sec.  1005.19(c)(1) to exclude prepaid account 
agreements that are not offered to the general public from the 
requirement that issuers post agreements to their publicly available 
Web sites. In addition, the Bureau has revised Sec.  1005.19(c)(3) to 
clarify that an issuer must post on its publicly available Web site and 
update the posted agreements as frequently as the issuer is required to 
submit new and amended agreements to the Bureau pursuant to Sec.  
1005.19(b). The Bureau has also made several minor revisions for 
clarity and consistency.
    The Bureau continues to believe that the general requirement to 
post prepaid account agreements on the issuer's publicly available Web 
site will increase transparency in the terms of these agreements and 
the amounts of the fees assessed against the prepaid accounts. The 
increased transparency will allow the public and consumers to become 
better informed about these accounts, which will likely encourage 
competition and improve fees in the various markets.

[[Page 84147]]

Furthermore, the public posting of agreements will allow consumers to 
compare the terms and fees among various agreements. In addition, the 
Bureau does not believe this general requirement will be problematic 
for issuers, as posting agreements on the issuer's Web site is 
consistent with industry practice today.
    The Bureau is persuaded, however, that posting to the issuer's 
publicly available Web site agreements that are not offered to the 
general public may impose unnecessary administrative burden and have 
little consumer benefit. The Bureau understands that issuers of payroll 
card, government benefit, campus card, and other types of accounts 
whose agreements are not offered to the general public could 
potentially have thousands of agreements to post and maintain on their 
publicly available Web sites, which could take a considerable amount of 
time and resources to set up and maintain without necessarily being 
easy for consumers to navigate. In addition, the Bureau believes that 
consumers who use these types of accounts would not likely visit the 
issuer's general Web site to access their individual agreements. The 
Bureau notes that issuers of these accounts are still required to 
provide each individual consumer with access to his or her specific 
prepaid account agreement under Sec.  1005.19(d), discussed below, and 
to submit the agreements to the Bureau under Sec.  1005.19(b) (unless 
the de minimis exception under final Sec.  1005.19(b)(4) or the product 
testing exception under final Sec.  1005.19(b)(5) applies). In 
contrast, the Bureau believes that there are benefits to consumers and 
third parties in having agreements not available to the general public 
posted all in one place on the Bureau's Web site. See the section-by-
section analysis of Sec.  1005.19(a)(8) above.
    The Bureau is finalizing comments 19(c)-1 and -2 generally as 
proposed, with several modifications for clarity and consistency with 
the revisions to Sec.  1005.19(c) discussed above.
    Final comment 19(c)-1 explains the differences between final Sec.  
1005.19(c) and other provisions in Sec.  1005.19, as well as other 
requirements elsewhere in of Regulation E, and clarifies that, for 
agreements that are not offered to the general public, the issuer is 
not required to post and maintain the agreements on its publicly 
available Web site, but is still required to provide each individual 
consumer with access to his or her specific prepaid account agreement 
under Sec.  1005.19(d). This comment also clarifies the requirements 
for issuers that are not required to submit agreements to the Bureau 
because they qualify for the de minimis exception under Sec.  
1005.19(b)(4) or the agreements qualify for the product testing 
exception under Sec.  1005.19(b)(5). In addition, this final comment 
does not contain the proposed explanation that an issuer that is not 
required to submit agreements to the Bureau may be required to post the 
long form disclosure required by proposed Sec.  1005.18(b)(2)(ii) 
online, depending on the methods by which the issuer offers prepaid 
accounts to consumers, as the Bureau does not believe it is necessary 
to include this clarification in commentary.
    Final comment 19(c)-2 explains that, if an issuer offers an 
agreement to the general public as defined by Sec.  1005.19(a)(6), that 
issuer must post that agreement on a publicly available Web site it 
maintains. If an issuer provides consumers with access to specific 
information about their individual accounts, such as balance 
information or copies of statements, through a third-party Web site, 
the issuer is considered to maintain that Web site for purposes of 
Sec.  1005.19. Such a third-party Web site is deemed to be maintained 
by the issuer for purposes of Sec.  1005.19(c) even where, for example, 
an unaffiliated entity designs the Web site and owns and maintains the 
information technology infrastructure that supports the Web site, 
consumers with prepaid accounts from multiple issuers can access 
individual account information through the same Web site, and the Web 
site is not labeled, branded, or otherwise held out to the public as 
belonging to the issuer. Therefore, issuers that provide consumers with 
access to account-specific information through a third-party Web site 
can comply with Sec.  1005.19(c) by ensuring that the agreements the 
issuer submits to the Bureau are posted on the third-party Web site in 
accordance with Sec.  1005.19(c).
19(d) Agreements for All Open Accounts
19(d)(1) Availability of an Individual Consumer's Prepaid Account 
Agreement
The Bureau's Proposal
    The Bureau proposed Sec.  1005.19(d)(1) to provide that, with 
respect to any open prepaid account, unless the prepaid account 
agreement is provided to the Bureau pursuant to proposed Sec.  
1005.19(b) and posted to the issuer's publicly available Web site 
pursuant to proposed Sec.  1005.19(c), an issuer must either post and 
maintain the consumer's agreement on its Web site, or promptly provide 
a copy of the consumer's agreement to the consumer upon the consumer's 
request. Agreements posted pursuant to proposed Sec.  1005.19(d) would 
have been permitted to be housed on a portion of the issuer's Web site 
that is available to consumers once they have logged into their 
accounts. If the issuer makes an agreement available upon request, the 
issuer would have been required to provide the consumer with the 
ability to request a copy of the agreement by telephone. The issuer 
would have been required to send to the consumer a copy of the 
consumer's prepaid account agreement no later than five business days 
after the issuer receives the consumer's request.
    Proposed comment 19(d)-1, which was similar to Regulation Z comment 
58(e)-1, would have provided examples illustrating the requirements of 
proposed Sec.  1005.19(d)(1). An issuer that is not required to submit 
agreements to the Bureau because it qualifies for the de minimis 
exception under proposed Sec.  1005.19(b)(4) would still have been 
required to provide consumers with access to their specific agreements 
under proposed Sec.  1005.19(d). Similarly, an agreement that is no 
longer offered to the public would not have been required to be 
submitted to the Bureau under proposed Sec.  1005.19(b), but would 
still have been required to be provided to the consumer to whom it 
applies under proposed Sec.  1005.19(d).
    The Board believed that the administrative burden associated with 
posting each cardholder's credit card agreement on the issuer's Web 
site might be substantial for some issuers, particularly smaller 
institutions with limited information technology resources, and thus 
gave issuers the option of providing copies of agreements in response 
to cardholders' requests. The ability to provide agreements in response 
to a request made via telephone or Web site would ensure that 
cardholders still be able to obtain copies of their credit card 
agreements promptly.\551\
---------------------------------------------------------------------------

    \551\ See 74 FR 54124, 54192 (Oct. 21, 2009).
---------------------------------------------------------------------------

    The Bureau did not know whether similar challenges are faced by 
prepaid account issuers, particularly for issuers that would qualify 
for the de minimis or product testing exceptions. The Bureau thus 
proposed to similarly allow prepaid account issuers to satisfy the 
requirements of proposed Sec.  1005.19(d)(1) by providing a copy of a 
consumer's prepaid account agreement to the consumer upon the 
consumer's request.
    Regulation Z Sec.  1026.58(e)(1) requires a credit card issuer to 
accept cardholders' requests for copies of their credit card agreements 
via the issuer's Web site as

[[Page 84148]]

well as by telephone. The Bureau believed that prepaid account issuers 
would generally post prepaid account agreements to their Web sites 
pursuant to proposed Sec.  1005.19(d)(1)(i), even if the agreement is 
posted in a location that is only accessible to prepaid account 
consumers after they have logged in to their accounts. The Bureau thus 
expected that few, if any, issuers would be required to provide 
agreements in response to a consumer's request pursuant to proposed 
Sec.  1005.19(d)(1)(ii). The Bureau therefore did not believe it was 
necessary to require issuers to receive requests via their Web sites, 
although issuers could certainly allow consumers to make requests in 
that manner if they so choose.
    Regulation Z Sec.  1026.58(e)(1)(ii) also requires credit card 
issuers to allow cardholders to request copies of their agreements by 
calling a readily available telephone line the number for which is 
displayed on the issuer's Web site and clearly identified as to its 
purpose. Regulation Z comment 58(e)-2 provides additional clarification 
as to what is required to satisfy the ``readily available telephone 
line'' standard. Because the Bureau proposed to require prepaid account 
issuers to provide telephone numbers for a variety of other 
purposes,\552\ the Bureau did not believe it was necessary to provide 
the same level of specificity regarding the telephone number to be used 
to request a copy of a prepaid account agreement pursuant to proposed 
Sec.  1005.19(d)(1)(ii) nor to provide a comment equivalent to that of 
Regulation Z comment 58(e)-2.
---------------------------------------------------------------------------

    \552\ See, e.g., proposed Sec.  1005.18(b)(7), which would have 
required disclosure of a telephone number on the prepaid account 
access device, to be used to contact the financial institution about 
the prepaid account.
---------------------------------------------------------------------------

    Regulation Z Sec.  1026.58(e)(1) also allows a credit card issuer, 
in response to such a cardholder's request for a copy of the 
cardholder's agreement, to provide that agreement to the cardholder 
electronically, such as by posting a copy of the agreement to its Web 
site in a location that is accessible by the cardholder. Because the 
Bureau expected that few, if any, issuers would be required to provide 
agreements upon request pursuant to proposed Sec.  1005.19(d)(1)(ii), 
it did not appear to be necessary or useful to allow an issuer to post 
a prepaid account agreement to a consumer's online account in response 
to a consumer's request. The Bureau thus did not propose to permit 
issuers to provide copies of prepaid account agreements electronically 
in response to consumers' requests, except as permitted in proposed 
Sec.  1005.19(d)(2)(vi), discussed below. In addition, a provision 
corresponding to Regulation Z Sec.  1026.58(e)(2), containing a special 
provision for issuers without interactive Web sites, was not included 
in proposed Sec.  1005.19, as the Bureau was not aware of any prepaid 
issuers that do not maintain Web sites (or do not use a third-party 
service provider to maintain such a Web site) from which consumers can 
access specific information about their individual prepaid accounts and 
thus does not believe such a provision is necessary for prepaid 
accounts. The Bureau did not propose an equivalent to Regulation Z 
comment 58(e)-3, which provides examples regarding the deadline for 
providing copies of requested agreements, as the Bureau did not believe 
such examples were necessary given the more limited ways that issuers 
are permitted to respond to requests under proposed Sec.  
1005.19(d)(1)(ii).
    Regulation Z Sec.  1026.58(e)(2) provides that the card issuer must 
send to the cardholder or otherwise make available to the cardholder a 
copy of the cardholder's agreement in electronic or paper form no later 
than 30 days after the issuer receives the cardholder's request. The 
Board originally proposed requiring issuers to respond to such a 
request within 10 business days, but some commenters contended that 10 
business days would not provide sufficient time to respond to a 
request. The commenters noted that they would be required to integrate 
changes in terms into the agreement and providing pricing information, 
which, particularly for older agreements that may have had many changes 
in terms over the years, could require more time. The Board believed it 
would be reasonable to provide more time for an issuer to respond to a 
cardholder's request for a copy of the credit card agreement, and thus 
allowed for 30 days in the final rule.\553\
---------------------------------------------------------------------------

    \553\ 75 FR 7658, 7773 (Feb. 22, 2010).
---------------------------------------------------------------------------

    The Bureau did not believe that issuers would face the same 
challenges in integrating changes in terms into prepaid account 
agreements in the same manner as with credit card agreements. The 
Bureau believed that requiring issuers to provide prepaid account 
agreements within five business days would give issuers adequate time 
to respond to requests while providing consumers with prompt access to 
their prepaid account agreements.
Comments Received
    The Bureau received comments from several industry and consumer 
group commenters on this aspect of the proposal. The commenters 
generally supported a requirement to provide consumers with access to 
their individual prepaid account agreements. One industry trade 
association and one issuing bank argued that an issuer should be 
required to post and maintain the consumer's payroll card agreement on 
a portion of the issuer's Web site that is available to the consumer 
once he or she has logged into his or her account. These commenters 
suggested that the Bureau provide a statement on its dedicated prepaid 
account Web site directing consumers of payroll cards to visit their 
issuer's Web site for a copy of their agreement and to submit a 
complaint to the Bureau if the consumer has trouble obtaining it 
(similar to what is included on the Bureau's Web site for credit card 
agreements).
    One consumer group urged the Bureau to require issuers to both post 
prepaid account agreements on the issuer's Web site and make agreements 
available in paper form upon the consumer's request, not one or the 
other. This commenter also requested that the Bureau require issuers to 
post a consumer's agreement on a password protected section of their 
Web site, even if the agreement is identical to the one currently 
offered to the public. This commenter explained that consumers who 
obtained their accounts in the past will not know that their agreements 
are the same as those currently offered. This commenter also stated 
that the ``my account'' area of the Web site is also where consumers 
will logically search for their agreements. In addition, this commenter 
urged the Bureau to make clear that issuers may not charge consumers a 
fee for requesting a copy of their agreement.
    One program manager requested that the Bureau strike proposed Sec.  
1005.19(d) in its entirety from this final rule. This commenter argued 
that consumers would need to sort through thousands of agreements--each 
containing multiple pages--without knowing which account is applicable 
to their programs. This commenter stated that consumers will not likely 
seek out a multi-page agreement in order to compare the features of the 
program most important to that consumer. This commenter also stated 
that it does not feel comfortable making agreements, which they 
explained contain proprietary and confidential information, available 
to the public and subject to the scrutiny of competitors in the 
marketplace. This commenter stated that employers and other clients 
with whom the commenter has negotiated certain terms would not be 
comfortable with their competitors' ability to see the terms that 
resulted

[[Page 84149]]

from private, business-to-business negotiations. This commenter argued 
that the risks of exposing sensitive proprietary and confidential 
information outweighs any potential benefit to consumers. This 
commenter requested that the Bureau instead require issuers to provide 
consumers with access to their individual, tailored account agreement 
via the issuer's Web site, after the consumer's identity has been 
verified through their login credentials. This commenter stated that 
this approach would offer a more meaningful outcome and process for 
consumers since consumers would gain easy access to the exact agreement 
applicable to their programs.\554\
---------------------------------------------------------------------------

    \554\ The Bureau notes that this commenter's concerns were 
likely in reference to the Bureau's proposed posting requirements in 
Sec.  1005.19(b)(1) and (c), as proposed Sec.  1005.19(d) would have 
permitted issuers to provide consumers access to their individual 
agreements after logging in to their online accounts. However, the 
Bureau included this comment here because the issuer specifically 
requested that the Bureau to strike proposed Sec.  1005.19(d) from 
this final rule.
---------------------------------------------------------------------------

The Final Rule
    For the reasons set forth herein, the Bureau is finalizing Sec.  
1005.19(d) substantially as proposed, with one revision for clarity. 
Specifically, final Sec.  1005.19(d) provides that with respect to any 
open prepaid account, an issuer must either post and maintain the 
consumer's agreement on its Web site, or promptly provide a copy of the 
consumer's agreement to the consumer upon request.
    The Bureau continues to believe that it would not be appropriate to 
apply the de minimis exception, the product testing exception, or the 
exception for accounts not currently offered to the general public to 
the requirement that issuers provide consumers with access to their 
specific prepaid account agreement through the issuer's Web site. The 
Bureau believes that the benefit of increased transparency of providing 
individual consumers with access to their specific prepaid account 
agreements is substantial regardless of the number of open accounts an 
issuer has and regardless of whether an agreement continues to be 
offered by the issuer or is offered as part of a product test. In 
addition, the Bureau believes that requiring issuers to provide prepaid 
account agreements within five business days gives issuers adequate 
time to respond to requests while providing consumers with prompt 
access to their prepaid account agreements. The Bureau is adopting new 
comment 19(d)-2, discussed below, to explain the requirements for 
sending an agreement.
    The Bureau declines to modify the provision to require issuers to 
post an individual consumer's prepaid account agreement on the issuer's 
Web site and make the agreement available in paper form upon the 
consumer's request, as suggested by a consumer group commenter. The 
Bureau believes that the administrative burden associated with posting 
each consumer's agreement on the issuer's Web site might be substantial 
for some issuers, particularly smaller institutions with limited 
information technology resources. Therefore, the final rule allows 
issuers to provide written copies of agreements in response to 
consumers' requests. The ability to provide agreements in response to a 
request made via telephone ensures that consumers are still able to 
obtain copies of their agreements promptly. For similar reasons, the 
Bureau declines to require issuers to post a consumer's agreement on a 
password protected section of their Web site, as suggested by a 
commenter, although issuers may certainly choose to do so for the 
convenience of their customers. Related, the Bureau reminds issuers 
that neither they nor their service providers are permitted to charge 
consumers a fee for requesting a copy of their prepaid account 
agreement pursuant to Sec.  1005.19(d).
    The Bureau is finalizing comment 19(d)-1 largely as proposed, with 
several modifications for consistency with the revisions to Sec.  
1005.19(d)(1) discussed above and to clarify that an issuer that is not 
required to post on its Web site agreements not offered to the general 
public must still provide consumers with access to their specific 
agreements under final Sec.  1005.19(d).
    The Bureau is adopting new comment 19(d)-2 to clarify the 
requirement for providing a consumer a copy of the consumer's agreement 
no later than five business days after the issuer receives the 
consumer's request. Specifically, this comment explains that, if the 
issuer mails the agreement, the agreement must be posted in the mail 
five business days after the issuer receives the consumer's request. If 
the issuer hand delivers or provides the agreement electronically, the 
agreement must be hand delivered or provided electronically five 
business days after the issuer receives the consumer's request. For 
example, if the issuer emails the agreement, the email with the 
attached agreement must be sent no later than five business days after 
the issuer receives the consumer's request.
19(d)(2) Form and Content of Agreements
    The Bureau proposed Sec.  1005.19(d)(2) to address the form and 
content requirements for agreements provided to consumers pursuant to 
proposed Sec.  1005.19(d)(1). Proposed Sec.  1005.19(d)(2)(i) would 
have stated that, except as otherwise provided in proposed Sec.  
1005.19(d), agreements posted on the issuer's Web site pursuant to 
proposed Sec.  1005.19(d)(1)(i) or sent to the consumer upon the 
consumer's request pursuant to proposed Sec.  1005.19(d)(1)(ii) must 
conform to the form and content requirements for agreements submitted 
to the Bureau as specified in proposed Sec.  1005.19(b)(6). Proposed 
Sec.  1005.19(d)(2)(ii) would have provided that if the issuer posts an 
agreement on its Web site pursuant to proposed Sec.  1005.19(d)(1)(i), 
the agreement may be posted in any electronic format that is readily 
usable by the general public and must be placed in a location that is 
prominent and readily accessible to the consumer. Proposed Sec.  
1005.19(d)(2)(iii) would have stated that agreements posted or 
otherwise provided pursuant to proposed Sec.  1005.19(d) may contain 
personally identifiable information relating to the consumer, such as 
name, address, telephone number, or account number, provided that the 
issuer takes appropriate measures to make the agreement accessible only 
to the consumer or other authorized persons.
    Proposed Sec.  1005.19(d)(2)(iv) would have stated that agreements 
posted or otherwise provided pursuant to proposed Sec.  1005.19(d) must 
set forth the specific provisions and fee information applicable to the 
particular consumer. Proposed Sec.  1005.19(d)(2)(v) would have 
provided that agreements posted pursuant to proposed Sec.  
1005.19(d)(1)(i) must be accurate and updated whenever changes are 
made. Agreements provided upon consumer request pursuant to proposed 
Sec.  1005.19 (d)(1)(ii) would have been required to be accurate as of 
the date the agreement is mailed or electronically delivered to the 
consumer. Proposed Sec.  1005.19(d)(2)(vi) would have stated that 
agreements provided upon the consumer's request pursuant to proposed 
Sec.  1005.19(d)(1)(ii) must be provided by the issuer in paper form, 
unless the consumer agrees to receive the agreement electronically.
    Proposed Sec.  1005.19(d)(2) was generally similar to Regulation Z 
Sec.  1026.58(e)(3), except that it contained modifications to reflect 
the changes in proposed Sec.  1005.19(d)(1) regarding the methods in 
which prepaid account agreements may be provided to

[[Page 84150]]

consumers pursuant to proposed Sec.  1005.19(d). Proposed Sec.  
1005.19(d)(2) did not, however, include the provision contained in 
Regulation Z Sec.  1026.58(e)(3)(iv) that requires agreements for all 
open accounts that are posted to a card issuer's Web site or otherwise 
provided to consumers to contain complete and accurate provisions and 
pricing information as of a date no more than 60 days prior to the date 
on which the agreement is posted to the card issuer's Web site pursuant 
to Regulation Z Sec.  1026.58(e)(1)(i) or the date the cardholder's 
request is received under Regulation Z Sec.  1026.58(e)(1)(ii) or 
(e)(2). As described above, the Bureau did not believe that updating 
prepaid account agreements is as complex as for credit card agreements, 
nor that prepaid account agreements are modified as frequently as 
credit card agreements may be. Therefore, the Bureau did not believe 
that prepaid account issuers should be permitted to provide agreements 
to consumers that are as much as 60 days out of date. Instead, pursuant 
to proposed Sec.  1005.19(d)(2)(v), the Bureau proposed to require that 
agreements posted online be accurate and updated when changes are made, 
and that agreements provided upon the consumer's request be accurate as 
of the date the agreement is mailed or electronically delivered to the 
consumer.
    The Bureau received no comments on this aspect of the proposal. 
Accordingly, the Bureau is finalizing Sec.  1005.19(d)(2) substantially 
as proposed, with modifications for consistency with the revisions to 
Sec.  1005.19(c)(3). The Bureau has also made a revision to proposed 
Sec.  1005.19(d)(2)(v) to make clear that agreements provided upon a 
consumer's request must be accurate as of the date the agreement is 
sent to the consumer, rather than the date the agreement is mailed or 
electronically delivered to the consumer. The Bureau believes it is 
clearer to use the term ``sent'' in final Sec.  1005.19(d)(2) and to 
explain in final comment 19(d)-2, discussed above, the methods in which 
a consumer may send an agreement to the consumer. Therefore, in 
addition to requiring that agreements posted pursuant to Sec.  
1005.19(d)(1)(i) must be updated as frequently as the issuer is 
required to submit amended agreements to the Bureau pursuant to Sec.  
1005.19(b)(2), final Sec.  1005.19(d)(2)(v) states that agreements 
provided upon consumer request pursuant to Sec.  1005.19(d)(1)(ii) must 
be accurate as of the date the agreement is sent to the consumer.
    With respect to the statement in final Sec.  1005.19(d)(2)(iii) 
regarding agreements containing personally identifiable information 
relating to the consumer, the Bureau cautions that this is permissible 
only if the issuer takes appropriate measures to make the agreement 
accessible only to the consumer or other authorized parties. The Bureau 
understands that issuers will include a consumer's name and address 
when mailing agreements. However, the Bureau expects issuers to protect 
personally identifiable information relating to the consumer as 
appropriate, or not to include such information in the agreements if it 
is not necessary to do so.
19(e) E-Sign Act Requirements
    The Bureau proposed Sec.  1005.19(e) to state that, except as 
otherwise provided in proposed Sec.  1005.19, issuers may provide 
prepaid account agreements in electronic form under proposed Sec.  
1005.19(c) and (d) without regard to the consumer notice and consent 
requirements the E-Sign Act. Because TILA section 122(d) specifies that 
a credit card issuer must provide access to cardholder agreements on 
the issuer's Web site, the Board did not believe that the requirements 
of the E-Sign Act applied to the regulations now contained at 
Regulation Z Sec.  1026.58.\555\ The Bureau proposed Sec.  1005.19(e) 
for ease of administration of these requirements and for consistency 
with Regulation Z Sec.  1026.58(f).
---------------------------------------------------------------------------

    \555\ See 74 FR 54124, 54193 (Oct. 21, 2009).
---------------------------------------------------------------------------

    The Bureau received several comments from industry supporting the 
proposal to provide agreements in electronic form without complying 
with the E-Sign consent requirements. One consumer group recommended 
the Bureau require compliance with the E-Sign Act for prepaid account 
information. This commenter explained that a consumer giving E-Sign 
consent and providing an email address does not necessarily mean the 
consumer has regular access to the Internet or a computer.
    The Bureau continues to believe that it is appropriate to waive the 
requirement that issuers obtain E-Sign consent from consumers in order 
to provide prepaid account agreements in electronic form pursuant to 
Sec.  1005.19(c) and (d), and thus the Bureau is finalizing Sec.  
1005.19(e) as proposed.
19(f) Effective Date
    The Bureau proposed, in general, a nine month effective date for 
its rulemaking on prepaid accounts, with an additional three months for 
certain disclosure-related obligations. Comments regarding the proposed 
effective date generally are discussed in the detail in the section-by-
section analysis of Sec.  1005.18(h) above and in part VI below.
    With regard to application of the proposed effective date to the 
requirements of Sec.  1005.19 in particular, the Bureau received 
comments from several industry and trade association commenters, 
arguing that nine months would be insufficient to make the proposed 
changes. Several commenters expressed concern that issuers would need 
additional time to comply with the proposed submission and posting 
requirements pursuant to proposed Sec.  1005.19(b) and (c), 
respectively, to implement the necessary system and operational 
changes. These commenters explained that submitting and posting prepaid 
account agreements would require issuers to develop a process of 
maintaining inventory for the agreements, create a process to update 
them on a quarterly basis, and develop a periodic monitoring process to 
ensure accuracy of these agreements. In addition, these commenters 
explained that the posting requirement would also require issuers to 
create a location on their Web sites for the posting of agreements.
    The Bureau is adopting an effective date of October 1, 2017 for 
this final rule generally, which is reflected in new Sec.  
1005.19(f)(1), which states that except as provided in new Sec.  
1005.19(f)(2), the requirements of final Sec.  1005.19 apply to prepaid 
accounts beginning on October 1, 2017.
    The Bureau is adopting new Sec.  1005.19(f)(2) to establish a 
delayed effective date of October 1, 2018 for the requirement to submit 
prepaid account agreements to the Bureau on a rolling basis pursuant to 
final Sec.  1005.19(b). An issuer must submit to the Bureau no later 
than October 31, 2018 all prepaid account agreements it offers as of 
October 1, 2018. The Bureau continues to work to develop a streamlined 
electronic submission process, which it expects will be fully 
operational before final Sec.  1005.19(b) becomes effective on October 
1, 2018. The Bureau expects to provide technical specifications 
regarding the electronic submission process in advance of that date. 
Issuers will have no submission obligations under this provision until 
the Bureau has issued technical specifications addressing the form and 
manner for submission of agreements.
    In addition, new Sec.  1005.19(f)(3) provides that nothing in new 
Sec.  1005.19(f)(2) shall affect the requirements to post prepaid 
account agreements on an issuer's Web site pursuant to final Sec.  
1005.19(c) and (d) or the requirement to provide a copy of the

[[Page 84151]]

consumer's agreement to the consumer upon request pursuant to final 
Sec.  1005.19(d).
    The Bureau is adopting new comment 19(f)-1 to further explain that, 
if an issuer offers a prepaid account agreement on October 1, 2018, the 
issuer must submit the agreement to the Bureau, as required by Sec.  
1005.19(b), no later than October 31, 2018, which is 30 days after 
October 1, 2018. After October 1, 2018, issuers must submit on prepaid 
account agreements or notifications of withdrawn agreements to the 
Bureau within 30 days after offering, amending, or ceasing to offer the 
agreements.
    The Bureau is also adopting new comment 19(f)-2 to explain that, 
during the delayed agreement submission period set forth in new Sec.  
1005.19(f)(2), an issuer must post agreements on its Web site as 
required by final Sec.  1005.19(c) and (d)(1)(i) using the agreements 
it would have otherwise submitted to the Bureau under final Sec.  
1005.19(b) and must provide a copy of the consumer's agreement to the 
consumer upon request pursuant to final Sec.  1005.19(d)(1)(ii). For 
purposes of Sec.  1005.19(c)(2) and (d)(2), agreements posted by an 
issuer on its Web site must conform to the form and content 
requirements set forth in final Sec.  1005.19(b)(6). For purposes of 
final Sec.  1005.19(c)(3) and (d)(2)(v), amended agreements must be 
posted to the issuer's Web site no later than 30 days after the change 
becomes effective as required by final Sec.  1005.19(b)(2).
    Prior to the October 1, 2018 effective date for the submission 
requirement in final Sec.  1005.19(b), the Bureau will issue technical 
specifications addressing the form and manner for submission of 
agreements. The Bureau intends to publish a notice in the Federal 
Register to inform issuers when its streamlined electronic submission 
process is operational in order to on-board all issuers in advance of 
the October 1, 2018 effective date.
    The Bureau reminds credit card issuers that while final Sec.  
1005.19(h) provides a delayed effective date of October 1, 2018 to 
submit prepaid account agreements to the Bureau, the requirement to 
submit credit card agreements under Regulation Z Sec.  1026.58 for 
covered separate credit features accessible by hybrid prepaid-credit 
cards that are credit card accounts under an open-end (not home-
secured) consumer credit plan becomes effective with the rest of this 
final rule on October 1, 2017.
Appendix A-5 Model Clauses for Government Agencies (Sec.  1005.15(e)(1) 
and (2))
    Existing appendix A-5 provides model language for government 
agencies that offer accounts for distributing government benefits to 
consumers electronically; this model language reflects the 
modifications made to certain Regulation E provisions by existing Sec.  
1005.15. The Bureau proposed to relabel appendix A-5 as Model Clauses 
for Government Benefit Accounts (Sec.  1005.15(e)(1) and (2)) and to 
revise the heading of paragraph (a) for clarity. The Bureau also 
proposed to revise the text of paragraph (a) of appendix A-5, which 
currently explains to consumers how to obtain information about account 
balances and account histories, to note that the consumer's balance 
information, along with an 18 month history of the consumer's account 
transactions, was available online. The Bureau also proposed to revise 
the paragraph regarding a written transaction summary to correspond 
with the proposed revised language for prepaid accounts in paragraph 
(a) of appendix A-7, to state that the consumer had a right to at least 
18 months of written history of account transactions by calling or 
writing to the agency (or its designee). The paragraph would have also 
stated that the consumer would not be charged a fee for such 
information unless the consumer requested it more than once per month. 
The paragraph would have retained the existing optional bracketed 
language stating that the consumer could also request such a history by 
contacting his or her caseworker.
    The Bureau similarly proposed to revise paragraph (b) of appendix 
A-5, which sets forth model clauses regarding disclosure of error 
resolution procedures for government agencies that provide alternative 
means of obtaining account information. The Bureau proposed to revise 
the section citation in the paragraph heading, and to revise the first 
paragraph of paragraph (b) to correspond with the proposed revised 
language for prepaid accounts in paragraph (b) of appendix A-7. 
Specifically, the Bureau proposed to remove the sentence stating that 
the agency must hear from the consumer no later than 60 days after the 
consumer learns of the error, and to add language stating that the 
agency must allow the consumer to report an error until 60 days after 
the earlier of the date the consumer electronically accessed his or her 
account, if the error could be viewed in the electronic history, or the 
date the agency sent the first written history on which the error 
appeared. The paragraph would have also stated that the consumer could 
request a written transaction history at any time by calling or 
writing, or optionally by contacting the consumer's caseworker.
    The Bureau did not receive any comments specifically regarding the 
proposed changes to appendix A-5. As discussed in the section-by-
section analyses of Sec. Sec.  1005.15(d) and 1005.18(c) below, 
however, the Bureau is revising the proposed time periods that apply to 
a consumer's right to obtain account information. Under the final rule, 
consumers will have the right to access up to 12 months of account 
history online, instead of the 18 months of account history in the 
proposed rule. In addition, consumers will have the right to request at 
least 24 months of written transaction history, instead of the 18 
months set forth in the proposed rule. The Bureau is revising appendix 
A-5 to reflect these changed time periods and to make certain other 
conforming changes, but is otherwise finalizing appendix A-5 as 
proposed.
Appendix A-7 Model Clauses for Financial Institutions Offering Prepaid 
Accounts (Sec.  1005.18(d) and (e)(3))
    Existing appendix A-7 provides model clauses for financial 
institutions that offer payroll card accounts; these clauses reflect 
the modifications made by the Payroll Card Rule to certain Regulation E 
provisions in existing Sec.  1005.18. To reflect the proposed expansion 
of Sec.  1005.18 to cover prepaid accounts, the Bureau proposed to 
revise the heading for existing appendix A-7 as well as the heading for 
paragraph (a) of appendix A-7. The Bureau also proposed to revise 
paragraph (a) of appendix A-7, which currently explains to consumers 
how to obtain account information for payroll card accounts, to change 
the term payroll card account to prepaid account, and to state that at 
least 18 months of electronic and written account transaction history 
is available to the consumer, rather than 60 days, as proposed in Sec.  
1005.18(c)(1)(ii) and (iii). The Bureau also proposed to add a sentence 
at the end of paragraph (a) of appendix A-7 to inform consumers that 
they could not be charged for requesting such written account 
transaction history, unless requests were made more than once per 
month. As discussed above, the Bureau proposed to allow financial 
institutions to assess a fee or charge for subsequent requests for 
written account information made in a single calendar month, in 
proposed comment 18(c)-3.i.
    The Bureau similarly proposed to revise the heading of paragraph 
(b), and

[[Page 84152]]

to revise the text of paragraph (b) of appendix A-7, which currently 
sets forth model clauses regarding disclosure of error resolution 
procedures for financial institutions that provide alternative means of 
obtaining payroll card account information, to change the term payroll 
card account to prepaid account and to renumber the section citation in 
the heading.
    The Bureau also proposed to add a new paragraph (c) at the end of 
appendix A-7, for use by a financial institution that chooses, as 
explained in proposed comment 18(e)-4, not to comply with the liability 
limits and error resolution requirements in Sec. Sec.  1005.6 and 
1005.11 for prepaid accounts with respect to which it had not completed 
its collection of consumer identifying information and identity 
verification.
    This model language would have stated that it was important for 
consumers to register their prepaid accounts as soon as possible and 
that until a consumer registered the prepaid account, the financial 
institution was not required to research or resolve errors regarding 
the consumer's account. To register an account, the consumer was 
directed to a Web site and telephone number. The model language would 
have explained that the financial institution would ask for identifying 
information about the consumer (including full name, address, date of 
birth, and Social Security Number or government-issued identification 
number), so that it could verify the consumer's identity. Once the 
financial institution had done so, it would address the consumer's 
complaint or question as described earlier in appendix A-7.\556\
---------------------------------------------------------------------------

    \556\ The Bureau tested a version of this proposed model 
language with consumers. See ICF Report I at 23.
---------------------------------------------------------------------------

    The Bureau did not receive any comments specifically regarding the 
proposed revisions to appendix A-7. The Bureau is, however, making 
several revisions to the substantive provisions in Sec.  1005.18(c) and 
(e) that correspond to the disclosures set forth in appendix A-7, and 
is revising appendix A-7 to reflect those changes. First, as discussed 
in the section-by-section analysis of Sec.  1005.18(c) above, the 
Bureau is revising the proposed time periods that apply to a consumer's 
right to obtain account information. Under the final rule, consumers 
will have the right to access up to 12 months of account history 
online, instead of the 18 months of account history in the proposed 
rule. In addition, consumers will have the right to request at least 24 
months of written transaction history, instead of the 18 months set 
forth in the proposed rule. The Bureau is revising paragraph (a) of 
appendix A-7 to reflect these changed time periods.
    Second, under the final rule, the Bureau is no longer requiring a 
financial institution to provide 24 months of written account 
transaction history upon request, as required under Sec.  
1005.18(c)(1)(iii), for prepaid accounts (other than payroll card 
accounts or government benefit accounts) with respect to which the 
financial institution has not completed its consumer identification and 
verification process. To reflect this exception, the Bureau is adding 
bracketed language clarifying that the language in appendix A-7 
informing consumers of their right to request 24 months of written 
account transaction history only applies to accounts that have been or 
can be registered with the financial institution.
    Third, the Bureau is making several revisions to Sec.  
1005.18(e)(3), which, as proposed, would have limited a financial 
institution's obligation to provide limited liability and error 
resolution for accounts with respect to which the financial institution 
had not completed its collection of consumer identifying information 
and identity verification. Under the final rule, financial institutions 
must provide limited liability and error resolution protections for all 
prepaid accounts, regardless of whether the financial institution has 
completed its consumer identification and verification process with 
respect to the account. However, for accounts with respect to which the 
financial institution has not completed its identification and 
verification process (or for which the financial institution has no 
such process), the financial institution is not required to 
provisionally credit the consumer's account in the event the financial 
institution takes longer than 10 or 20 business days, as applicable, to 
investigate and determine whether an error occurred.
    To reflect these changes, the Bureau is revising paragraphs (b) and 
(c) of appendix A-7 as follows. The Bureau is revising the language in 
paragraph (b) describing a consumer's right to receive provisional 
credit in certain circumstances to reflect that, under the final rule, 
an account must be registered with the financial institution in order 
to be eligible for provisional credit. The Bureau is also revising 
paragraph (c), which under the final rule is only applicable to prepaid 
accounts that have a customer identification and verification process 
but for which the process is not completed before the account is opened 
(i.e., when the consumer must take an affirmative step to register the 
account after acquisition). Specifically, paragraph (c) is revised to 
reflect that, under the final rule, failure to register an account with 
the financial institution will not jeopardize a consumer's right to 
have an error investigated and resolved. Rather, as revised, final 
paragraph (c) explains that a consumer may not receive provisional 
credit while an error claim is pending on a prepaid account that has 
not been registered.
    The Bureau is otherwise adopting appendix A-7 as proposed.
Appendix A-10 Model Forms and Sample Forms for Financial Institutions 
Offering Prepaid Accounts (Sec. Sec.  1005.15(c)) and 1005.18(b))
    The Bureau proposed Model Forms A-10(a) through (d) and (f) and 
Sample Forms A-10(e) and (g) in appendix A in relation to the 
disclosure requirements set forth in proposed Sec.  1005.15(c)(2) and 
proposed Sec.  1005.18(b). Proposed Model Form A-10(a) would have set 
forth the short form disclosure for government benefit accounts as 
described in proposed Sec.  1005.15(c)(2). Proposed Model Form A-10(b) 
would have set forth the short form disclosure for payroll card 
accounts as described in proposed Sec.  1005.18(b)(2)(i)(A). Proposed 
Model Form A-10(c) would have set forth the short form disclosure for 
prepaid accounts that could offer an overdraft service or other credit 
feature as described in proposed Sec.  1005.18(b)(2)(i)(B)(9). Proposed 
Model Form A-10(d) would have set forth the short form disclosure for 
prepaid accounts that would not offer an overdraft service or other 
credit feature as described in proposed Sec.  1005.18(b)(2)(i)(B)(9). 
Proposed Model Form A-10(f) would have set forth the short form 
disclosure for prepaid accounts that offer multiple service plans and 
choose to disclose them on one short form disclosure as described in 
proposed Sec.  1005.18(b)(3)(iii)(B)(1). Proposed Sample Form A-10(e) 
would have set forth the long form disclosure for prepaid accounts as 
described in proposed Sec.  1005.18(b)(3)(iii)(A). Proposed Sample Form 
A-10(g) would have set forth the long form disclosure for prepaid 
accounts that offer multiple service plans as described in proposed 
Sec.  1005.18(b)(3)(iii)(B)(2).
    The Bureau did not receive any comments regarding the proposed 
model and sample forms with respect to appendix A-10 specifically. The 
Bureau received many comments regarding its proposed pre-acquisition 
disclosure regime in general as well as regarding its

[[Page 84153]]

specific proposed requirements for the short form and long form 
disclosures. For a general discussion of the pre-acquisition disclosure 
regime and the content and format of the short form and long form 
disclosures the Bureau is adopting in this final rule, see the section-
by-section analysis of Sec.  1005.18(b) above. For discussion of the 
specific requirements in the final rule for the short form and long 
form disclosures, see the section-by-section analyses above under Sec.  
1005.18(b) for each of the specific elements of the disclosures.
    The Bureau is finalizing appendix A-10 generally as proposed, with 
revisions to reflect changes made to the regulatory text of the short 
form and long form disclosure requirements in final Sec.  1005.(c) and 
Sec.  1005.18(b). In addition, the Bureau has revised the order of the 
model and sample forms in the final rule to include all short form 
disclosures together as Model Forms A-10(a) through (e) and the long 
form disclosure as Sample Form A-10(f). The Bureau has also removed the 
proposed sample long form disclosure for prepaid accounts that offer 
multiple service plans to provide greater flexibility to industry to 
develop its own designs. Moreover, the Bureau believes that Sample Form 
A-10(f) provides a sufficient template from which to design a long form 
for multiple service plans.
    Thus, the Bureau is finalizing Model Forms A-10(a) through (e) and 
Sample Forms A-10(f) in appendix A in relation to the disclosure 
requirements set forth in the final rule in final Sec.  1005.15(c) and 
Sec.  1005.18(b). Model Form A-10(a) sets forth the short form 
disclosure for government benefit account programs as described in 
final Sec.  1005.15(c). Model Form A-10(b) sets forth the short form 
disclosure for payroll card account programs as described in final 
Sec.  1005.18(b), including the additional content specific to payroll 
card accounts set forth in final Sec.  1005.18(b)(2)(xiv). Model Form 
A-10(c) sets forth a general short form disclosure for prepaid account 
programs for which overdraft/credit features may be offered as 
described in final Sec.  1005.18(b)(2)(x) and that are eligible for 
FDIC deposit insurance as described in final Sec.  1005.18(b)(2)(xi). 
Model Form A-10(d) sets forth an alternate version of a general short 
form disclosure for prepaid account programs that do not offer an 
overdraft/credit feature as described in final Sec.  1005.18(b)(2)(x) 
and that are not eligible for FDIC deposit insurance as described in 
final Sec.  1005.18(b)(2)(xi). Model Form A-10(e) sets forth the short 
form disclosure for prepaid account programs that offer multiple 
service plans and choose to disclose those multiple service plans on 
one short form disclosure pursuant to final Sec.  
1005.18(b)(6)(iii)(B)(2). Sample Form A-10(f) sets forth the long form 
disclosure for prepaid account programs as described in final Sec.  
1005.18(b)(4).
Appendix A--Model Disclosure Clauses and Forms
    The Bureau is updating comment -2 in the commentary to appendix A 
(Appendix A--Model Disclosure Clauses and Forms). Pursuant to existing 
comment -2, financial institutions and remittance transfer providers 
have the option of using the model disclosure clauses provided in 
appendix A to facilitate compliance with the disclosure requirements 
enumerated in the comment. The comment also explains how the use of the 
appropriate clauses provided in appendix A will protect a financial 
institution and a remittance transfer provider from liability under 
sections 916 and 917 of EFTA, provided the clauses accurately reflect 
the institution's EFT services and the provider's remittance transfer 
services, respectively. In this final rule, the Bureau is updating the 
enumerated disclosure requirements in comment -2 to reflect changes to 
the numbering of Sec.  1005.15 and Sec.  1005.18 in the final rule and 
to add the provisions for new disclosure requirements included in the 
final rule.
    The Bureau also is updating existing comment -3 in the commentary 
to appendix A (Appendix A--Model Disclosure Clauses and Forms). 
Pursuant to comment -3, financial institutions may use clauses of their 
own design in conjunction with the Bureau's model clauses in appendix 
A. The Bureau is adding a sentence to comment -3 to clarify that the 
alterations set forth in the comment apply, unless otherwise expressly 
addressed in the rule. The Bureau is adding this sentence to clarify 
the alterations permitted under existing comment -3 may not apply to 
certain disclosures pursuant to this final rule. For example, 
alternations permitting deletion of inapplicable services does not 
apply to the short form disclosures required by Sec.  1005.18(b)(2). 
See comment 18(b)(2)-1.
Subpart B--Requirements for Remittance Transfers
    On February 7, 2012, the Bureau published a final rule implementing 
section 1073 of the Dodd-Frank Act, which added section 919 to EFTA to 
establish consumer protections for remittance transfers sent by 
consumers in the United States to individuals and businesses in foreign 
countries.\557\ Among other things, EFTA section 919 requires the 
following protections for covered transactions sent by remittance 
transfer providers: (i) the provision of disclosures prior to and at 
the time of payment by the sender of the transfer; (ii) cancellation 
and refund rights; and (iii) the investigation and remedy of errors by 
providers. It also establishes liability standards for providers for 
the acts of their agents. The final rule implemented these provisions 
in new subpart B of Regulation E.
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    \557\ 77 FR 6194 (Feb. 7, 2012). This rule was subsequently 
amended. See 77 FR 40459 (July 10, 2012), 77 FR 50244 (Aug. 20, 
2012), 78 FR 6025 (Jan. 29, 2013), 78 FR 30662 (May 22, 2013), 78 FR 
49365 (Aug. 14, 2013), and 79 FR 55970 (Sept. 18, 2014) 
(collectively, the Remittance Rule).
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    A remittance transfer is the electronic transfer of funds requested 
by a sender to a designated recipient that is sent by a remittance 
transfer provider, regardless of whether the sender holds an account 
with the provider, and regardless of whether the transaction is also an 
EFT, as defined in Sec.  1005.3(b).\558\ A designated recipient is any 
person specified by the sender as the authorized recipient of a 
remittance transfer to be received at a location in a foreign 
country.\559\ A sender is a consumer in a State who primarily for 
personal, family, or household purposes requests a remittance transfer 
provider to send a remittance transfer to a designated recipient.\560\
---------------------------------------------------------------------------

    \558\ Sec.  1005.30(e).
    \559\ Sec.  1005.30(c).
    \560\ Sec.  1005.30(g).
---------------------------------------------------------------------------

    In order to assess whether a consumer is a sender or whether an 
authorized recipient is a designated recipient, the location of where 
the funds are sent from and the location of where the funds are sent to 
are determinative. If the transfer is sent from an account (e.g., a 
consumer transfers $100 out of the consumer's checking account) or to 
an account (e.g., a consumer sends $100 in cash to a family's member's 
bank account in a foreign country), the location of the account 
determines where the funds are being, as applicable, sent from or sent 
to. To illustrate, existing comment 30(c)-2.ii explains that if a 
recipient's account is located in a State, the funds will not be 
received at a location in a foreign country.\561\
---------------------------------------------------------------------------

    \561\ An account located on a U.S. military installation that is 
physically located in a foreign country is located in a State. See 
comments 30(c)-2.ii and 30(g)-1.
---------------------------------------------------------------------------

    With respect to products such as prepaid cards (other than prepaid 
cards that were already accounts under Regulation E) and digital 
wallets;

[[Page 84154]]

however, the Remittance Rule does not treat those products as 
accounts.\562\ Because these products were not previously considered to 
be accounts as defined in Sec.  1005.2(b) of current Regulation E, the 
Remittance Rule directs that one must look at where the funds are being 
sent from to determine if a consumer is a sender and where the funds 
are being sent to in order to determine if the person receiving the 
funds is a designated recipient. In other words, the location of the 
consumer sending the funds determines where the funds are being sent 
from, and the location of the person receiving the funds determines 
where the funds are received. To illustrate, existing comment 30(c)-
2.iii explains that if a consumer in a State purchases a prepaid card, 
the remittance transfer provider has sufficient information to conclude 
that funds are to be received in a foreign country if the provider 
sends the prepaid card to a specified recipient in a foreign country.
---------------------------------------------------------------------------

    \562\ 77 FR 6194, 6207 (explaining that where the funds that can 
be accessed by a prepaid card are held does not determine whether 
funds are being sent to a designated recipient because a prepaid 
card is generally not considered to be an account as defined in 
Sec.  1005.2(b)).
---------------------------------------------------------------------------

    As the Bureau noted in the proposal, the definition of prepaid 
account would mean that certain prepaid products such as GPR cards and 
certain digital wallets would be considered accounts under Regulation 
E. Yet, the Bureau also noted that it did not intend to change how the 
Remittance Rule applied to prepaid products. Accordingly, the Bureau 
sought comments on whether additional clarification or guidance is 
necessary with respect to the Remittance Rule. Although the Bureau did 
not receive comments on this aspect of the proposal, the Bureau 
believes that to facilitate compliance, it is necessary to clarify that 
for prepaid accounts other than payroll card accounts and government 
benefit accounts, the location of these accounts does not determine 
where funds are being sent to or from. Accordingly, this final rule 
contains clarifying and conforming revisions to comments 30(c)-2.ii and 
30(g)-1 to clarify that transfers involving a prepaid account (other 
than a prepaid account that is a payroll card account or a government 
benefit account) are not transfers from an account or to an account. 
For the same reason, this final rule also amends Sec.  1005.32(a), as 
discussed in greater detail below.
Section 1005.30 Remittance Transfer Definitions
    As amended, comment 30(c)-2.ii explains that for transfers to a 
prepaid account (other than a prepaid account that is a payroll card 
account or a government benefit account), where the funds are to be 
received in a location physically outside of any State depends on 
whether the provider at the time the transfer is requested has 
information indicating that funds are to be received in a foreign 
country. In addition, for transfers to all other accounts, whether 
funds are to be received at a location physically outside of any State 
depends on where the account is located. If the account is located in a 
State, the funds will not be received at a location in a foreign 
country. Further, for these accounts, if they are located on a U.S. 
military installation that is physically located in a foreign country, 
then they are located in a State.
    Further, comment 30(g)-1, as amended, explains that for transfers 
sent from a prepaid account (other than a prepaid account that is a 
payroll card account or a government benefit account), whether the 
consumer is located in a State depends on the location of the consumer. 
If the provider does not know where the consumer is at the time the 
consumer requests the transfer from the consumer's prepaid account 
(other than a prepaid account that is a payroll card account or a 
government benefit account), the provider may make the determination of 
whether a consumer is located in a State based on information that is 
provided by the consumer and on any records associated with the 
consumer that the provider may have, such as an address provided by the 
consumer. For transfers from all other accounts belonging to a 
consumer, whether a consumer is located in a State depends on where the 
consumer's account is located. Additionally, for these accounts, if 
they are located on a U.S. military installation that is physically 
located in a foreign country, then they are located in a State.
    The Bureau additionally proposed making conforming changes to 
existing comment 30(g)-3. Comment 30(g)-3 references the regulatory 
citation for bona fide trust account in Sec.  1005.2(b)(3). The Bureau 
proposed renumbering the regulatory citation for bona fide trust 
account, changing it from Sec.  1005.2(b)(3) to Sec.  1005.2(b)(2), 
because the Bureau proposed to set forth the definition of prepaid 
account in new Sec.  1005.2(b)(3). The Bureau also proposed minor 
changes to comment 30(g)-3 to streamline the text of the comment 
without altering its meaning. The Bureau did not receive any comments 
on these proposed changes, and the Bureau is adopting comment 30(g)-3 
as proposed.
Section 1005.32 Estimates
32(a) Temporary Exception for Insured Institutions
    The Remittance Rule generally requires that a remittance transfer 
provider must disclose to a sender the actual exchange rate, fees, and 
taxes that will apply to a remittance transfer, and the actual amount 
that the designated recipient of the remittance transfer will receive. 
However, subpart B sets forth four exceptions to this general rule. 
These exceptions permit providers to disclose estimates instead of 
actual amounts. EFTA section 919 provides two such exceptions. The 
exception at issue in Sec.  1005.32(a) is a temporary exception for 
insured institutions with respect to remittance transfers a sender 
sends from the sender's account with the institution, as long as the 
provider cannot determined the exact amounts for reasons beyond its 
control. When the Bureau made the determination to extend the temporary 
exception to July 20, 2020, the Bureau's determination was limited to 
accounts under existing Regulation E. In other words, GPR cards and 
digital wallets that will become accounts under this final rule were 
not included in the scope of the temporary exemption. Accordingly, the 
Bureau is amending Sec.  1005.32(a) to set forth that for purposes of 
Sec.  1005.32(a), a sender's account does not include a prepaid 
account, unless the prepaid account is a payroll card account or a 
government benefit account. This amendment is intended to continue the 
current application of the Remittance Rule to prepaid products.
    The Bureau adopts these clarifying and conforming amendments in 
subpart B pursuant to its authority under EFTA sections 904(a). EFTA 
section 904(a) authorizes the Bureau to prescribe regulations necessary 
to carry out the purposes of the title. The express purposes of the 
EFTA, as amended by the Dodd-Frank Act, are to establish the rights, 
liabilities, and responsibilities of participants in electronic fund 
and remittance transfer systems and to provide individual consumer 
rights.\563\
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    \563\ EFTA section 902(b).
---------------------------------------------------------------------------

Regulation Z
Overview of the Bureau's Proposed Approach to Regulation Z
    In developing the proposal, the Bureau considered whether and how 
to

[[Page 84155]]

regulate credit features offered in connection with prepaid accounts. 
Specifically, the Bureau considered potential transactions where 
consumers are allowed to overdraw their prepaid accounts through a fee-
based overdraft service, to draw credit from a separate overdraft line 
of credit using a prepaid card,\564\ or to push credit funds into a 
specified prepaid account to cover transactions for which there are 
insufficient or unavailable funds. As explained in more detail below, 
the Bureau proposed generally to treat all three product structures as 
``credit cards'' that access ``open-end (not home-secured) credit 
plans'' under Regulation Z, and thus to subject them to the credit card 
protections set forth in Regulation Z. In addition and as explained 
above, the Bureau also proposed to revise existing provisions in 
Regulation E regarding compulsory use (proposed Sec.  1005.10(e)(1)) 
and to adopt other rules specific to prepaid accounts that offer credit 
features (proposed Sec. Sec.  1005.12(a) and 1005.18(b)(2)(i)(B)(9), 
(b)(2)(ii)(B) and (g)) to provide consumers with greater control over 
how they enroll in a credit feature and pay any credit balances 
associated with their prepaid accounts, and also to prevent evasion of 
the Regulation Z protections.
---------------------------------------------------------------------------

    \564\ This final rule's Regulation Z provisions reference credit 
features accessed through a prepaid card. The final rule's 
Regulation E provisions, by contrast, largely refer to prepaid 
accounts, and, separately, to access devices for prepaid accounts.
---------------------------------------------------------------------------

    The proposal would have provided guidance on when the following 
devices related to prepaid accounts would be ``credit cards'': (1) 
Prepaid cards; and (2) account numbers that are not prepaid cards that 
may be used from time to time to access a credit plan that allows 
deposits directly only into particular prepaid accounts specified by 
the creditor. With respect to credit features accessed by prepaid 
cards, the proposal would have covered a broad range of credit plans as 
credit card accounts under Regulation Z when they were accessed by 
prepaid cards. Under the proposal, this would have applied where credit 
is being ``pulled'' by a prepaid card, such as when the consumer uses 
the prepaid card at point of sale to access an overdraft plan to fund a 
purchase. In the proposal, the Bureau intended broadly to capture a 
prepaid card as a credit card when it directly accessed a credit plan, 
regardless of whether that credit plan was structured as a separate 
credit plan or as a negative balance to the prepaid account.
    In addition, the proposal also would have included certain account 
numbers that are not prepaid cards as ``credit cards'' under Regulation 
Z when the account number could access a credit plan that only allows 
deposits directly into particular prepaid accounts specified by the 
creditor. This proposal language would have covered credit plans that 
are not accessed directly by prepaid cards but are structured as 
``push'' accounts. The Bureau proposed to cover these account numbers 
for push accounts as credit cards because of concerns that these types 
of credit plans could act as substitutes for credit plans directly 
accessed by prepaid cards. In this case, a third-party creditor could 
have an arrangement with the prepaid account issuer such that credit 
from the credit account is pushed from the credit account to the 
prepaid account during the course of a particular prepaid account 
transaction to prevent the transaction from taking the prepaid account 
balance negative. These provisions related to account numbers for the 
credit account were designed to prevent this type of evasion of the 
rules applicable to prepaid cards that are credit cards.
    In proposing to subject all three product structures to the rules 
for credit cards, the Bureau recognized that it would be consciously 
departing from existing regulatory structures that apply in the 
checking account context, where overdraft services structured as a 
negative balance on a checking account generally are governed by a 
limited opt-in regime under Regulation E and other forms of credit are 
subject to more holistic regulation under Regulation Z. As discussed 
further below, the final rule maintains the major thrust of the 
proposal by generally treating prepaid cards that access overdraft 
credit features as credit cards subject to Regulation Z. The final rule 
thus extends the credit card rules to credit features that can be 
accessed in the course of a transaction conducted with a prepaid card 
to obtain goods or services, obtain cash, or conduct P2P transfers 
regardless of whether access is structured through a ``pull'' or 
``push'' arrangement. However, the final rule excludes situations in 
which prepaid account issuers are only providing certain incidental 
forms of credit without charging credit-related fees (such as in so-
called ``force pay'' transactions) as well as situations in which a 
consumer chooses to link a prepaid card to a credit feature offered by 
a third party that has no business relationship with the prepaid 
account issuer. The final rule also excludes situations where the 
prepaid card only can access a credit feature outside the course of a 
transaction conducted with a prepaid card to obtain goods or services, 
obtain cash, or conduct P2P transfers. The Bureau has also revised 
various elements of the proposed rule and provided additional clarity 
regarding operational practices to promote transparency and facilitate 
compliance for credit features offered in connection with prepaid 
accounts that are subject to the credit card rules under Regulation Z.
Comments Received
    The majority of the comments received by the Bureau in response to 
this rulemaking concerned the Bureau's proposed approach to regulating 
credit features offered in connection with prepaid accounts. In 
general, most consumer groups urged the Bureau to ban overdraft 
services in connection with prepaid products, arguing that the 
overdraft fees and accumulating debt can be harmful (many individual 
consumers also commented in support of additional protections for 
overdraft services on prepaid cards, as discussed below). They argued 
that prepaid consumers are often more vulnerable than users of 
traditional deposit accounts or do not anticipate having to deal with 
credit on their prepaid accounts. They argued further that prepaid 
accounts should remain true to their name--prepaid--and similarly that 
prepaid consumers who wish to use credit should do so deliberately, and 
not inadvertently through overdraft transactions. In addition, consumer 
groups advocating a ban also argued that the financial incentives of an 
overdraft business model would become increasingly hard to resist for 
the issuers of prepaid accounts, most of whom do not currently offer 
overdraft services, and that the Bureau should remove these incentives 
through a regulatory prohibition on prepaid overdrafts.
    For similar reasons, several consumer groups also advocated for a 
specific ban on overdraft features in connection with government 
benefit accounts and payroll card accounts, and one consumer group 
further advocated for a ban on overdraft features offered in connection 
with student cards. Several consumer groups argued that, if the Bureau 
did not adopt a ban on prepaid overdraft, any credit offered in 
connection with a prepaid account should be regulated as a credit card 
under Regulation Z and should be required to be offered separately from 
the prepaid account.
    In contrast, most industry commenters (as well as some individual 
consumer commenters, as discussed below) generally objected to the 
Bureau adopting regulations that would limit

[[Page 84156]]

credit features on prepaid accounts.\565\ In particular, these 
commenters stated that overdraft for prepaid accounts should function 
as it does for other types of deposit accounts with linked debit 
cards--i.e., subject to the current Regulation E opt-in framework for 
overdraft. Several members of Congress likewise argued that prepaid 
overdraft should be regulated under the Regulation E opt-in approach. 
These industry and government commenters argued that to the extent the 
Bureau seeks to treat prepaid accounts as transaction account 
substitutes, such products should be subject to the same regulatory 
requirements (and exceptions) as those accounts, including opt-in 
requirements for overdraft services.
---------------------------------------------------------------------------

    \565\ One industry commenter, an issuing bank, urged the Bureau 
to ban overdraft features on prepaid accounts, though unlike the 
consumer group commenters who took the same position, this commenter 
argued that, absent a ban, the Bureau should regulate prepaid 
overdraft under Regulation E.
---------------------------------------------------------------------------

    Some industry commenters that objected to the Bureau's Regulation Z 
approach, including trade associations, a credit union, and a program 
manager that offers overdraft on certain of its prepaid accounts, 
disputed the Bureau's proposed interpretation of the relevant 
Regulation Z provisions and expressed concern that the Bureau's 
proposed interpretation of certain credit-related definitions in 
Regulation Z would have broader implications for traditional overdraft 
services on checking accounts.
    Several industry commenters argued that, if the Bureau finds that 
the current Regulation E opt-in approach is insufficient to regulate 
prepaid overdraft, the Bureau should consider other alternatives that 
would be preferable--and simpler--than a regime that subjects prepaid 
overdraft to credit card rules under Regulation Z. For example, several 
commenters, including a trade association and a credit union issuer, 
suggested that the Bureau consider a cap on overdraft fees, while 
others suggested that the Bureau impose a cap on the amount that any 
account may be overdrawn. Other commenters, including several members 
of Congress, urged the Bureau to put in place a set of requirements to 
limit overdraft credit features offered in connection with prepaid 
accounts, which would essentially mirror the structure of a program 
offered today by one industry participant. That program includes a 
maximum overdraft amount, limitations on the number of monthly 
overdrafts per account, and a cooling-off period for frequent 
overdrafters. A law firm writing on behalf of a coalition of prepaid 
issuers advocated for a similar structure, including a limit on the 
amount of an overdraft fee so it cannot exceed the dollar amount of the 
overdraft or prohibiting overdraft fees on transactions below a certain 
dollar threshold, together with an overdraft fee cap. An industry trade 
association likewise suggested that the Bureau adopt caps on overdraft 
amounts and fees, and also suggested that these be augmented by a limit 
on the number of times an overdraft fee could be charged in a given 
period, as well as requirements to provide detailed disclosures 
informing the consumer how the overdraft features work. Several 
industry commenters, including one credit union service organization, 
suggested that the Bureau adopt a dollar limit below which overdrafts 
occurring in connection with a prepaid account would be excluded from 
the definition of credit under Regulation Z and instead covered by the 
Regulation E opt-in regime.
    Some industry commenters argued that their customers want--or even 
need--access to short-term credit in connection with their GPR cards. 
Several trade association commenters similarly stated that consumers 
want access to credit features on prepaid cards. These commenters 
expressed concern that subjecting overdraft credit on prepaid accounts 
to Regulation Z credit card rules would cut off consumers' access to 
short-term credit. The Bureau also received comments from several 
members of Congress stating that their constituents use and depend upon 
credit features attached to prepaid cards.
    As noted above, the Bureau received around 6,000 comments from 
consumers who use prepaid products currently offering overdraft 
services. The Bureau understands that these letters were coordinated as 
part of a letter-writing campaign organized by a program manager that 
offers overdraft on certain of its prepaid accounts. These consumers 
voiced support for their overdraft services. Some noted, for example, 
that the overdraft fees charged on their prepaid accounts were less 
than the overdraft fees charged by banks, and that their overdraft 
services allowed them to bridge cash shortfalls between paychecks and 
fulfill other short-term credit needs. By contrast, the Bureau also 
received comments from consumers opposed to prepaid overdraft features. 
As part of a letter-writing campaign organized by a consumer group, the 
Bureau received largely identical comments from approximately 56,000 
consumers generally in support of the proposal--particularly related to 
the requirement under Regulation Z credit card rules to assess 
consumers' ability to pay before offering credit attached to prepaid 
cards--and urging the Bureau to finalize strong credit provisions in 
the final rule so that consumers can avoid hidden fees and unexpected 
debt.
    In addition to these comments about the Bureau's general approach 
to regulating credit offered in connection with prepaid accounts, the 
Bureau also received numerous comment letters from industry and 
consumer groups on the specifics of this part of the proposal. Most 
industry commenters were concerned that the proposed regime would sweep 
in far more products than the Bureau intended by covering situations 
where credit is extended to cover so-called ``force pay'' transactions. 
Force pay transactions occur where the prepaid account issuer is 
required by card network rules to pay a transaction even though there 
are insufficient or unavailable funds in the prepaid account to cover 
the transaction at settlement. Industry commenters were nearly 
universally concerned that force pay transactions would trigger 
coverage under the proposal even when the only fee charged in 
connection with the overdrawn transaction is a fee, such as a per 
transaction fee, that would be charged regardless of whether the 
transaction is paid from a positive balance on the prepaid account or 
overdraws the account. Industry commenters said requiring prepaid 
account issuers to waive neutral per transaction fees in order to avoid 
triggering the credit card rules on force pay transactions would be 
more complicated than the Bureau anticipated in the proposal and would 
impose substantial compliance costs. These commenters indicated that 
similar issues may also arise with other transaction-specific fees, 
such as currency conversion fees assessed on force pay transactions.
    The Bureau also received industry comments that a prepaid card 
should not be a credit card with respect to a separate credit feature 
when the credit feature is being offered by an unrelated third party. 
These commenters were concerned that unrelated third-party creditors 
may not be aware that their credit features are being used as overdraft 
credit features with respect to prepaid accounts. If unrelated third-
party creditors were subject to the proposal, commenters said these 
creditors would face additional compliance risk in connection with the 
prepaid card becoming a new access device for the credit account. This 
would have been true even if the creditors were already subject to the

[[Page 84157]]

credit card rules in their own right because the proposal contained a 
number of provisions that would have applied only to prepaid cards that 
are credit cards and would not have applied to credit card accounts 
generally. On the other hand, several consumer groups supported the 
proposal to consider a third party that offers an open-end credit 
feature accessed by a prepaid card to be an agent of the prepaid 
account issuer and thus a credit card issuer with responsibilities 
under Regulation Z.
    One industry commenter expressed concern that the proposal would 
trigger the credit card rules in situations in which a prepaid card 
could be used only to complete standalone loads or transfers of credit 
from a separate credit feature to the prepaid account, but not to 
access credit in the course of a transaction conducted with the prepaid 
card. This commenter noted that there are several circumstances in 
which consumers can consciously load value to their prepaid accounts 
using a debit card or credit card, where this load is not occurring as 
part of an overdraft feature in connection with the prepaid account. 
Specifically, in this scenario, the consumer does not access credit 
automatically in the course of a transaction conducted with the prepaid 
card, but rather uses the credit or debit card to make a one-time load 
outside the course of any particular transaction. This commenter urged 
the Bureau to clarify that such loads do not make the prepaid card into 
a credit card under Regulation Z.
    On the other hand, several consumer group commenters suggested that 
the Bureau should apply the credit card rules to any credit plan from 
which credit is transferred to prepaid cards, rather than limiting 
application only to certain ``push'' arrangements as proposed (where a 
prepaid account is the only account designated by the creditor as a 
destination for the credit provided). Similarly, another consumer group 
commenter indicated that the Bureau should apply the credit card rules 
to all open-end lines of credit where credit may be deposited or 
transferred to prepaid card accounts if either (1) the creditor is the 
same institution as or has a business relationship with the prepaid 
issuer; or (2) the creditor reasonably anticipates that a prepaid card 
will be used as an access device for the line of credit. Nonetheless, 
this commenter said the final rule should not impact a completely 
unrelated credit account that has no connection to prepaid issuers or 
consumers identified as prepaid card users, even though the creditor 
allows credit to be transferred from the credit account through the ACH 
system.
Overview of the Final Rule's Amendments to Regulation Z
    In the final rule, the Bureau generally intends to cover under 
Regulation Z overdraft credit features in connection with prepaid 
accounts where the credit feature is offered by the prepaid account 
issuer, its affiliate, or its business partner and credit can be 
accessed in the course of a transaction conducted with the prepaid card 
(except for very limited incidental credit, as described below). The 
reasons for this are explained further below, but to facilitate 
understanding, this subsection first gives an overview of the coverage 
decisions and structure of the final rule. As the Bureau noted in the 
proposal and as discussed below, the provisions addressing credit 
features in connection with a prepaid account in the final rule are not 
intended to alter treatment of overdraft services or products on 
checking accounts under Regulation Z.
    The final rule sets forth the rules for when a prepaid card is a 
credit card under Regulation Z in new Sec.  1026.61. The Bureau 
generally intends to cover under Regulation Z overdraft credit features 
in connection with prepaid accounts where the credit features are 
offered by the prepaid account issuer, its affiliates, or its business 
partners. While Regulation E provides protections for the asset account 
of a prepaid account, the Bureau believes separate protections are 
necessary under Regulation Z for certain overdraft credit features in 
connection with prepaid accounts.
    New Sec.  1026.61(b) generally requires that such credit features 
be structured as separate sub-accounts or accounts, distinct from the 
prepaid asset account, to facilitate transparency and compliance with 
various Regulation Z requirements. New Sec.  1026.61(a)(2)(i) provides 
that a prepaid card is a ``hybrid prepaid-credit card'' with respect to 
such separate credit features if the card meets the following two 
conditions: (1) the card can be used from time to time to access credit 
from the separate credit feature in the course of authorizing, 
settling, or otherwise completing transactions conducted with the card 
to obtain goods or services, obtain cash, or conduct P2P transfers; and 
(2) the separate credit feature is offered by the prepaid account 
issuer, its affiliates, or its business partners. New Sec.  
1026.61(a)(2)(i) defines such a separate credit feature accessible by a 
hybrid prepaid-credit card as a ``covered separate credit feature.'' 
Thus, the hybrid prepaid-credit card can access both the covered 
separate credit feature and the asset feature of the prepaid account, 
and the hybrid prepaid-credit card is a credit card under Regulation Z 
with respect to the covered separate credit feature.
    To effectuate these provisions and provide compliance guidance to 
industry, the Bureau is also revising certain other credit card 
provisions as a result of new Sec.  1026.61. For example, the final 
rule provides guidance in new Sec.  1026.4(b)(11) and related 
commentary on how the definition of finance charge applies to covered 
separate credit features accessible by hybrid prepaid-credit cards. In 
addition, the Bureau notes that, pursuant to the final rule, accounts 
that are ``hybrid prepaid-credit cards'' will be subject to the credit 
card protections in Regulation Z, as well as all other applicable 
provisions of Regulation Z. This includes, for example, Regulation Z's 
requirement that creditors retain evidence of compliance with 
Regulation Z.\566\
---------------------------------------------------------------------------

    \566\ See Sec.  1026.25.
---------------------------------------------------------------------------

    As discussed in the section-by-section analysis of Sec.  1026.61 
below, the final rule provides certain exclusions from coverage for 
prepaid cards that access credit in certain situations. Specifically, 
new Sec.  1026.61(a)(2)(ii) provides that a prepaid card is not a 
credit card with respect to a credit feature that does not meet both 
conditions stated above, namely that the credit feature either (1) 
cannot be accessed in the course of a prepaid card transaction to 
obtain goods or services, obtain cash, or conduct P2P transfers; or (2) 
is offered by an unrelated third party (i.e., that is not the prepaid 
account issuer, its affiliate, or its business partner). Such credit 
features are defined as ``non-covered separate credit features.'' Under 
the final rule, a non-covered separate credit feature is not subject to 
the rules applicable to hybrid prepaid-credit cards; however, it 
typically will be subject to Regulation Z in its own right, depending 
on the terms and conditions of the product.
    In addition, under new Sec.  1026.61(a)(4) a prepaid card also is 
not a credit card when the prepaid card only accesses credit that is 
incidental to certain transactions in the form of a negative balance on 
the asset account where the prepaid account issuer does not charge 
credit-related fees for the credit. This exception is intended to 
exempt three types of credit so long as the prepaid account issuer 
generally does not charge credit-related fees for the credit: (1) 
Credit related to ``force pay'' transactions; (2) a de minimis $10 
payment cushion; and (3) a delayed load

[[Page 84158]]

cushion where credit is extended while a load of funds from an asset 
account is pending. Under the final rule, this type of credit generally 
is subject to Regulation E, instead of Regulation Z.\567\ For example, 
as discussed in more detail in the section-by-section analysis of 
Regulation E Sec.  1005.12(a) above, Regulation E's provisions in final 
Sec. Sec.  1005.11 and 1005.18(e) regarding error resolution would 
apply to extensions of this credit. Also, as discussed in more detail 
in the section-by-section analysis of Regulation E Sec.  1005.17 above, 
although this incidental credit generally is governed by Regulation E, 
the Bureau is exempting this incidental credit from the opt-in rule in 
final Sec.  1005.17. For the reasons discussed in more detail in the 
section-by-section analysis of Regulation E Sec.  1005.17 above, the 
Bureau is adding new Sec.  1005.17(a)(4) to provide that credit 
accessed from an overdraft credit feature that is exempt from 
Regulation Z under Sec.  1026.61(a)(4) is not an overdraft service 
under final Sec.  1005.17(a) and thus would not be subject to the opt-
in requirements in final Sec.  1005.17.
---------------------------------------------------------------------------

    \567\ With respect to such credit, the final rule provides that 
a prepaid account issuer is not a card issuer under final Sec.  
1026.2(a)(7) with respect to the prepaid card. The prepaid account 
issuer also is not a creditor under final Sec.  1026.17(a)(iii) or 
(iv) because it is not a card issuer under final Sec.  1026.2(a)(7) 
with respect to the prepaid card. The prepaid account issuer also is 
not a creditor under final Sec.  1026.2(a)(17)(i) as a result of 
imposing fees on the prepaid account because those fees are not 
finance charges as described in new comment 4(b)(11)-1.iii.
---------------------------------------------------------------------------

    The Bureau notes that the final rule does not adopt proposed 
provisions that would have made certain credit account numbers that 
were used to push credit onto a prepaid card into credit cards as 
described above. Instead, the Bureau in the final rule addresses the 
evasion concerns discussed in the proposal and raised by consumer group 
commenters through the definition of ``hybrid prepaid-credit card'' as 
discussed below. The Bureau will continue to monitor the market for 
potential evasion of the provisions addressing hybrid prepaid-credit 
cards, and will consider further modifications in future rulemakings if 
necessary.
    Consideration of extension of existing exemptions for prepaid 
overdraft services. The Bureau has carefully considered the comments 
submitted by all interested stakeholders addressing the regulatory 
framework and implementation of the rule under a Regulation Z approach, 
and has decided to finalize its proposal to depart from the regulatory 
framework that applies to overdraft services on checking accounts, 
which was created by the Board through previous rulemakings. As 
discussed further separately below, the Bureau believes that the credit 
card rules under Regulation Z provide a more appropriate and protective 
regulatory framework for overdraft features on prepaid accounts.
    The Board, acting in the late 1960s, decided to subject overdraft 
lines of credit in connection with traditional deposit accounts to 
Regulation Z requirements for open-end credit, while carving ad hoc 
``courtesy'' overdraft services on traditional deposit accounts out 
from Regulation Z through operation of the definitions of the terms 
``creditor'' and ``finance charge.'' A creditor is generally defined 
under Regulation Z to mean a person who regularly extends consumer 
credit that is subject to a finance charge or is payable by written 
agreement in more than four installments (not including a down 
payment), and to whom the obligation is initially payable, either on 
the face of the note or contract, or by agreement when there is no note 
or contract.\568\ In 1969, however, the Board adopted an exclusion to 
the definition of finance charge for ``charges imposed by a financial 
institution for paying items that overdraw an account, unless the 
payment of such items and the imposition of the charge were previously 
agreed upon in writing.'' \569\ Under the exception, the fees charged 
for the overdrafts are not ``finance charges'' under Regulation Z, and 
thus a financial institution extending credit is not a ``creditor'' 
under Regulation Z because it is not charging a finance charge and is 
not structuring the repayment of the credit by written agreement in 
more than four installments.\570\ Rather, overdraft services are not 
subject to Regulation Z credit protections. While the Board later 
issued rules under Regulation E to specify disclosure requirements and 
to require an opt-in process for certain types of overdraft 
transactions, these rules generally provide fewer protections for 
consumers on an ongoing basis than does Regulation Z.
---------------------------------------------------------------------------

    \568\ See Sec.  1026.2(a)(17)(i). The term ``creditor'' also 
includes a card issuer, which is a person that issues credit cards, 
when that person extends credit accessed by the credit card. See 
Sec.  1026.2(a)(17)(iii) and (iv). Regulation Z defines the term 
``credit card'' to mean any card, plate, or other single credit 
device that may be used from time to time to obtain credit. See 
Sec.  1026.2(a)(15). A charge card is a credit card on an account 
for which no periodic rate is used to compute a finance charge. See 
Sec.  1026.2(a)(15)(iii). In addition to being creditors under TILA 
and Regulation Z, card issuers also generally must comply with the 
credit card rules in the FCBA and in the Credit CARD Act (if the 
card accesses an open-end credit plan), as implemented in Regulation 
Z subparts B and G. See generally Sec. Sec.  1026.5(b)(2)(ii)(A), 
1026.7(b)(11), 1026.12 and 1026.51 through 1026.60.
    \569\ See Sec.  1026.4(c)(3).
    \570\ In addition, the commentary to the definition of ``credit 
card'' explains that a debit card is not a credit card where there 
is no credit feature or agreement to extend credit, even if the 
creditor occasionally honors an inadvertent overdraft. See comment 
2(a)(15)-2.ii.A. The Board adopted this commentary to exclude 
overdraft services from becoming subject to Regulation Z when they 
are accessed by a debit card, consistent with the exclusion for 
overdraft charges from the definition of finance charge where there 
is no written agreement to extend credit and charge a fee, as 
described above. See 75 FR 7657, 7664 (Feb. 22, 2010).
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    The Bureau believes that this existing patchwork approach should 
not be extended to prepaid accounts, both because the historical 
justification for the regulatory treatment of checking account 
overdraft services under Regulation Z does not apply to prepaid 
accounts and because there are notable differences between how prepaid 
accounts and checking accounts function. At the time the Board 
established the Regulation Z exemption, bounce-protection programs (as 
overdraft services were known) were necessarily check-based because 
checks and cash were--at that time--consumers' only ways of accessing 
funds in their deposit accounts. Further, a financial institution's 
decision whether to pay a given check that triggered an overdraft was 
at that time necessarily manual, or ad-hoc, because computers (and 
automated credit decision-making) were only in their infancy. 
Typically, a consumer's institution (the ``paying bank,'' which is 
equivalent to the card-issuing bank in a card transaction) cannot 
authorize or decline a purchase by check when the consumer seeks to 
make payment (i.e., while at the merchant). As the Board noted in 2009, 
institutions that historically provided overdraft coverage for check 
transactions on an ad-hoc basis often provided a benefit to consumers, 
insofar as paying the check was often a preferable outcome to a 
bounced, returned check which could trigger an NSF fee, additional fees 
imposed by merchants, and even potential criminal liability for passing 
bad checks.\571\ With relatively low fees and low incidence, the 
programs were therefore considered a minor ``courtesy'' service that 
enabled consumers to avoid both the embarrassment of bouncing checks 
and the attendant costs.
---------------------------------------------------------------------------

    \571\ 77 FR 59033, 59033 (Nov. 17, 2009); see also generally 
Fed. Deposit Ins. Corp., FIL-81-2010, Overdraft Payment Programs and 
Consumer Protection Final Overdraft Payment Supervisory Guidance 
(Fin. Inst. Letter, Nov. 24, 2010), available at https://www.fdic.gov/news/news/financial/2010/fil10081.html.

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[[Page 84159]]

    However, the account structure and logistics for prepaid accounts 
have never matched those for checking accounts that existed in 1969. 
Checking accounts generally allow consumers to write checks and present 
them to payees without first receiving authorization from their 
financial institution. Checking accounts also allow incoming debit ACH 
transactions without preauthorization. These types of transactions are 
relevant for two reasons. First, the exact timing of the check 
clearance and incoming ACH process can be difficult for the consumer to 
predict. For instance, it may sometimes take several days or longer for 
a check to be presented and funds to be withdrawn from the consumer's 
account, while other times checks may be presented faster. Uncertainty 
around the timing of check and ACH presentment may lead to inadvertent 
overdrafts. Second, where this occurs, there is a benefit to the 
consumer in paying the transaction rather than declining the 
transaction and exposing the consumer not only to NSF fees but to 
bounced check fees and late payment fees charged by the payee.
    By contrast, the vast majority of prepaid account transactions are 
preauthorized, which means that the merchant seeks authorization from 
the financial institution before providing goods or services to the 
consumer.\572\ In such cases, the consumer is not at risk of having a 
payment rejected after a transaction has already occurred and the 
consumer will not be subjected to NSF and merchant fees; rather, the 
financial institution can simply reject the transaction before the 
purchase occurs if there are insufficient funds in the account.\573\ 
This is true for point-of-sale transactions as well as online bill pay 
transactions completed via ACH initiated from the prepaid account to 
the biller (or even with mailed, pre-authorized checks). Thus, a 
consumer using a prepaid account is less like the checking account 
customer that the Board focused on in creating the exemption for 
overdraft--a consumer being extended a courtesy in order to avoid 
potentially harsher repercussions--and instead is like any other 
consumer using credit to purchase goods or services.
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    \572\ An exception is third-party ACH debits, which could be 
submitted without prior authorization from the financial 
institution. However, an informal review by the Bureau of major GPR 
card programs indicates that most will not accept incoming ACH 
debits or that, by contract, cardholders are not permitted to 
establish them.
    \573\ The Bureau is aware that, in some instances, a transaction 
will be authorized when the account balance is positive but will 
ultimately settle when the account balance is negative, because for 
some types of transactions the final settlement amount may be higher 
than the authorization amount (e.g., at restaurants because tips are 
sometimes added after authorization).
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    There are several additional reasons why the Bureau believes the 
existing treatment of checking account overdraft would be inappropriate 
as applied to prepaid accounts. As stated in the proposal, a 
substantial portion of consumers holding prepaid accounts have had 
difficult experiences with overdraft services on traditional checking 
accounts.\574\ In general, prepaid consumers are disproportionately 
unbanked or underbanked.\575\ Some studies have also shown they are 
more likely to have limited education, and are often unemployed or 
recipients of public benefits.\576\ Although the size of this group is 
not clear, the Bureau believes that some users of prepaid products do 
vary, in some degree, from users of traditional deposit accounts.
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    \574\ 2014 Pew Survey at 7-8 (noting both that ``Most prepaid 
card users who have had a checking account in the past have paid 
associated overdraft fees for debit card usage'' and that ``Among 
those prepaid card users who have ever had a bank account, 41 
percent of them say they have closed or lost a checking account 
because of overdraft or bounced check fees.''). Separately, one 
major issuer estimated that 80 percent of its GPR card customers 
earn less than $50,000. See Kate Fitzgerald, Green Dot Chief Sees 
Prepaid Mobile Payments As Company's Next Challenge (May 7, 2012), 
available at https://www.isoandagent.com/news/Green-Dot-Chief-Sees-Prepaid-Mobile-Payments-As-Companys-Next-Challenge-3010590-1.html 
(explaining that ``single mothers in their late 30s and early 40s 
comprise 55 percent of [one major prepaid card company's] target 
market, with most of them earning less than $50,000 annually.''). 
Similarly, others have informed Bureau staff that the average credit 
score of prepaid account users is far below average.
    \575\ In its report on unbanked and underbanked consumers, the 
FDIC explained that households are identified as ``unbanked'' if 
they answered ``no'' to the question, ``Do you or does anyone in 
your household currently have a checking or savings account?'' The 
FDIC further explained that ``underbanked households are defined as 
those households that have a checking and/or a savings account and 
had used non-bank money orders, non-bank check cashing services, 
non-bank remittances, payday loans, rent-to-own services, pawn 
shops, or refund anticipation loans (RALs) in the past 12 months.'' 
See FDIC, 2011 FDIC National Survey of Unbanked and Underbanked 
Households (2011), available at https://www.fdic.gov/householdsurvey/2012_unbankedreport.pdf. For discussion of prepaid 
consumers' background, see 2012 FRB Kansas City Study at 11-12 
(although the report also notes no correlation due to income or 
education; possibly due to the different types of use by prepaid 
consumers).
    \576\ 2011 FDIC Survey at 16, 18, 40; see also Nat'l Council of 
La Raza, Perspectives on Prepaid Cards from Low-Income Hispanic Tax 
Filers, at 1-2 (2011), available at https://www.nclr.org/images/uploads/publications/_on_prepaid_cards_(3).pdf.
---------------------------------------------------------------------------

    Moreover, as noted in the proposal, financial institutions 
deliberately market prepaid accounts to consumers as products that are 
safer and easier to use than comparable products with credit features, 
in particular checking accounts with overdraft. Specifically, many 
companies market prepaid accounts to consumers as products that 
increase consumers' financial control by preventing overspending and 
the incurring of debt.\577\ Relatedly, the Bureau also believes that 
many of these consumers, and even many consumers who continue to 
maintain separate checking accounts, choose to purchase prepaid 
products because of their promise to allow consumers to control their 
spending. Indeed, many participants in the Bureau's pre-proposal 
consumer testing emphasized control as a primary reason they used 
prepaid cards.\578\ Other studies have similarly found that a primary 
reason consumers use prepaid cards is that they want increased control 
over their finances and want to avoid incurring debt and related 
fees.\579\
---------------------------------------------------------------------------

    \577\ See, e.g., Network Branded Prepaid Card Ass'n, Prepaid 
Card Benefits, https://www.nbpca.com/en/What-Are-Prepaid-Cards/Prepaid-Card-Benefits.aspx (last visited Oct. 1, 2016) (``For many 
Americans, prepaid cards serve as a tool with which to more 
effectively budget their spending. With a prepaid card, consumers 
avoid the risk of over-spending or overdraft, thus avoiding the 
interest, fees, and potential negative credit score implications of 
traditional credit cards. And for parents, prepaid cards provide 
tools to maintain control over their teens' or college students' 
spending.''); see also Examining Issues in the Prepaid Card Market, 
Hearing before the Subcomm. On Fin. Inst. and Consumer Prot., S. 
Comm. on Banking, Housing and Urban Affairs, 112th Cong. 2 (2012) 
(Remarks of Dan Henry, C.E.O., NetSpend Holdings, Inc.) (``Our 
customers are typically working Americans who want control . . . 
'').
    \578\ See ICF Report I at 5.
    \579\ See Bretton Woods, Inc., A Comparative Cost Analysis of 
Prepaid Cards, Basic Checking Accounts and Check Cashing, at 4 (Feb. 
2012), available at https://bretton-woods.com/media/3e145204f3688479ffff832affffd524.pdf (noting that 74 percent of 
prepaid users like the fact they cannot overspend or overdraft the 
most about prepaid cards); 2014 Pew Survey at 14 ex.12 (noting that 
the top two reasons consumers claim to use prepaid cards related to 
avoiding credit card debt (67 percent) and helping them not spend 
more money than they actually have (66 percent)).
---------------------------------------------------------------------------

    The Bureau believes the final rule's approach with respect to 
overdraft credit features on prepaid accounts will help preserve the 
unique character of prepaid accounts as a safe alternative to products 
that offer credit features, in conformance with the expectations of 
most prepaid consumers. This treatment is in contrast to the historical 
evolution of checking accounts, where overdraft services have been 
common across almost all such accounts and consumers often expect such 
services to be offered in connection with checking accounts.
    Further, unlike with respect to checking accounts where overdraft 
services have been structured to fit a unique and separate regulatory 
regime

[[Page 84160]]

for several decades, the Bureau is regulating prepaid overdraft 
services on a largely blank slate. Checking accounts and their pricing 
structures have evolved over the last several decades under compliance 
frameworks that were developed in accordance with existing regulations, 
exceptions to those regulations, and other agencies' guidance. In 
contrast, very few prepaid products currently offer overdraft services 
or other associated credit features. Most prepaid account programs do 
not have such a feature and, as a result, prepaid issuers would have to 
implement a new compliance regime in any event were they to decide to 
add such features.
    Similarly, the Bureau is concerned that if it were to extend the 
exception for overdraft services in connection with checking accounts 
to prepaid accounts, financial institutions offering overdraft on 
prepaid accounts would come to rely heavily on back-end pricing like 
overdraft fees, while eliminating or reducing front-end pricing, as has 
occurred with overdraft services on checking accounts. Indeed, although 
there are few prepaid providers currently offering overdraft services, 
one commenter provided data that suggests that the fee revenue 
attributable to overdraft fees for those prepaid providers who do offer 
overdraft have come to make up a significant portion of their 
revenue.\580\
---------------------------------------------------------------------------

    \580\ According to the office of a State Attorney General, 
overdraft fees and declined balance fees may comprise a substantial 
portion of the fee-based revenue for financial institutions offering 
payroll card programs, stating that, in its survey of 38 employers' 
payroll card programs, overdraft fees comprised over 40 percent of 
the fees assessed by those vendors that charge them.
---------------------------------------------------------------------------

    The Bureau believes such pricing structures can result in less 
transparent pricing for consumers. By labeling overdraft credit 
features offered on prepaid products as credit subject to the 
disclosure requirements of Regulation Z, the Bureau believes that the 
resulting product will be better understood and managed as credit by 
consumers to the extent some prepaid accountholders decide they want to 
access such credit.
    Because it has elected to treat overdraft credit features offered 
on prepaid accounts as credit cards under Regulation Z, the Bureau 
declines to adopt additional restrictions or requirements in Regulation 
E for prepaid accounts offering overdraft credit, as some industry 
commenters suggested. As summarized above, some industry commenters 
suggested that, to the extent the Bureau was concerned that Regulation 
E's opt-in regime was not sufficiently robust to address the perceived 
consumer harms associated with prepaid overdraft, the Bureau could 
impose additional, prepaid-specific restrictions within Regulation E 
to, for example, limit the amount of prepaid overdraft fees, limit the 
amount by which a prepaid account could be overdrawn, or limit the 
number of times a prepaid account could be overdrawn during a given 
period. The Bureau declines to adopt this approach. For the reasons 
discussed below, the Bureau believes that the credit card rules provide 
a comprehensive existing framework that provides substantial benefits 
to consumers, and that it is more appropriate under these circumstances 
to adopt that framework than to create additional novel requirements in 
Regulation E.
    With respect to the comment that the Bureau should adopt a dollar 
limit below which overdrafts occurring in connection with a prepaid 
account would be excluded from the definition of credit under 
Regulation Z and instead be covered by the Regulation E opt-in regime, 
the Bureau is concerned that allowing consumers to incur substantial 
debt in connection with an account that most do not intend to use as a 
credit account may pose a risk to those consumers by compromising their 
ability to manage and control their finances.\581\ Thus, while the 
final rule would permit a financial institution to offer an incidental 
``payment cushion'' of $10 without triggering the rules governing 
credit cards under Regulation Z so long as the issuer does not impose 
credit-related fees, the Bureau believes that the provision of a higher 
dollar amount of credit in connection with a prepaid account should be 
subject to full credit card protections unless otherwise excluded under 
the final rule.
---------------------------------------------------------------------------

    \581\ See also the section-by-section analyses of Sec. Sec.  
1026.2(a)(14) and 1026.61(a)(4) below.
---------------------------------------------------------------------------

    Treatment of prepaid overdraft services under the credit card rules 
in Regulation Z. The Bureau has concluded that the open-end credit 
regime established under Regulation Z is an appropriate and fitting 
regime for the treatment of overdraft credit features offered in 
connection with prepaid accounts. The term ``open-end credit'' is 
defined to mean consumer ``credit'' extended by a creditor under a 
``plan'' in which (1) the creditor reasonably contemplates repeated 
transactions; (2) the creditor may impose a ``finance charge'' from 
time to time on an outstanding unpaid balance; and (3) the amount of 
credit that may be extended to the consumer during the term of the plan 
(up to any limit set by the creditor) is generally made available to 
the extent that any outstanding balance is repaid. As explained in the 
proposal, the Bureau has analyzed whether it is reasonable to interpret 
``credit'' to include when overdrafts are paid in relation to prepaid 
accounts. The Bureau continues to believe it is. The Bureau also 
believes that overdraft services, overdraft lines of credit, and 
similar products that could be offered in connection with prepaid 
accounts can be regulated by Regulation Z as a ``plan'' where the 
consumer is contractually obligated to repay the debt, even if the 
creditor retains, by contract, the discretion not to extend credit.
    The Bureau has further evaluated whether such a plan satisfies the 
three prongs necessary to establish the plan as an open-end (not home-
secured) credit plan under Regulation Z. The first prong asks whether 
overdraft services, including those offered in connection with prepaid 
accounts, can be plans under which the creditor reasonably contemplates 
repeated transactions. Every prepaid overdraft service that charges a 
fee of which the Bureau is aware contemplates and approves repeated 
transactions. The second prong of the definition asks whether the 
creditor may impose a finance charge from time to time on an 
outstanding unpaid balance.\582\ The Bureau believes that overdraft 
fees and other charges on credit features offered in conjunction with 
prepaid accounts easily meet the general definition of finance charge. 
The Bureau believes that fees levied for overdraft services or other 
credit features on prepaid accounts--such as interest charges, 
transaction charges, service charges, and annual or other periodic fees 
to participate in the credit program--generally constitute finance 
charges, because they are directly payable by the consumer and imposed 
directly by the creditor as a condition of the extension of credit. 
Lastly, the Bureau believes that automated overdraft services for 
prepaid accounts generally will be structured such that the credit line 
for the plan will generally replenish to the extent that any 
outstanding balance is repaid, thus satisfying the final prong of the 
definition of open-end credit. Insofar as the Bureau has determined 
that the three prongs of an open-end credit plan are met, it finds that 
an overdraft service on a prepaid account is an open-end credit plan 
much like an overdraft line of credit or other similar products linked 
to prepaid accounts.
---------------------------------------------------------------------------

    \582\ See Sec.  1026.2(a)(20)(ii).
---------------------------------------------------------------------------

    The Bureau also believes that covering overdraft services offered 
in connection with prepaid accounts under

[[Page 84161]]

Regulation Z aligns with TILA's purpose to assure a meaningful 
disclosure of credit terms so that the consumer will be able to compare 
more readily the various credit terms available to him and avoid the 
uninformed use of credit, and to protect the consumer against 
inaccurate and unfair credit billing and credit card practices.\583\ 
The Bureau believes that regulation of prepaid account overdraft 
services as open-end (not home-secured) credit will serve to accomplish 
the stated purpose of TILA by requiring creditors and other persons to 
explain the terms of overdraft services to consumers in the context of 
Regulation Z, protect consumers from high fees during the first year 
(through Regulation Z's fee harvester provision) and from harms arising 
from various billing and improper credit card practices, and give 
consumers strong tools to manage their credit relationships.
---------------------------------------------------------------------------

    \583\ TILA section 102(a), 15 U.S.C. 1601(a).
---------------------------------------------------------------------------

    Finally, the Bureau believes that Regulation Z's credit card 
provisions, particularly as augmented by some tailored provisions that 
the Bureau is adopting specifically for the prepaid context, provide 
substantially more consumer protections than other existing regulatory 
regimes. These include greater protections around pricing, protections 
around creditors taking payments from consumers' accounts, and 
regulations to govern the process by which consumers make an initial 
decision to select a credit feature. For example, regulations 
implementing the Credit CARD Act impose a number of restrictions 
concerning credit pricing. These include restrictions on the fees that 
an issuer can charge during the first year after an account is opened, 
and limits on the instances in which and the amount of such fees that 
issuers can charge as penalty fees when a consumer makes a late payment 
or exceeds his or her credit limit. The Credit CARD Act also restricts 
the circumstances under which issuers can increase interest rates on 
credit cards and establishes procedures for doing so. The Bureau 
believes that applying the Credit CARD Act provisions to overdraft 
features in connection with prepaid accounts would promote transparent 
pricing for prepaid accountholders.
    In addition, application of the Fair Credit Billing Act and Credit 
CARD Act requirements, including the FCBA's no-offset provision,\584\ 
along with application of the compulsory use provision in Regulation E 
Sec.  1005.10(e)(1) to overdraft credit features offered in connection 
with prepaid accounts, will allow consumers to retain control over the 
funds in their prepaid accounts if a credit card feature becomes 
associated with those accounts because they will be able to control 
when and how debts are repaid.\585\ The application of these provisions 
would mean that with respect to overdraft credit features subject to 
this final rule, card issuers (1) would be required to adopt reasonable 
procedures designed to ensure that periodic statements for the credit 
feature are mailed or delivered at least 21 days prior to the payment 
due date disclosed on the periodic statement and the due date disclosed 
must be the same day of the month for each billing cycle; (2) could 
move funds automatically from the asset account held by the card issuer 
to the covered separate credit feature held by the card issuer to pay 
some or all of the credit card debt no more frequently than once per 
month, such as on the payment due date, (pursuant to the consumer's 
signed, written agreement that the issuer may do so); and (3) would be 
required to offer consumers a means to repay their outstanding credit 
balances on the covered separate credit feature other than automatic 
repayment (such as by means of a transfer of funds from the asset 
account to the credit account that the consumer initiates on the 
prepaid account's online banking Web site following a cash reload to 
the asset account). Card issuers also would be prohibited from 
extending credit without assessing the consumer's ability to pay, and 
must comply with special rules regarding the extension of credit to 
persons under the age of 21.
---------------------------------------------------------------------------

    \584\ TILA section 169; 15 U.S.C. 1666h(a).
    \585\ See Sec.  1026.12(d). This provision implements TILA 
section 169, which Congress added to TILA when it enacted the FCBA. 
The provision prohibits card issuers from taking any action to 
offset a cardholder's indebtedness arising from a consumer credit 
card transaction against the cardholder's funds held with the 
issuer, unless such action was previously authorized in writing by 
the cardholder in accordance with a plan whereby the cardholder 
agrees to permit the issuer periodically to deduct the debt from the 
cardholder's deposit account.
---------------------------------------------------------------------------

    Furthermore, by not permitting financial institutions to accept 
applications for an overdraft credit feature until 30 days after 
registration of the prepaid account,\586\ the Bureau believes the final 
rule will prevent consumers from being pressured to make a decision on 
overdraft credit when acquiring the prepaid account, such as when they 
purchase a GPR card at a retail location with an incentive to encourage 
consumers to sign up for overdraft, and protect them from incurring 
credit-related fees in the period during which they are getting 
accustomed to the features and uses of their account. It will also 
allow consumers time to decide whether the basic prepaid account is a 
good fit for them before deciding whether to layer on a separate credit 
feature that may be more difficult to walk away from.
---------------------------------------------------------------------------

    \586\ See Sec.  1026.61(c).
---------------------------------------------------------------------------

    The Bureau takes seriously concerns that the proposed approach 
could have had unintended consequences for all prepaid issuers in 
circumstances where they do not intend to extend credit as well as for 
credit that prepaid consumers receive through other channels. 
Specifically, to address commenters' concerns about coverage as a 
result of a prepaid issuer paying force pay transactions, the final 
rule clarifies that a prepaid card is not a credit card when the 
prepaid card accesses credit that is incidental to certain transactions 
in the form of a negative balance on the asset account where the 
prepaid account issuer generally is not charging credit-related fees 
for the credit. In addition, the Bureau is sensitive to concerns that, 
by subjecting credit offered in connection with prepaid cards to 
Regulation Z's credit card regime, this rulemaking may reduce access to 
some forms of credit. For that reason, under the final rule, a separate 
credit feature will not be covered if it is offered by an unrelated 
third party that is not the prepaid account issuer, its affiliates, or 
its business partners. This is true even if the separate credit feature 
is providing funds to the prepaid account to cover transactions for 
which there would not otherwise be sufficient funds. In addition, a 
separate credit feature is not covered under the final rule if it 
cannot access the separate credit feature during the course of 
authorizing, settling, or otherwise completing transactions even if the 
credit feature is offered by the prepaid account issuer, its 
affiliates, or its business partners. As noted above, the Bureau 
anticipates that credit plans in both of these latter scenarios will be 
subject to Regulation Z in their own right, but has concluded that they 
should not be subject to heightened regulation as a result of this 
final rule.
    The Bureau also declines to issue a ban on overdraft. Very few 
existing products offer credit features in connection with prepaid 
accounts. As such, the Bureau does not believe such a blanket 
prohibition is necessary or appropriate to address the potential 
consumer harm in this market at this time and in light of the other 
consumer protections that the final rule provides. Indeed, the Bureau 
believes that the final rule, unlike an outright ban on prepaid 
overdraft, which several consumer groups and one issuing bank 
suggested, appropriately balances the need to address consumers' need 
and

[[Page 84162]]

demand for credit with the need to protect against consumer harm.
    Finally, and as noted above, the Bureau received several comments 
from industry expressing concern that the Bureau's proposed 
interpretation of certain credit-related definitions in Regulation Z 
could impact the status of overdraft features accessed in connection 
with deposit accounts. As the Bureau noted in the proposal, the 
provisions addressing prepaid overdraft in the final rule are not 
intended to alter existing provisions that apply to deposit account 
overdraft, including exemptions for overdraft services from Regulation 
Z and Regulation E's compulsory use provision. The Bureau continues to 
study deposit account overdraft services on checking accounts and will 
propose any further regulatory consumer protections in that rulemaking 
initiative.\587\ In addition to that initiative, the Bureau notes that 
it recently issued a Notice of Proposed Rulemaking on Payday, Vehicle 
Title, and Certain High-Cost Installment Loans (Payday NPRM).\588\ The 
Bureau proposed excluding credit card accounts under an open-end (not 
home-secured) consumer credit plan from coverage under the Payday NPRM 
pursuant to proposed Sec.  1041.3(e)(3).\589\ The Bureau notes that 
under this final rule, a covered separate credit feature is a credit 
card account under an open-end (not home-secured) consumer plan under 
Regulation Z and accordingly, would be exempt from coverage for 
purposes of the Payday NPRM.
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    \587\ See CFPB's Unified Agenda for Spring 2016, available at 
https://www.consumerfinance.gov/about-us/blog/spring-2016-rulemaking-agenda/.
    \588\ See 81 FR 47864 (July 22, 2016).
    \589\ See id. at 48168.
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    The implications of the Bureau's approach to credit products 
offered in conjunction with prepaid accounts for Military Lending Act 
compliance. As discussed above, the DOD recently issued a final rule 
expanding the scope of the coverage of its regulation (32 CFR part 232) 
that implements the MLA to include a broad range of open-end and 
closed-end credit products, including open-end (not home-secured) 
credit card accounts that are subject to Regulation Z.\590\ Under the 
MLA and the implementing regulation, a creditor generally may not apply 
a MAPR greater than 36 percent in connection with an extension of 
consumer credit to a military service member or dependent. For covered 
credit card accounts, any credit-related charge that is a finance 
charge under Regulation Z (as well as certain other charges) would be 
included in calculating the MAPR for a particular billing cycle and the 
MAPR for that billing cycle could not exceed 36 percent.\591\ In 
addition, the rule includes a limited exemption for credit card 
accounts--until October 3, 2017, consumer credit covered by the MLA and 
the implementing regulation will not include credit extended in a 
credit card account under an open-end (not home-secured) consumer 
credit plan.
---------------------------------------------------------------------------

    \590\ 80 FR 43560 (July 22, 2015).
    \591\ 32 CFR 232.4(b).
---------------------------------------------------------------------------

    Thus, starting October 3, 2017, fees levied for credit features 
(including overdraft services) on a hybrid prepaid-credit card held by 
military service members or their dependents would, as a result of the 
MLA and the Bureau's final rule on prepaid accounts in combination, 
generally be included in calculating the MAPR for a billing cycle 
unless excluded under the reasonable bona fide fee exception.
    The Bureau sought comment on the consequences, if any, from the 
combined effect of the two rules with respect to overdraft services and 
credit features on prepaid accounts held by military service members. 
With the exception of generalized comments acknowledging the potential 
overlap outlined above, commenters did not provide any specific 
feedback in response to this request.
    Other implications of the Bureau's approach to credit products 
offered in conjunction with prepaid accounts: Multipurpose cards and 
card network rules. The Bureau's approach to credit features in 
connection with prepaid products would result in a single plastic card 
or other access device functioning either as a prepaid card or as a 
credit card, depending on the balance in the asset account at the time 
of a transaction that the consumer makes. For example, if the asset 
account balance is sufficient to fund the transaction, the card could 
function as a prepaid card; if not, the card could function as a credit 
card. The final rule includes a number of provisions to promote 
consumer understanding, facilitate clear application of the various 
potentially applicable regulatory regimes, and address other challenges 
that may arise due to the multipurpose nature of the card product. For 
example, the Bureau is amending the provision in Regulation Z that 
addresses the relationship between the Regulation E and Z error 
resolution regimes to clarify the applicability of those regimes to an 
extension of credit incident to an EFT when a transaction accesses both 
funds in the prepaid account and credit from the overdraft credit 
feature.\592\
---------------------------------------------------------------------------

    \592\ See the section-by-section analysis of Sec.  1026.13(i) 
below.
---------------------------------------------------------------------------

    The Bureau sought comment on these specific amendments and whether 
further amendments or guidance would be appropriate. The Bureau also 
sought comment on consumer and industry experiences with similar 
multipurpose products historically, and whether they yield useful 
lessons for further refining the Bureau's proposal with regard to 
prepaid cards. The Bureau did not receive any specific comments in 
response to these requests.
    Finally, the Bureau notes that card network rules may treat a card 
differently depending on whether it accesses an asset account or a 
credit account. In the proposal, the Bureau noted that its proposal 
could result in an increase in the number of cards that can access both 
an asset account and a credit account, and the Bureau requested comment 
on any card network rule issues that might arise from its proposal to 
treat most credit plans accessed by prepaid cards, for which finance 
charges are imposed, as open-end credit accessed by a credit card under 
Regulation Z. The Bureau did not receive any specific comments in 
response to this request.
Subpart A--General
Section 1026.2 Definitions and Rules of Construction
2(a) Definitions
Overview of Final Changes to Definitions
    As discussed in the Overview of the Final Rule's Amendments to 
Regulation Z section above and in the section-by-section analysis of 
Sec.  1026.61 below, the Bureau is adopting a new definition of 
``hybrid prepaid-credit card'' in new Sec.  1026.61 \593\ to describe 
the circumstances in which the Bureau has decided to regulate prepaid 
cards \594\ as credit cards under Regulation Z when they can access 
credit offered in connection with a prepaid account. The Bureau also 
has decided to exclude prepaid cards from being covered as credit cards 
under Regulation Z when they access certain specified types of

[[Page 84163]]

credit. A number of supporting definitions that help to distinguish 
hybrid prepaid-credit cards from prepaid cards that are not credit 
cards under Regulation Z are provided in new Sec.  1026.61 as described 
further below.
---------------------------------------------------------------------------

    \593\ Throughout the section-by-section analyses of Regulations 
E and Z, the term ``hybrid prepaid-credit card'' refers to a hybrid 
prepaid-credit card as defined in new Sec.  1026.61.
    \594\ New Sec.  1026.61(a)(5)(vii) defines ``prepaid card'' to 
mean ``any card, code, or other device that can be used to access a 
prepaid account.'' The term ``prepaid card'' includes a prepaid 
account number. See new comment 61(a)(5)(vii)-1. Consistent with 
final Regulation E, new Sec.  1026.61(a)(5)(v) defines ``prepaid 
account'' to mean ``a prepaid account as defined in Regulation E, 12 
CFR 1005.2(b)(3).''
---------------------------------------------------------------------------

    The Bureau is making conforming changes to general Regulation Z 
definitions in both existing Sec. Sec.  1026.2 and 1026.4 to effectuate 
and reflect these distinctions. For example, the Bureau is making 
amendments to the definition of ``credit card'' in existing Sec.  
1026.2(a)(15)(i) and related commentary to make clear that the term 
``credit card'' includes a hybrid prepaid-credit card. The Bureau also 
is making several amendments to the commentary relating to several 
other terms that are defined in existing Sec.  1026.2 that pertain to 
the general regulation of credit and credit cards under Regulation Z. 
Specifically, the Bureau is amending the commentary regarding such 
terms as ``card issuer'' in existing Sec.  1026.2(a)(7), ``open-end 
credit'' in existing Sec.  1026.2(a)(20), and ``credit card account 
under an open-end (not home-secured) consumer credit plan'' in existing 
Sec.  1026.2(a)(15)(ii). Finally, the Bureau also is amending the 
definition of ``finance charge'' in existing Sec.  1026.4 and related 
commentary with respect to credit features accessible by hybrid 
prepaid-credit cards and with respect to other credit features that are 
accessible by prepaid cards that are not credit cards under Regulation 
Z. These changes are briefly summarized below before the more detailed 
discussion of specific amendments to specific subparagraphs of existing 
Sec. Sec.  1026.2 and 1026.4, and their related commentary.
    Definition of ``credit card.'' Regulation Z defines the term 
``credit card'' in current Sec.  1026.2(a)(15)(i) to mean ``any card, 
plate, or other single credit device that may be used from time to time 
to obtain credit.'' As discussed below, the Bureau is adopting a new 
definition of ``hybrid prepaid-credit card'' in new Sec.  1026.61 which 
sets forth the circumstances in which a prepaid card is a credit card 
under Regulation Z. Accordingly, the Bureau is amending the general 
definition of ``credit card'' in existing Sec.  1026.2(a)(15)(i) to 
state expressly that a prepaid card that is a hybrid prepaid-credit 
card as defined in new Sec.  1026.61 is a credit card under Regulation 
Z. See also new Sec.  1026.61(a)(1) and new comment 2(a)(15)-2.i.F. As 
described in new Sec.  1026.61(a)(1), a prepaid card that is not a 
``hybrid prepaid-credit card'' is not a credit card for purposes of 
Regulation Z. See also new comment 2(a)(15)-2.ii.D.
    More specifically, as discussed in the Overview of the Final Rule's 
Amendments to Regulation Z section above and in more detail in the 
section-by-section analysis of Sec.  1026.61 below, the Bureau 
generally intends to cover under Regulation Z overdraft credit features 
in connection with prepaid accounts where the credit features are 
offered by the prepaid account issuer, its affiliates, or its business 
partners. New Sec.  1026.61(b) generally requires that such credit 
features be structured as separate subaccounts or accounts, distinct 
from the prepaid asset account, to facilitate transparency and 
compliance with various Regulation Z requirements. New Sec.  
1026.61(a)(2)(i) provides that a prepaid card is a ``hybrid prepaid-
credit card'' with respect to a separate credit feature if the card 
meets the following two conditions: (1) The card can be used from time 
to time to access credit from the separate credit feature in the course 
of authorizing, settling, or otherwise completing transactions 
conducted with the card to obtain goods or services, obtain cash, or 
conduct P2P transfers; and (2) the separate credit feature is offered 
by the prepaid account issuer, its affiliate, or its business partner. 
New Sec.  1026.61(a)(2)(i) defines such a separate credit feature 
accessible by a hybrid prepaid-credit card as a ``covered separate 
credit feature.'' Thus, the hybrid prepaid-credit card can access both 
the covered separate credit feature and the asset feature of the 
prepaid account, and the hybrid prepaid-credit card is a credit card 
under Regulation Z with respect to the covered separate credit feature.
    As discussed in the section-by-section analysis of Sec.  1026.61 
below, the Bureau also has decided to exclude prepaid cards from being 
covered as credit cards under Regulation Z when they access certain 
specified types of credit. First, new Sec.  1026.61(a)(2)(ii) provides 
that a prepaid card is not a hybrid prepaid-credit card with respect to 
a separate credit feature that does not meet both of the conditions 
above, for example, where the credit feature is offered by an unrelated 
third party that is not the prepaid account issuer, its affiliate or 
its business partner. Such credit features are defined as ``non-covered 
separate credit features,'' as discussed in the section-by-section 
analysis of Sec.  1026.61(a)(2). Second, under new Sec.  1026.61(a)(4), 
a prepaid card also is not a hybrid prepaid-credit card when the 
prepaid card accesses incidental credit in the form of a negative 
balance on the asset account where the prepaid account issuer generally 
does not charge credit-related fees for the credit.\595\ A prepaid card 
is not a hybrid prepaid-credit card under new Sec.  1026.61 or a credit 
card under final Sec.  1026.2(a)(15)(i) when it accesses credit from 
these types of credit features. For more detailed explanations of when 
prepaid cards are not credit cards under Regulation Z, see the section-
by-section analyses of Sec.  1026.61(a)(2) and (4).
---------------------------------------------------------------------------

    \595\ Throughout the section-by-section analyses of Regulations 
E and Z, the term ``incidental credit'' is used to refer to credit 
that meets the conditions of new Sec.  1026.61(a)(4).
---------------------------------------------------------------------------

    Definition of ``card issuer.'' The term ``card issuer'' is 
generally defined in existing Sec.  1026.2(a)(7) to mean ``a person 
that issues a credit card or that person's agent with respect to the 
card.'' Under the general rules applicable to credit cards, card 
issuers are subject to certain direct regulation in their own right, 
and a card issuer that extends credit is a creditor under Regulation Z 
even if it does not meet the general definition of ``creditor'' under 
existing Sec.  1026.2(a)(17)(i). Because under the final rule a hybrid 
prepaid-credit card is a credit card under Regulation Z, a prepaid 
account issuer is a ``card issuer'' under existing Sec.  1026.2(a)(7) 
when it issues a hybrid prepaid-credit card. In addition, to further 
apply these concepts in the prepaid context, the Bureau is amending the 
commentary to existing Sec.  1026.2(a)(7) to reflect that with respect 
to a covered separate credit feature accessible by a hybrid prepaid-
credit card as defined in new Sec.  1026.61, an affiliate or business 
partner offering the credit feature (if applicable) also is a ``card 
issuer'' under Regulation Z. Accordingly, under existing Sec.  
1026.2(a)(17)(iii) and (iv), the person offering the covered separate 
credit feature accessible by a hybrid prepaid-credit card (whether that 
person is a prepaid account issuer, its affiliate, or its business 
partner) also is a creditor under Regulation Z.
    Definition of ``open-end credit'' and ``credit card account under 
an open-end (not home-secured) consumer credit plan.'' As discussed 
further below, certain credit card rules only apply to credit card 
accounts under an open-end (not home-secured) consumer credit plan as 
defined in existing Sec.  1026.2(a)(15)(ii). This definition in turn 
hinges largely on whether a credit card can access ``open-end credit'' 
as defined in existing Sec.  1026.2(a)(20). The term ``open-end 
credit'' is defined to mean consumer ``credit'' extended by a 
``creditor'' under a ``plan'' in which (1) the creditor reasonably 
contemplates repeated transactions; (2) the creditor may impose a 
``finance charge'' from

[[Page 84164]]

time to time on an outstanding unpaid balance; and (3) the amount of 
credit that may be extended to the consumer during the term of the plan 
(up to any limit set by the creditor) is generally made available to 
the extent that any outstanding balance is repaid.
    The Bureau believes that a covered separate credit feature 
accessible by a hybrid prepaid-credit card generally will meet the 
definition of ``open-end credit,'' and is amending the regulation text 
and commentary to facilitate the classification of a covered separate 
credit feature accessible by a hybrid prepaid-credit card as ``open-end 
credit'' and a ``credit card account under an open-end (not home-
secured) consumer credit plan.'' A person that is offering a covered 
separate credit feature involving open-end (not home-secured) credit 
that is accessible by a hybrid prepaid-credit card will be subject to 
Regulation Z's open-end (not home-secured) rules and credit card rules 
in subparts B and G.
    The open-end (not home-secured) rules in subpart B include account-
opening disclosures, periodic statement disclosures, change-in-terms 
notices, provisions on promptly crediting payments, and billing error 
resolution procedures. The credit card rules in subpart B include 
provisions that restrict the unsolicited issuance of credit cards, 
limit the liability for unauthorized use of credit cards, and prohibit 
the offset of the credit card debt against funds held in asset accounts 
by the card issuer. The credit card rules in subpart G include 
provisions that prohibit credit card issuers from extending credit 
without assessing the consumer's ability to pay and restrict the amount 
of required fees that an issuer can charge during the first year after 
a credit card account is opened. Application of the particular rules is 
discussed further below.
    Definition of finance charge. As discussed above, whether a 
creditor may impose a finance charge from time to time on an 
outstanding balance is one of the elements that helps determine 
coverage as open-end credit. As discussed above, certain credit card 
rules apply only to open-end credit that is accessible by a credit 
card. The term ``finance charge'' generally is defined in existing 
Sec.  1026.4(a) to mean ``the cost of consumer credit as a dollar 
amount.'' It includes any charge payable directly or indirectly by the 
consumer and imposed directly or indirectly by the creditor as an 
incident to or as a condition of the extension of credit. It generally 
does not include any charges of a type payable in a comparable cash 
transaction. Currently, certain fees or charges are specifically 
excluded from the term ``finance charge'' as part of the exclusion for 
overdraft services on checking accounts as discussed in the Overview of 
the Final Rule's Amendments to Regulation Z section above. For example, 
existing Sec.  1026.4(c)(3) excludes charges imposed by a financial 
institution for paying items that overdraw an account, unless the 
payment of such items and the imposition of the charge were previously 
agreed upon in writing. In addition, existing Sec.  1026.4(c)(4) 
excludes fees charged for participation in a credit plan, whether 
assessed on an annual or other periodic basis.
    The Bureau is amending existing Sec.  1026.4 and its commentary to 
provide that the exclusion in existing Sec.  1026.4(c)(3) does not 
apply to credit offered in connection with a prepaid account as defined 
in new Sec.  1026.61 and that the exclusion in existing Sec.  
1026.4(c)(4) does not apply to a fee to participate in a covered 
separate credit feature accessible by a hybrid prepaid-credit card as 
defined in new Sec.  1026.61, regardless of whether this fee is imposed 
on the credit feature or on the asset feature of the prepaid account. 
As discussed further below, these amendments help to effectuate 
application of certain credit card rules to covered separate credit 
features accessible by hybrid prepaid-credit cards and to better 
reflect the full cost of credit. In addition, the Bureau is adding new 
provisions to final Sec.  1026.4 and its commentary to provide 
additional clarification and guidance as to what types of fees and 
charges constitute ``finance charges'' related to credit offered in 
connection with a prepaid account. All of these changes are discussed 
in more detail below in the section-by-section analysis of Sec.  
1026.4.
2(a)(7) Card Issuer
    As discussed above, the final rule contains additional guidance on 
the definition of ``card issuer'' with respect to credit offered in 
connection with prepaid accounts. TILA section 103(o) defines the term 
``card issuer'' as any person who issues a credit card, or the agent of 
such person with respect to such a card.\596\ Consistent with the TILA 
definition, Regulation Z defines the term ``card issuer'' in existing 
Sec.  1026.2(a)(7) as ``a person that issues a credit card or that 
person's agent with respect to the card.'' The Regulation further 
defines the term ``credit card'' in existing Sec.  1026.2(a)(15)(i) to 
mean ``any card, plate, or other single credit device that may be used 
from time to time to obtain credit.'' Card issuers must comply with 
certain provisions in Regulation Z as applicable. See existing 
Sec. Sec.  1026.12 and 1026.60; for card issuers offering a ``credit 
card account under an open-end (not home-secured) consumer credit 
plan,'' see, e.g., existing Sec. Sec.  1026.5(b)(2)(ii)(A), 
1026.7(b)(11), and 1026.51 through 1026.59. In addition, under existing 
Sec.  1026.2(a)(17)(iii) and (iv), card issuers that extend credit are 
considered creditors for purposes of Regulation Z.
---------------------------------------------------------------------------

    \596\ 15 U.S.C. 1602(o).
---------------------------------------------------------------------------

    As noted above, under TILA and Regulation Z, the definition of 
``card issuer'' means both a person who issues a credit card as well as 
the person's agent with respect to the card. Comment 2(a)(7)-1 
currently provides guidance on the term ``agent'' for purposes of the 
definition of ``card issuer.'' Specifically, current comment 2(a)(7)-1 
provides that because agency relationships are traditionally defined by 
contract and by State or other applicable law, Regulation Z generally 
does not define agent. Nonetheless, current comment 2(a)(7)-1 provides 
that merely providing services relating to the production of credit 
cards or data processing for others does not make one the agent of the 
card issuer. In contrast, current comment 2(a)(7)-1 also provides that 
a financial institution may become the agent of the card issuer if an 
agreement between the institution and the card issuer provides that the 
cardholder may use a line of credit with the financial institution to 
pay obligations incurred by use of the credit card.
The Bureau's Proposal
    Proposed comment 2(a)(15)-2.i.F would have provided that the term 
``credit card'' generally includes a prepaid card that is a single 
device that may be used from time to time to access a credit plan.\597\ 
Under the proposal, a person that issues a prepaid card that is a 
credit card would have been a ``card issuer'' under existing Sec.  
1026.2(a)(7).
---------------------------------------------------------------------------

    \597\ The term ``prepaid card'' would have been defined in 
proposed Sec.  1026.2(a)(15)(v) to mean any card, code, or other 
device that can be used to access a ``prepaid account'' as that term 
would have been defined in proposed Sec.  1026.2(a)(15)(vi). 
Proposed Sec.  1026.2(a)(15)(vi) would have defined the term 
``prepaid account'' to mean a prepaid account as defined in 
Regulation E proposed Sec.  1005.2(b)(3).
---------------------------------------------------------------------------

    The proposal also would have amended existing comment 2(a)(7)-1 to 
provide specific guidance on the term ``agent'' for purposes of 
existing Sec.  1026.2(a)(7) where a credit plan offered by a third 
party is accessed by a prepaid card that is a credit card. Under the 
proposal, the language of existing comment 2(a)(7)-1 would have

[[Page 84165]]

been moved to proposed comment 2(a)(7)-1.i. In addition, the Bureau 
proposed to add comment 2(a)(7)-1.ii that would have built on the last 
sentence of current comment 2(a)(7)-1 and provided that with respect to 
a prepaid card that is a credit card where the card accesses a credit 
plan that is offered by a third party, a party offering the credit plan 
that is accessed by the card would have been an agent of the person 
issuing the prepaid card and thus, would have been a card issuer with 
respect to the prepaid card that is a credit card.
    Under proposed comment 2(a)(15)-2.i.F, the Bureau would have 
excluded from the regulation as a credit card situations in which a 
prepaid card only accesses credit that is not subject to any finance 
charge, as defined in Sec.  1026.4, or any fee described in Sec.  
1026.4(c), and is not payable by written agreement in more than four 
installments. Consistent with this approach, proposed comment 2(a)(7)-2 
would have explained that a person is not a card issuer where a prepaid 
card only accesses credit meeting this description.
Comments Received
    Two industry trade associations indicated that the Bureau should 
limit the expansion of the term ``agent'' to creditors that have a 
direct agreement with the prepaid account issuer so that the third-
party creditor is in a position to know that it has obligations under 
Regulation Z with respect to the prepaid card that is a credit card. 
Several consumer groups supported the proposed rule to consider a third 
party that offers an open-end credit plan accessed by a prepaid card to 
be an agent of the prepaid account issuer and thus a credit card issuer 
with responsibilities under Regulation Z. They believed that this 
provision would help avoid evasion by third-party credit plans linked 
to prepaid cards. One consumer group commenter indicated that if the 
prepaid account issuer contracts with a third party to market credit to 
account holders, the Bureau should provide that both companies are 
classified as card issuers that must comply with the rules. This 
commenter indicated that without this safeguard, an affiliated third 
party could offer credit accessed by the prepaid card that would not be 
subject to the proposed rules.
The Final Rule
    Consistent with the general approach in Sec.  1026.61, the Bureau 
is limiting the circumstances in which an unaffiliated third party that 
can extend credit through a separate credit feature is considered an 
``agent'' of a prepaid account issuer relative to the proposal. As 
discussed in more detail below, the Bureau is moving the existing 
language of current comment 2(a)(7)-1 to new comment 2(a)(7)-1.i. In 
addition, the Bureau is adding new comment 2(a)(7)-1.ii to provide that 
with respect to a covered separate credit feature accessible by a 
hybrid prepaid-credit card as defined in new Sec.  1026.61 where that 
credit feature is offered by an affiliate or business partner of the 
prepaid account issuer, as those terms are defined in new Sec.  
1026.61, the affiliate or business partner offering the credit feature 
is an agent of the prepaid account issuer and thus, is itself a card 
issuer with respect to the hybrid prepaid-credit card.
    In contrast, if a person offers a credit feature accessible by a 
prepaid card that does not meet the definition of a hybrid prepaid-
credit card under new Sec.  1026.61, such a person is not a ``card 
issuer'' under final Sec.  1026.2(a)(7) with respect to the prepaid 
card. Accordingly, the Bureau is not finalizing language that it had 
proposed in comment 2(a)(7)-2 to effectuate the narrower exclusion 
contemplated under the proposal. Instead, the Bureau is adopting new 
language in final comment 2(a)(7)-2 consistent with new Sec.  1026.61 
with regard to treatment of prepaid cards that are not hybrid prepaid-
credit cards as discussed in that section. Each scenario is discussed 
further below.
Covered Separate Credit Features Accessible by Hybrid Prepaid-Credit 
Cards
    As discussed in more detail in the section-by-section analysis of 
Sec.  1026.61(a)(2) below, new Sec.  1026.61(a)(2)(i) defines a 
separate credit feature accessible by a hybrid prepaid-credit card` as 
a ``covered separate credit feature.'' Specifically, new Sec.  
1026.61(a)(2)(i) provides that a prepaid card is a ``hybrid prepaid-
credit card'' with respect to a separate credit feature if the card 
meets the following two conditions: (1) The card can be used from time 
to time to access credit from the separate credit feature in the course 
of authorizing, settling, or otherwise completing transactions 
conducted with the card to obtain goods or services, obtain cash, or 
conduct P2P transfers; and (2) the separate credit feature is offered 
by the prepaid account issuer, its affiliate, or its business partner. 
If both conditions are met, the hybrid prepaid-credit card is a credit 
card under Regulation Z with respect to the covered separate credit 
feature.
    New Sec.  1026.61(a)(5)(i) and (iii) and their related commentary 
define ``affiliate'' and ``business partner'' respectively. Under new 
Sec.  1026.61(a)(5)(i), an affiliate is any company that controls, is 
controlled by, or is under common control with another company, as set 
forth in the Bank Holding Company Act of 1956 (12 U.S.C. 1841 et seq.). 
Under new Sec.  1026.61(a)(5)(iii), a business partner is a person 
(other than the prepaid account issuer or its affiliates) that can 
extend credit through a separate credit feature, where the person or 
its affiliate has an ``arrangement'' with a prepaid account issuer or 
its affiliate. New comment 61(a)(5)(iii)-1 describes two types of 
``arrangements'' that would make such a person that can extend credit a 
``business partner'' of the prepaid account issuer under new Sec.  
1026.61(a)(5)(iii). As described in new comment 61(a)(5)(iii)-1.i, the 
first arrangement is where the unaffiliated person that can extend 
credit, or its affiliate, has an agreement with the prepaid account 
issuer, or its affiliate, that allows a prepaid card from time to time 
to draw, transfer, or authorize a draw or transfer of credit from a 
separate credit feature offered by the person that can extend credit in 
the course of authorizing, settling, or otherwise completing 
transactions conducted with the card to obtain goods or services, 
obtain cash, or conduct P2P transfers. New comment 61(a)(5)(iii)-1.i 
provides, however, that the parties are not considered to have such an 
agreement merely because the parties participate in a card network or 
payment network.
    Second, new comment 61(a)(5)(iii)-1.ii provides that an 
unaffiliated person that can extend credit through a separate credit 
feature is a business partner of the prepaid account issuer if (1) the 
prepaid account issuer or its affiliate has a business, marketing, or 
promotional agreement or other arrangement with the person that can 
extend credit, or its affiliate, where the agreement or arrangement 
provides that prepaid accounts offered by the prepaid account issuer 
will be marketed to the customers of the person who is extending 
credit, or that the credit feature will be marketed to the holders of 
prepaid accounts offered by the prepaid account issuer (including any 
marketing to customers to link the separate credit feature to the 
prepaid account to be used as an overdraft credit feature); and (2) at 
the time of the marketing agreement or arrangement, or at any time 
afterwards, the prepaid card from time to time can draw, transfer, or 
authorize the draw or transfer of credit from the separate credit 
feature in the

[[Page 84166]]

course of transactions conducted with the card to obtain goods or 
services, obtain cash, or conduct P2P transfers. In this case, this 
requirement is satisfied even if there is no specific agreement between 
the parties that the card can access the separate credit feature, as 
described above under new comment 61(a)(5)(iii)-1.i. For example, this 
requirement is satisfied even if the draw, transfer, or authorization 
of the draw or transfer from the separate credit feature is effectuated 
through a card network or payment network.
    The Bureau is amending the commentary to existing Sec.  
1026.2(a)(7)'s definition of card issuer to effectuate coverage of 
these relationships. Specifically, under the final rule, the Bureau is 
moving the existing language of current comment 2(a)(7)-1 to new 
comment 2(a)(7)-1.i. In addition, the Bureau is adding new comment 
2(a)(7)-1.ii to provide that with respect to a covered separate credit 
feature accessible by a hybrid prepaid-credit card where that credit 
feature is offered by an affiliate or business partner of the prepaid 
account issuer, the affiliate or business partner offering the credit 
feature is an agent of the prepaid account issuer and thus, is itself a 
card issuer with respect to the hybrid prepaid-credit card. Consistent 
with the general existing definition of card issuer, the Bureau 
believes that it is appropriate to consider a prepaid account issuer's 
affiliate or business partner to be an ``agent'' of the prepaid account 
issuer because, in those cases, there is a sufficient connection 
between the parties such that the affiliate or business partner should 
know that its credit feature is accessible by a prepaid card as an 
overdraft credit feature for the prepaid account.
    The Bureau notes that current comment 2(a)(7)-1 provides that a 
financial institution may become the agent of the card issuer if an 
agreement between the institution and the card issuer provides that the 
cardholder may use a line of credit with the financial institution to 
pay obligations incurred by use of the credit card. With regard to 
hybrid prepaid-credit cards, the final rule incorporates and expands 
upon this concept of when a person is an agent of a card issuer. The 
Bureau believes that the new, more expansive language provides 
additional clarity as to when there is an agent relationship in the 
prepaid context and, therefore, prevents circumvention of the final 
rules applicable to covered separate credit features accessible by 
hybrid prepaid-credit cards as defined by new Sec.  1026.61 that are 
offered by the prepaid account issuer's affiliates or business 
partners.
    In particular, the Bureau is concerned that without new comment 
2(a)(7)-1.ii, prepaid account issuers could structure arrangements with 
their affiliates or business partners to avoid an agency relationship 
under State law. Such a result could frustrate the operation of certain 
consumer protections provided in the final rule. In addition, without 
considering the person that can extend credit through the covered 
separate credit feature to be an agent of the prepaid account issuer 
(and thus considering both the prepaid account issuer and the person 
that can extend credit to be ``card issuers''), it may not be clear 
whether the person that can extend credit through the covered separate 
credit feature or the prepaid account issuer must comply with 
particular provisions in Regulation Z. For example, existing Sec.  
1026.51(a) provides that a card issuer must not open a credit card 
account for a consumer under an open-end (not home-secured) consumer 
credit plan, or increase any credit limit applicable to such account, 
unless the card issuer considers the consumer's ability to make the 
required minimum periodic payments under the terms of the account based 
on the consumer's income or assets and the consumer's current 
obligations. In cases where the prepaid account issuer's affiliate or 
business partner offers the covered separate credit feature accessible 
by the hybrid prepaid-credit card, it would not be clear what 
obligations under existing Sec.  1026.51(a), if any, apply to the 
prepaid account issuer (who is a ``card issuer'' but who is not 
offering the credit card account) and what obligations, if any, apply 
to the affiliate or business partner (who is offering the credit card 
account but is not a card issuer) if the affiliate or business partner 
were not a card issuer under final Sec.  1026.2(a)(7) with respect to 
the hybrid prepaid-credit card.
    Accordingly, under the final rule, new comment 2(a)(7)-1.ii 
provides that with respect to a prepaid card that is a hybrid prepaid-
credit card that can access a covered separate credit feature offered 
by an affiliate or business partner as those terms are defined in new 
Sec.  1026.61, the affiliate or business partner offering the credit 
feature that is accessible by the hybrid prepaid-credit card is an 
agent of the prepaid account issuer and thus, is a card issuer with 
respect to the hybrid prepaid-credit card. As a result, in the example 
above related to existing Sec.  1026.51(a), the affiliate or business 
partner would be a ``card issuer'' for purposes of that provision and 
would be required to comply with it.
    Nonetheless, as discussed in more detail below and in the section-
by-section analysis of Sec.  1026.61(a)(2), the Bureau has decided to 
provide that a prepaid card is not a hybrid prepaid-credit card with 
respect to a credit feature that is offered by a third party that is 
not an affiliate or business partner of a prepaid account issuer, even 
if the consumer decides to link his or her prepaid card to the credit 
feature offered by the third party. This type of credit feature is a 
``non-covered separate credit feature'' as defined in new Sec.  
1026.61(a)(2)(ii). The Bureau does not believe that it is appropriate 
to subject such an unrelated third party to the provisions in the final 
rule applicable to hybrid prepaid-credit cards. In this case, there is 
not a sufficient connection between the prepaid account issuer and the 
unrelated third party, and the unrelated third party may not know that 
its separate credit feature is functioning as an overdraft credit 
feature with respect to the prepaid account.
    Accordingly, as discussed in more detail in the section-by-section 
analysis of Sec.  1026.61(a)(2) below, new Sec.  1026.61(a)(2)(ii) 
provides that a prepaid card is not a hybrid prepaid-credit card with 
respect to the non-covered separate credit feature discussed above. 
However, as described in new Sec.  1026.61(a)(2)(ii), the unrelated 
third party that offers the non-covered separate credit feature 
typically will be subject to Regulation Z in its own right based on the 
terms and conditions of the separate credit feature, independent of the 
connection to the prepaid account.
Credit Features That Are Not Accessible by Hybrid Prepaid-Credit Cards
    As discussed above, the Bureau proposed to exclude from the 
regulation as a credit card situations in which a prepaid card only 
accesses credit that is not subject to any finance charge, as defined 
in Sec.  1026.4, or any fee described in Sec.  1026.4(c), and the 
credit is not payable by written agreement in more than four 
installments. Consistent with this approach, proposed comment 2(a)(7)-2 
would have explained that a person is not a card issuer where a prepaid 
card only accesses credit meeting this description. As discussed above, 
the Bureau has decided to exclude prepaid cards from being covered as 
credit cards under Regulation Z when they access certain specified 
types of credit. Accordingly, the Bureau is not finalizing language 
that it had proposed in comment 2(a)(7)-2 to effectuate the narrower 
exclusion contemplated under the

[[Page 84167]]

proposal. Instead, the Bureau is adopting new language in final comment 
2(a)(7)-2 consistent with new Sec.  1026.61 with regard to prepaid 
cards that are not hybrid prepaid-credit cards, as discussed in that 
section. Specifically, final comment 2(a)(7)-2 provides cross-
references to new Sec.  1026.61(a), new comment 61(a)(2)-5.iii, and new 
comment 61(a)(4)-1.iv for guidance on the applicability of Regulation Z 
in connection with credit accessible by prepaid cards that are not 
hybrid prepaid-credit cards. The Bureau's intent is to assure that 
where the prepaid card is not a hybrid prepaid-credit card with respect 
to a credit feature, the person that is offering the credit feature is 
not deemed to be a card issuer under final Sec.  1026.2(a)(7) with 
respect to the prepaid card.
    As discussed in the section-by-section analysis of Sec.  1026.61 
below, the Bureau has decided to exclude prepaid cards from being 
covered as credit cards under Regulation Z when they access certain 
specified types of credit. With respect to separate credit features, 
there are two circumstances, described in new Sec.  1026.61(a)(2)(ii), 
where a prepaid card is not a hybrid prepaid-credit card when it 
accesses a separate credit feature. The first is where the prepaid card 
cannot be used to access credit from the separate credit feature in the 
course of authorizing, settling, or otherwise completing transactions 
conducted with the card to obtain goods or services, obtain cash, or 
conduct P2P transfers. The second is where the separate credit feature 
is offered by an unrelated third party, rather than the prepaid account 
issuer, its affiliate, or its business partner. In addition, under new 
Sec.  1026.61(a)(4), a prepaid card is not a hybrid prepaid-credit card 
when the prepaid card accesses incidental credit in the form of a 
negative balance on the asset account where the prepaid account issuer 
generally does not charge credit-related fees for the credit. A prepaid 
card is not a hybrid prepaid-credit card under new Sec.  1026.61 or a 
credit card under final Sec.  1026.2(a)(15)(i) when it accesses credit 
from these types of credit features. For more detailed explanations of 
when prepaid cards are not credit cards under Regulation Z, see the 
section-by-section analyses of Sec.  1026.61(a)(2) and (4) below.
2(a)(14) Credit
    TILA section 103(f) defines the term ``credit'' as the right 
granted by a creditor to a debtor to defer payment of debt or to incur 
debt and defer its payment.\598\ Consistent with the definition of 
credit in TILA, Regulation Z defines ``credit'' in existing Sec.  
1026.2(a)(14) to mean ``the right to defer payment of debt or to incur 
debt and defer its payment.'' Under existing Sec.  1026.2(a)(17)(i), a 
person is a creditor if the person regularly extends consumer 
``credit'' that is subject to a finance charge or is payable by written 
agreement in more than four installments (not including a down 
payment), and to whom the obligation is initially payable, either on 
the face of the note or contract, or by agreement when there is no note 
or contract. Under existing Sec.  1026.2(a)(17)(iii), the term 
``creditor'' also includes any card issuer (which is a person that 
issues credit cards or the person's agent) that extends credit even if 
no finance charge is imposed and repayment is not permitted in more 
than four installments.
---------------------------------------------------------------------------

    \598\ 15 U.S.C. 1602(f).
---------------------------------------------------------------------------

The Bureau's Proposal
    Proposed comment 2(a)(14)-3 would have provided that credit, for 
purposes of existing Sec.  1026.2(a)(14), includes an authorized 
transaction on a prepaid account where the consumer has insufficient or 
unavailable funds in the prepaid account at the time of authorization. 
It also would have included a paid transaction on a prepaid account 
where the consumer has insufficient or unavailable funds in the prepaid 
account at the time the transaction is paid. Thus, the proposed 
definition would have included a situation where the consumer has 
sufficient or available funds in the prepaid account to cover the 
amount of the transaction at the time the transaction is authorized, 
but insufficient or unavailable funds in the prepaid account to cover 
the amount of the transaction at the time the transaction is paid.
Comments Received
    Several commenters, including industry trade associations, a 
program manager, and a credit reporting agency, asserted that overdraft 
credit does not meet the definition of ``credit'' because, with respect 
to overdraft credit, there is no ``right to defer payment'' and/or ``no 
right to incur debt.'' One industry trade association and one issuing 
bank requested that the Bureau clarify that the treatment of overdrafts 
in connection with prepaid accounts as credit for Regulation Z purposes 
is not intended to imply any similar treatment under State laws. 
Several industry commenters suggested that the Bureau should consider a 
dollar threshold below which overdraft transactions would not be 
covered as ``credit'' under Regulation Z. For example, one credit union 
service organization urged the Bureau to set a threshold of $250 for 
when negative balances on the prepaid account are considered credit, 
such that negative balances on the prepaid account exceeding $250 in 
magnitude would meet the definition of ``credit'' and negative balances 
on the prepaid account of $250 in magnitude or below would not be 
``credit'' under Regulation Z.
The Final Rule
Definition of Credit
    As discussed in more detail below, the Bureau is adopting new 
comment 2(a)(14)-3 as proposed with technical revisions to simplify the 
language of the comment and to be consistent with new Sec.  1026.61. 
This comment provides that credit includes authorization of a 
transaction on an asset feature of a prepaid account as defined in 
Sec.  1026.61 where the consumer has insufficient or unavailable funds 
in the asset feature of the prepaid account at the time the transaction 
is authorized to cover the amount of the transaction. It also includes 
settlement of a transaction on an asset feature of a prepaid account 
where the consumer has insufficient or unavailable funds in the asset 
feature of the prepaid account at the time the transaction is settled 
to cover the amount of the transaction. Credit also includes a 
transaction where the consumer has sufficient or available funds in the 
asset feature of a prepaid account to cover the amount of the 
transaction at the time the transaction is authorized but insufficient 
or unavailable funds in the asset feature of the prepaid account to 
cover the transaction amount at the time the transaction is settled. 
The comment also includes a cross-reference to new Sec.  1026.61 and 
related commentary on the applicability of this regulation to credit 
extended in connection with a prepaid account.
    The Bureau continues to believe that new comment 2(a)(14)-3 
reflects a straightforward interpretation of the statutory term 
``credit.'' The Bureau believes that plain language of the definition 
of ``credit'' in TILA covers the situation when a consumer makes a 
transaction that exceeds the funds in the consumer's account and a 
person elects to cover the transaction by advancing funds to the 
consumer. Nothing in the statutory definition (or elsewhere in TILA) 
exempts overdraft services, including those that may be offered in 
connection with a prepaid account. By authorizing or paying a 
transaction where the consumer does not have

[[Page 84168]]

sufficient or available funds in the asset feature of the prepaid 
account to cover the amount of the transaction when the transaction is 
authorized or paid, the person is allowing the consumer to incur a debt 
with the person where payment of that debt is not immediate. Thus, the 
person, in extending overdraft funds, has provided the consumer with 
``the right . . . to incur debt and defer its payment.''
    The Bureau further emphasizes that the final rule does not change 
how overdraft services on accounts other than prepaid accounts are 
treated under Regulation Z. As discussed in more detail in the Overview 
of the Final Rule's Amendments to Regulation Z section, with respect to 
overdraft services on checking accounts, while a person that is 
providing overdraft services generally would be providing credit under 
TILA and Regulation Z, the person generally does not meet the 
definition of ``creditor'' for purposes of Regulation Z because of 
certain exclusions to the definition of finance charge under final 
Sec.  1026.4(c)(3). Thus, under this final rule, with respect to 
overdraft services on checking accounts, a financial institution that 
does not agree in writing to pay the items and does not structure the 
repayment of the credit by written agreement in more than four 
installments would not be a ``creditor'' with respect to the overdraft 
service under the general definition of creditor set forth in Sec.  
1026.2(a)(17)(i), even if the institution charges a fee for paying the 
overdraft item, because the fee would not be a ``finance charge.'' In 
addition, a person does not become a card issuer or a creditor by 
issuing a debit card that accesses an overdraft service. Specifically, 
existing comment 2(a)(15)-2.ii.A provides that a debit card is not a 
credit card if there is no credit feature or agreement to extend 
credit, even if the creditor occasionally honors an inadvertent 
overdraft. Thus, a person does not become a card issuer under existing 
Sec.  1026.2(a)(7) and does not become a creditor under existing Sec.  
1026.2(a)(17)(iii) or (iv) by issuing a debit card that accesses an 
overdraft service. The final rule does not change the provisions in 
Regulation Z effectuating this treatment of overdraft services on 
accounts other than prepaid accounts.
Definition of Credit Under State Laws
    As discussed above, one industry trade association and one issuing 
bank requested that the Bureau clarify that the treatment of overdrafts 
in connection with prepaid accounts as credit for Regulation Z purposes 
is not intended to imply any similar treatment under State laws. The 
Bureau does not provide any specific guidance on how the treatment of 
overdrafts in connection with prepaid accounts as credit for Regulation 
Z purposes may impact State laws. The State law itself will determine 
whether, and the extent to which, the State law is impacted by the 
treatment of overdrafts in connection with prepaid accounts as credit 
under Regulation Z.
Threshold Amount of Negative Balance
    As discussed above, several industry commenters suggested that the 
Bureau should consider a dollar threshold below which overdraft 
transactions would not be covered as ``credit'' under Regulation Z. For 
example, one credit union service organization urged the Bureau to set 
a threshold of $250 for when overdraft funds are considered ``credit'' 
under Regulation Z, where negative balances on the prepaid account 
exceeding $250 in magnitude would meet the definition of ``credit'' and 
negative balances on the prepaid account of $250 in magnitude or below 
would not be ``credit'' under Regulation Z. The Bureau does not adopt 
such an approach. The Bureau is concerned that allowing consumers to 
incur substantial debt in connection with a prepaid account that most 
consumers do not intend to use as a credit account may pose a risk to 
those consumers by compromising their ability to manage and control 
their finances. Thus, while new Sec.  1026.61(a)(4) would permit a 
prepaid account issuer to offer an incidental ``payment cushion'' of 
$10 without triggering the rules governing credit cards under 
Regulation Z so long as the issuer generally does not impose credit-
related fees, the Bureau believes that the provision of a higher dollar 
amount of credit in connection with a prepaid account should be subject 
to full credit card protections unless otherwise excluded under new 
Sec.  1026.61(a)(4).
2(a)(15)
2(a)(15)(i) Credit Card
    TILA section 103(l) defines ``credit card'' to mean any card, 
plate, coupon book, or other credit device existing for the purpose of 
obtaining money, property, labor, or services on credit.\599\ 
Regulation Z defines the term ``credit card'' in existing Sec.  
1026.2(a)(15)(i) to mean ``any card, plate, or other single credit 
device that may be used from time to time to obtain credit.'' Current 
comment 2(a)(15)-2 provides examples of devices that are credit cards 
and devices that are not credit cards. A person that issues credit 
cards or the person's agent is a ``card issuer'' and must comply with 
certain credit card provisions in Regulation Z, as applicable. See 
existing Sec. Sec.  1026.12 and 1026.60; for card issuers offering a 
``credit card account under an open-end (not home-secured) consumer 
credit plan,'' see, e.g., existing Sec. Sec.  1026.5(b)(2)(ii)(A), 
1026.7(b)(11), and 1026.51 through 1026.59. Any card issuer that 
extends credit also is a creditor under Regulation Z and must comply 
with certain disclosure and other requirements in Regulation Z, as 
discussed in the section-by-section analysis of Sec.  1026.2(a)(17) 
below. The proposal would have provided guidance on when the following 
devices related to prepaid accounts are ``credit cards:'' (1) Prepaid 
cards, as defined in proposed Sec.  1026.2(a)(15)(v) to mean any card, 
code, or other device that can be used to access a ``prepaid account,'' 
as defined in proposed Sec.  1026.2(a)(15)(vi) consistent with proposed 
Regulation E; and (2) account numbers that are not prepaid cards that 
may be used from time to time to access a credit plan that allows 
deposits directly only into particular prepaid accounts specified by 
the creditor but does not allow consumers to deposit directly 
extensions of credit from the plan into asset accounts other than 
particular prepaid accounts specified by the creditor, as defined in 
proposed Sec.  1026.2(a)(15)(vii). Each of these circumstances is 
discussed in more detail below.
---------------------------------------------------------------------------

    \599\ 15 U.S.C. 1602(l).
---------------------------------------------------------------------------

Hybrid Prepaid-Credit Cards
    Under the proposal, credit plans, including overdraft services and 
overdraft lines of credit, that are directly accessed by prepaid cards 
generally would have been credit card accounts under Regulation Z. In 
particular, proposed comment 2(a)(15)-2.i.F would have provided that 
the term ``credit card'' includes a prepaid card (including a prepaid 
card that is solely an account number) that is a single device that may 
be used from time to time to access a credit plan, except if that 
prepaid card only accesses credit that is not subject to any finance 
charge, as defined in Sec.  1026.4, or any fee described in Sec.  
1026.4(c), and is not payable by written agreement in more than four 
installments. A prepaid card that is solely an account number would 
have been a credit card if it satisfied the requirements of proposed 
comment 2(a)(15)-2.i.F. The proposal would have revised existing 
comment 2(a)(15)-2.ii.C that provides guidance on when account numbers 
are credit cards. The proposal

[[Page 84169]]

would have revised existing comment 2(a)(15)-2.ii.C to provide that the 
current guidance for when a prepaid card is a credit card is set forth 
in proposed comment 2(a)(15)-2.i.F, rather than in comment 2(a)(15)-
2.ii.C. As discussed below and in more detail in the section-by-section 
analysis of Sec.  1026.61, the Bureau is revising from the proposal the 
circumstances in which a prepaid card is a credit card under Regulation 
Z (i.e., a hybrid prepaid-credit card). See the section-by-section 
analysis of Sec.  1026.61 for a detailed description of the proposal to 
define prepaid cards as credit cards, the comments received on the 
proposal to define prepaid cards as credit cards, and the circumstances 
in which the final rule defines a prepaid card as a hybrid prepaid-
credit card.
    The Bureau is making conforming revisions to existing Sec.  
1026.2(a)(15)(i) to provide that the term ``credit card'' includes a 
hybrid prepaid-credit card, as defined in Sec.  1026.61. In addition, 
the Bureau is revising new comment 2(a)(15)-2.i.F from the proposal to 
provide that the term ``credit card'' includes a prepaid card that is a 
hybrid prepaid-credit card, as defined in new Sec.  1026.61. The Bureau 
also is adding new comment 2(a)(15)-2.ii.D to provide that the term 
``credit card'' does not include a prepaid card that is not a hybrid 
prepaid-credit card, as defined in new Sec.  1026.61. The Bureau also 
is revising existing comment 2(a)(15)-2.ii.C that provides guidance on 
when account numbers are credit cards. The Bureau is revising this 
comment to provide that the rules in new Sec.  1026.61 and related 
commentary determine when a hybrid prepaid-credit card that solely is 
an account number is a credit card, as discussed in new comment 
61(a)(1)-2.
    As discussed above, if a person issues a prepaid card that is a 
hybrid prepaid-credit card, the person is a ``card issuer'' under final 
Sec.  1026.2(a)(7) with respect to the prepaid card. In addition, with 
respect to a covered separate credit feature accessible by a hybrid 
prepaid-credit card, an affiliate or business partner offering the 
credit feature (if applicable) also is a ``card issuer'' under final 
Sec.  1026.2(a)(7). Under existing Sec.  1026.2(a)(17)(iii) and (iv), 
the person also is a ``creditor'' if the card issuer extends credit 
under a covered separate credit feature accessible by the hybrid 
prepaid-credit card as described above. If the card issuer extends 
open-end (not home-secured) credit, the person generally would need to 
comply with the open-end (not home-secured) rules set forth in subpart 
B and the credit card rules set forth in subparts B and G. As discussed 
in the section-by-section analysis of Sec.  1026.2(a)(20) below, the 
Bureau believes that prepaid account issuers, their affiliates, or 
their business partners that offer covered separate credit features 
accessible by hybrid prepaid-credit cards will be creditors offering 
open-end (not home-secured) credit under Regulation Z. See the section-
by-section analysis of Sec.  1026.2(a)(17) below for a discussion of 
situations in which a creditor may not be offering open-end credit in 
relation to a prepaid account.
Account Numbers That Are Not Prepaid Cards
    Currently, under comment 2(a)(15)-2.ii.C, an account number for a 
credit plan is a credit card when that account number can access an 
open-end line of credit to purchase goods or services. For example, if 
a creditor provides a consumer with an open-end line of credit that can 
be accessed by an account number in order to transfer funds into 
another account (such as an asset account with the same creditor), the 
account number is not a credit card. However, if the account number 
also can access the line of credit to purchase goods or services (such 
as an account number that can be used to purchase goods or services on 
the internet), the account number is a credit card, regardless of 
whether the creditor treats such transactions as purchases, cash 
advances, or some other type of transaction.
    The Bureau's proposal. The Bureau proposed not to follow the 
current guidance in existing comment 2(a)(15)-2.ii.C in the context of 
credit accessed in connection with prepaid accounts. Instead, proposed 
Sec.  1026.2(a)(15)(vii) would have included within the definition of 
credit card an ``account number where extensions of credit are 
permitted to be deposited directly only into particular prepaid 
accounts specified by the creditor.'' As used in the proposal, this 
term would have meant an account number that is not a prepaid card that 
may be used from time to time to access a credit plan that allows 
deposits directly into particular prepaid accounts specified by the 
creditor but does not allow the consumer to deposit directly extensions 
of credit from the plan into asset accounts other than particular 
prepaid accounts specified by the creditor.
    Proposed comment 2(a)(15)-2.i.G would have provided that these 
account numbers were credit cards under the proposal. In addition, the 
proposal would have revised existing comment 2(a)(15)-2.ii.C to provide 
that the current guidance for when an account number is a credit card 
under Regulation Z would not have applied to these account numbers, as 
described in proposed Sec.  1026.2(a)(15)(vii) and proposed comment 
2(a)(15)-2.i.G. Proposed comment 2(a)(15)-5 would have provided 
additional guidance on these account numbers. Specifically, proposed 
comment 2(a)(15)-5 would have provided that a credit plan that permits 
a consumer to deposit directly extensions of credit into a checking 
account would not constitute a credit plan where extensions of credit 
are permitted to be deposited directly only into particular prepaid 
accounts specified by the creditor. Nonetheless, under proposed comment 
2(a)(15)-5, a credit plan accessible by a consumer through checks or 
in-person withdrawals would have constituted a credit plan where 
extensions of credit are permitted to be deposited directly only into 
particular prepaid accounts specified by the creditor, so long as the 
credit plan allowed deposits directly into particular prepaid accounts 
specified by the creditor but did not allow the consumer to deposit 
directly extensions of credit into other asset accounts.
    With respect to account numbers where extensions of credit are 
permitted to be deposited directly only into particular prepaid 
accounts specified by the creditor, the proposed rule would have 
covered credit plans that are not accessed directly by prepaid cards 
but are structured as ``push'' accounts. For example, such a credit 
plan may allow a consumer to use an account number to request an 
extension of credit be deposited directly into a particular prepaid 
account specified by the creditor when the consumer does not have 
adequate funds in the prepaid account to cover the full amount of a 
transaction using the prepaid card. In the proposal, the Bureau 
expressed concern that these types of credit plans could act as 
substitutes for credit plans directly accessible by a prepaid card. The 
Bureau did not, however, propose to cover general purpose lines of 
credit where a consumer has the freedom to choose where to deposit 
directly the credit funds.
    Comments received. Consumer group commenters indicated that the 
proposal with respect to push accounts was too limited. Several 
consumer group commenters suggested that the credit card rules should 
apply to a credit account even if the credit account did not function 
as an overdraft credit feature with respect to a prepaid account, so 
long as credit from the credit account was deposited into the prepaid 
account. These consumer group

[[Page 84170]]

commenters indicated that the Bureau should apply the credit card rules 
to all credit transferred to a prepaid account, even if there is 
another way to access the credit.
    Another consumer group commenter indicated that the Bureau should 
apply the credit card rules to all open-end lines of credit where 
credit is deposited or transferred to prepaid accounts if either (1) 
the creditor is the same institution as or has a business relationship 
with the prepaid issuer; or (2) the creditor reasonably anticipates 
that a prepaid card will be used as an access device for the line of 
credit. Nonetheless, this commenter said that the final rule should not 
impact a completely unrelated credit account that has no connection to 
prepaid issuers or consumers identified as prepaid card users, even 
though the creditor allows credit to be transferred from the credit 
account through the ACH system.
    One issuing bank and one law firm writing on behalf of a coalition 
of prepaid issuers did not support subjecting push accounts to credit 
card rules. These industry commenters indicated that the Board should 
leave in place the rule currently in Regulation Z that determines when 
an account number for a credit plan is a credit card. One of these 
industry commenters indicated that attempting to cover push accounts as 
credit card accounts under the proposal would create an overly complex 
regulatory regime to address the perceived risk of circumvention or 
evasion of the rules for overdraft plans set forth in the proposal. 
This commenter believed the Bureau has better tools (e.g., its unfair, 
deceptive, or abusive acts or practices authority) to address 
circumvention or evasion, as well as the other risks of consumer harms 
discussed in the proposal.
    One industry trade association commenter indicated that it would be 
inappropriate to treat the line of credit (or its associated account 
number) as a credit card when the consumer has the choice of whether to 
use the line of credit to cover specified overdrafts or to use the line 
of credit funds for other purposes. This commenter believed that the 
consumer's ability to choose how to use the line of credit makes it 
clear that the line of credit is a general use line of credit and not a 
substitute for an overdraft line of credit.
    The final rule. Upon review of the comments and its own analysis, 
the Bureau has decided not to adopt the proposal to provide that an 
account number for a credit account would be a credit card where 
extensions of credit are permitted to be deposited directly only into 
particular prepaid accounts specified by the creditor. In proposing 
these provisions, the Bureau was concerned that a prepaid account 
issuer and a creditor could design arrangements to circumvent the 
proposed rules in Regulation Z applicable to prepaid cards that are 
credit cards. In this case, a third-party creditor could have an 
arrangement with the prepaid account issuer such that credit from the 
credit account is pushed from the credit account to the prepaid account 
during the course of a particular prepaid account transaction to 
prevent the transaction from taking the prepaid account balance 
negative. These provisions related to credit account numbers were 
designed to prevent this type of evasion.
    The Bureau is addressing this type of evasion by generally covering 
a prepaid card as a credit card (i.e., ``hybrid prepaid-credits card'') 
when the card can access a separate credit feature that functions as an 
overdraft credit feature and is offered by a prepaid account issuer, 
its affiliate, or its business partner. Specifically, new Sec.  
1026.61(a)(2)(i) provides that a prepaid card is a ``hybrid prepaid-
credit card'' with respect to a separate credit feature if the card 
meets the following two conditions: (1) The card can be used from time 
to time to access credit from the separate credit feature in the course 
of authorizing, settling, or otherwise completing transactions 
conducted with the card to obtain goods or services, obtain cash, or 
conduct P2P transfers; and (2) the separate credit feature is offered 
by the prepaid account issuer, its affiliate, or its business partner. 
New Sec.  1026.61(a)(2)(i) defines such a separate credit feature 
accessible by a hybrid prepaid-credit card as a ``covered separate 
credit feature.'' Thus, the hybrid prepaid-credit card can access both 
the covered separate credit feature and the asset feature of the 
prepaid account, and the hybrid prepaid-credit card is a credit card 
under Regulation Z with respect to the covered separate credit feature. 
In this case, as described in new comment 61(a)(2)-1.ii, the prepaid 
card is a hybrid prepaid-credit card with respect to the covered 
separate credit feature regardless of whether (1) the credit is pushed 
from the covered separate credit feature to the asset feature of the 
prepaid account in the course of authorizing, settling, or otherwise 
completing transactions conducted with the card to obtain goods or 
services, obtain cash, or conduct P2P transfers; or (2) the credit is 
pulled from the covered separate credit feature to the asset feature of 
the prepaid account in the course of authorizing, settling, or 
otherwise completing transactions conducted with the card to obtain 
goods or services, obtain cash, or conduct P2P transfers.
    In addition, as described in new comment 61(a)(2)-1.iii, a prepaid 
card is a hybrid prepaid-credit card with respect to a covered separate 
credit feature, as discussed above, regardless of whether the covered 
separate credit feature can only be used as an overdraft credit 
feature, solely accessible by the hybrid prepaid-credit card, or 
whether it is a general line of credit that can be accessed in other 
ways. For the reasons set forth in the Overview of the Final Rule's 
Amendments to Regulation Z section, the Bureau believes that consumers 
will benefit from the application of the credit card rules generally to 
a credit account that functions as an overdraft credit feature in 
connection with a prepaid account when that overdraft feature is 
offered by a prepaid account issuer, its affiliate, or its business 
partner, regardless of whether the credit account can be used 
exclusively as an overdraft credit feature. In addition, the Bureau is 
concerned about potential evasion if the provisions applicable to 
overdraft credit features could be avoided simply by providing other 
uses for the credit account.
    The Bureau believes that the provisions in the final rule described 
above with respect to a covered separate credit feature adequately 
capture situations where a separate credit feature offered by a prepaid 
account issuer, its affiliate, or its business partner functions as an 
overdraft credit feature in relation to a prepaid account. Thus, the 
Bureau believes that it is no longer necessary to treat a credit 
account number as a credit card to capture situations when the credit 
account may function as an overdraft credit feature in relation to the 
prepaid account. As a result, the Bureau has not adopted proposed Sec.  
1026.2(a)(15)(vii) and proposed comments 2(a)(15)-2.i.G and 2(a)(15)-5. 
The Bureau also has not adopted proposed revisions to existing comment 
2(a)(15)-2.ii.C related to account numbers described in proposed Sec.  
1026.2(a)(15)(vii) and proposed comment 2(a)(15)-2.i.G. The Bureau 
proposed changes to other provisions in Regulation Z and related 
commentary to provide guidance on how these provisions would apply to 
such account numbers, which would have been credit cards under the 
proposal. The Bureau has not adopted these proposed changes to 
provisions in Regulation Z related to

[[Page 84171]]

these account numbers.\600\ The Bureau also proposed changes to certain 
provisions in Regulation E and related commentary to provide guidance 
on how these Regulation E provisions would apply to such account 
numbers. The Bureau has not adopted these proposed changes to 
provisions in Regulation E related to these account numbers.\601\
---------------------------------------------------------------------------

    \600\ Specifically, the proposal would have revised or added the 
following provisions in Regulation Z related to these account 
numbers: Sec. Sec.  1026.2(a)(15)(ii)(C)(2) and (vii); 
1026.4(b)(2)(ii), (c)(3), and (4); 1026.7(b)(11)(ii)(A)(2); 
1026.12(d)(3)(ii) and (h) (renumbered in the final rule as Sec.  
1026.61(c)); 1026.60(a)(5)(iv); and comments 2(a)(15)-2.i.G, 
2(a)(15)-2.ii.C, 2(a)(15)-3.ii, 2(a)(15)-4.ii, 2(a)(15)-5, 2(a)(20)-
2.iii, 2(a)(20)-4.ii, 4(a)-4.iv, 4(b)(2)-1.ii through iv, 4(c)(3)-1, 
5(b)(2)(ii)-4, 8(b)-1.vi, 10(a)-2.ii, 12(c)(1)-1.i, 12(d)(3)-3, 
13(a)(3)-2.ii, 13(i)-1, 52(a)(2)-3, 52(b)(2)(i)-7, 57(a)(1)-1, 
57(a)(5)-1, 57(b)-3, 57(c)-7, and 60(b)(8)-5. The final rule does 
not adopt the proposed changes to these provisions related to these 
account numbers.
    \601\ The proposal would have made changes to existing Sec.  
1005.10(e)(1) and comments 10(e)(1)-2 and -3 and added proposed 
Sec.  1005.18(g)(1) and comments 18(g)-1 and -2 related to these 
account numbers. The final rule does not adopt the proposed 
provisions related to these account numbers.
---------------------------------------------------------------------------

    As discussed above, several consumer group commenters suggested 
that the credit card rules should apply to a credit account even if the 
credit account did not function as an overdraft credit feature with 
respect to a prepaid account, so long as credit from the credit account 
was deposited into the prepaid account. These consumer group commenters 
indicated that the Bureau should apply the credit card rules to all 
credit transferred to a prepaid account, even if there is another way 
to access the credit. Another consumer group commenter indicated that 
the Bureau should apply the credit card rules to all open-end lines of 
credit where credit is deposited or transferred to prepaid accounts if 
either (1) the creditor is the same institution, as or has a business 
relationship with, the prepaid issuer; or (2) the creditor reasonably 
anticipates that a prepaid card will be used as an access device for 
the line of credit.
    As discussed above and in more detail in the section-by-section 
analysis of Sec.  1026.61 below, the Bureau generally intends to cover 
under Regulation Z overdraft credit features in connection with prepaid 
accounts where the credit features are offered by the prepaid account 
issuer, its affiliates, or its business partners. As discussed in the 
section-by-section analysis of Sec.  1026.61 below, the Bureau also has 
decided to exclude prepaid cards from being covered as credit cards 
under Regulation Z when they access certain specified types of credit. 
First, under new Sec.  1026.61(a)(2)(ii), a prepaid card is not a 
hybrid prepaid-credit card with respect to a ``non-covered separate 
credit feature,'' which means that the separate credit feature either 
(1) cannot be accessed in the course of a prepaid card transaction to 
obtain goods or services, obtain cash, or conduct P2P transfers, or (2) 
is offered by an unrelated third party that is not the prepaid account 
issuer, its affiliate, or its business partner. Second, under new Sec.  
1026.61(a)(4), a prepaid card also is not a hybrid prepaid-credit card 
when the prepaid card accesses incidental credit in the form of a 
negative balance on the asset account where the prepaid account issuer 
generally does not charge credit-related fees for the credit. A prepaid 
card is not a hybrid prepaid-credit card under new Sec.  1026.61 or a 
credit card under final Sec.  1026.2(a)(15)(i) when it accesses credit 
from these types of credit features. For more detailed explanations of 
when prepaid cards are not credit cards under Regulation Z, see the 
section-by-section analyses of Sec.  1026.61(a)(2) and (4) below.
Debit Cards
    Comment 2(a)(15)-2.i.B currently provides guidance on when a debit 
card is a credit card, and the comment provides examples of credit 
cards that include ``a card that accesses both a credit and an asset 
account (that is, a debit-credit card).'' Proposed Sec.  
1026.2(a)(15)(iv) would have defined the term ``debit card'' for 
purposes of Regulation Z to mean ``any card, plate, or other single 
device that may be used from time to time to access an asset account 
other than a prepaid account.'' The proposed definition of ``debit 
card'' also would have specified that it does not include a prepaid 
card. Because the term ``debit card'' under the proposal would not have 
included all cards that access asset accounts, existing comment 
2(a)(15)-2.i.B would have been revised to be consistent with the 
proposed definition of debit card. Specifically, proposed comment 
2(a)(15)-2.i.B would have been revised to provide that the term 
``credit card'' includes a debit card (other than a debit card that is 
solely an account number) that also accesses a credit account (that is, 
a debit-credit card). This comment also would have been revised to 
provide a cross-reference to existing comment 2(a)(15)-2.ii.C for 
guidance on whether a debit card that is solely an account number is a 
credit card. No substantive changes were intended to the current rules 
for when debit cards are credit cards under existing Sec.  
1026.2(a)(15)(i).
    The Bureau did not receive specific comment on this proposed 
definition. The Bureau is adopting the definition of ``debit card'' as 
proposed with one technical revision to provide a cross-reference to 
the definition of ``prepaid account'' in new Sec.  1026.61. The Bureau 
also is adopting the changes to existing comment 2(a)(15)-2.i.B as 
proposed.
2(a)(15)(ii) Credit Card Account Under an Open-End (not Home-Secured) 
Consumer Credit Plan
    Regulation Z defines the term ``credit card account under an open-
end (not home-secured) consumer credit plan'' in existing Sec.  
1026.2(a)(15)(ii) to mean ``any open-end credit account that is 
accessed by a credit card, except: (A) [a] home-equity plan subject to 
the requirements of Sec.  1026.40 that is accessed by a credit card; or 
(B) [a]n overdraft line of credit that is accessed by a debit card or 
an account number.'' As discussed above, certain requirements in the 
Credit CARD Act, which are generally set forth in subpart G, apply to 
card issuers offering a credit card account under an open-end (not 
home-secured) consumer credit plan. See, e.g., existing Sec. Sec.  
1026.5(b)(2)(ii)(A), 1026.7(b)(11), and 1026.51 to 1026.59.
    The proposal would have clarified that the exception in current 
Sec.  1026.2(a)(15)(ii)(B) regarding overdraft lines of credit accessed 
by a debit card or account number would not have applied to open-end 
credit plans accessed by prepaid cards that would have been credit 
cards under the proposal. The proposed definition of ``debit card'' in 
proposed Sec.  1026.15(a)(2)(iv) would have excluded a prepaid 
card.\602\ Thus, the exception in existing Sec.  1026.2(a)(15)(ii)(B) 
would not have applied to overdraft lines of credit that are accessed 
by a prepaid card. In addition, the proposal would have revised 
existing Sec.  1026.2(a)(15)(ii)(B) to only include the exception for 
overdraft lines of credit accessed by a debit card. The proposal also 
would have moved the exception for overdraft lines of credit that are 
accessed by account numbers from existing Sec.  1026.2(a)(15)(ii)(B) to 
proposed Sec.  1026.2(a)(15)(ii)(C). The proposal also would have 
amended proposed Sec.  1026.2(a)(15)(ii)(C) and existing comment 
2(a)(15)-4 to provide that the exception would not have applied to an 
overdraft line of credit that is accessed by an account number

[[Page 84172]]

where the account number is a prepaid card that is a credit card.
---------------------------------------------------------------------------

    \602\ Proposed Sec.  1026.2(a)(15)(iv) would have defined the 
term ``debit card'' for purposes of Regulation Z to mean ``any card, 
plate, or other single device that may be used from time to time to 
access an asset account other than a prepaid account.'' The proposed 
definition of ``debit card'' also would have specified that it does 
not include a prepaid card.
---------------------------------------------------------------------------

    The Bureau did not receive specific comments on the proposed 
changes to existing Sec.  1026.2(a)(15)(ii) and related commentary. The 
Bureau is revising existing Sec.  1026.2(a)(15)(ii) and existing 
comment 2(a)(15)-4 as proposed with revisions consistent with Sec.  
1026.61.\603\ Consistent with the proposal, the Bureau is revising 
existing Sec.  1026.2(a)(15)(ii)(B) to only include the exception for 
overdraft lines of credit accessed by a debit card. Consistent with the 
proposal, the Bureau is defining ``debit card'' in new Sec.  
1026.2(a)(15)(iv) to exclude a prepaid card.\604\ Thus, under the final 
rule, the exception in final Sec.  1026.2(a)(15)(ii)(B) does not apply 
to overdraft lines of credit that are accessible by a hybrid prepaid-
credit card as that term is defined in new Sec.  1026.61. In addition, 
consistent with the proposal, the Bureau is moving the exception for 
overdraft lines of credit that are accessed by account numbers from 
existing Sec.  1026.2(a)(15)(ii)(B) to new Sec.  1026.2(a)(15)(ii)(C) 
and is revising that provision. The Bureau is amending new Sec.  
1026.2(a)(15)(ii)(C) and existing comment 2(a)(15)-4 to provide that 
the exception does not apply to a covered separate credit feature 
accessible by an account number where the account number is a hybrid 
prepaid-credit card as defined in new Sec.  1026.61. As discussed in 
more detail in the section-by-section analysis of Sec.  1026.61(a)(2) 
below, a covered separate credit feature accessible by a hybrid 
prepaid-credit card includes an overdraft credit feature offered by a 
prepaid account issuer, its affiliate, or its business partner that can 
be accessed by a prepaid card (except as provided in new Sec.  
1026.61(a)(4)). The prepaid card is a hybrid prepaid-credit card under 
new Sec.  1026.61 and a credit card under final Sec.  1026.2(a)(15)(i) 
with respect to the covered separate credit feature.
---------------------------------------------------------------------------

    \603\ The proposal would have provided that the term ``credit 
card'' includes an account number that is not a prepaid card that 
may be used from time to time to access a credit plan that allows 
deposits directly only into particular prepaid accounts specified by 
the creditor. Thus, under proposed Sec.  1026.2(a)(15)(ii)(C) and 
proposed comment 2(a)(15)-4, the exception in proposed Sec.  
1026.2(a)(15)(ii)(C) would not have applied to credit plans that 
would have been accessed by such account numbers. For the reasons 
set forth in the section-by-section analysis of Sec.  
1026.2(a)(15)(i) above, the final rule does not adopt the proposed 
changes to Sec.  1026.2(a)(15)(ii)(C) and comment 2(a)(15)-4 related 
to these account numbers.
    \604\ Consistent with the proposal, new Sec.  1026.2(a)(15)(iv) 
defines the term ``debit card'' for purposes of Regulation Z to mean 
``any card, plate, or other single device that may be used from time 
to time to access an asset account other than a prepaid account as 
defined in Sec.  1026.61.'' The definition of ``debit card'' 
specifies that it does not include a prepaid card as defined in 
Sec.  1026.61.
---------------------------------------------------------------------------

    Generally, to be a ``credit card account under an open-end (not 
home-secured) consumer credit plan,'' the credit must be ``open-end 
credit,'' as defined in existing Sec.  1026.2(a)(20), that is not home-
secured and the open-end (not home-secured) credit plan must be 
accessible by a ``credit card,'' as defined in final Sec.  
1026.2(a)(15)(i). As discussed in the section-by-section analysis of 
Sec.  1026.2(a)(20) below, the Bureau anticipates that most covered 
separate credit features accessible by hybrid prepaid-credit cards will 
meet the definition of ``open-end credit'' and that credit will not be 
home-secured.\605\ In addition, under the final rule, a prepaid card 
that is a hybrid prepaid-credit card as discussed in new Sec.  1026.61 
is a credit card under Regulation Z with respect to the covered 
separate credit feature. Thus, the Bureau anticipates that most covered 
separate credit features accessible by hybrid prepaid-credit cards will 
meet the definition of ``credit card account under an open-end (not 
home-secured) consumer credit plan'' in final Sec.  
1026.2(a)(15)(ii).\606\ These covered separate credit features will be 
subject to the disclosure and credit card provisions set forth in 
subpart B and G.
---------------------------------------------------------------------------

    \605\ As discussed in more detail below in the section-by-
section analysis of Sec.  1026.2(a)(17), a person is not a creditor 
that is extending open-end credit where the person offers a covered 
separate credit feature accessible by a hybrid prepaid-credit card 
and a finance charge is not imposed in connection with the credit. 
Nonetheless, as discussed in the section-by-section analysis of 
Sec.  1026.2(a)(17), such a person would still be subject to certain 
Regulation Z requirements under certain circumstances.
    \606\ The Bureau plans to monitor the development of covered 
separate credit features accessible by hybrid prepaid-credit cards 
after the final rule becomes effective.
---------------------------------------------------------------------------

2(a)(15)(iii) Charge Card
    Regulation Z defines the term ``charge card'' in existing Sec.  
1026.2(a)(15)(iii) to mean ``a credit card on an account for which no 
periodic rate is used to compute a finance charge.'' Current comment 
2(a)(15)-3 provides guidance on how the term ``charge card'' is used 
throughout the regulation. In particular, the current comment provides 
that, in general, charge cards are cards used in connection with an 
account on which outstanding balances cannot be carried from one 
billing cycle to another and are payable when a periodic statement is 
received. This comment also explains that under the regulation, a 
reference to credit cards generally includes charge cards. In 
particular, references to credit card accounts under an open-end (not 
home-secured) consumer credit plan in subparts B and G generally 
include charge cards. The term ``charge card'' is, however, 
distinguished from ``credit card'' or ``credit card account under an 
open-end (not home-secured) consumer credit plan'' in existing 
Sec. Sec.  1026.6(b)(2)(xiv), 1026.7(b)(11) and (b)(12), 1026.9(e) and 
(f), 1026.28(d), 1026.52(b)(1)(ii)(C), and 1026.60, and Appendices G-10 
through G-13. See also the discussion in the section-by-section 
analysis of Sec.  1026.2(a)(20) below relating to charge card accounts 
as open-end credit.
    The proposal would have revised existing comment 2(a)(15)-3 in a 
number of ways to accommodate the proposed inclusion of some forms of 
prepaid cards as charge cards. First, the existing text of the comment 
would have been placed in proposed comment 2(a)(15)-3.i and a new 
comment 2(a)(15)-3.ii would have been added. Specifically, proposed 
comment 2(a)(15)-3.ii would have explained that a prepaid card is a 
charge card if it also is a credit card where no periodic rate is used 
to compute the finance charge. This proposed comment also would have 
explained that, unlike other charge cards, a prepaid card that is a 
charge card that accesses a credit card account under an open-end (not 
home-secured) consumer credit plan would be subject to the requirements 
in proposed Sec.  1026.7(b)(11)(i)(A), which would have required 
payment due dates to be disclosed on periodic statements for a credit 
card account under an open-end (not home-secured) consumer credit plan. 
See the section-by-section analysis of Sec.  1026.7(b)(11) below. Thus, 
under proposed Sec.  1026.5(b)(2)(ii)(A), for credit card accounts 
under an open-end (not home-secured) consumer credit plan, a card 
issuer of a prepaid card that meets the definition of a charge card 
would have been required to adopt reasonable procedures designed to 
ensure that (1) periodic statements for the charge card account 
accessed by the prepaid card that is a charge card are mailed or 
delivered at least 21 days prior to the payment due date disclosed on 
the statement pursuant to proposed Sec.  1026.7(b)(11)(i)(A); and (2) 
the card issuer does not treat as late for any purposes a required 
minimum periodic payment on the charge card account received by the 
card issuer within 21 days after mailing or delivery of the periodic 
statement disclosing the due date for that payment.
    Under the proposal, the existing language in comment 2(a)(15)-3 
(which would have been renumbered as proposed comment 2(a)(15)-3.i) 
would have been revised to be consistent with new proposed comment 
2(a)(15)-3.ii and the definition of ``charge card.''

[[Page 84173]]

Currently, the first sentence of comment 2(a)(15)-3 provides that, 
generally, charge cards are cards used in connection with an account on 
which an outstanding balance cannot be carried from one billing cycle 
to another and is payable when a periodic statement is received. This 
sentence would have been revised to be more consistent with the 
definition of charge card in existing Sec.  1026.2(a)(15)(iii) to state 
that charge cards are credit cards where no periodic rate is used to 
compute the finance charge; no substantive change would have been 
intended by this proposed revision. In addition, the last sentence of 
the existing comment would have been revised to cross-reference new 
proposed comment 2(a)(15)-3.ii.
    The Bureau did not receive specific comments on the proposed 
changes to comment 2(a)(15)-3. Consistent with the proposal, the final 
rule places the language of current comment 2(a)(15)-3 in new comment 
2(a)(15)-3.i and revises that language as proposed. The Bureau also is 
adding a new comment 2(a)(15)-3.ii as proposed, with revisions to 
clarify the intent of the language and to be consistent with new Sec.  
1026.61.\607\
---------------------------------------------------------------------------

    \607\ The proposal would have provided that the term ``credit 
card'' includes an account number that is not a prepaid card that 
may be used from time to time to access a credit plan that allows 
deposits directly only into particular prepaid accounts specified by 
the creditor. Proposed comment 2(a)(15)-3.ii would have provided 
that such an account number is a charge card if it accesses a credit 
card account where no periodic rate is used to compute the finance 
charge. For the reasons set forth in the section-by-section analysis 
of Sec.  1026.2(a)(15)(i) above, the final rule does not adopt the 
proposed changes to comment 2(a)(15)-3.ii related to these account 
numbers.
---------------------------------------------------------------------------

    Specifically, new comment 2(a)(15)-3.ii provides that a hybrid 
prepaid-credit card, as defined in new Sec.  1026.61, is a charge card 
with respect to a covered separate credit feature if no periodic rate 
is used to compute the finance charge in connection with the covered 
separate credit feature. As discussed in more detail in the section-by-
section analysis of Sec.  1026.61(a)(2) below, a covered separate 
credit feature accessible by a hybrid prepaid-credit card includes an 
overdraft credit feature offered by a prepaid account issuer, its 
affiliate, or its business partner that can be accessed by a prepaid 
card (except as provided in new Sec.  1026.61(a)(4)). The prepaid card 
is a hybrid prepaid-credit card under new Sec.  1026.61 and a credit 
card under final Sec.  1026.2(a)(15)(i) with respect to the covered 
separate credit feature.
    New comment 2(a)(15)-3.ii also explains that, unlike other charge 
card accounts, the requirements in final Sec.  1026.7(b)(11) apply to a 
covered separate credit feature accessible by a hybrid prepaid-credit 
card that is a charge card when that covered separate credit feature is 
a credit card account under an open-end (not home-secured) consumer 
credit plan. Thus, under final Sec.  1026.5(b)(2)(ii)(A), with respect 
to a covered separate credit feature that is a credit card account 
under an open-end (not home-secured) consumer credit plan, a card 
issuer of a hybrid prepaid-credit card that meets the definition of a 
charge card because no periodic rate is used to compute a finance 
charge in connection with the covered separate credit feature must 
adopt reasonable procedures for the covered separate credit feature 
designed to ensure that (1) periodic statements are mailed or delivered 
at least 21 days prior to the payment due date disclosed on the 
statement pursuant to final Sec.  1026.7(b)(11)(i)(A); and (2) the card 
issuer does not treat as late for any purposes a required minimum 
periodic payment received by the card issuer within 21 days after 
mailing or delivery of the periodic statement disclosing the due date 
for that payment.
2(a)(15)(iv) Debit Card
    Although current Regulation Z and its commentary use the term 
``debit card,'' that term is not defined. Generally, under existing 
comment 2(a)(15)-2.i.B, the term ``debit card'' refers to a card that 
accesses an asset account. Specifically, existing comment 2(a)(15)-
2.i.B provides as an example of a credit card: ``A card that accesses 
both a credit and an asset account (that is, a debit-credit card).'' In 
addition, existing comment 2(a)(15)-2.ii.A provides that the term 
credit card does not include a debit card with no credit feature or 
agreement, even if the creditor occasionally honors an inadvertent 
overdraft.
    Under the proposal, different rules generally would have applied in 
Regulation Z depending on whether credit is accessed by a card or 
device that accesses a prepaid account (which would have been defined 
in proposed Sec.  1026.2(a)(15)(vi) to match the definition under 
proposed Regulation E Sec.  1005.2(b)(3)) or a card or device that 
accesses another type of asset account. To assist compliance with the 
regulation, the proposal would have defined ``debit card'' for purposes 
of Regulation Z in proposed Sec.  1026.2(a)(15)(iv) to mean ``any card, 
plate, or other single device that may be used from time to time to 
access an asset account other than a prepaid account.'' The proposed 
definition of ``debit card'' would have specified that it does not 
include a prepaid card. Proposed Sec.  1026.2(a)(15)(v) would have 
defined ``prepaid card'' to mean ``any card, code, or other device that 
can be used to access a prepaid account'' and would have defined 
``prepaid account'' in proposed Sec.  1026.2(a)(15)(vi) to mean a 
prepaid account as defined in proposed Regulation E Sec.  1005.2(b)(3). 
Proposed comment 2(a)(15)-6 would have provided that the term ``prepaid 
card'' in proposed Sec.  1026.2(a)(15)(v) would have included any card, 
code, or other device that can be used to access a prepaid account, 
including a prepaid account number or other code. The proposed comment 
would have provided that the phrase ``credit accessed by a prepaid 
card'' means any credit that is accessed by any card, code, or other 
device that also can be used to access a prepaid account.
    The Bureau did not receive specific comment on the proposed 
definition of ``debit card.'' The Bureau is adopting the definition of 
``debit card'' in new Sec.  1026.2(a)(15)(iv) as proposed with one 
technical revision to cross-reference the definition of ``prepaid 
account'' in new Sec.  1026.61.\608\ In addition, the Bureau is 
adopting the definitions of ``prepaid account'' and ``prepaid card'' as 
proposed, renumbered as new Sec.  1026.61(a)(5)(v) and new Sec.  
1026.61(a)(5)(vii) respectively. The Bureau also is adopting comment 
2(a)(15)-6 with revisions to provide guidance on the definition of 
``prepaid card,'' renumbered as new comment 61(a)(5)(vii)-1. See the 
section-by-section analysis of Sec.  1026.61(a)(5) below for a 
discussion of the ``prepaid account'' and ``prepaid card'' definitions 
and related commentary.
---------------------------------------------------------------------------

    \608\ As in the proposal, this definition of ``debit card'' does 
not apply to Regulation E, including the rules that apply to debit 
cards that access checking accounts with overdraft services.
---------------------------------------------------------------------------

2(a)(17) Creditor
    Certain disclosure requirements and other requirements in TILA and 
Regulation Z generally apply to creditors. TILA section 103(g) 
generally defines the term ``creditor'' to mean a person who both (1) 
regularly extends, whether in connection with loans, sales of property 
or services, or otherwise, consumer credit which is payable by 
agreement in more than four installments or for which the payment of a 
finance charge is or may be required; and (2) is the person to whom the 
debt arising from the consumer credit transaction is initially payable 
on the face of the evidence of indebtedness or, if there is no such 
evidence of

[[Page 84174]]

indebtedness, by agreement.\609\ Also, for purposes of certain 
disclosure provisions in TILA that relate to account-opening 
disclosures, and periodic statement disclosures, for open-end credit 
plans, the term ``creditor'' includes a card issuer whether or not the 
amount due is payable by agreement in more than four installments or 
the payment of a finance charge is or may be required.\610\
---------------------------------------------------------------------------

    \609\ 15 U.S.C. 1602(g).
    \610\ Id.
---------------------------------------------------------------------------

    Consistent with TILA, Regulation Z generally defines the term 
``creditor'' in existing Sec.  1026.2(a)(17)(i) to include a ``person 
who regularly extends consumer credit that is subject to a finance 
charge or is payable by written agreement in more than four 
installments (not including a down payment), and to whom the obligation 
is initially payable, either on the face of the note or contract, or by 
agreement when there is no note or contract.'' Under existing Sec.  
1026.2(a)(17)(v) and existing comment 2(a)(17)(i)-4, for open-end 
credit, a person regularly extends consumer credit if it had more than 
25 accounts outstanding in the preceding calendar year. If a person did 
not meet this numerical standard in the preceding calendar year, the 
numerical standards must be applied to the current calendar year. In 
addition, under existing Sec.  1026.2(a)(17)(iii) and (iv), the term 
``creditor'' includes a card issuer (which is a person that issues a 
credit card or its agent) that extends credit. For purposes of subpart 
B, under existing Sec.  1026.2(a)(17)(iii), a person also is a 
``creditor'' if the person is a card issuer that extends credit that is 
not subject to a finance charge and is not payable by written agreement 
in more than four installments. Thus, under existing Regulation Z as 
generally structured, card issuers that only meet this narrow 
definition of creditor (i.e., extend credit that is not subject to a 
finance charge and is not payable in more than four installments) 
generally are subject to the open-end (not home-secured) rules and the 
credit card rules in subpart B, but generally need not comply with the 
credit card rules in subpart G, except for the credit card disclosures 
required by existing Sec.  1026.60.
The Bureau's Proposal
    The Bureau's proposal generally would have applied this existing 
framework to the prepaid context. Thus, under the proposal, a card 
issuer that issues a prepaid card that is a credit card (or its agent) 
that extends open-end (not home-secured) credit would have met the 
general definition of ``creditor'' because the person charges a finance 
charge and would have been subject to the rules governing open-end (not 
home-secured) credit plans in subpart B and the credit card rules set 
forth in subparts B and G. Under existing Sec.  1026.2(a)(17)(iv), a 
card issuer that issues a prepaid card that is a credit card (or its 
agent) that extends closed-end (not home-secured) credit would have met 
the general definition of ``creditor'' where the person charges a 
finance charge or extends credit payable by written agreement in more 
than four installments. Such person would have been subject to the 
closed-end provisions in subpart C and, certain open-end (not home-
secured) disclosure rules in subpart B, and the credit card rules in 
subpart B. A card issuer that issues a prepaid card that is a credit 
card (or its agent), extends credit (not home-secured), and charges a 
fee described in Sec.  1026.4(c), but does not charge a finance charge 
and does not extend credit payable by written agreement in more than 
four installments, would have been a ``creditor'' under existing Sec.  
1026.2(a)(17)(iii) and would have been subject to the open-end (not 
home-secured) disclosure rules and the credit card rules in subpart B.
    Proposed comment 2(a)(15)-2.i.F, however, would have provided that 
a prepaid card is not a credit card when the prepaid card only accesses 
credit that (1) is not subject to a finance charge; (2) is not subject 
to fees described in Sec.  1026.4(c); and (3) is not payable by written 
agreement in more than four installments. The Bureau would have 
clarified in proposed comment 2(a)(17)(iii)-2 that existing Sec.  
1026.2(a)(17)(iii) does not apply to a person that is extending credit 
that is accessed by a prepaid card where the credit meets these same 
three restrictions. In this case, under the proposal, the prepaid card 
would not have been a credit card and therefore the person issuing the 
card would not have been a card issuer. Prepaid account issuers that 
satisfied this exclusion still would have been subject to Regulation 
E's requirements, such as error resolution, and limits on liability for 
unauthorized use.
Comments Received and the Final Rule
    The Bureau did not receive comment on this aspect of the proposal, 
other than those related to general comments from industry not to cover 
overdraft plans offered on prepaid accounts under Regulation Z and 
instead cover these overdraft plans under existing Regulation E Sec.  
1005.17. See the Overview of the Final Rule's Amendments to Regulation 
Z section for a discussion of those comments. As discussed in the 
section-by-section analysis of Sec.  1026.61 below, the Bureau is 
revising from the proposal the circumstances in which a prepaid card is 
a credit card under Regulation Z. Under final Sec.  1026.2(a)(15)(i), a 
prepaid card is a credit card under Regulation Z when it is a ``hybrid 
prepaid-credit card'' as defined in new Sec.  1026.61. See also new 
Sec.  1026.61(a), and new comment 2(a)(15)-2.i.F. The Bureau generally 
intends to cover under Regulation Z overdraft credit features in 
connection with prepaid accounts where the credit features are offered 
by the prepaid account issuer, its affiliates, or its business 
partners. New Sec.  1026.61(b) generally requires that such credit 
features be structured as separate subaccounts or accounts, distinct 
from the prepaid asset account, to facilitate transparency and 
compliance with various Regulation Z requirements. Specifically, new 
Sec.  1026.61(a)(2)(i) provides that a prepaid card is a ``hybrid 
prepaid-credit card'' with respect to a separate credit feature if the 
card meets the following two conditions: (1) The card can be used from 
time to time to access credit from the separate credit feature in the 
course of authorizing, settling, or otherwise completing transactions 
conducted with the card to obtain goods or services, obtain cash, or 
conduct P2P transfers; and (2) the separate credit feature is offered 
by the prepaid account issuer, its affiliate, or its business partner. 
The term ``covered separate credit feature'' is defined in new Sec.  
1026.61(a)(2)(i) to mean a separate credit feature accessible by a 
hybrid prepaid-credit card as described in new Sec.  1026.61(a)(2)(i). 
Thus, the hybrid prepaid-credit card can access both the covered 
separate credit feature and the asset feature of the prepaid account, 
and the hybrid prepaid-credit card is a credit card under Regulation Z 
with respect to the covered separate credit feature.
    As discussed in the section-by-section analysis of Sec.  1026.61 
below, the Bureau also has decided to exclude prepaid cards from being 
covered as credit cards under Regulation Z when they access certain 
specified types of credit. First, new Sec.  1026.61(a)(2)(ii) provides 
that a prepaid card is not a hybrid prepaid-credit card with respect to 
a separate credit feature that does not meet both of the conditions 
above, for example, where the credit feature is offered by an unrelated 
third party that is not the prepaid account issuer, its affiliate or 
its business partner. Such credit features are defined as ``non-covered 
separate

[[Page 84175]]

credit features,'' as discussed in the section-by-section analysis of 
Sec.  1026.61(a)(2) below. Second, under new Sec.  1026.61(a)(4), a 
prepaid card also is not a hybrid prepaid-credit card when the prepaid 
card accesses incidental credit in the form of a negative balance on 
the asset account where the prepaid account issuer generally does not 
charge credit-related fees for the credit. A prepaid card is not a 
hybrid prepaid-credit card under new Sec.  1026.61 or a credit card 
under final Sec.  1026.2(a)(15)(i) when it accesses credit from these 
types of credit features. For more detailed explanations of when 
prepaid cards are not credit cards under Regulation Z, see the section-
by-section analyses of Sec.  1026.61(a)(2) and (4) below.
    Consistent with the proposal, the Bureau generally applies the 
existing framework for the definition of ``creditor'' to the prepaid 
context. Thus, a card issuer of a hybrid prepaid-credit card (or its 
agent) that extends credit under a covered separate credit feature is a 
``creditor'' under existing Sec.  1026.2(a)(17). The card issuer must 
comply with different provisions in Regulation Z depending on the type 
of credit extended. Under existing Sec.  1026.2(a)(17)(iii), a card 
issuer of a hybrid prepaid-credit card (or its agent) that extends 
open-end (not home-secured) credit (and thus charges a finance charge 
for the credit) in connection with the covered separate credit feature 
is a ``creditor'' for purposes of the rules governing open-end (not 
home-secured) credit plans in subpart B in connection with the covered 
separate credit feature. The card issuer also must comply with the 
credit card rules set forth in subparts B and G with respect to the 
covered separate credit feature and the hybrid prepaid-credit card. 
Under existing Sec.  1026.2(a)(17)(iii), a card issuer of a hybrid 
prepaid-credit card (or its agent) that extends credit (not home-
secured) through the covered separate credit feature that is not 
subject to a finance charge and is not payable in more than four 
installments generally is a ``creditor'' for purposes of the open-end 
(not home-secured) rules in subpart B with respect to the covered 
separate credit feature. The card issuer also generally must comply 
with the credit card rules in subpart B with respect to the covered 
separate credit feature and the hybrid prepaid-credit card, but 
generally need not comply with the credit card rules in subpart G, 
except for the credit card disclosures required by existing Sec.  
1026.60 and the provisions in new Sec.  1026.61.\611\ Under existing 
Sec.  1026.2(a)(17)(iv), a card issuer of a hybrid prepaid-credit card 
(or its agent) that extends closed-end (not home-secured) credit 
through the covered separate credit feature, and charges a finance 
charge or extends credit payable by written agreement in more than four 
installments is a ``creditor'' for purposes of the closed-end 
provisions in subpart C and certain open-end (not home-secured) 
disclosure rules in subpart B. The card issuer also generally must 
comply with the credit card rules in subpart B with respect to the 
covered separate credit feature and the hybrid prepaid-credit card, but 
generally need not comply with the credit card rules in subpart G 
except for the provisions in Sec.  1026.61.
---------------------------------------------------------------------------

    \611\ As discussed in the section-by-section analysis of Sec.  
1026.2(a)(15)(ii) above, certain requirements in the Credit CARD 
Act, which are generally set forth in subpart G, only apply to card 
issuers offering a credit card account under an open-end (not home-
secured) consumer credit plan.
---------------------------------------------------------------------------

    With respect to guidance on the definition of ``creditor'' related 
to prepaid cards that are not hybrid prepaid-credit cards, the Bureau 
is revising new comment 2(a)(17)(iii)-2 from the proposal and is adding 
new comment 2(a)(17)(i)-8 to cross-reference new Sec.  1026.61(a), new 
comment 61(a)(2)-5.iii and new comment 61(a)(4)-1.iv for guidance on 
the applicability of Regulation Z to prepaid cards that are not hybrid 
prepaid-credit cards.
2(a)(20) Open-End Credit
    TILA section 103(j) defines the term ``open-end credit plan'' to 
mean a plan under which the creditor reasonably contemplates repeated 
transactions, which prescribes the terms of such transactions, and 
which provides for a finance charge which may be computed from time to 
time on the outstanding unpaid balance.\612\ Regulation Z defines the 
term ``open-end credit'' in existing Sec.  1026.2(a)(20) to mean 
consumer ``credit'' extended by a ``creditor'' under a ``plan'' in 
which (1) the creditor reasonably contemplates repeated transactions; 
(2) the creditor may impose a ``finance charge'' from time to time on 
an outstanding unpaid balance; and (3) the amount of credit that may be 
extended to the consumer during the term of the plan (up to any limit 
set by the creditor) is generally made available to the extent that any 
outstanding balance is repaid. Thus, to have open-end credit under 
Regulation Z, there must be (1) consumer ``credit;'' (2) that is 
extended under a ``plan;'' (3) where the person extending the credit 
may impose a ``finance charge'' from time to time on an outstanding 
unpaid balance; (4) the person extending the credit is a ``creditor;'' 
(5) the person extending credit reasonably contemplates repeated 
transactions; and (6) the amount of credit that may be extended to the 
consumer during the term of the plan (up to any limit set by the 
creditor) is generally made available to the extent that any 
outstanding balance is repaid.
---------------------------------------------------------------------------

    \612\ See 15 U.S.C. 1602(j).
---------------------------------------------------------------------------

    With respect to a credit accessed by a prepaid card that would have 
been a credit card under the proposal, the proposal would have provided 
additional guidance on the meaning of the following three terms used in 
the definition of ``open-end credit:'' (1) ``credit;'' (2) ``plan;'' 
and (3) ``finance charge.'' For a discussion of the proposal and the 
final rule related to the term ``credit,'' see the section-by-section 
analysis of Sec.  1026.2(a)(14) above. The term ``plan'' is discussed 
below. For a discussion of the proposal and the final rule related to 
the term ``finance charge,'' see below and the section-by-section 
analysis of Sec.  1026.4.
Definition of ``Plan''
    The Bureau's proposal. The term ``plan'' currently is discussed in 
current comment 2(a)(20)-2, which provides in relevant part that the 
term ``plan'' connotes a contractual arrangement between the creditor 
and the consumer. The proposal would have revised current comment 
2(a)(20)-2 to provide additional guidance on what constitutes a plan 
with respect to credit extended through paying overdrafts in connection 
with prepaid accounts. Under the proposal, a new comment 2(a)(20)-2.ii 
would have provided that with respect to credit accessed by a prepaid 
card, a plan would mean a program where the consumer is obligated 
contractually to repay any credit extended by the creditor. The 
proposal would have provided that a plan includes a program under which 
a creditor routinely pays transactions when a consumer has insufficient 
or unavailable funds in a prepaid account and the consumer is obligated 
contractually to repay those transactions. Under the proposal, such a 
program would have constituted a plan notwithstanding that the creditor 
retains discretion not to pay such transactions, the creditor does not 
pay transactions once the consumer has exceeded a certain amount of 
credit, or the creditor only pays transactions where there were 
sufficient or available funds to cover the amount of the transaction at 
the time the transaction was authorized but not sufficient or available 
funds to cover the amount of the transaction at the time the 
transaction is paid.

[[Page 84176]]

    To accommodate the proposed changes, the proposal also would have 
made several technical revisions to comment 2(a)(20)-2. Specifically, 
the first sentence of the existing language in comment 2(a)(20)-2 would 
have been moved to proposed comment 2(a)(20)-2.i, and the remaining 
language of the existing comment would have been moved to proposed 
comment 2(a)(20)-2.iv.
    Comments received and the final rule. The Bureau did not receive 
specific comment on the proposed changes to comment 2(a)(20)-2. 
Consistent with the proposal, the Bureau is moving the first sentence 
of the existing language in comment 2(a)(20)-2 to new comment 
20(a)(20)-2.i. The Bureau also is moving the remaining language of the 
existing comment to new comment 2(a)(20)-2.iii.
    The Bureau also is modifying the proposed language in new comment 
2(a)(20)-2.ii to be consistent with the provisions set forth in Sec.  
1026.61.\613\ Specifically, the final rule does not adopt an example 
contained in proposed comment 2(a)(20)-2.ii where credit is accessed by 
a prepaid card where the credit is extended on the prepaid account as a 
negative balance. As discussed in the section-by-section analysis of 
Sec.  1026.61(b) below, a negative balance feature accessible by a 
prepaid card triggers application of the credit card rules under the 
final rule for purposes of coverage except as provided in new Sec.  
1026.61(a)(4). However, new Sec.  1026.61(b) requires that an overdraft 
credit feature offered by a prepaid account issuer, its affiliate, or 
its business partner in connection with a prepaid account (except as 
provided in new Sec.  1026.61(a)(4)) must be structured as a separate 
subaccount or account, distinct from the prepaid asset account, in 
order to facilitate transparency and compliance with various elements 
of Regulation Z. Such a separate credit feature is defined as a 
``covered separate credit feature'' under new Sec.  1026.61(a)(2)(i). 
Accordingly, the Bureau is revising new comment 20(a)(2)-2.ii from the 
proposal to discuss a situation where a hybrid prepaid-credit card 
accesses a ``covered separate credit feature'' under new Sec.  
1026.61(a)(2)(i) rather than credit in the form of a negative balance 
on the asset account that would violate new Sec.  1026.61(b).
---------------------------------------------------------------------------

    \613\ The proposal would have provided that the term ``credit 
card'' includes an account number that is not a prepaid card that 
may be used from time to time to access a credit plan that allows 
deposits directly only into particular prepaid accounts specified by 
the creditor. Proposed comment 2(a)(20)-2.iii would been added to 
provide guidance on when depositing credit proceeds into a prepaid 
account would be considered extending credit under a plan. For the 
reasons set forth in the section-by-section analysis of Sec.  
1026.2(a)(15)(i) above, the final rule does not adopt proposed 
comment 2(a)(20)-2.iii related to these account numbers.
---------------------------------------------------------------------------

    Specifically, under the final rule, new comment 2(a)(20)-2.ii 
provides that with respect to a covered separate credit feature 
accessible by a hybrid prepaid-credit card as defined in Sec.  1026.61, 
a plan includes a program under which a creditor routinely extends 
credit where the prepaid card can be used from time to time to draw, 
transfer, or authorize the draw or transfer of credit from a covered 
separate credit feature offered by a prepaid account issuer, its 
affiliate, or its business partner in the course of authorizing, 
settling, or otherwise completing transactions conducted with the card 
to obtain goods or services, obtain cash, or conduct P2P transfers, and 
the consumer is obligated contractually to repay those credit 
transactions. Such a program constitutes a plan notwithstanding that, 
for example, the creditor has not agreed in writing to extend credit 
for those transactions, the creditor retains discretion not to extend 
credit for those transactions, or the creditor does not extend credit 
for those transactions once the consumer has exceeded a certain amount 
of credit. The comment also cross-references new Sec.  1026.61(a) and 
related commentary for guidance on the applicability of this regulation 
to credit accessible by hybrid prepaid-credit cards.
    With respect to the programs described above, the Bureau believes 
these programs are plans notwithstanding that, for example, the person 
offering the program reserves the right not to extend credit on 
individual transactions. The Bureau believes that the person's 
reservation of such discretion in connection with covered separate 
credit features accessible by hybrid prepaid-credit cards does not 
connote the absence of an open-end credit plan. If consumers using 
covered separate credit features accessible by hybrid prepaid-credit 
cards must agree to repay the debt created by an overdraft or advance, 
a contractual arrangement between the creditor and the consumer exists. 
The Bureau notes that credit card issuers similarly reserve the right 
to reject individual transactions, and thus the Bureau believes that 
automated overdraft services are comparable.
Finance Charge Imposed From Time to Time on an Outstanding Unpaid 
Balance
    The Bureau's proposal. In Regulation Z, credit will not meet the 
definition of ``open-end credit'' unless the person extending the 
credit may impose a ``finance charge'' from time to time on an 
outstanding unpaid balance. Existing comment 2(a)(20)-4 provides that 
the requirement that a finance charge may be computed and imposed from 
time to time on the outstanding balance means that there is no specific 
amount financed for the plan for which the finance charge, total of 
payments, and payment schedule can be calculated. This comment also 
provides that a plan may meet the definition of open-end credit even 
though a finance charge is not normally imposed, provided the creditor 
has the right, under the plan, to impose a finance charge from time to 
time on the outstanding balance.
    The term ``finance charge'' generally is defined in existing Sec.  
1026.4 to mean ``the cost of consumer credit as a dollar amount'' and 
it includes any charge payable directly or indirectly by the consumer 
and imposed directly or indirectly by the creditor as an incident to or 
as a condition of the extension of credit. The term does not include 
any charge of a type payable in a comparable cash transaction.
    The proposal would have revised various components of the 
definition of finance charge in existing Sec.  1026.4 and its 
commentary to (1) distinguish credit provided in connection with 
prepaid accounts addressed by the proposal from overdraft services on 
checking accounts, which is subject to a different rulemaking process; 
and (2) broaden the definition of ``finance charge,'' as applied in the 
prepaid context, to assure broad coverage of the credit card rules to 
credit plans accessed by prepaid cards that would have been credit 
cards under the proposal and to better reflect the full cost of credit. 
Consistent with this approach, the proposal also would have added 
proposed comment 2(a)(20)-4.ii to state that with respect to credit 
accessed by a prepaid card (including a prepaid card that is solely an 
account number), any service, transaction, activity, or carrying 
charges imposed on a credit account, and any such charges imposed on a 
prepaid account related to an extension of credit, carrying a credit 
balance, or credit availability, generally would be finance charges. 
Such charges would have included periodic participation fees for the 
credit plan and transaction charges imposed in connection with a credit 
extension. In addition, proposed comment 2(a)(20)-4.ii would have 
provided that with respect to that credit, such service, transaction, 
activity, or carrying charges would constitute finance charges imposed 
from time to time on an outstanding unpaid balance if there is no 
specific amount financed

[[Page 84177]]

for the plan for which the finance charge, total of payments, and 
payment schedule can be calculated. The proposal also would have moved 
the existing language of comment 2(a)(20)-4 to proposed comment 
2(a)(20)-4.i.
    Comments received and the final rule. The Bureau did not receive 
specific comments on the proposed changes to existing comment 2(a)(20)-
4. Consistent with the general approach in the proposal, the Bureau is 
revising various components of the definition of finance charge in 
existing Sec.  1026.4 and its commentary to (1) distinguish credit 
provided in connection with prepaid accounts addressed by the final 
rule from overdraft services on checking accounts, which is subject to 
a different rulemaking process; and (2) broaden the definition of 
``finance charge,'' as applied in the prepaid context, to assure broad 
coverage of the credit card rules to covered separate credit features 
accessible by hybrid prepaid-credit cards and to better reflect the 
full cost of credit. As discussed in more detail in the section-by-
section analysis of Sec.  1026.61(a)(2) below, a covered separate 
credit feature accessible by a hybrid prepaid-credit card includes an 
overdraft credit feature offered by a prepaid account issuer, its 
affiliate, or its business partner that can be accessed by a prepaid 
card (except as provided in new Sec.  1026.61(a)(4)). The prepaid card 
is a hybrid prepaid-credit card under new Sec.  1026.61 and a credit 
card under final Sec.  1026.2(a)(15)(i) with respect to the covered 
separate credit feature.
    The Bureau is adding a new Sec.  1026.4(b)(11) and related 
commentary to provide guidance as to the application of Regulation Z to 
covered separate credit features accessible by hybrid prepaid-credit 
cards. In particular, Sec.  1026.4(b)(11) and related commentary 
describe how to treat charges that may be imposed on the separate 
credit subaccount or account as compared to charges that may be imposed 
on the prepaid asset feature. The commentary to new Sec.  1026.4(b)(11) 
also provides guidance as to the treatment of fees imposed on the 
prepaid account in relation to credit features accessible by prepaid 
cards that are not credit cards under the final rule.
    The Bureau is adopting changes to the commentary concerning the 
prong of the open-end credit definition in existing Sec.  1026.2(a)(20) 
concerning the creditor's ability to impose finance charges from time 
to time on an outstanding unpaid balance, consistent with the general 
approach adopted in final Sec. Sec.  1026.4 and new 1026.61. 
Specifically, the Bureau is moving the existing language of comment 
2(a)(20)-4 to new comment 2(a)(20)-4.i. The Bureau also is adding new 
comment 2(a)(20)-4.ii but revises this comment from the proposal to 
reflect changes from the proposal set forth in the final rule under 
final Sec. Sec.  1026.4 and new 1026.61.\614\ Specifically, new comment 
2(a)(20)-4.ii provides that with regard to a covered separate credit 
feature and an asset feature on a prepaid account that are both 
accessible by a hybrid prepaid-credit card as defined in new Sec.  
1026.61, any service, transaction, activity, or carrying charges 
imposed on the separate credit feature, and any such charges imposed on 
the asset feature of the prepaid account to the extent that the amount 
of the charge exceeds comparable charges imposed on prepaid accounts in 
the same prepaid account program that do not have a credit feature 
accessible by a hybrid prepaid-credit, generally are finance charges, 
as described in existing Sec.  1026.4(a) and new Sec.  1026.4(b)(11). 
Such charges include a periodic fee to participate in the covered 
separate credit feature, regardless of whether this fee is imposed on 
the credit feature or on the asset feature of the prepaid account. With 
respect to credit from a covered separate credit feature, any service, 
transaction, activity, or carrying charges that are finance charges 
under final Sec.  1026.4 constitute finance charges imposed from time 
to time on an outstanding unpaid balance, as described in existing 
Sec.  1026.2(a)(20), if there is no specific amount financed for the 
credit feature for which the finance charge, total of payments, and 
payment schedule can be calculated.
---------------------------------------------------------------------------

    \614\ The proposal would have provided that the term ``credit 
card'' includes an account number that is not a prepaid card that 
may be used from time to time to access a credit plan that allows 
deposits directly only into particular prepaid accounts specified by 
the creditor. Proposed comment 2(a)(20)-4.ii would been added to 
provide guidance on when finance charges imposed on credit accounts 
accessed by those account numbers would have satisfied the 
requirement for ``open-end credit'' that the creditor may impose a 
``finance charge'' from time to time on an outstanding unpaid 
balance. For the reasons set forth in the section-by-section 
analysis of Sec.  1026.2(a)(15)(i) above, the final rule does not 
adopt the proposed changes to comment 2(a)(20)-4.ii related to these 
account numbers.
---------------------------------------------------------------------------

    The Bureau does not anticipate that there will be a specific amount 
financed for covered separate credit features accessible by hybrid 
prepaid-credit cards. Instead, the Bureau anticipates that the credit 
lines on covered separate credit features generally will be 
replenishing. In such cases, an amount financed for the credit feature 
could not be calculated because the creditor will not know at the time 
the credit feature is established the amount of credit that will be 
extended. Thus, to the extent that any finance charge may be imposed on 
such a credit feature, the credit feature will meet this criterion.
    The Bureau believes that it is appropriate to consider covered 
separate credit features accessible by hybrid prepaid-credit cards that 
are charge cards to meet this criterion of open-end credit. Under the 
Bureau's interpretation, a finance charge may be imposed time to time 
on an outstanding unpaid balance when any finance charge (including 
transaction fees or participation fees that are finance charges) may be 
imposed on the covered separate credit feature or asset feature of the 
prepaid account that are both accessible by the hybrid prepaid-credit 
card. In contrast, if the Bureau were to interpret narrowly the 
criterion of open-end credit that a finance charge may be imposed time 
to time on an outstanding unpaid balance and include only finance 
charges resulting from periodic rates, covered separate credit features 
accessible by hybrid prepaid-credit cards that are charge card accounts 
instead would constitute closed-end credit. Under existing Sec.  
1026.2(a)(17)(iv), a card issuer offering such a charge card account 
would be a ``creditor'' for purposes of, and would need to comply with, 
the closed-end disclosure provisions in subpart C as well as certain 
open-end (not home-secured) disclosures rules in subpart B.
    The Bureau believes that receiving closed-end disclosures for these 
types of accounts would be confusing to consumers because the 
disclosures would be different from those disclosures received in 
connection with other open-end credit card accounts. Where the 
transactions otherwise would appear to be part of an open-end plan 
based on repeated transactions and replenishing credit, the Bureau 
believes that consumers would be better protected and better informed 
if such transactions were treated as open-end plans in the same way as 
their other credit card accounts. In addition, with respect to a 
covered separate credit feature accessible by a hybrid prepaid-credit 
card where that credit feature is a charge card account, the Bureau 
believes that complying with the closed-end credit rules would be 
difficult for card issuers (for example, at point of sale) because 
closed-end disclosures specific to each credit extension would need to 
be provided prior to each transaction. Thus, the Bureau is retaining 
the current interpretation in existing comment 2(a)(20)-4 that a 
finance charge is considered to be imposed from time to time on an 
outstanding unpaid balance, as

[[Page 84178]]

described in existing Sec.  1026.2(a)(20), if there is no specific 
amount financed for the credit feature for which the finance charge, 
total of payments, and payment schedule can be calculated. This means 
that most covered separate credit features accessible by hybrid 
prepaid-credit cards will meet the definition of ``open-end credit'' if 
any finance charge may be imposed on the covered separate credit 
feature or asset feature of the prepaid account that are both 
accessible by a hybrid prepaid-credit card.
    The Bureau also notes that persons that offer covered separate 
credit features accessible by hybrid prepaid-credit cards where no 
finance charge may be imposed on the covered separate credit feature or 
asset feature of the prepaid account that are both accessible by the 
hybrid prepaid-credit card still would be subject to certain Regulation 
Z provisions. See the section-by-section analysis of Sec.  
1026.2(a)(17) above.
Section 1026.4 Finance Charge
    TILA section 106(a) provides generally that the term ``finance 
charge'' in connection with any consumer credit transaction is the sum 
of all charges, payable directly or indirectly by the person to whom 
the credit is extended, and imposed directly or indirectly by the 
creditor as an incident to the extension of credit. The finance charge 
does not include charges of a type payable in a comparable cash 
transaction.\615\
---------------------------------------------------------------------------

    \615\ 15 U.S.C. 1605(a).
---------------------------------------------------------------------------

    Regulation Z generally defines the term ``finance charge'' in 
existing Sec.  1026.4(a) to mean ``the cost of consumer credit as a 
dollar amount.'' It includes any charge payable directly or indirectly 
by the consumer and imposed directly or indirectly by the creditor as 
an incident to or as a condition of the extension of credit. It does 
not include any charge of a type payable in a comparable cash 
transaction. However, certain fee or charges are specifically excluded 
from the current definition of ``finance charge,'' including as 
described in existing Sec.  1026.4(c)(3) and (4) respectively: (1) 
Charges imposed by a financial institution for paying items that 
overdraw an account, unless the payment of such items and the 
imposition of the charge were previously agreed upon in writing; and 
(2) fees charged for participation in a credit plan, whether assessed 
on an annual or other periodic basis.
    As discussed in more detail below, the proposal would have revised 
various components of the definition of finance charge in existing 
Sec.  1026.4 and its commentary as applied to credit offered in 
connection with a prepaid account to (1) distinguish credit provided in 
connection with prepaid accounts addressed by the proposal from 
overdraft services on checking accounts, which is subject to a 
different rulemaking; and (2) broaden the definition of ``finance 
charge,'' as applied in the prepaid context, to assure broad coverage 
of the credit card rules to credit plans accessed by prepaid cards that 
would have been credit cards under the proposal and to better reflect 
the full cost of credit.
    Specifically, the proposal would have provided that existing Sec.  
1026.4(c)(3)'s exclusion of fees imposed in connection with overdraft 
services on checking accounts from the definition of finance charge 
would not have applied to credit accessed by a prepaid card. It also 
would have exempted credit accessed by a prepaid card from the 
exclusion in existing Sec.  1026.4(c)(4) for participation fees. As 
discussed in more detail in the section-by-section analyses of Sec.  
1026.4(a) and (b) below, the proposal also would have made other 
modifications to general finance charge precepts as applied to credit 
offered in connection with prepaid cards, to assure broad coverage of 
the credit card rules to such credit.
    As discussed in more detail below, consistent with the goals of the 
proposal in relation to the definition of ``finance charge,'' the 
Bureau is revising the definition of ``finance charge'' with regard to 
the covered separate credit features accessible by hybrid prepaid-
credit cards as defined under new Sec.  1026.61 to (1) distinguish 
credit provided in connection with prepaid accounts addressed by the 
final rule from overdraft services on checking accounts, which is 
subject to a different rulemaking process; and (2) broaden the 
definition of ``finance charge,'' as applied in the prepaid context, to 
assure broad coverage of the credit card rules to covered separate 
credit features accessible by hybrid prepaid-credit cards and to better 
reflect the full cost of credit. The Bureau also is adding language to 
the definition of ``finance charge'' in existing Sec.  1026.4 and 
related commentary to provide greater guidance regarding the treatment 
of fees that are charged to the separate credit subaccount or account 
accessible by a hybrid prepaid-credit card, as compared to fees charged 
to the prepaid asset feature. Finally, the Bureau has added commentary 
to Sec.  1026.4 to provide guidance as to the application of the 
definition of ``finance charge'' to credit features accessible by 
prepaid cards that are not credit cards under the final rule.
    As discussed in the Overview of the Final Rule's Amendments to 
Regulation Z section above and in more detail in the section-by-section 
analysis of Sec.  1026.61 below, the Bureau generally intends to cover 
under Regulation Z overdraft credit features in connection with prepaid 
accounts where the credit feature is offered by the prepaid account 
issuer, its affiliate, or its business partner. New Sec.  1026.61(b) 
generally requires that such credit features be structured as separate 
subaccounts or accounts, distinct from the prepaid asset account, to 
facilitate transparency and compliance with various Regulation Z 
requirements. New Sec.  1026.61(a)(2)(i) provides that a prepaid card 
is a ``hybrid prepaid-credit card'' with respect to such a separate 
credit feature if the card meets the following two conditions: (1) The 
card can be used from time to time to access credit from the separate 
credit feature in the course of authorizing, settling, or otherwise 
completing transactions conducted with the card to obtain goods or 
services, obtain cash, or conduct P2P transfers; and (2) the separate 
credit feature is offered by the prepaid account issuer, its affiliate, 
or its business partner. New Sec.  1026.61(a)(2)(i) defines such a 
separate credit feature accessible by a hybrid prepaid-credit card as a 
``covered separate credit feature.'' The hybrid prepaid-credit card can 
access both the covered separate credit feature and the asset feature 
of the prepaid account, and the hybrid prepaid-credit card is a credit 
card under Regulation Z with respect to the covered separate credit 
feature.
    As discussed in the section-by-section analysis of Sec.  1026.61 
below, the Bureau also has decided to exclude prepaid cards from being 
covered as credit cards under Regulation Z when they access certain 
specified types of credit. First, new Sec.  1026.61(a)(2)(ii) provides 
that a prepaid card is not a hybrid prepaid-credit card with respect to 
a separate credit feature that does not meet both of the conditions 
above, for example, where the credit feature is offered by an unrelated 
third party that is not the prepaid account issuer, its affiliate or 
its business partner. Such credit features are defined as ``non-covered 
separate credit features,'' as discussed in the section-by-section 
analysis of Sec.  1026.61(a)(2) below. Second, under new Sec.  
1026.61(a)(4), a prepaid card also is not a hybrid prepaid-credit card 
when the prepaid card accesses incidental credit in the form of a 
negative balance on the asset account where the prepaid account issuer 
generally does not charge credit-related fees for the credit. A prepaid 
card is not a hybrid prepaid-

[[Page 84179]]

credit card under new Sec.  1026.61 or a credit card under final Sec.  
1026.2(a)(15)(i) when it accesses credit from these types of credit 
features. For more detailed explanations of when prepaid cards are not 
credit cards under Regulation Z, see the section-by-section analyses of 
Sec.  1026.61(a)(2) and (4) below.
    As discussed in more detail below, the Bureau is amending existing 
Sec.  1026.4 and its commentary to (1) distinguish credit provided in 
connection with prepaid accounts addressed by the final rule from the 
overdraft services on checking accounts, which is subject to a 
different rulemaking process; and (2) broaden the definition of 
``finance charge,'' as applied in the prepaid context, to assure broad 
coverage of the credit card rules to covered separate credit features 
accessible by hybrid prepaid-credit cards and to better reflect the 
full cost of credit. Specifically, the final rule provides that the 
exclusion in existing Sec.  1026.4(c)(3) for certain charges in 
connection with overdraft services on checking accounts does not apply 
to credit offered in connection with a prepaid account and that the 
exclusion in existing Sec.  1026.4(c)(4) for participation fees does 
not apply to a fee to participate in a covered separate credit feature 
accessible by a hybrid prepaid-credit card as defined in new Sec.  
1026.61, regardless of whether this fee is imposed on the credit 
feature or on the asset feature of the prepaid account.
    In addition, the Bureau is amending existing Sec.  1026.4 and its 
commentary to provide additional clarification and guidance as to what 
types of fees and charges constitute ``finance charges'' related to 
credit offered in connection with a prepaid account. For example, with 
regard to covered separate credit features accessible by hybrid 
prepaid-credit cards, the Bureau has added new Sec.  1026.4(b)(11) and 
related commentary to address the classification of fees as finance 
charges depending on whether those fees are imposed on the covered 
separate credit feature or on the asset feature of the prepaid account. 
Specifically, new Sec.  1026.4(b)(11) provides that the following fees 
generally are finance charges with respect to such covered separate 
credit features and asset features: (1) Any fee or charge, such as 
interest rates and service, transaction, activity, or carrying charges, 
imposed on the covered separate credit feature, whether it is 
structured as a credit subaccount of the prepaid account or a separate 
credit account; and (2) any fee or charge imposed on the asset feature 
of the prepaid account to the extent that the amount of the fee or 
charge exceeds comparable fees or charges imposed on prepaid accounts 
in the same prepaid account program that do not have a covered separate 
credit feature accessible by a hybrid prepaid-credit card.
    The commentary to new Sec.  1026.4(b)(11) also provides guidance 
with regard to the treatment of fees imposed on the prepaid account in 
relation to credit features accessible by prepaid cards that are not 
hybrid prepaid-credit cards. For example, with regard to non-covered 
separate credit features, the final rule provides that new Sec.  
1026.4(b)(11) and related commentary do not apply to fees or charges 
imposed on the non-covered separate credit feature; instead, the non-
covered credit feature is evaluated in its own right under the general 
rules set forth in existing Sec.  1026.4 to determine whether these 
fees or charges are finance charges. In addition, with respect to these 
non-covered separate credit features, fees or charges on the asset 
feature of the prepaid account are not finance charges under existing 
Sec.  1026.4 with respect to the non-covered separate credit feature. 
The commentary also provides that with respect to incidental credit 
that is provided via a negative balance on the prepaid account under 
new Sec.  1026.61(a)(4), fees that can be imposed on the prepaid 
account under Sec.  1026.61(a)(4) are not finance charges under final 
Sec.  1026.4.
4(a) Definition
    Under Regulation Z, the term ``finance charge'' generally is 
defined in existing Sec.  1026.4(a) to mean ``the cost of consumer 
credit as a dollar amount.'' It includes any charge payable directly or 
indirectly by the consumer and imposed directly or indirectly by the 
creditor as an incident to or as a condition of the extension of 
credit. It does not include any charge of a type payable in a 
comparable cash transaction.
    With regard to credit card accounts, generally all transaction fees 
imposed on the account are treated as finance charges, even if the 
creditor imposes comparable transaction fees on asset accounts. 
Existing comment 4(a)-4 provides guidance on when transaction charges 
imposed on credit card accounts are finance charges under existing 
Sec.  1026.4(a). (Transaction charges that are imposed on checking 
accounts or other transaction accounts are discussed in the section-by-
section analyses of Sec.  1026.4(b) and (b)(11) below.) Specifically, 
existing comment 4(a)-4 provides that any transaction charge imposed on 
a cardholder by a card issuer is a finance charge, regardless of 
whether the issuer imposes the same, greater, or lesser charge on 
withdrawals of funds from an asset account such as a checking or 
savings account. For example, any charge imposed on a credit cardholder 
by a card issuer for the use of an ATM to obtain a cash advance 
(whether in a proprietary, shared, interchange, or other system) is a 
finance charge, regardless of whether the card issuer imposes a charge 
on its debit cardholders for using the ATM to withdraw cash from a 
consumer asset account, such as a checking or savings account. In 
addition, any charge imposed on a credit cardholder for making a 
purchase or obtaining a cash advance outside the United States with a 
foreign merchant, or in a foreign currency, is a finance charge, 
regardless of whether a charge is imposed on debit cardholders for such 
transactions. This comment essentially provides that debit card 
transactions are not considered ``comparable cash transactions'' to 
credit card transactions with respect to transaction charges imposed by 
a card issuer on a credit cardholder when those fees are imposed on the 
credit card account.
    The proposal would have added proposed comment 4(a)-4.iii to 
provide that any transaction charge imposed on a cardholder by a card 
issuer for credit accessed by a prepaid card is a finance charge 
regardless of whether the card issuer imposes the same, greater, or 
lesser charge on the withdrawal of funds from a prepaid account.
    The Bureau received substantial comment on the circumstances in 
which fees imposed on a prepaid account should be considered finance 
charges under Sec.  1026.4. These comments are discussed in the 
section-by-section analysis of Sec.  1026.4(b)(11) below. As discussed 
in the section-by-section analysis of Sec.  1026.4(b)(11), new Sec.  
1026.4(b)(11) and related commentary set forth guidance regarding the 
circumstances in which a fee is a finance charge for credit offered in 
connection with a prepaid account. Thus, the Bureau is not revising 
existing comment 4(a)-4 to include the proposed prepaid card example 
discussed above.\616\ Instead, the final rule revises

[[Page 84180]]

existing comment 4(a)-4 to provide that comment does not apply to a 
covered separate credit feature and an asset feature on a prepaid 
account that are both accessible by a hybrid prepaid-credit card as 
defined in new Sec.  1026.61. The comment also is revised to cross-
reference new Sec. Sec.  1026.4(b)(11) and 1026.61 for guidance on the 
circumstances in which a fee is a finance charge in connection with a 
covered separate credit feature and an asset feature on a prepaid 
account that are both accessible by a hybrid prepaid-credit card.
---------------------------------------------------------------------------

    \616\ The proposal would have provided that the term ``credit 
card'' includes an account number that is not a prepaid card that 
may be used from time to time to access a credit plan that allows 
deposits directly only into particular prepaid accounts specified by 
the creditor. Proposed comment 4(a)-4 would have been revised to 
provide that any transaction charge imposed on a cardholder by a 
card issuer for credit accessed by such an account number is a 
finance charge regardless of whether the card issuer imposes the 
same, greater, or lesser charge on the withdrawal of funds from a 
prepaid account. For the reasons set forth in the section-by-section 
analysis of Sec.  1026.2(a)(15)(i) above, the final rule does not 
adopt the proposed changes to comment 4(a)-4 related to these 
account numbers.
---------------------------------------------------------------------------

4(b) Examples of Finance Charges
4(b)(2)
    Existing Sec.  1026.4(b) provides examples of the types of charges 
that are finance charges, except if those charges are specifically 
excluded under existing Sec.  1026.4(c) through (e). In particular, 
existing Sec.  1026.4(b)(2) provides that examples of finance charges 
generally include service, transaction, activity, and carrying charges. 
However, the Board added a partial exception to this example stating 
that any charge imposed on a checking or other transaction account, 
such a service or transaction account charge, is only a finance charge 
to the extent that the charge exceeds the charge for a similar account 
without a credit feature. Existing comment 4(b)(2)-1 similarly provides 
that a checking or transaction account charge imposed in connection 
with a credit feature is a finance charge under existing Sec.  
1026.4(b)(2) to the extent the charge exceeds the charge for a similar 
account without a credit feature. If a charge for a checking or 
transaction account with a credit feature does not exceed the charge 
for an account without a credit feature, the charge is not a finance 
charge under existing Sec.  1026.4(b)(2). For purposes of existing 
Sec.  1026.4(b)(2), a per transaction fee imposed on a checking account 
with a credit feature (i.e., overdraft line of credit where the 
financial institution has agreed in writing to pay an overdraft) can be 
compared with a fee imposed for paying or returning each item on a 
similar account without a credit feature. Thus, if a per transaction 
fee imposed on a checking account with a credit feature for accessing 
credit does not exceed the fee for paying an overdraft or NSF fee on 
the checking account with no credit feature, the per transaction fee 
imposed on the checking account with the credit feature is not a 
finance charge under existing Sec.  1026.4(b)(2).
    The proposal would have set forth a different rule for when fees 
imposed on prepaid accounts would have been finance charges than the 
standard set forth in existing Sec.  1026.4(b)(2). Specifically, 
proposed Sec.  1026.4(b)(2)(ii) would have provided that any charge 
imposed in connection with an extension of credit, for carrying a 
credit balance, or for credit availability would have been a finance 
charge where that fee is imposed on a prepaid account in connection 
with credit accessed by a prepaid card, regardless of whether the 
creditor imposes the same, greater, or lesser charge on the withdrawal 
of funds from the prepaid account, to have access to the prepaid 
account, or when credit is not extended. Proposed comment 4(b)(2)-1.ii 
through iv, would have clarified the rule set forth in proposed Sec.  
1026.4(b)(2)(ii). The existing language in Sec.  1026.4(b)(2) would 
have been moved to proposed Sec.  1026.4(b)(2)(i). The existing 
language in comment 4(b)(2)-1 would have been moved to proposed comment 
4(b)(2)-1.i.
    The Bureau received substantial comments on the circumstances in 
which fees imposed on prepaid accounts should be considered finance 
charges under Sec.  1026.4. These comments are discussed in the 
section-by-section to Sec.  1026.4(b)(11) below. As discussed in the 
section-by-section analysis of Sec.  1026.4(b)(11), new Sec.  
1026.4(b)(11) and related commentary set forth guidance regarding the 
circumstances in which a fee is a finance charge for credit offered in 
connection with a prepaid account. Thus, the Bureau has not adopted 
proposed Sec.  1026.4(b)(2)(ii) and the changes to comment 4(b)(2)-1 as 
proposed.\617\ Instead, the Bureau is revising Sec.  1026.4(b)(2) and 
comment 4(b)(2)-1 to provide that final Sec.  1026.4(b)(2) does not 
apply to prepaid accounts as defined in Sec.  1026.61. In addition, the 
Bureau is adding new comment 4(b)(2)-2 to state that fees or charges 
related to credit offered in connection with prepaid accounts as 
defined in Sec.  1026.61 are discussed in new Sec. Sec.  1026.4(b)(11) 
and 1026.61, and related commentary.
---------------------------------------------------------------------------

    \617\ The proposal would have provided that the term ``credit 
card'' includes an account number that is not a prepaid card that 
may be used from time to time to access a credit plan that allows 
deposits directly only into particular prepaid accounts specified by 
the creditor. Proposed Sec.  1026.4(b)(2)(ii) and comment 4(b)(2)-
1.ii through iv would have set forth the rule for when a fee imposed 
on a prepaid account is a finance charge in connection with credit 
accessed by such account numbers. For the reasons set forth in the 
section-by-section analysis of Sec.  1026.2(a)(15)(i) above, the 
final rule does not adopt the proposed changes to Sec.  
1026.4(b)(2)(ii) and comment 4(b)(2)-1.ii through iv related to 
these account numbers.
---------------------------------------------------------------------------

4(b)(11)
The Bureau's Proposal
    As discussed in the section-by-section analyses of Sec.  1026.4(a) 
and (b)(2) above, the Bureau proposed Sec.  1026.4(b)(2) and comments 
4(a)-4.iii and 4(b)(2)-1.ii through iv to provide guidance regarding 
when a fee imposed in relation to credit accessed by a prepaid card 
would have been a finance charge under Sec.  1026.4.
    Proposed comment 4(a)-4.iii would have set forth guidance on when 
transaction fees imposed on credit card accounts accessed by prepaid 
cards would have been considered finance charges under the proposal. 
Specifically, this comment would have provided that any transaction 
charge imposed on a cardholder by a card issuer for credit accessed by 
a prepaid card is a finance charge regardless of whether the card 
issuer imposes the same, greater, or lesser charge on the withdrawal of 
funds from a prepaid account.
    Proposed Sec.  1026.4(b)(2)(ii) and proposed comment 4(b)(2)-1.ii 
through iv would have provided guidance on when service, transaction, 
activity, and carrying charges imposed on a prepaid account in 
connection with credit accessed by a prepaid card would have been a 
finance charge under the proposal. Specifically, proposed Sec.  
1026.4(b)(2)(ii) would have provided that any charge imposed on the 
prepaid account in connection with an extension of credit, for carrying 
a credit balance, or for credit availability would have been a finance 
charge where that fee is imposed on a prepaid account in connection 
with credit accessed by a prepaid card, regardless of whether the 
creditor imposes the same, greater, or lesser charge on the withdrawal 
of funds from the prepaid account, to have access to the prepaid 
account, or when credit is not extended.
    Under proposed comment 4(b)(2)-1.ii, transaction fees imposed on a 
prepaid account for credit extensions would have been finance charges, 
regardless of whether the creditor imposes the same, greater, or lesser 
per transaction fee to withdraw funds from the prepaid account. To 
illustrate, assume a $1.50 transaction charge is imposed on the prepaid 
account for each transaction that is made with the prepaid card, 
including when the prepaid card is used to access credit where the 
consumer has insufficient or unavailable funds in the prepaid account 
at the time of authorization or at the time the

[[Page 84181]]

transaction is paid. Under the proposal, the $1.50 transaction charge 
would have been a finance charge when the prepaid card accesses credit, 
notwithstanding that a $1.50 transaction charge also is imposed on 
transactions that solely access funds in the prepaid account.
    In addition, under proposed comment 4(b)(2)-1.ii, a fee imposed on 
the prepaid account for the availability of an open-end plan that is 
accessed by a prepaid card would have been a finance charge regardless 
of whether the creditor imposes the same, greater, or lesser monthly 
service charge to hold the prepaid account. For example, assume a 
creditor imposes $5 monthly service charge on the prepaid account for 
the availability of an open-end plan that is accessed by a prepaid 
card. Under the proposal, the $5 monthly service charge would have been 
a finance charge regardless of whether the creditor imposes the same, 
greater, or lesser monthly service charge to hold the prepaid account.
    In the proposal, the Bureau recognized that if a prepaid account 
issuer imposes a per transaction fee on a prepaid account for any 
transactions authorized or settled on the prepaid account, the prepaid 
account issuer would need to waive that per transaction fee imposed on 
the prepaid account when the transaction accesses credit to take 
advantage of the exception for when a prepaid card would not be a 
credit card under the proposal.
    Proposed comment 4(b)(2)-1.iii would have provided that examples of 
charges imposed on a prepaid account in connection with an extension of 
credit, for carrying a credit balance, or for credit availability 
include (1) transaction fees for credit extensions; (2) fees for 
transferring funds from a credit account to a prepaid account; (3) a 
daily, weekly, or monthly (or other periodic) fee assessed each period 
a prepaid account is in ``overdraft'' status, or would be in overdraft 
status but for funds supplied by a linked line of credit; (4) a daily, 
weekly, or monthly (or other periodic) fee assessed each period a line 
of credit accessed by a prepaid card has an outstanding balance; and 
(5) participation fees or other fees that the consumer is required to 
pay for the issuance or availability of credit.
    Proposed comment 4(b)(2)-1.iv would have provided that proposed 
Sec.  1026.4(b)(2)(ii) would not apply to: (1) Transaction fees imposed 
on the prepaid account that are imposed only on transactions that 
solely access funds in the prepaid account (and are not imposed on 
transactions that either are funded in whole or in part from credit); 
(2) fees for opening or holding the prepaid account; and (3) other 
fees, such as cash reload fees and balance inquiry fees, that are not 
imposed on the prepaid account because the consumer engaged in a 
transaction that is funded in whole or in part by credit, for holding a 
credit plan, or for carrying a credit balance. These fees would not 
have been considered charges imposed on a prepaid account in connection 
with an extension of credit, for carrying a credit balance, or for 
credit availability even if there were not sufficient funds in the 
prepaid account to pay the fees at the time they were imposed on the 
prepaid account. Nonetheless, under the proposal, any negative balance 
on the prepaid account, whether from fees or other transactions, would 
have been a credit extension, and if a fee were imposed for such credit 
extension, the fee would have been a finance charge under proposed 
Sec.  1026.4(b)(2)(ii). For example, if a cash-reload fee were imposed 
on the prepaid account and an additional charge were imposed on the 
prepaid account for a credit extension because there were not 
sufficient funds in the prepaid account to pay the cash reload fee when 
it was imposed on the prepaid account, the additional charge would have 
been a transaction charge imposed on a prepaid account in connection 
with an extension of credit and would have been a finance charge under 
proposed Sec.  1026.4(b)(2)(ii).
    The Bureau received substantial comment on the circumstances in 
which fees imposed in connection with credit accessed by a prepaid card 
should be considered finance charges under Sec.  1026.4. As discussed 
below, in response to comments received, the Bureau is revising 
substantially from the proposal the circumstances in which a fee or 
charge imposed with respect to credit extended in connection with a 
prepaid account is a finance charge under Sec.  1026.4.
Comments Received
    Many industry commenters raised concerns regarding the breadth of 
fees that would be considered finance charges under the proposal. Many 
industry commenters were concerned that even though they did not intend 
to offer credit in connection with the prepaid account, credit could 
result in certain circumstances, such as forced pay-transactions as 
discussed in the section-by-section analysis of Sec.  1026.61 below. 
Because this credit could be extended, many commenters were concerned 
that fees that generally applied to the prepaid account, but were not 
specific to the overdraft credit, could be finance charges under the 
proposal and thus would subject the prepaid account issuer to the 
credit card rules under Regulation Z. These commenters were concerned 
that they could not charge certain fees on the prepaid account, or 
would have to waive certain fees, for the prepaid card not to be 
considered to be a credit card under the proposal. In particular, 
proposed comment 2(a)(15)-2.i.F would have provided that the term 
``credit card'' includes a prepaid card (including a prepaid card that 
is solely an account number) that is a single device that may be used 
from time to time to access a credit plan, except for when the prepaid 
card only accesses credit that is not subject to any finance charge, as 
defined in Sec.  1026.4, or any fee described in Sec.  1026.4(c), and 
is not payable by written agreement in more than four installments. 
Under the proposal, for a prepaid card not to be a credit card when it 
accesses a credit plan, the credit accessed by the prepaid card could 
not be subject to any finance charge, as defined in Sec.  1026.4, or 
any fee described in Sec.  1026.4(c), and any credit accessed could not 
be payable by written agreement in more than four installments.
    Many industry commenters indicated that certain fees should not be 
considered finance charges in connection with credit accessed by a 
prepaid card, and thus, a prepaid account issuer could continue to 
charge these fees on the prepaid account without the prepaid card 
becoming a credit card under the proposal.
    For example, several commenters, including an industry trade 
association, an issuing bank, a program manager, and a digital wallet 
provider, indicated that consistent with existing Sec.  1026.4(b)(2), a 
fee that is imposed on a prepaid account in both credit and cash 
transactions should not be a finance charge when the fee is imposed on 
a prepaid account. They argued that these fees are exempt from the 
definition of finance charge under the ``comparable cash transaction'' 
exception. Existing Sec.  1026.4(b)(2) provides that examples of 
finance charges generally include service, transaction, activity, and 
carrying charges. However, existing Sec.  1026.4(b)(2) contains a 
partial exception to this example stating that for any charge imposed 
on a checking or other transaction account, such a service or 
transaction account charge, is only a finance charge to the extent that 
the charge exceeds the charge for a similar account without a credit 
feature.
    In addition, several commenters, including an industry trade 
association, an issuing bank, a program manager,

[[Page 84182]]

and a digital wallet provider, indicated that the term ``finance 
charge'' should not include per transaction fees charged on a prepaid 
account for an extension of credit that are the same amount as the fee 
that would be charged for transactions paid entirely with funds 
available in the prepaid account. These industry commenters were 
concerned that a prepaid account issuer would need to waive per 
transaction fees charged for credit extensions even if they were the 
same amount as the fee charged for transactions it paid entirely with 
funds available in the prepaid account to avoid charging a finance 
charge under the proposal. As discussed above, under the proposal, all 
per transaction fees for credit transactions were finance charges. 
Thus, under the proposal, a prepaid account issuer would need to waive 
per transaction fees imposed on the prepaid account for credit 
transactions for the prepaid card not to be a credit card under the 
proposal.
    Two industry trade associations indicated that the term ``finance 
charge'' should only include fees or charges arising from the fact that 
the transaction is an overdraft and specifically exclude other fees or 
charges that are wholly unrelated to the fact that the transaction is 
an overdraft, such as a fee for a balance inquiry at an ATM. These two 
commenters argued that such unrelated fees or charges should not be 
``finance charges'' even if they are imposed when the prepaid account 
balance is negative. Another industry trade association indicated that 
a monthly fee to hold the prepaid account should not be a ``finance 
charge'' simply because it may be imposed when the balance on the 
prepaid account is negative or because negative balances can occur on 
the prepaid account.
    Several consumer groups commented on this aspect of the proposal. 
One consumer group commenter indicated that per transaction fees for 
credit extensions imposed on prepaid accounts should be finance charges 
even if they are the same amount as the fee charged for transactions 
paid entirely with funds available in the prepaid account. This 
consumer group commenter indicated that if a prepaid account issuer 
wanted to avoid charging a finance charge on the prepaid account, the 
cleanest solution is the one the Bureau proposed: Simply waive the fee. 
Another consumer group commenter indicated that any fee or charge that 
occurs when credit is accessed should be considered a finance charge.
The Final Rule
    The Bureau is amending existing Sec.  1026.4 and its commentary to 
provide additional clarification and guidance as to what types of fees 
and charges constitute ``finance charges'' related to credit offered in 
connection with a prepaid account. First, the Bureau provides guidance 
on the definition of finance charge in relation to covered separate 
credit features accessible by a hybrid prepaid-credit cards. Second, 
the Bureau also provides guidance on the definition of finance charge 
in relation to credit features accessible by prepaid cards that are not 
hybrid prepaid-credit cards. Starting with the first category, as 
described above, the Bureau generally intends the final rule to 
regulate prepaid cards as credit cards when they can access overdraft 
credit features offered by the prepaid account issuer, its affiliates, 
or its business partners (except as provided in new Sec.  
1026.61(a)(4)). Such credit features are generally required under new 
Sec.  1026.61(b) to be structured as a separate subaccount or account, 
distinct from the prepaid asset account, to facilitate transparency and 
compliance with Regulation Z. To effectuate this decision and provide 
compliance guidance to industry, new Sec.  1026.4(b)(11) and its 
related commentary specify rules for distinguishing when particular 
types of fees or charges that are imposed on the covered separate 
credit feature or on the asset feature on a prepaid account, which are 
both accessible by a hybrid prepaid-credit card, are finance charges 
under Regulation Z. Specifically, new Sec.  1026.4(b)(11) provides that 
the following fees generally are finance charges with respect to such 
covered separate credit features and asset features: (1) Any fee or 
charge, such as interest rates and service, transaction, activity, or 
carrying charges, imposed on the covered separate credit feature, 
regardless of whether the credit feature is structured as a credit 
subaccount of the prepaid account or a separate credit account; and (2) 
any fee or charge imposed on the asset feature of the prepaid account 
to the extent that the amount of the fee or charge exceeds comparable 
fees or charges imposed on prepaid accounts in the same prepaid account 
program that do not have a covered separate credit feature accessible 
by a hybrid prepaid-credit card. These provisions are discussed in more 
detail in the section-by-section analyses of Sec.  1026.4(b)(11)(i) and 
(ii).
    The commentary to new Sec.  1026.4(b)(11) also provides guidance 
regarding credit features that are accessible by prepaid cards that are 
not credit cards under the final rule. As discussed in the section-by-
section analysis of Sec.  1026.61 below, the Bureau also has decided to 
exclude prepaid cards from being covered as credit cards under 
Regulation Z when they access certain specified types of credit. First, 
under new Sec.  1026.61(a)(2)(ii), a prepaid card is not a hybrid 
prepaid-credit card with respect to a ``non-covered separate credit 
feature,'' which means that the separate credit feature either (1) 
cannot be accessed in the course of a prepaid card transaction to 
obtain goods or services, obtain cash, or conduct P2P transfers; or (2) 
is offered by an unrelated third party that is not the prepaid account 
issuer, its affiliate, or its business partner. Second, under new Sec.  
1026.61(a)(4), a prepaid card also is not a hybrid prepaid-credit card 
when the prepaid card accesses incidental credit in the form of a 
negative balance on the asset account where the prepaid account issuer 
generally does not charge credit-related fees for the credit. A prepaid 
card is not a hybrid prepaid-credit card under new Sec.  1026.61 or a 
credit card under final Sec.  1026.2(a)(15)(i) when it accesses credit 
from these types of credit features. For more detailed explanations of 
when prepaid cards are not credit cards under Regulation Z, see the 
section-by-section analyses of Sec.  1026.61(a)(2) and (4) below.
    New comment 4(b)(11)-1.i provides that the rules for classification 
of fees or charges as finance charges in connection with a covered 
separate credit feature and the asset feature of the prepaid account 
that are both accessible by a hybrid prepaid-credit card are specified 
in Sec.  1026.4(b)(11) and related commentary. This guidance is 
discussed in more detail in the section-by-section analyses of Sec.  
1026.4(b)(11)(i) and (ii). As discussed in more detail below, new 
comment 4(b)(11)-1.ii and iii sets forth guidance on when fee or 
charges are finance charges under Sec.  1026.4 when these fees or 
charges are imposed in connection with credit features that are 
accessible by prepaid cards that are not credit cards.\618\
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    \618\ One industry commenter noted the proposed definition of 
``finance charge'' in connection with prepaid accounts and raised 
questions about the impact these proposed changes would have in 
terms of obligations to notify consumers of adverse actions under 
the Equal Credit Opportunity Act and Regulation B. The Bureau 
believes that it has addressed these concerns in the final rule by 
providing additional guidance on the type of fees that are ``finance 
charges'' with respect to covered separate credit features 
accessible by hybrid prepaid-credit cards. In addition, the final 
rule also excludes prepaid cards from being covered as credit cards 
under Regulation Z when they access non-covered separate credit 
features as defined in new Sec.  1026.61(a)(2)(ii), or access 
incidental credit as a negative balance on the prepaid account as 
set forth in new Sec.  1026.61(a)(4).

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[[Page 84183]]

    Non-covered separate credit features. With respect to separate 
credit features, as noted above, under Sec.  1026.61(a)(2)(ii), there 
are two circumstances in which new Sec.  1026.61 provides that a 
prepaid card is not a hybrid prepaid-credit card when it accesses a 
separate credit feature. The first is where the prepaid card cannot be 
used to access credit from the separate credit feature in the course of 
authorizing, settling, or otherwise completing transactions conducted 
with the card to obtain goods or services, obtain cash, or conduct P2P 
transfers. The second is where the separate credit feature is offered 
by an unrelated third party, rather than the prepaid account issuer, 
its affiliate, or its business partner.
    New Sec.  1026.61(a)(2)(ii) defines a separate credit feature that 
does not meet these two conditions as a ``non-covered separate credit 
feature.'' As described in new Sec.  1026.61(a)(2)(ii), a non-covered 
separate credit feature is not subject to the rules applicable to 
hybrid prepaid-credit cards; however, it typically will be subject to 
Regulation Z in its own right, depending on the terms and conditions of 
the product.
    New comment 4(b)(11)-1.ii provides that new Sec.  1026.4(b)(11) and 
related commentary do not apply to fees or charges imposed on the non-
covered separate credit feature; instead, the general rules set forth 
in existing Sec.  1026.4 determine whether these fees or charges are 
finance charges. In addition, fees or charges on the asset feature of 
the prepaid account are not finance charges under final Sec.  1026.4 
with respect to the non-covered separate credit feature.
    Overdraft credit features excepted under Sec.  1026.61(a)(4). As 
described in new Sec.  1026.61(a)(4), a prepaid card is not a hybrid 
prepaid-credit card (and is not a credit card under Regulation Z) where 
the prepaid card accesses incidental credit in the form of a negative 
balance on the asset account where the prepaid account issuer generally 
does not charge credit-related fees for the credit. Specifically, under 
this exception, the prepaid account issuer (1) must have a general 
policy and practice of declining to authorize transactions made with 
the card where there are insufficient or unavailable funds in the asset 
feature of the prepaid account at the time the transaction is 
authorized to cover the amount of the transactions or to only authorize 
such negative balance transactions in circumstances related to payment 
cushions and delayed load cushions; and (2) must not charge any credit-
related fees as defined in new Sec.  1026.61(a)(4) for any credit 
extended through a negative balance on the asset feature of the prepaid 
account, except for fees or charges for the actual costs of collecting 
the credit extended if otherwise permitted by law. As discussed in more 
detail in the section-by-section analysis of Sec.  1026.61(a)(4) below, 
such credit features will not trigger coverage of the credit card 
rules.
    With respect to what ``credit-related fees'' will cause such a 
credit feature to fall outside the scope of the new Sec.  1026.61(a)(4) 
exclusion, new Sec.  1026.61(a)(4)(ii)(B) provides that with respect to 
prepaid accounts that are accessible by the prepaid card, the prepaid 
account issuer may not charge the following fees or charges on the 
asset feature of the prepaid account: (1) Any fees or charges for 
opening, issuing, or holding a negative balance on the asset feature, 
or for the availability of credit, whether imposed on a one-time or 
periodic basis. This would not include fees or charges to open, issue, 
or hold the prepaid account where the amount of the fee or charge 
imposed on the asset feature is not higher based on whether credit 
might be offered or has been accepted, whether or how much credit the 
consumer has accessed, or the amount of credit available; (2) any fees 
or charges that will be imposed only when credit is extended on the 
asset feature or when there is a negative balance on the asset feature, 
except that a prepaid account issuer may impose fees or charges for the 
actual costs of collecting the credit extended if otherwise permitted 
by law; or (3) any fees or charges where the amount of the fee or 
charge is higher when credit is extended on the asset feature or when 
there is a negative balance on the asset feature.
    This language in new Sec.  1026.61(a)(4)(ii)(B) allows a prepaid 
account issuer to qualify for the exception in new Sec.  1026.61(a)(4) 
even if it charges transaction fees on the asset feature of the prepaid 
account for overdrafts so long as the amount of the per transaction fee 
does not exceed the amount of the per transaction fee imposed for 
transactions conducted entirely with funds available in the asset 
feature of a prepaid account. New Sec.  1026.61(a)(4)(ii)(C) also makes 
clear that a prepaid account issuer may still satisfy the exception in 
new Sec.  1026.61(a)(4) even if it debits fees or charges from the 
asset feature when there are insufficient or unavailable funds in the 
asset feature to cover those fees or charges at the time they are 
imposed, so long as those fees or charges are not the type of fees or 
charges enumerated in new Sec.  1026.61(a)(4)(ii)(B) as discussed 
above.
    Thus, in order to qualify for the exception in new Sec.  
1026.61(a)(4), a prepaid account issuer generally may not charge 
additional fees or higher fees when credit is extended on the asset 
feature of the prepaid account or there is a negative balance on the 
asset feature of the prepaid account, except for fees or charges for 
the actual costs of collecting the credit extended if otherwise 
permitted by law. Provided it meets this limitation and the other 
requirements of new Sec.  1026.61(a)(4), the prepaid account issuer 
will not be a ``card issuer'' under final Sec.  1026.2(a)(7) and thus 
the credit card rules in Regulation Z do not apply to such a credit 
feature.
    In addition, new comment 4(b)(11)-1.iii provides that fees charged 
on the asset feature of the prepaid account in accordance with new 
Sec.  1026.61(a)(4)(ii)(B) are not finance charges. This ensures that a 
prepaid account issuer is not a ``creditor'' under the general 
definition of ``creditor'' set forth in existing Sec.  1026.2(a)(17)(i) 
as a result of charging these fees on the prepaid account.
    The Bureau believes that many of the concerns raised by industry 
commenters as discussed above with respect to the definition of 
``finance charge'' have been addressed by creating new Sec.  
1026.61(a)(4) and its treatment of credit-related charges in new Sec.  
1026.61(a)(4)(ii)(B) and new comment 4(b)(11)-1.iii. As discussed 
above, many industry commenters were concerned that even though they 
did not intend to offer credit in connection with the prepaid account, 
credit could result in certain circumstances, such as force pay 
transactions as discussed in the section-by-section analysis of Sec.  
1026.61 below. Because this credit could be extended, many commenters 
were concerned that fees that generally applied to the prepaid account, 
but were not specific to the overdraft credit, could be finance charges 
under the proposal and thus would subject the prepaid account issuer to 
the credit card rules under Regulation Z. Because of these concerns, 
many industry commenters urged that that the Bureau not consider 
certain fees to be finance charges, and thus, a prepaid account issuer 
could continue to charge these fees on the prepaid account without 
making the prepaid card also a credit card under the proposal.
    For example, several commenters, including an industry trade 
association, an issuing bank, a program manager, and a digital wallet 
provider, indicated

[[Page 84184]]

that the term ``finance charge'' should not include per transaction 
fees charged on a prepaid account for an extension of credit that are 
the same amount as the fee that would be charged for transactions paid 
entirely with funds available in the prepaid account. These industry 
commenters also were concerned that if they generally charged the same 
per transaction fee for all transactions paid using a prepaid account, 
regardless of whether the transaction is paid entirely with funds 
available in the prepaid account or is paid in whole or in part with 
credit, a prepaid account issuer would need to waive those per 
transaction fees for transactions resulting in an overdraft for a 
prepaid card not to be a credit card under the proposal. Also, two 
industry trade associations indicated that the term ``finance charge'' 
should only include fees or charges arising from the fact that the 
transaction is an overdraft and specifically exclude other fees or 
charges that are wholly unrelated to the fact that the transaction is 
an overdraft, such as a fee for a balance inquiry at an ATM. These two 
commenters argued that such unrelated fees or charges should not be 
``finance charges'' even if they are imposed when the prepaid account 
balance is negative. Another industry trade association indicated that 
a monthly fee to hold the prepaid account should not be a ``finance 
charge'' simply because it may be imposed when the balance on the 
prepaid account is negative or because negative balances can occur on 
the prepaid account.
    The final rule addresses these concerns in a number of ways, so 
long as the types of credit provided are limited to the narrow types 
addressed in new Sec.  1026.61(a)(4). First, new Sec.  1026.61(a)(4) 
does not require a prepaid account issuer to waive per transaction fees 
imposed on the asset feature of the prepaid account if the amount of 
the per transaction fee imposed for transactions involving credit is 
not higher than the amount of the fee that is imposed for transactions 
that only access funds in the asset feature of the prepaid account. 
Second, under the exception in new Sec.  1026.61(a)(4), the final rule 
provides that if a fee is not a fee enumerated in new Sec.  
1026.61(a)(4)(ii)(B), the prepaid account issuer may still debit these 
fees or charges from the asset feature when there are insufficient or 
unavailable funds in the asset feature to cover those fees or charges 
at the time they are imposed. Third, the final rule clarifies that 
under this exception, a prepaid account issuer may charge a fee to hold 
the prepaid account, so long as the amount of the fee or charge imposed 
on the asset feature of the prepaid account is not higher based on 
whether credit might be offered or has been accepted, whether or how 
much credit the consumer has accessed, or the amount of credit 
available.
    In addition, as discussed above, new comment 4(b)(11)-1.iii 
provides that fees charged on the asset feature of the prepaid account 
in accordance with new Sec.  1026.61(a)(4)(ii)(B) are not finance 
charges. This ensures that a prepaid account issuer is not a 
``creditor'' under the general definition of ``creditor'' set forth in 
existing Sec.  1026.2(a)(17)(i) as a result of charging these fees on 
the prepaid account.
4(b)(11)(i)
    New Sec.  1026.4(b)(11)(i) provides that with regard to a covered 
separate credit feature and an asset feature on a prepaid account that 
are both accessible by a hybrid prepaid-credit card, as defined in new 
Sec.  1026.61, any fee or charge described in final Sec.  1026.4(b)(1) 
through (10) imposed on the covered separate credit feature is a 
finance charge, regardless of whether the separate credit feature is 
structured as a credit subaccount of the prepaid account or a separate 
credit account. Fees would be excluded from the definition of finance 
charge if they are described in final Sec.  1026.4(c) through (e), as 
applicable, although as discussed in more detail below, the Bureau is 
narrowing certain of these existing exclusions as they are applied to 
credit in connection with prepaid accounts. This approach is similar to 
the approach to the definition of ``finance charge'' that currently 
applies to credit card accounts generally, except the Bureau is 
narrowing certain exclusions contained in Sec.  1026.4(c)(3) and (4) as 
discussed in the section-by-section analysis of Sec.  1026.4(c) below.
    Comment 4(b)(11)(i)-1 provides further guidance on this framework. 
Specifically, it provides that any transaction charge imposed on a 
cardholder by a card issuer on a covered separate credit feature 
accessible by a hybrid prepaid-credit card is a finance charge. This 
comment also provides that transaction charges that are imposed on the 
asset feature of a prepaid account are subject to new Sec.  
1026.4(b)(11)(ii) and related commentary, instead of new Sec.  
1026.4(b)(11)(i).
    New comment 4(b)(11)(i)-1 also clarifies that the treatment of 
transaction fees on the separate covered credit feature is consistent 
with the treatment of transaction fees on a credit card account, as 
specified in existing comment 4(a)-4. As discussed in more detail in 
the section-by-section analysis of Sec.  1026.4(a) above, existing 
comment 4(a)-4 provides guidance on when transaction charges imposed on 
credit card accounts are finance charges under Sec.  1026.4(a).\619\ 
Specifically, existing comment 4(a)-4 provides that any transaction 
charge imposed on a cardholder by a card issuer is a finance charge, 
regardless of whether the issuer imposes the same, greater, or lesser 
charge on withdrawals of funds from an asset account, such as a 
checking or savings account. For example, any charge imposed on a 
credit cardholder by a card issuer for the use of an ATM to obtain a 
cash advance (whether in a proprietary, shared, interchange, or other 
system) is a finance charge regardless of whether the card issuer 
imposes a charge on its debit cardholders for using the ATM to withdraw 
cash from a consumer asset account, such as a checking or savings 
account. In addition, any charge imposed on a credit cardholder for 
making a purchase or obtaining a cash advance outside the United States 
with a foreign merchant, or in a foreign currency, is a finance charge, 
regardless of whether a charge is imposed on debit cardholders for such 
transactions. This comment essentially provides that debit card 
transactions are not considered ``comparable cash transactions'' to 
credit card transactions with respect to transaction charges imposed by 
a card issuer on a credit cardholder when those fees are imposed on the 
credit card account.
---------------------------------------------------------------------------

    \619\ Transaction charges that are imposed on checking accounts 
or other transaction accounts (other than prepaid accounts) are 
discussed in the section-by-section analysis of Sec.  1026.4(b) 
above, and transaction charges imposed on the asset feature of a 
prepaid account accessible by a hybrid prepaid-credit card are 
discussed in the section-by-section analysis of Sec.  
1026.4(b)(11)(ii) below.
---------------------------------------------------------------------------

    In the supplemental information accompanying the rule that adopted 
this comment, the Board noted the inherent complexity of distinguishing 
transactions that are ``comparable cash transactions'' to credit card 
transactions from transactions that are not.\620\ For example, the 
Board discussed the case where a card issuer imposes a transaction fee 
on the credit card account for a cash advance obtained through an ATM. 
The Board found that a transaction fee for a cash advance obtained 
through an ATM would not always be a finance charge if fees that are 
imposed on debit cards offered by the credit card issuer were 
considered in applying the ``comparable cash transaction'' exception. 
In particular,

[[Page 84185]]

whether the transaction fee for the cash advance is a finance charge 
would depend on whether the credit card issuer provided asset accounts 
and offered debit cards on those accounts and whether the fee exceeds 
the fee imposed for a cash advance transaction through an ATM on such 
asset accounts. The Board believed this type of distinction was not 
helpful for consumers in understanding transaction fees imposed on 
their credit card accounts. Thus, the Board adopted existing comment 
4(a)-4, which provides that any transaction charge imposed on a 
cardholder by a card issuer is a finance charge, regardless of whether 
the issuer imposes the same, greater, or lesser charge on withdrawals 
of funds from an asset account, such as a checking or savings account. 
The Board noted that it was not revising existing comment 4(b)(2)-1, 
which states that if a checking or transaction account charge imposed 
on an account with a credit feature does not exceed the charge for an 
account without a credit feature, the charge is not a finance charge. 
The Board further noted that existing comment 4(b)(2)-1 addresses 
situations distinct from those addressed by comment 4(a)-4.
---------------------------------------------------------------------------

    \620\ 74 FR 5244, 5263 (Jan. 29, 2009).
---------------------------------------------------------------------------

    With respect to whether a per transaction charge imposed on the 
covered separate credit feature accessible by a hybrid prepaid-credit 
card should be a finance charge, the Bureau believes that it is 
appropriate to follow the same rules that generally apply to credit 
cards, as set forth in existing comment 4(a)-4. Thus, consistent with 
existing comment 4(a)-4, any transaction charge imposed on a cardholder 
by a card issuer on a covered separate credit feature accessible by a 
hybrid prepaid-credit card is a finance charge. With regard to a 
covered separate credit feature and an asset feature on a prepaid 
account that are both accessible by a hybrid prepaid-credit card, 
transaction charges that are imposed on the asset feature of a prepaid 
account are subject to new Sec.  1026.4(b)(11)(ii) and related 
commentary, instead of new Sec.  1026.4(b)(11)(i).
4(b)(11)(ii)
    In contrast to the rule for fees imposed on a covered separate 
credit feature accessible by a hybrid prepaid-credit card, new Sec.  
1026.4(b)(11)(ii) provides that any fee or charge imposed on the asset 
feature of a prepaid account is a finance charge only to the extent 
that the amount of the fee or charge exceeds comparable fees or charges 
imposed on prepaid accounts in the same prepaid account program that do 
not have a credit feature accessible by a hybrid prepaid-credit card. 
Fees described in final Sec.  1026.4(c) through (e), as applicable, are 
excluded from the definition of finance charge, although, as discussed 
in more detail below, the Bureau is narrowing certain of these existing 
exclusions as they are applied to credit offered in connection with 
prepaid accounts.
    The Bureau's approach with regard to fees charged on an asset 
feature accessible by a hybrid prepaid-credit card is consistent with 
the comparable cash exception to the definition of finance charge. This 
approach is similar to the existing approach that Regulation Z takes 
outside the credit card context in exempting fees from the definition 
of finance charge if they are comparable to fees charged on a checking 
or other asset account for transactions that do not involve a credit 
feature as discussed in final Sec.  1026.4(b)(2), although there are 
important distinctions as discussed below.
    Compared to the proposed approach, the Bureau believes that the 
approach adopted in the final rule with respect to the asset feature 
will make it easier for both prepaid account issuers and for consumers 
to track and understand how the separate credit feature and asset 
features operate in connection with a hybrid prepaid-credit card. The 
Bureau is concerned that excluding all fees charged on an asset feature 
from the definition of finance charge would invite prepaid account 
issuers to structure their programs in ways that make it very difficult 
for consumers to analyze the true cost of credit on a hybrid prepaid-
credit card. At the same time, the Bureau recognizes that certain fees 
charged in conjunction with the operation of the prepaid asset feature 
are not driven by credit use, and that it is useful to both prepaid 
account issuers and consumers to differentiate those fees from other 
charges. The Bureau believes that new Sec.  1026.4(b)(11)(ii) 
appropriately balances these considerations by providing that with 
regard to a covered separate credit feature and an asset feature on a 
prepaid account that are both accessible by a hybrid prepaid-credit 
card, fees or charges imposed on the asset feature of the prepaid 
account are finance charges only to the extent that the amount of the 
fee or charge exceeds comparable fees or charges imposed on prepaid 
accounts in the same prepaid account program that do not have a covered 
separate credit feature accessible by a hybrid prepaid-credit card.
Comparable Fees
    While the Bureau's approach with regard to charges imposed on an 
asset feature accessible by a hybrid prepaid-credit card is somewhat 
similar to the rule provided in existing Sec.  1026.4(b)(2) with regard 
to when transaction fees, service fees, and carrying fees imposed on 
checking and other transaction accounts are finance charges under 
Regulation Z, the final rule differs in one particularly important 
respect: It provides detailed guidance in new comment 4(b)(11)(ii)-1 
regarding how fees on prepaid accounts without a covered separate 
credit feature should be compared to fees imposed on prepaid accounts 
with a covered separate credit feature accessible by a hybrid prepaid-
credit card. This guidance is more detailed and more restrictive than 
the guidance provided under final Sec.  1026.4(b)(2) with regard to 
checking and transaction accounts other than prepaid accounts.
    In developing these rules, as set forth in new Sec.  
1026.61(a)(2)(i)(B) and new comment 61(a)(2)-4.ii, the Bureau was 
conscious that there were two potentially distinct types of credit 
extensions that could occur on a covered separate credit feature 
accessible by a hybrid prepaid-credit card. The first type of credit 
extension is where the hybrid prepaid-credit card accesses credit in 
the course of authorizing, settling, or otherwise completing a 
transaction conducted with the card to obtain goods or services, obtain 
cash, or conduct P2P transfers. The second type of credit extension is 
where a consumer makes a standalone draw or transfer of credit from the 
covered separate credit feature, outside the course of any transactions 
conducted with the card to obtain goods or service, obtain cash, or 
conduct P2P transfers. For example, a consumer may use the prepaid card 
at the prepaid account issuer's Web site to load funds from the covered 
separate credit feature outside the course of a transaction conducted 
with the card to obtain goods or services, obtain cash, or conduct P2P 
transfers. Because the two scenarios involve different sets of 
activities, the range of fees triggered is also likely to be different. 
As discussed in more detail below, new comment 4(b)(11)(ii)-1 therefore 
provides separate guidance on the comparable fees under new Sec.  
1026.4(b)(11)(ii) with respect to each of the two types of credit 
extensions.
    New comment 4(b)(11)(ii)-1.i explains that new comment 
4(b)(11)(ii)-1.ii and iii provides guidance with respect to comparable 
fees under Sec.  1026.4(b)(11)(ii) for these two types of

[[Page 84186]]

credit extensions on a covered separate credit feature. New comment 
4(b)(11)(ii)-1.ii provides guidance for credit extensions where the 
hybrid prepaid-credit card accesses credit from the covered separate 
credit feature in the course of authorizing, settling, or otherwise 
completing a transaction conducted with the card to obtain goods or 
services, obtain cash, or conduct P2P transfers. In addition, new 
comment 4(b)(11)(ii)-1.iii provides guidance for credit extensions 
where a consumer draws or transfers credit from the covered separate 
credit feature outside the course of a transaction conducted with the 
card to obtain goods or services, obtain cash, or conduct P2P 
transfers. New comment 4(b)(11)(ii)-1.ii and iii are discussed in more 
detail below.
    Credit extensions from the covered separate credit feature within 
the course of a transaction. New comment 4(b)(11)(ii)-1.ii provides 
guidance for credit extensions where the hybrid prepaid-credit card 
accesses credit from the covered separate credit feature in the course 
of authorizing, settling, or otherwise completing a transaction 
conducted with the card to obtain goods or services, obtain cash, or 
conduct P2P transfers. Specifically, new comment 4(b)(11)(ii)-1.ii 
provides that where the hybrid prepaid-credit card accesses credit from 
a covered separate credit feature in the course of authorizing, 
settling, or otherwise completing such a transaction, any per 
transaction fees imposed on the asset feature of the prepaid account, 
including load and transfer fees, for such credit from the credit 
feature should be compared to the per transaction fees for each 
transaction to access funds in the asset feature of a prepaid account 
that is in the same prepaid account program but does not have such a 
credit feature. Thus, per transaction fees for a transaction that is 
conducted to load or draw funds into a prepaid account from some other 
source are not comparable for purposes of new Sec.  1026.4(b)(11)(ii).
    To illustrate these principles, new comment 4(b)(11)(ii)-1.ii sets 
forth several examples explaining when a finance charge is imposed on 
the asset feature of a prepaid account in situations in which credit is 
accessed from a covered separate credit feature in the course of 
authorizing, settling, or otherwise completing a transaction conducted 
with the card to obtain goods or services, obtain cash, or conduct P2P 
transfers.
    New comment 4(b)(11)(ii)-1.ii.A provides the following example: 
Assume that a prepaid account issuer charges $0.50 on prepaid accounts 
without a covered separate credit feature for each transaction that 
accesses funds in the asset feature of prepaid accounts. Also, assume 
that the prepaid account issuer charges $0.50 per transaction on the 
asset feature of prepaid accounts in the same prepaid program where the 
hybrid prepaid-credit card accesses credit from a covered separate 
credit feature in the course of a transaction. In this case, the $0.50 
per transaction fee imposed on the asset feature of the prepaid account 
with a covered separate credit feature is not a finance charge because 
it is a comparable fee to the $0.50 per transaction fee imposed on the 
prepaid account without a covered separate credit feature.
    Nonetheless, as described in new comment 4(b)(11)(ii)-1.ii.B, in 
this example, if the prepaid account issuer instead charged $1.25 on 
the asset feature of a prepaid account for each transaction where the 
hybrid prepaid-credit card accesses credit from the covered separate 
credit feature in the course of the transaction, the additional $0.75 
is a finance charge.
    As another example set forth in new comment 4(b)(11)(ii)-1.ii.C, 
assume a prepaid account issuer charges $0.50 on prepaid accounts 
without a covered separate credit feature for each transaction that 
accesses funds in the asset feature of prepaid accounts. Assume also 
that the prepaid account issuer charges both a $0.50 per transaction 
fee and a $1.25 transfer fee on the asset feature of prepaid accounts 
in the same prepaid program where the hybrid prepaid-credit card 
accesses credit from a covered separate credit feature in the course of 
a transaction. In this case, both fees charged on a per-transaction 
basis for the credit transaction (i.e., a combined fee of $1.75 per 
transaction) must be compared to the $0.50 per transaction fee to 
access funds in the asset feature of the prepaid account without a 
covered separate credit feature. Accordingly, the $1.25 excess is a 
finance charge.
    New comment 4(b)(11)(ii)-1.ii.D provides another example. Under 
this example, assume a prepaid account issuer charges both a $0.50 fee 
for each transaction that accesses funds in the asset feature of 
prepaid accounts without a covered separate credit feature, and charges 
a load fee of $1.25 whenever funds are transferred or loaded from a 
separate asset account, such as from a deposit account via a debit 
card, in the course of a transaction on prepaid accounts without a 
covered separate credit feature. Assume also that the prepaid account 
issuer charges both a $0.50 per transaction fee and a $1.25 transfer 
fee on the asset feature of prepaid accounts in the same prepaid 
program when the hybrid prepaid-credit card accesses credit from a 
covered separate credit feature in the course of a transaction. In this 
case, both fees charged on a per-transaction basis for the credit 
transaction (i.e., a combined fee of $1.75 per transaction) must be 
compared to the $0.50 per transaction fee to access funds in the asset 
feature of the prepaid account without a covered separate credit 
feature. Per transaction fees for a transaction that is conducted to 
load or draw funds into a prepaid account from some other source (in 
this example, the $1.25 fee to load funds from another asset account) 
are not comparable for purposes of new Sec.  1026.4(b)(11)(ii). 
Accordingly, the $1.25 excess is a finance charge.
    The Bureau also notes that the per transaction fee for a credit 
extension in the course of a transaction from a covered separate credit 
feature cannot be compared to a fee for declining to pay a transaction 
that is imposed on a prepaid account without such a credit feature in 
the same prepaid account program.
    The Bureau believes that the above standard for determining 
comparable fees with respect to fees or charges imposed on the asset 
feature of prepaid accounts accessible by hybrid prepaid-credit cards 
will help prevent evasion of the rules set forth in the final rule with 
respect to hybrid prepaid-credit cards. The Bureau believes that many 
prepaid cardholders who wish to use covered separate credit features 
may not have other deposit accounts or savings accounts from which they 
can transfer funds to prevent an overdraft on the prepaid account in 
the course of authorizing, settling, or otherwise completing a 
transaction to obtain goods or services, obtain cash, or conduct P2P 
transfers. As a result, the Bureau does not believe that a per 
transaction fee for credit drawn or transferred from a covered separate 
credit feature accessible by a hybrid prepaid-credit card during the 
course of a transaction should be allowed to be compared with a per 
transaction fee for a service that many prepaid cardholders who wish to 
use covered separate credit features may not be able to use.
    The Bureau is concerned that if it permitted such a comparison, 
card issuers could charge a substantial fee to transfer funds from the 
checking account or savings account during the course of a transaction 
using the prepaid account (which many prepaid cardholders who wish to 
use covered separate credit features may not be able to use as a 
practical matter) and then

[[Page 84187]]

charge that same substantial per transactions fees for credit drawn or 
transferred from the covered separate credit feature during the course 
of a transaction without such fees being considered a finance charge. 
This could allow the prepaid account issuer to avoid charging a finance 
charge and avoid the application of the Credit CARD Act provisions that 
are generally set forth in subpart G, such as the restriction on fees 
set forth in Sec.  1026.52. For this reason, the Bureau believes that 
it is appropriate to limit the comparable fee in this case to per 
transaction fees imposed on prepaid accounts for transactions that 
access funds in the prepaid account in the same prepaid account program 
that does not have a covered separate credit feature. All prepaid 
accountholders can use prepaid accounts to make transactions that 
access available funds in the prepaid account, so these types of 
transactions will be available to all prepaid accountholders.
    Credit extensions from a covered separate credit feature outside 
the course of a transaction. New comment 4(b)(11)(ii)-1.iii provides 
guidance for credit extensions where a consumer draws or transfers 
credit from the covered separate credit feature outside the course of a 
transaction conducted with the card to obtain goods or service, obtain 
cash, or conduct P2P transfers, as discussed above.
    New comment 4(b)(11)(ii)-1.iii provides that load or transfer fees 
imposed for draws or transfers of credit from the covered separate 
credit feature outside the course of a transaction are compared only 
with fees, if any, to load funds as a direct deposit of salary from an 
employer or a direct deposit of government benefits that are charged on 
prepaid accounts without a covered separate credit feature. Fees 
imposed on prepaid accounts without a covered separate credit feature 
for a one-time load or transfer of funds from a separate asset account 
or from a non-covered separate credit feature are not comparable for 
purposes of new Sec.  1026.4(b)(11)(ii).
    New comment 4(b)(11)(ii)-1.iii provides examples to illustrate this 
guidance. New comment 4(b)(11)(ii)-1.iii.A provides the following 
example: Assume a prepaid account issuer charges a $1.25 load fee to 
transfer funds from a non-covered separate credit feature, such as a 
non-covered separate credit card account, into prepaid accounts that do 
not have a covered separate credit feature and does not charge a fee 
for a direct deposit of salary from an employer or a direct deposit of 
government benefits on those prepaid accounts. Assume the prepaid 
account issuer charges $1.25 on the asset feature of a prepaid account 
with a covered separate credit feature to load funds from the covered 
separate credit feature outside the course of a transaction. In this 
case, the $1.25 fee imposed on the asset feature of the prepaid account 
with a covered separate credit feature is a finance charge because no 
fee is charged for a direct deposit of salary from an employer or a 
direct deposit of government benefits on prepaid accounts without such 
a credit feature. Fees imposed on prepaid accounts without a covered 
separate credit feature for a one-time load or transfer of funds from a 
non-covered separate credit feature (in this example, the $1.25 fee to 
load funds from the non-covered separate credit feature) are not 
comparable for purposes of new Sec.  1026.4(b)(11)(ii).
    In a second example described in new comment 4(b)(11)(ii)-1.iii.B, 
assume that a prepaid account issuer charges a $1.25 load fee for a 
one-time transfer of funds from a separate asset account, such as from 
a deposit account via a debit card, to a prepaid account without a 
covered separate credit feature and does not charge a fee for a direct 
deposit of salary from an employer or a direct deposit of government 
benefits on those prepaid accounts. Assume the prepaid account issuer 
charges $1.25 on the asset feature of a prepaid account with a covered 
separate credit feature to load funds from the covered separate credit 
feature outside the course of a transaction. In this case, the $1.25 
fee imposed on the asset feature of the prepaid account with a covered 
separate credit feature is a finance charge because no fee is charged 
for a direct deposit of salary from an employer or a direct deposit of 
government benefits on prepaid accounts without a covered separate 
credit feature. Fees imposed on prepaid accounts without a covered 
separate credit feature for a one-time load or transfer of funds from a 
separate asset account (in this example, the $1.25 fee to load funds 
form the separate asset account) are not comparable for purposes of new 
Sec.  1026.4(b)(11)(ii).
    As an initial matter, the Bureau believes that it is appropriate to 
compare fees imposed to load or transfer credit from a covered separate 
credit feature outside the course of transactions conducted with the 
card to fees, if any, for a direct deposit of salary from an employer 
or a direct deposit of government benefits on prepaid accounts with no 
covered separate credit feature because those direct deposits also 
occur outside the course of transactions conducted with the card that 
access funds in the prepaid account. Thus, the Bureau believes that 
these two types of situations are comparable because they both occur 
outside the course of transactions conducted with the card to obtain 
goods or service, obtain cash, or conduct P2P transfers.
    The Bureau recognizes that there may be other types of loads or 
transfers of asset funds or credit that can occur outside the course of 
a transaction, including loads or transfers of funds from other asset 
accounts, such as checking accounts or savings accounts, or loads or 
transfers of credit from other credit accounts that are not covered 
separate credit features. Nonetheless, the Bureau believes that many 
prepaid accountholders who wish to use covered separate credit features 
may not have other asset accounts, such as checking accounts or savings 
accounts, or other credit accounts, from which they can draw or 
transfer asset funds or credit for deposit into the prepaid account 
outside the course of a transaction conducted with the card to obtain 
goods or service, obtain cash, or conduct P2P transfers. As a result, 
the Bureau does not believe that load or transfer fees for credit from 
a covered separate credit feature accessible by a hybrid prepaid-credit 
card outside the course of a transaction should be allowed to be 
compared with a load or transfer fees from an asset account, or non-
covered separate credit feature, outside the course of a transaction.
    The Bureau is concerned that if it did so, card issuers could 
charge a substantial fee to load or transfer funds from the checking 
account or savings account or a non-covered separate credit feature 
(which many prepaid cardholders who wish to use covered separate credit 
features may not be able to use as a practical matter) and then charge 
that same substantial fee for load or transfer fees for credit loaded 
or transferred from the covered separate credit feature outside the 
course of a transaction without that fee being a finance charge. This 
could allow the prepaid account issuer to avoid charging a finance 
charge and avoid the application of the Credit CARD Act provisions that 
are generally set forth in subpart G, such as the restriction on fees 
set forth in Sec.  1026.52. For this reason, the Bureau believes that 
it is appropriate to limit the comparable fee in this case to fees, if 
any, to load funds as a direct deposit of salary from an employer or a 
direct deposit of government benefits that are charged on prepaid 
accounts without a covered separate credit feature. The Bureau believes 
that such direct deposit methods commonly are

[[Page 84188]]

offered on most types of prepaid accounts and that most prepaid 
accountholders who wish to use covered separate credit features are 
able to avail themselves of these methods.\621\
---------------------------------------------------------------------------

    \621\ The Bureau understands that prepaid account issuers 
currently offering overdraft services condition consumer eligibility 
on receipt of a regularly-occurring direct deposit in excess of a 
specified threshold.
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Relation to Regulation E Sec.  1005.18(g)
    New comment 4(b)(11)(ii)-2 provides a cross-reference to a related 
provision in final Regulation E Sec.  1005.18(g). As discussed in more 
detail in the section-by-section analysis of Regulation E Sec.  
1005.18(g) above, this provision only permits a financial institution 
to charge the same or higher fees on the asset feature of a prepaid 
account with a covered separate credit feature accessible by a hybrid 
prepaid-credit card than the amount of a comparable fee it charges on 
prepaid accounts in the same prepaid account program without such a 
credit feature. Under that provision, a financial institution cannot 
charge a lower fee on the asset feature of a prepaid account with a 
covered separate credit feature accessible by a hybrid prepaid-credit 
card than the amount of a comparable fee it charges on prepaid accounts 
without such a credit feature that are in the same prepaid account 
program.
4(c) Charges Excluded From the Finance Charge
    Existing Sec.  1026.4(c) provides a list of charges that are 
excluded from the definition of finance charge under Sec.  1026.4. The 
charges listed in existing Sec.  1026.4(c) include: (1) Application 
fees charged to all applicants for credit, whether or not credit is 
actually extended; (2) charges for actual unanticipated late payment, 
for exceeding a credit limit, or for delinquency, default, or a similar 
occurrence; (3) charges imposed by a financial institution for paying 
items that overdraw an account, unless the payment of such items and 
the imposition of the charge were previously agreed upon in writing; 
and (4) fees charged for participation in a credit plan, whether 
assessed on an annual or other periodic basis.
    The proposal would have provided that the exclusion from the 
definition of finance charge in existing Sec.  1026.4(c)(3) for 
overdraft services on checking accounts would not have applied to 
credit accessed by a prepaid card. It also would have provided that the 
exclusion for participation fees in existing Sec.  1026.4(c)(4) would 
not apply to credit accessed by a prepaid card.
    As discussed in the Overview of the Final Rule's Amendments to 
Regulation Z section, many industry commenters urged the Bureau to 
provide that the exception in Sec.  1026.4(c)(3) applies to overdraft 
credit accessed in connection with prepaid accounts. One credit union 
service organization also indicated that the Bureau should provide that 
the exception in existing Sec.  1026.4(c)(4) should apply to annual and 
other periodic fees to hold a credit plan in connection with a prepaid 
account.
    Several consumer group commenters stated that the exception in 
Sec.  1026.4(c)(1) for application fees for credit features should not 
apply to credit accessed by prepaid cards. One consumer group commenter 
urged that the exceptions in existing Sec.  1026.4(c)(2) for late fees, 
over the limit fees, and returned payment fees should not apply to 
credit accessed by prepaid cards. This commenter expressed concern that 
prepaid account issuers might use such fees as a back-end method of 
credit pricing, and stated that the Bureau should either include these 
fees in definition of ``finance charge'' or make clear that they cannot 
be charged on prepaid accounts.
    As discussed in more detail below, the Bureau is amending existing 
Sec.  1026.4 and its commentary to provide that the exclusion in 
existing Sec.  1026.4(c)(3) does not apply to credit offered in 
connection with a prepaid account and that the exclusion in existing 
Sec.  1026.4(c)(4) does not apply to a fee to participate in a covered 
separate credit feature accessible by a hybrid prepaid-credit card as 
defined in new Sec.  1026.61, regardless of whether this fee is imposed 
on the credit feature or on the asset feature of the prepaid account.
    The Bureau has not adopted any changes to the exception in existing 
Sec.  1026.4(c)(1) related to application fees, or to the exception in 
existing Sec.  1026.4(c)(2) related to late fees, over the limit fees, 
returned check fees, and other fees for delinquency, default, or a 
similar occurrence. The Bureau believes these changes are outside the 
scope of the proposal and does not believe that these changes are 
warranted at this time. The Bureau will continue to monitor whether 
changes to these exceptions with respect to covered separate credit 
features accessible by hybrid prepaid-credit cards are needed.
4(c)(3)
    Existing Sec.  1026.4(c)(3) provides that the term ``finance 
charge'' does not include charges imposed by a financial institution 
for paying items that overdraw an account, unless the payment of such 
items and the imposition of the charge were previously agreed upon in 
writing. As discussed in the Overview of the Final Rule's Amendments to 
Regulation Z section above, the Board developed this exception to the 
term ``finance charge'' to carve out fees imposed by financial 
institutions for checks or other items that overdraw an account so that 
ad hoc overdraft plans would not be subject to Regulation Z.
    As discussed in the Overview of the Final Rule's Amendments to 
Regulation Z section, the Bureau intended generally that, under its 
proposal, Regulation Z would apply to credit accessed by prepaid cards 
that are credit cards. Thus, the Bureau proposed to revise existing 
Sec.  1026.4(c)(3) and existing comment 4(c)(3)-1 to specify that this 
provision would not have applied to credit accessed by a prepaid card. 
As a result, under the proposal, charges imposed by a financial 
institution for paying items that overdraw a prepaid account would have 
been finance charges even if the payment of the item and the imposition 
of the charge were not previously agreed upon in writing, and the 
financial institution extending such an overdraft would have been a 
creditor.
    As discussed in the Overview of the Final Rule's Amendments to 
Regulation Z section, many industry commenters indicated that the 
Bureau should provide that the exception in existing Sec.  1026.4(c)(3) 
applies to overdraft credit accessed in connection with prepaid 
accounts. For the reasons discussed in the Overview of the Final Rule's 
Amendments to Regulation Z section, the Bureau is revising existing 
Sec.  1026.4(c)(3) and existing comment 4(c)(3)-1 to provide that the 
exception in that paragraph does not apply to credit offered in 
connection with a prepaid account as defined in Sec.  1026.61.\622\ The 
Bureau also is adding new comment 4(c)(3)-2 to cross-reference new 
comment 4(b)(11)-1 for guidance on when fees imposed with regard to 
credit accessed in connection with a prepaid account as defined in 
Sec.  1026.61 are finance charges.
---------------------------------------------------------------------------

    \622\ The proposal would have provided that the term ``credit 
card'' includes an account number that is not a prepaid card that 
may be used from time to time to access a credit plan that allows 
deposits directly only into particular prepaid accounts specified by 
the creditor. Proposed Sec.  1026.4(c)(3) and comment 4(c)(3)-1 
would have provided that the exception set forth in Sec.  
1026.4(c)(3) would not have applied to credit accessed by such 
account numbers. For the reasons set forth in the section-by-section 
analysis of Sec.  1026.2(a)(15)(i) above, the final rule does not 
adopt the proposed changes to Sec.  1026.4(c)(3) and comment 
4(c)(3)-1 related to these account numbers.

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[[Page 84189]]

    The Bureau notes that existing Sec.  1026.4(c)(3) focuses on 
written agreements in determining whether charges imposed by a 
financial institution for paying items that overdraw an account are 
finance charges. As discussed in the Overview of the Final Rule's 
Amendments to Regulation Z section, the Bureau believes that whether 
overdraft credit structured as a negative balance on a prepaid account 
is covered under Regulation Z should not turn on whether there is an 
agreement to extend such overdraft credit. Instead, new Sec.  
1026.61(a)(4) sets forth the circumstances in which overdraft credit 
structured as a negative balance on a prepaid account can be excluded 
from Regulation Z. As discussed in more detail in the section-by-
section analysis of Sec.  1026.61(a)(4) below, the Bureau provides that 
a prepaid card is not a hybrid prepaid-credit card (and is not a credit 
card under Regulation Z) where the prepaid card accesses incidental 
credit in the form of a negative balance on the asset account where the 
prepaid account issuer generally does not charge credit-related fees 
for the credit. If the conditions of the exception in new Sec.  
1026.61(a)(4) are met, the prepaid account issuer will not be a ``card 
issuer'' under final Sec.  1026.2(a)(7) and thus the credit card rules 
in Regulation Z do not apply to such overdraft credit features. In 
addition, new comment 4(b)(11)-1.iii provides that fees charged on the 
asset feature of the prepaid account in accordance with the exception 
in new Sec.  1026.61(a)(4) are not finance charges. This ensures that 
the prepaid account issuer is not a ``creditor'' under the general 
definition of ``creditor'' set forth in existing Sec.  1026.2(a)(17)(i) 
as a result of charging these fees on the prepaid account.
4(c)(4)
    Existing Sec.  1026.4(c)(4) provides that the term ``finance 
charge'' does not include fees charged for participation in a credit 
plan, whether assessed on an annual or other periodic basis. Existing 
comment 4(c)(4)-1 explains that the participation fees described in 
existing Sec.  1026.4(c)(4) do not necessarily have to be formal 
membership fees, nor are they limited to credit card plans. The 
provision applies to any credit plan in which payment of a fee is a 
condition of access to the plan itself, but it does not apply to fees 
imposed separately on individual closed-end transactions. The fee may 
be charged on a monthly, annual, or other periodic basis; a one-time, 
non-recurring fee imposed at the time an account is opened is not a fee 
that is charged on a periodic basis, and such a fee may not be treated 
as a participation fee.
    The Bureau proposed to amend existing Sec.  1026.4(c)(4) and 
existing comment 4(c)(4)-1 to provide that this exception would not 
have applied to credit accessed by a prepaid card. One credit union 
service organization indicated that the Bureau should provide that the 
exception in existing Sec.  1026.4(c)(4) should apply to annual and 
other periodic fees to hold a credit plan in connection with a prepaid 
account. This commenter argued that defining the maintenance fee as a 
finance charge is confusing to consumers, and it is not what consumers 
expect ``finance charges'' to be. One consumer group supported the 
Bureau's proposal to include participation fees within the definition 
of ``finance charge'' in Regulation Z when those fees are charged in 
connection with credit on prepaid cards. This commenter argued that 
participation fees have been used to disguise the cost of credit. This 
commenter suggested that including participation fees in the definition 
of ``finance charge'' would prevent these evasions.
    The Bureau is adopting proposed Sec.  1026.4(c)(4) with revisions 
to be consistent with new Sec.  1026.61. Specifically, the Bureau is 
amending existing Sec.  1026.4(c)(4) to provide that this exception 
does not apply to a fee to participate in a covered separate credit 
feature accessible by a hybrid prepaid-credit card as defined in new 
Sec.  1026.61, regardless of whether this fee is imposed on the credit 
feature or on the asset feature of the prepaid account.\623\
---------------------------------------------------------------------------

    \623\ The proposal would have provided that the term ``credit 
card'' includes an account number that is not a prepaid card that 
may be used from time to time to access a credit plan that allows 
deposits directly only into particular prepaid accounts specified by 
the creditor. Proposed Sec.  1026.4(c)(4) would have provided that 
the exception set forth in Sec.  1026.4(c)(4) would not have applied 
to credit accessed by such account numbers. For the reasons set 
forth in the section-by-section analysis of Sec.  1026.2(a)(15)(i) 
above, the final rule does not adopt the proposed changes to Sec.  
1026.4(c)(4) related to these account numbers.
---------------------------------------------------------------------------

    The Bureau believes that the exception in existing Sec.  
1026.4(c)(4) is not dictated by TILA's definition of ``finance 
charge.'' Rather, the Board added this exception to existing Sec.  
1026.4(c)(4) in 1981 based on an interpretation letter that the Board 
had previously issued.\624\ In the interpretation letter, the Board 
excluded annual fees for membership in a credit plan from the 
definition of ``finance charge'' because these fees are not imposed 
incident to or as a condition of any specific extension of credit.\625\ 
Nonetheless, the Bureau believes that the term ``finance charge'' in 
TILA is broad enough to reasonably include periodic fees for 
participation in a credit plan under which a consumer may obtain credit 
because those fees would be incident to the extension of credit. 
Without paying the periodic fees for access to the credit plan, the 
consumer could not use the credit plan to access credit.
---------------------------------------------------------------------------

    \624\ 46 FR 20848, 20855 (Apr. 7, 1981).
    \625\ 36 FR 16050 (Aug. 19, 1971).
---------------------------------------------------------------------------

    As discussed in the Overview of the Final Rule's Amendments to 
Regulation Z section, the Bureau intends generally to cover covered 
separate credit features accessible by hybrid prepaid-credit cards as 
``open-end credit'' under Regulation Z. The Bureau believes these 
credit features should be ``open-end credit'' even if the only fees 
charged for the plan are annual or other periodic fees for 
participation in the credit plan. See the section-by-section analysis 
of Sec.  1026.2(a)(20) above for a discussion of the finance charge 
criterion for the definition of ``open-end credit.'' The Bureau 
believes that annual or other periodic fees that are charged for 
participation in covered separate credit features accessible by hybrid 
prepaid-credit cards could be significant costs to consumers, even if 
interest or transaction fees are not charged with respect to the credit 
features, and thus the protections in Regulation Z that apply to open-
end credit, including those in subpart G, should apply to covered 
separate credit features that charge an annual or other periodic fee to 
access the plan and otherwise meet the definition of ``open-end 
credit.''
    The Bureau especially believes that the protections in Regulation Z 
subpart G that generally apply to open-end credit that is accessible by 
a credit card will be beneficial to consumers using such credit 
features. For example, existing Sec.  1026.51 prohibits credit card 
issuers from extending credit without assessing the consumer's ability 
to pay, with special rules regarding the extension of credit to persons 
under the age of 21. In addition, existing Sec.  1026.52(a) restricts 
the amount of fees (including annual or other periodic fees to access 
the plan) that an issuer can charge during the first year after an 
account is opened, such that the fees generally cannot exceed 25 
percent of the initial credit limit. These provisions will provide 
important protections to consumers to help ensure that consumers using 
covered separate credit features accessible by hybrid prepaid-credit 
cards where only annual or other periodic fees are imposed for

[[Page 84190]]

participation in the credit feature do not become overextended in using 
credit, and that the periodic fees imposed during the first year 
generally do not exceed more than 25 percent of the initial credit 
line.
    Thus, the Bureau is revising existing Sec.  1026.4(c)(4) and 
existing comment 4(c)(4)-1 to provide that the exception for 
participation fees from the definition of ``finance charge'' does not 
apply in relation to a covered separate credit feature accessible by a 
hybrid prepaid-credit card, regardless of whether this fee is imposed 
on the credit feature or on the asset feature of the prepaid account. 
The Bureau also is adding new comment 4(c)(4)-3 to cross-reference new 
comment 4(b)(11)-1 for guidance on when fees imposed in connection with 
credit accessed in connection with a prepaid account as defined in 
Sec.  1026.61 are finance charges.
    As discussed above, the Bureau is amending existing Sec.  
1026.4(c)(4) to provide that the exclusion in that paragraph does not 
apply to a fee to participate in a covered separate credit feature 
accessible by a hybrid prepaid-credit card as defined in new Sec.  
1026.61. This change to existing Sec.  1026.4(c)(4) is limited to fees 
to participate in a covered separate credit feature accessible by a 
hybrid prepaid-credit card, rather than covering all credit in 
connection with a prepaid account. The Bureau intends to preserve 
existing Sec.  1026.4(c)(4) with respect to non-covered separate credit 
features for which a participation fee is charged. Thus, the exclusion 
of participation fees from the definition of finance charge in final 
Sec.  1026.4(c)(4) would still apply with respect to participation fees 
imposed on non-covered separate credit features, as applicable.
    When a prepaid account issuer offers incidental credit, new Sec.  
1026.61(a)(4) generally does not allow credit-related fees to be 
charged for the incidental credit, including fees or charges for 
holding a negative balance on the asset feature, or for the 
availability of credit, whether imposed on a one-time or periodic 
basis. Thus, if a prepaid account issuer did charge these participation 
fees, it would fall outside the scope of new Sec.  1026.61(a)(4) and 
would become subject to the general rules for hybrid prepaid-credit 
cards including new Sec.  1026.4(c)(4). This prepaid account issuer 
would be subject to new Sec.  1026.61(b) and thus must structure the 
credit feature as a covered separate credit feature, as well as being 
subject to new Sec.  1026.4(c)(4).
Subpart B--Open-End Credit
    The provisions in subpart B generally apply to a ``creditor,'' as 
defined in existing Sec.  1026.2(a)(17), that extends ``open-end 
credit,'' as defined in existing Sec.  1026.2(a)(20). As set forth in 
existing Sec.  1026.2(a)(17)(iii) and (iv), the provisions of subpart B 
also generally apply to card issuers that extend credit. These card 
issuers generally would be ``creditors'' for purposes of subpart B. 
These provisions generally require that such creditors must provide 
account-opening disclosures and periodic statement disclosures. These 
provisions also set forth rules for the treatment of payments and 
credit balances as well as procedures for resolving credit billing 
errors. While most of the provisions in subpart B apply generally to 
open-end credit, as described below, some of the provisions only apply 
to a ``credit card account under an open-end (not home-secured) 
consumer credit plan,'' as that term is defined in existing Sec.  
1026.2(a)(15)(ii). In addition, subpart B also sets forth, in existing 
Sec.  1026.12, provisions applicable to credit card transactions; those 
provisions generally apply to a ``card issuer'' as defined in existing 
Sec.  1026.2(a)(7).
    As discussed in the Overview of the Final Rule's Amendments to 
Regulation Z section above and in more detail in the section-by-section 
analysis of Sec.  1026.61 below, the Bureau generally intends to cover 
under Regulation Z overdraft credit features in connection with prepaid 
accounts where the credit features are offered by the prepaid account 
issuer, its affiliates, or its business partners. New Sec.  1026.61(b) 
generally requires that such credit features be structured as separate 
subaccounts or accounts, distinct from the prepaid asset account, to 
facilitate transparency and compliance with various Regulation Z 
requirements. New Sec.  1026.61(a)(2)(i) provides that a prepaid card 
is a ``hybrid prepaid-credit card'' with respect to a separate credit 
feature if the card meets the following two conditions: (1) The card 
can be used from time to time to access credit from the separate credit 
feature in the course of authorizing, settling, or otherwise completing 
transactions conducted with the card to obtain goods or services, 
obtain cash, or conduct P2P transfers; and (2) the separate credit 
feature is offered by the prepaid account issuer, its affiliate, or its 
business partner. New Sec.  1026.61(a)(2)(i) defines such a separate 
credit feature accessible by a hybrid prepaid-credit card as a 
``covered separate credit feature.'' Thus, the hybrid prepaid-credit 
card can access both the covered separate credit feature and the asset 
feature of the prepaid account, and the hybrid prepaid-credit card is a 
credit card under Regulation Z with respect to the covered separate 
credit feature.
    As discussed in the section-by-section analysis of Sec.  1026.61 
below, the Bureau also has decided to exclude prepaid cards from being 
covered as credit cards under Regulation Z when they access certain 
specified types of credit. First, new Sec.  1026.61(a)(2)(ii) provides 
that a prepaid card is not a hybrid prepaid-credit card with respect to 
a separate credit feature that does not meet both of the conditions 
above, for example, where the credit feature is offered by an unrelated 
third party that is not the prepaid account issuer, its affiliate or 
its business partner. Such credit features are defined as ``non-covered 
separate credit features,'' as discussed in the section-by-section 
analysis of Sec.  1026.61(a)(2) below. Second, under new Sec.  
1026.61(a)(4), a prepaid card also is not a hybrid prepaid-credit card 
when the prepaid card accesses incidental credit in the form of a 
negative balance on the asset account where the prepaid account issuer 
generally does not charge credit-related fees for the credit. A prepaid 
card is not a hybrid prepaid-credit card under new Sec.  1026.61 or a 
credit card under final Sec.  1026.2(a)(15)(i) when it accesses credit 
from these types of credit features. For more detailed explanations of 
when prepaid cards are not credit cards under Regulation Z, see the 
section-by-section analyses of Sec.  1026.61(a)(2) and (4) below.
    As discussed in the section-by-section analysis of Sec.  
1026.2(a)(20) above, the Bureau anticipates that most covered separate 
credit features accessible by hybrid prepaid-credit cards will meet the 
definition of ``open-end credit'' and that credit will not be home-
secured. See the section-by-section analysis of the definition of 
``open-end-credit'' in Sec.  1026.2(a)(20), the definition of ``finance 
charge'' in Sec.  1026.4, and the definition of ``hybrid prepaid-credit 
card'' in Sec.  1026.61(a).
    In addition, as discussed in the section-by-section analyses of 
Sec. Sec.  1026.2(a)(7), (a)(15)(i) and (ii), and 1026.61(a), a covered 
separate credit feature accessible by a hybrid prepaid-credit card that 
is an open-end (not home-secured) credit plan is a ``credit card 
account under an open-end (not home-secured) consumer credit plan'' 
under final Sec.  1026.2(a)(15)(ii) and the person issuing the hybrid 
prepaid-credit card (and the person offering the covered separate 
credit feature) are ``card issuers'' under final Sec.  1026.2(a)(7). 
For a discussion of how card issuers would still be subject to certain

[[Page 84191]]

provisions in subpart B if they extend credit that is not ``open-end 
credit,'' see the section-by-section analysis of Sec.  1026.2(a)(17) 
above.
    The Bureau is revising subpart B to provide guidance on how certain 
provisions in subpart B apply to covered separate credit features 
accessible by hybrid prepaid-credit cards. Specifically, the final rule 
provides additional guidance regarding: (1) Disclosure requirements 
applicable to account opening in final Sec.  1026.6; (2) disclosure 
requirements applicable to periodic statements in final Sec. Sec.  
1026.5, 1026.7, and 1026.8; (3) treatment of payment requirements as 
set forth in final Sec.  1026.10; and (4) billing error procedures in 
final Sec.  1026.13.
    The Bureau also is revising certain provisions that apply to credit 
card transactions in final Sec.  1026.12 to provide guidance on how 
those provisions apply to credit card transactions that are made from a 
covered separate credit feature accessible by a hybrid prepaid-credit 
card. Specifically, the final rule provides additional guidance on: (1) 
Unsolicited issuance of a credit card in final Sec.  1026.12(a); (2) 
the right of a cardholder to assert claims or defenses against a card 
issuer in final Sec.  1026.12(c); and (3) the prohibition on offsets by 
a card issuer in final Sec.  1026.12(d).
    To facilitate compliance, the Bureau also is clarifying that with 
respect to a non-covered separate credit feature that is accessible by 
a prepaid card, as defined in new Sec.  1026.61, fees or charges 
imposed on the asset feature of the prepaid account are not ``charges 
imposed as part of the plan'' under final Sec.  1026.6(b)(3) with 
respect to the non-covered separate credit feature, and thus these fees 
or charges are not required to be disclosed under Regulation Z with 
respect to the non-covered separate credit feature. In addition, the 
Bureau is clarifying that fees or charges that are not charges imposed 
as part of the plan are not subject to the offset restrictions set 
forth in final Sec.  1026.12(d). As discussed in the section-by-section 
analyses of Regulation E Sec.  1005.18(b)(4)(ii) and (f)(1) above, fees 
or charges imposed on the asset feature of the prepaid account are 
required to be disclosed under Regulation E.
Section 1026.5 General Disclosure Requirements
5(b) Time of Disclosures
5(b)(2) Periodic Statements
5(b)(2)(ii) Timing Requirements
    TILA sections 127(b) and 163, which are implemented in existing 
Sec.  1026.5(b)(2), set forth the timing requirements for providing 
periodic statements for open-end credit accounts and credit card 
accounts.\626\ Existing Sec.  1026.5(b)(2)(i) provides that a creditor 
that extends open-end credit or credit accessible by a credit card 
generally is required to provide a periodic statement, as required by 
existing Sec.  1026.7, for each billing cycle at the end of which an 
account has a debit or credit balance of more than $1 or on which a 
finance charge has been imposed.
---------------------------------------------------------------------------

    \626\ 15 U.S.C. 1637(b) and 1666b; see also 15 U.S.C. 1602(g).
---------------------------------------------------------------------------

    Existing Sec.  1026.5(b)(2)(ii)(A) provides that for credit card 
accounts under an open-end (not home-secured) consumer credit plan, a 
card issuer must adopt reasonable procedures designed to ensure that: 
(1) Periodic statements for those accounts are mailed or delivered at 
least 21 days prior to the payment due date disclosed on the statement 
pursuant to existing Sec.  1026.7(b)(11)(i)(A); and (2) the card issuer 
does not treat as late for any purpose a required minimum periodic 
payment received by the card issuer within 21 days after mailing or 
delivery of the periodic statement disclosing the due date for that 
payment. See the section-by-section analysis of Sec.  1026.2(a)(15)(ii) 
above for a discussion of the term ``credit card account under an open-
end (not home-secured) consumer credit plan.''
    TILA sections 127(b)(12) and (o), which are implemented in existing 
Sec.  1026.7(b)(11)(i)(A), set forth requirements related to the 
disclosure of payment due dates on periodic statements in the case of a 
credit card account under an open-end consumer credit plan.\627\ 
Existing Sec.  1026.7(b)(11)(i)(A) provides that for a credit card 
account under an open-end (not home-secured) consumer credit plan, a 
card issuer must provide on each periodic statement the due date for a 
payment. In addition, the due date disclosed must be the same day of 
the month for each billing cycle.
---------------------------------------------------------------------------

    \627\ 15 U.S.C. 1637(b)(12), (o).
---------------------------------------------------------------------------

    Although TILA sections 127(b)(12) and (o) do not, on their face, 
exclude charge card accounts that are open-end credit, the Board, in 
implementing these provisions, set forth in existing Sec.  
1026.7(b)(11)(ii)(A) that the payment due date requirement in existing 
Sec.  1026.7(b)(11)(i)(A) does not apply to periodic statements 
provided solely for charge card accounts. Thus, as explained in 
existing comment 5(b)(2)(ii)-4.i, the requirement in existing Sec.  
1026.5(b)(2)(ii)(A)(1) to adopt reasonable procedures designed to 
ensure that periodic statements are mailed or delivered at least 21 
days prior to the payment due date disclosed on the periodic statement 
does not apply to charge card accounts. In the supplemental information 
to the final rule adopting the exclusion for charge cards from the due 
date disclosure requirement, the Board noted that charge cards are 
typically products where outstanding balances cannot be carried over 
from one billing cycle to the next and are payable when the periodic 
statement is received.\628\ Therefore, the contractual payment due date 
for a charge card account is the date on which the consumer receives 
the periodic statement (although charge card issuers generally request 
that the consumer make payment by some later date). If the due date 
disclosure requirement and the 21-day rule for delivery of periodic 
statements applied to charge card account, the card issuer could no 
longer require payment upon delivery of the statement. Thus, the Board 
concluded that it would not be appropriate to apply the payment due 
date disclosure in existing Sec.  1026.7(b)(11)(i)(A) to periodic 
statements provided solely for charge card accounts.
---------------------------------------------------------------------------

    \628\ 75 FR 7658 at 7672-7673, Feb. 22, 2010.
---------------------------------------------------------------------------

The Bureau's Proposal
    The proposal would have amended existing Sec.  1026.7(b)(11)(ii)(A) 
to provide that the due date disclosure does apply to periodic 
statements provided solely for charge card accounts where the charge 
card account is accessed by a charge card that is a prepaid card and 
the charge card account is a credit card account under an open-end (not 
home-secured) consumer credit plan. Thus, under the proposal, the due 
date disclosure in proposed Sec.  1026.7(b)(11)(i)(A) would have 
applied to periodic statements provided for a credit card account under 
an open-end (not home-secured) consumer credit plan, including a charge 
card account, where the account is accessed by a credit card that is a 
prepaid card. Thus, as a technical revision, the proposal would have 
revised existing comment 5(b)(2)(ii)-4.i to reflect the proposed 
changes to existing Sec.  1026.7(b)(11) that the due date requirement 
would apply to a charge card account accessed by a prepaid card that is 
a charge card where the charge card account is a credit card account 
under an open-end (not home-secured) consumer credit plan.

[[Page 84192]]

Comments Received
    One industry trade association indicated that the Bureau should not 
subject prepaid cards that are charge cards to rules that do not apply 
to other types of charge cards but did not specify why this specific 
proposal was not necessary.
The Final Rule
    The Bureau is modifying comment 5(b)(2)(ii)-4.i as proposed with 
technical revisions to clarify the intent of the comment and to be 
consistent with new Sec.  1026.61. As discussed in the section-by-
section analysis of Sec.  1026.7(b)(11) below, the final rule provides 
that the due date disclosure set forth in final Sec.  
1026.7(b)(11)(i)(A) applies to periodic statements provided for a 
covered separate credit feature accessible by a hybrid prepaid-credit 
card that is a charge card account where the charge card account is a 
credit card account under an open-end (not home-secured) consumer 
credit plan. Thus, as a technical revision, the final rule revises 
comment 5(b)(2)(ii)-4.i to state that the exception from the disclosure 
requirements in final Sec.  1026.7(b)(11) for charge card accounts does 
not apply to covered separate credit features that are charge card 
accounts accessible by hybrid prepaid-credit cards as defined in new 
Sec.  1026.61.\629\ As discussed in more detail in the section-by-
section analysis of Sec.  1026.61(a)(2) below, a covered separate 
credit feature accessible by a hybrid prepaid-credit card includes an 
overdraft credit feature offered by a prepaid account issuer, its 
affiliate, or its business partner that can be accessed by a prepaid 
card (except as provided in new Sec.  1026.61(a)(4)). The prepaid card 
is a hybrid prepaid-credit card under new Sec.  1026.61 and a credit 
card under final Sec.  1026.2(a)(15)(i) with respect to the covered 
separate credit feature.
---------------------------------------------------------------------------

    \629\ The proposal would have provided that the term ``credit 
card'' includes an account number that is not a prepaid card that 
may be used from time to time to access a credit plan that allows 
deposits directly only into particular prepaid accounts specified by 
the creditor. Proposed comment 5(b)(2)(ii)-4.i would been revised to 
reflect the proposed changes to Sec.  1026.7(b)(11) that the due 
date requirement does apply to charge card accounts accessed by 
these account numbers. For the reasons set forth in the section-by-
section analysis of Sec.  1026.2(a)(15)(i) above, the final rule 
does not adopt the proposed changes to comment 5(b)(2)(ii)-4.i 
related to these account numbers.
---------------------------------------------------------------------------

    As discussed in more detail in the section-by-section analyses of 
Sec. Sec.  1026.7(b)(11) and 1026.12(d)(3) below, the Bureau believes 
that it is important to provide strong protections to prepaid 
accountholders to ensure that they can control when and if funds are 
swept from their accounts to repay credit extended through a covered 
separate credit feature. In particular, the Bureau believes that for 
all covered separate credit features--including charge card accounts--
accessible by a hybrid prepaid-credit card, where these credit features 
are credit card accounts under an open-end (not home-secured) consumer 
credit plan, the card issuer should be required to adopt reasonable 
procedures designed to ensure that periodic statements for these credit 
features are mailed or delivered at least 21 days prior to the payment 
due date disclosed on the statement, pursuant to final Sec.  
1026.7(b)(11)(i)(A). As discussed in more detail in the section-by-
section analyses of Sec. Sec.  1026.7(b)(11) and 1026.12(d)(3), the 
Bureau believes that this requirement, along with changes to the offset 
prohibition in final Sec.  1026.12(d)(3), will ensure that the due date 
of the covered separate credit feature accessible by a hybrid prepaid-
credit card is not so closely aligned with the timing of when funds are 
deposited into the prepaid account that card issuers can circumvent 
TILA's offset prohibition.
    As discussed in more detail in the section-by-section analysis of 
Sec.  1026.12(d)(3) below, the Bureau is concerned that with respect to 
covered separate credit features accessible by hybrid prepaid-credit 
cards, some card issuers may attempt to circumvent the prohibition on 
offsets by both specifying that each transaction on the covered 
separate credit feature is due on the date on which funds are 
subsequently deposited into the account and obtaining a consumer's 
written authorization to deduct all or part of the cardholder's credit 
card debt from the prepaid account when deposits are received into the 
prepaid account. The Bureau believes that card issuers that offer 
covered separate credit features accessible by hybrid prepaid-credit 
cards may rely significantly on obtaining a consumer's written 
authorization of daily or weekly debits to the prepaid account to repay 
the credit card debt given the overall creditworthiness of prepaid 
accountholders who choose to rely on covered separate credit features. 
The Bureau also believes that card issuers that offer covered separate 
credit features accessible by hybrid prepaid-credit cards may be able 
to obtain a consumer's written authorization to debit the prepaid 
account more easily than for other types of credit card accounts 
because consumers may believe that, in order to obtain credit, they 
must provide written authorization to allow a card issuer to deduct all 
or part of the cardholder's credit card debt from the linked prepaid 
account.
Section 1026.6 Account-Opening Disclosures
    TILA section 127(a) requires creditors to provide consumers with 
information about key credit terms before opening an open-end account 
or a credit card account, such as rates and fees that may be assessed 
on the account.\630\ This TILA provision is implemented in existing 
Sec.  1026.6.
---------------------------------------------------------------------------

    \630\ 15 U.S.C. 1637(a); see also 15 U.S.C. 1602(g).
---------------------------------------------------------------------------

    Existing Sec.  1026.6(b) sets forth the account-opening disclosures 
that must be provided with respect to open-end credit or credit card 
accounts that are not home-secured. Under existing Sec.  1026.6(b)(1) 
and (2), certain account-opening disclosures must be disclosed in a 
tabular format. These disclosures include: (1) The APRs applicable to 
the account for purchases, cash advances, and balance transfers; (2) 
any annual or other periodic fee, expressed as an annualized amount, 
that is imposed for the issuance or availability of a credit account, 
including any fee based on account activity or inactivity; (3) any non-
periodic fees related to opening the account, such as one-time 
membership or participation fees; (4) any minimum or fixed finance 
charge that could be imposed during a billing cycle; (5) any 
transaction charge imposed on purchases, cash advances or balance 
transfers; (6) any late payment fees, over the limit fees, or returned 
payment fees; (7) whether a grace period on transactions applies; (8) 
the name of the balance computation method used to determine the 
balance for each feature on the credit account; (9) any fees for 
required insurance, debt cancellation, or debt suspension coverage; and 
(10) if the fees imposed at account opening are 15 percent or more of 
the minimum credit limit for the credit account, disclosures about the 
available credit that will remain after those fees are imposed.
    Existing Sec.  1026.6(b)(3) sets forth general disclosure 
requirements about costs imposed as part of the plan. Specifically, 
existing Sec.  1026.6(b)(3) provides that a creditor must disclose, to 
the extent applicable: (1) For charges imposed as part of an open-end 
(not home-secured) plan, the circumstances under which the charge may 
be imposed, including the amount of the charge or an explanation of how 
the charge is determined; and (2) for finance charges, a statement of 
when the charge begins to accrue and an explanation of whether or not 
any time period exists

[[Page 84193]]

within which any credit that has been extended may be repaid without 
incurring the charge.
    Existing Sec.  1026.6(b)(3)(ii) provides that charges imposed as 
part of the plan are: (1) Finance charges identified under existing 
Sec.  1026.4(a) and (b); (2) charges resulting from the consumer's 
failure to use the plan as agreed, except amounts payable for 
collection activity after default, attorney's fees whether or not 
automatically imposed, and post-judgment interest rates permitted by 
law; (3) taxes imposed on the credit transaction by a State or other 
governmental body, such as documentary stamp taxes on cash advances; 
(4) charges for which the payment, or nonpayment, affect the consumer's 
access to the plan, the duration of the plan, the amount of credit 
extended, the period for which credit is extended, or the timing or 
method of billing or payment; (5) charges imposed for terminating a 
plan; and (6) charges for voluntary credit insurance, debt 
cancellation, or debt suspension.
    Existing Sec.  1026.6(b)(3)(iii) provides that charges that are not 
imposed as part of the plan include: (1) Charges imposed on a 
cardholder by an institution other than the card issuer for the use of 
the other institution's ATM in a shared or interchange system; (2) a 
charge for a package of services that includes an open-end credit 
feature, if the fee is required whether or not the open-end credit 
feature is included and the non-credit services are not merely 
incidental to the credit feature; and (3) charges under Sec.  1026.4(e) 
which are disclosed as specified.
    Existing Sec.  1026.5(b)(1) provides that charges imposed as part 
of the plan that must be disclosed in the account-opening table under 
existing Sec.  1026.6(b)(2) must be provided before the first 
transaction is made under the plan. Charges that are imposed as part of 
the plan and are not required to be disclosed under existing Sec.  
1026.6(b)(2) may be disclosed after account opening but before the 
consumer agrees to pay or becomes obligated to pay for the charge, 
provided they are disclosed at a time and in a manner that a consumer 
would be likely to notice them.
    The proposal did not contain proposed changes to existing Sec.  
1026.6(b)(2) and (3). Nonetheless, the Bureau believes that additional 
guidance is needed with respect to these disclosure requirements given 
the changes that the final rule makes to the existing definition of 
``finance charge'' in Sec.  1026.4 with respect to credit offered in 
connection with prepaid accounts. As discussed in the section-by-
section analysis of Sec.  1026.4(b)(11) above, the final rule provides 
guidance on when fees or charges imposed on prepaid accounts are 
finance charges under final Sec.  1026.4. Consistent with the changes 
to the definition of ``finance charge'' in the final rule, the final 
rule also provides guidance with respect to the disclosure requirements 
in Sec.  1026.6(b)(2) and (3).
    As discussed below, to ensure compliance with the disclosure 
requirements in final Sec.  1026.6(b)(2) and (3), with regard to a 
covered separate credit feature and an asset feature of the prepaid 
account that are both accessible by a hybrid prepaid-credit card, the 
final rule provides guidance on how the account-opening disclosure 
requirements in final Sec.  1026.6(b)(2) and (3) apply to fees and 
charges imposed on the asset feature of the prepaid account. 
Specifically, the final rule provides that, with regard to a covered 
separate credit feature and an asset feature of the prepaid account 
that are both accessible by a hybrid prepaid-credit card, fees or 
charges imposed on the asset feature of the prepaid account are not 
``charges imposed as part of the plan'' with respect to the covered 
separate credit feature to the extent that the amount of the fee or 
charge does not exceed comparable fees or charges imposed on prepaid 
accounts in the same prepaid account program that do not have a covered 
separate credit feature accessible by a hybrid prepaid-credit card. 
Thus, these fees or charges are not required to be disclosed in the 
account-opening disclosures pursuant to final Sec.  1026.6(b)(2) and 
(3) with respect to the covered separate credit feature. As discussed 
in the section-by-section analyses of Regulation E Sec.  
1005.18(b)(4)(ii) and (f)(1) above, these fees or charges are required 
to be disclosed under Regulation E.
    In addition, a non-covered separate credit feature may be subject 
to the provisions in Sec.  1026.6(b)(2) and (3) in its own right based 
on the terms and conditions of the non-covered separate credit feature, 
independent of the connection to the prepaid account. To facilitate 
compliance, the Bureau also is clarifying that fees or charges imposed 
on the asset feature of the prepaid account are not ``charges imposed 
as part of the plan'' with respect to the non-covered separate credit 
feature. Thus, these fees or charges are not required to be disclosed 
under final Sec.  1026.6(b)(2) and (3) with respect to that non-covered 
separate credit feature.
Covered Separate Credit Features Accessible by Hybrid Prepaid-Credit 
Cards
    As discussed in more detail in the section-by-section analysis of 
Sec.  1026.61(a)(2) below, a covered separate credit feature accessible 
by a hybrid prepaid-credit card includes an overdraft credit feature 
offered by a prepaid account issuer, its affiliate, or its business 
partner that can be accessed by a prepaid card (except as provided in 
new Sec.  1026.61(a)(4)). The prepaid card is a hybrid prepaid-credit 
card under new Sec.  1026.61 and a credit card under final Sec.  
1026.2(a)(15)(i) with respect to the covered separate credit feature.
    With regard to a covered separate credit feature and an asset 
feature of the prepaid account that are both accessible by a hybrid 
prepaid-credit card, the Bureau is adding new Sec.  
1026.6(b)(3)(iii)(D) and new comment 6(b)(3)(iii)(D)-1 to provide 
guidance on when a fee or charge imposed on the asset feature of the 
prepaid account is considered a ``charge imposed as part of the plan'' 
under final Sec.  1026.6(b)(3) with respect to the covered separate 
credit feature. Specifically, new Sec.  1026.6(b)(3)(iii)(D) provides 
that with regard to a covered separate credit feature and an asset 
feature on a prepaid account that are both accessible by a hybrid 
prepaid-credit card, as defined in new Sec.  1026.61, the term 
``charges imposed as part of the plan'' does not include any fee or 
charge imposed on the asset feature of the prepaid account to the 
extent that the amount of the fee or charge does not exceed comparable 
fees or charges imposed on prepaid accounts in the same prepaid account 
program that do not have a covered separate credit feature accessible 
by a hybrid prepaid-credit card.
    New comment 6(b)(3)(iii)(D)-1.i provides an example of the rule set 
forth in new Sec.  1026.6(b)(3)(iii)(D). For example, assume a prepaid 
account issuer charges a $0.50 per transaction fee on an asset feature 
of the prepaid account for purchases when a hybrid prepaid-credit card 
accesses a covered separate credit feature in the course of 
authorizing, settling, or otherwise completing purchase transactions 
conducted with the card and a $0.50 transaction fee for purchases that 
access funds in the asset feature of a prepaid account in the same 
program without such a credit feature. In this case, the $0.50 fees are 
comparable. Thus, the $0.50 fee for purchases when a hybrid prepaid-
credit card accesses a covered separate credit feature in the course of 
a transaction conducted with the card is not a charge imposed as part 
of the plan.

[[Page 84194]]

However, in this example, if the prepaid account issuer imposes a $1.25 
per transaction fee on an asset feature of the prepaid account for 
purchases when a hybrid prepaid-credit card accesses a covered separate 
credit feature in the course of authorizing, settling, or otherwise 
completing purchase transactions conducted with the card, the $0.75 
excess is a charge imposed as part of the plan with respect to the 
covered separate credit feature.
    New comment 6(b)(3)(iii)(D)-1.i also states that this $0.75 excess 
also is a finance charge under new Sec.  1026.4(b)(11)(ii). New comment 
6(b)(3)(iii)(D)-1.ii cross-references new comment 4(b)(11)(ii)-1 for 
additional illustrations of when a prepaid account issuer is charging 
comparable per transaction fees or load or transfer fees on the asset 
feature of the prepaid account.
    The Bureau believes that without this clarification, with regard to 
a covered separate credit feature and an asset feature of the prepaid 
account that are both accessible by a hybrid prepaid-credit card, 
certain fees imposed on the asset feature of the prepaid account that 
are not finance charges still could be considered charges imposed as 
part of the plan under existing Sec.  1026.6(b)(3)(ii) with respect to 
the covered separate credit feature. Specifically, existing Sec.  
1026.6(b)(3)(ii)(D) provides that the term ``charges imposed as part of 
the plan'' includes ``charges for which the payment, or nonpayment, 
affect the consumer's access to the plan, the duration of the plan, the 
amount of credit extended, the period for which credit is extended, or 
the timing or method of billing or payment.'' Existing comment 
6(b)(3)(ii)-2.i provides that charges for which the payment or 
nonpayment affect the consumer's access to the plan include ``fees for 
using a card at a creditor's ATM to obtain a cash advance.''
    The Bureau is concerned that without the clarification in new Sec.  
1026.6(b)(3)(iii)(D) and new comment 6(b)(3)(iii)(D)-1, with regard to 
a covered separate credit feature and an asset feature of the prepaid 
account that are both accessible by a hybrid prepaid-credit card, 
existing Sec.  1026.6(b)(3)(ii)(D) and existing comment 6(b)(3)(ii)-2.i 
could be read to include per transaction fees imposed on the asset 
feature of the prepaid account as ``charges imposed as part of the 
plan'' with respect to the covered separate credit feature when those 
fees are imposed for transactions that involve credit extensions from a 
covered separate credit feature, even if the fee is not a finance 
charge under new Sec.  1026.4(b)(11)(ii). As a result, any per 
transaction fees for those transactions would be disclosed under both 
Regulations Z and E, even if the fee is not a finance charge under new 
Sec.  1026.4(b)(11)(ii). For example, assume a prepaid account issuer 
charges $0.50 on prepaid accounts for each transaction that accesses 
funds in the asset balance of the prepaid account without a covered 
separate credit feature accessible by a hybrid prepaid-credit card. 
Also, assume that the prepaid account issuer charges $0.50 per 
transaction on the asset feature of prepaid accounts in the same 
prepaid program where the hybrid prepaid-credit card accesses credit 
from a covered separate credit feature in the course of a transaction. 
In this case, the $0.50 per transaction fee imposed on the asset 
feature of the prepaid account with a covered separate credit feature 
is not a finance charge under new Sec.  1026.4(b)(11)(ii).
    Nonetheless, if these per transaction fees were ``charges imposed 
as part of the plan'' under existing Sec.  1026.6(b)(3)(ii) with 
respect to the covered separate credit feature, these per transaction 
fees would need to be disclosed in the Regulation Z account-opening 
table required by existing Sec.  1026.6(b)(1) and (2) with respect to 
the covered separate credit feature. In addition, these per transaction 
fees would need to be disclosed on the Regulation Z periodic statement 
for the covered separate credit feature in any billing cycles in which 
they were imposed as set forth in existing Sec.  1026.7(b)(6).
    If disclosure of these per transaction fees were required under 
Regulation Z, these disclosures would duplicate Regulation E 
disclosures of the fees that are required under the Regulation E final 
rule. Pursuant to final Regulation E Sec.  1005.18(b)(4) and (f)(1), 
these per transaction fees must be disclosed in the long form pre-
acquisition disclosure and in the initial disclosures for the prepaid 
account, respectively, because they are imposed on the asset feature of 
the prepaid account. In addition, under existing Regulation E Sec.  
1005.9(b), these per transaction fees must also be disclosed on the 
Regulation E periodic statement or on the written and electronic 
transaction histories pursuant to the periodic statement alternative 
under final Regulation E Sec.  1005.18(c)(1) because these fees are 
imposed on the asset feature of the prepaid account. See also final 
Regulation E Sec.  1005.18(c)(4).
    New Sec.  1026.6(b)(3)(iii)(D) and new comment 6(b)(3)(iii)(D)-1 
make clear that with regard to a covered separate credit feature and an 
asset feature on a prepaid account that are both accessible by a hybrid 
prepaid-credit card, as defined in new Sec.  1026.61, a fee or charge 
imposed on the asset feature of the prepaid account is not a ``charge 
imposed as part of the plan'' for purposes of Regulation Z with respect 
to the covered separate credit feature if the fee or charge is not a 
finance charge under new Sec.  1026.4(b)(11)(ii). As discussed in the 
section-by-section analysis of Sec.  1026.4(b)(11)(ii), the Bureau 
believes that to the extent that a prepaid account issuer is charging 
the same comparable fee on the asset balance of a prepaid account with 
a covered separate credit feature as the fee that it charges on a 
prepaid account in the same prepaid account program without such a 
credit feature, the fee is not being charged for credit and thus, is 
not a finance charge. As such, the Bureau believes that these fees are 
more appropriately disclosed on the Regulation E disclosures for the 
asset feature of the prepaid account and should not be disclosed as 
well on the Regulation Z disclosures with respect to the covered 
separate credit feature.
    Consistent with new Sec.  1026.6(b)(3)(iii)(D) and new comment 
6(b)(3)(iii)(D)-1, with regard to a covered separate credit feature and 
an asset feature of the prepaid account that are both accessible by a 
hybrid prepaid-credit card, the Bureau also is adding new commentary to 
Sec.  1026.6(b)(2) regarding the disclosure of fees imposed on the 
asset feature of the prepaid account in the account-opening table. 
Specifically, new comment 6(b)(2)-1 provides that with regard to a 
covered separate credit feature and an asset feature on a prepaid 
account that are both accessible by a hybrid prepaid-credit card as 
defined in new Sec.  1026.61, a creditor is required to disclose under 
existing Sec.  1026.6(b)(2) any fees or charges imposed on the asset 
feature of the prepaid account that are charges imposed as part of the 
plan under final Sec.  1026.6(b)(3) to the extent those fees or charges 
fall within the categories of fees required to be disclosed under 
existing Sec.  1026.6(b)(2). For example, assume a creditor imposes a 
$1.25 per transaction fee on an asset feature of the prepaid account 
for purchases when a hybrid prepaid-credit card accesses a covered 
separate credit feature in the course of authorizing, settling, or 
otherwise completing purchase transactions conducted with the card and 
a $0.50 transaction fee for purchases that access funds in the asset 
feature of a prepaid account in the same program without such a credit 
feature. In this case, the $0.75 excess is a ``charge imposed as part 
of the plan'' under Sec.  1026.6(b)(3)

[[Page 84195]]

and must be disclosed as a transaction fee for purchases under Sec.  
1026.6(b)(2)(iv) in the account-opening table. New comment 6(b)(2)-2 
clarifies that a creditor is not required to disclose in the account-
opening table under final Sec.  1026.6(b)(2) any fee or charge imposed 
on the asset feature of the prepaid account that is not a charge 
imposed as part of the plan under final Sec.  1026.6(b)(3).
    To ease compliance risk and burden and for other reasons, with 
regard to a covered separate credit feature and an asset feature that 
are both accessible by a hybrid prepaid-credit card, the Bureau expects 
that prepaid account issuers will choose not to impose finance charges 
on the asset feature of the prepaid account. Instead, the Bureau 
expects that prepaid account issuers will choose to charge comparable 
fees on the asset feature of a prepaid account with a linked covered 
separate credit feature as those charged on prepaid accounts in the 
same prepaid account program that are not linked to a covered separate 
credit feature. The Bureau expects that prepaid account issuers will 
choose to impose finance charges on the credit feature itself, and not 
on the asset feature of the prepaid account.
    As noted above, if a prepaid account issuer does impose finance 
charges on the asset feature of the prepaid account, as described in 
new Sec.  1026.4(b)(11)(ii), these finance charges must be disclosed 
under both Regulations Z and E as applicable. In that case, the prepaid 
account issuer must coordinate the disclosures under Regulations Z and 
E and must provide these disclosures in a way that ensures that 
consumers understand the fees that could be imposed. Nonetheless, as 
discussed above, the Bureau believes that most prepaid account issuers 
will choose to avoid imposing finance charges on the asset feature of 
the prepaid account in order to avoid compliance issues and risks 
related to providing disclosures with respect to these fees under both 
Regulations E and Z.
Non-Covered Separate Credit Features
    As discussed in the section-by-section analysis of Sec.  1026.61 
below, the Bureau has decided to exclude prepaid cards from being 
covered as credit cards under Regulation Z when they access certain 
specified types of credit. First, under new Sec.  1026.61(a)(2)(ii), a 
prepaid card is not a hybrid prepaid-credit card with respect to a 
``non-covered separate credit feature,'' which means that the separate 
credit feature either (1) cannot be accessed in the course of a prepaid 
card transaction to obtain goods or services, obtain cash, or conduct 
P2P transfers; or (2) is offered by an unrelated third party that is 
not the prepaid account issuer, its affiliate, or its business partner. 
Second, under new Sec.  1026.61(a)(4), a prepaid card also is not a 
hybrid prepaid-credit card when the prepaid card accesses incidental 
credit in the form of a negative balance on the asset account where the 
prepaid account issuer generally does not charge credit-related fees 
for the credit. A prepaid card is not a hybrid prepaid-credit card 
under new Sec.  1026.61 or a credit card under final Sec.  
1026.2(a)(15)(i) when it accesses credit from these types of credit 
features. For more detailed explanations of when prepaid cards are not 
credit cards under Regulation Z, see the section-by-section analyses of 
Sec.  1026.61(a)(2) and (4) below.
    A non-covered separate credit feature may be subject to the 
provisions in Sec.  1026.6(b)(2) and (3) in its own right based on the 
terms and conditions of the non-covered separate credit feature, 
independent of the connection to the prepaid account. With respect to 
non-covered separate credit features that are subject to Sec.  1026.6, 
to facilitate compliance with the disclosure requirements in final 
Sec.  1026.6(b)(2) and (3), the final rule provides guidance on how the 
disclosure requirements in final Sec.  1026.6(b)(2) and (3) apply to 
fees and charges imposed on the asset feature of a prepaid account in 
relation to non-covered separate credit features accessible by prepaid 
cards. Specifically, new Sec.  1026.6(b)(3)(iii)(E) and new comment 
6(b)(3)(iii)(E)-1 provide that with regard to a non-covered separate 
credit feature accessible by a prepaid card as defined in new Sec.  
1026.61, the term ``charges imposed as part of the plan'' does not 
include any fee or charge imposed on the asset feature of the prepaid 
account. New comment 6(b)(3)(iii)(E)-1 also cross-references new 
comment 4(b)(11)-1.ii.B that provides that fees or charges imposed on 
the asset feature of the prepaid account are not finance charges with 
respect to the non-covered separate credit feature. New comment 
6(b)(2)-2 provides that a creditor is not required to disclose in the 
account-opening table under final Sec.  1026.6(b)(2) any fee or charge 
imposed on the asset feature of the prepaid account that is not a 
charge imposed as part of the plan under final Sec.  1026.6(b)(3). 
Thus, none of the fees or charges imposed on the asset feature of the 
prepaid account would be required to be disclosed under final Sec.  
1026.6(b) with respect to the non-covered separate credit feature.
    As discussed above in relation to covered separate credit features 
accessible by hybrid prepaid-credit cards, the Bureau believes that 
without this clarification, certain fees or charges imposed on the 
asset feature of the prepaid account that are not finance charges with 
respect to the non-covered separate credit features still could be 
considered fees imposed as part of the plan under existing Sec.  
1026.6(b)(3)(ii). Specifically, existing Sec.  1026.6(b)(3)(ii)(D) 
provides that the term ``charges imposed as part of the plan'' includes 
``charges for which the payment, or nonpayment, affect the consumer's 
access to the plan, the duration of the plan, the amount of credit 
extended, the period for which credit is extended, or the timing or 
method of billing or payment.'' The Bureau is concerned that without 
this clarification, existing Sec.  1026.6(b)(3)(ii)(D) could be read to 
include a load or transfer fee imposed on the asset feature of the 
prepaid account as a ``charge imposed as part of the plan'' with 
respect to a non-covered separate credit feature when the fee is 
imposed for a transaction where credit is drawn or transferred from a 
non-covered separate credit feature, even if the fee is not a finance 
charge with respect to the non-covered separate credit feature. Without 
this clarification, the load or transfer fees for those transactions 
would need to be disclosed under both Regulations Z and E, even if the 
fee or charge is not a finance charge under Sec.  1026.4.
    New Sec.  1026.6(b)(3)(iii)(E) and new comment 6(b)(3)(iii)(E)-1 
make clear that with regard to a non-covered separate credit feature 
accessible by a prepaid card, as defined in new Sec.  1026.61, none of 
the fees or charges imposed on the asset feature of the prepaid account 
are charges imposed as part of the plan with respect to the non-covered 
separate credit feature for purposes of Regulation Z. Under new comment 
4(b)(11)-1.ii.B, these fees or charges are not finance charges with 
respect to the non-covered separate credit feature. The Bureau believes 
that because fees or charges that are imposed on the asset feature of 
the prepaid account are not finance charges under final Sec.  1026.4 
with regard to a non-covered separate credit feature, these fees or 
charges are more appropriately disclosed on the Regulation E 
disclosures, and they should not be disclosed as well on the Regulation 
Z disclosures with respect to non-covered separate credit features.

[[Page 84196]]

Section 1026.7 Periodic Statement
7(b) Rules Affecting Open-End (Not Home-Secured) Plans & 7(b)(13) 
Format Requirements
    TILA section 127(b) identifies information about an open-end 
account or credit card account that must be disclosed when a creditor 
is required to provide periodic statements.\631\ TILA section 127(b) is 
implemented in existing Sec.  1026.7.
---------------------------------------------------------------------------

    \631\ 15 U.S.C. 1637(b); see also 15 U.S.C. 1602(g).
---------------------------------------------------------------------------

    The periodic statement requirements in existing Sec.  1026.7 
generally apply to a ``creditor'' as defined in existing Sec.  
1026.2(a)(17) that extends ``open-end credit'' as defined in existing 
Sec.  1026.2(a)(20). The periodic statement requirements in existing 
Sec.  1026.7 also generally apply to card issuers that extend credit, 
as set forth in existing Sec.  1026.2(a)(17)(iii) and (iv). These card 
issuers generally are considered ``creditors'' for purposes of the 
periodic statement requirements.
    Existing Sec.  1026.7(b) sets forth the content requirements for 
periodic statements given with respect to open-end plans or credit card 
accounts that are not home-secured. Generally, under existing Sec.  
1026.7(b), such periodic statements must include, among other things, 
information about: (1) The amount of the balance outstanding at the 
beginning of the billing cycle; (2) any credit to the account during 
the billing cycle, such as payments; (3) any credit transactions that 
occurred during a billing cycle, described in accordance with existing 
Sec.  1026.8; (4) the APRs that may be used to compute interest charges 
during the billing cycle; (5) the amount of the balance to which an APR 
was applied and an explanation of how that balance was determined; (6) 
the amount of each ``charge imposed as part of the plan'' incurred 
during the billing cycle; (7) the date by which or the time period 
within which the new balance or any portion of the new balance must be 
paid to avoid additional finance charges; (8) the closing date of the 
billing cycle and the account balance outstanding on that date; and (9) 
the due date for a payment with respect to a credit card account under 
an open-end (not home-secured) consumer credit plan.
    As discussed above, any ``charge imposed as part of the plan,'' as 
that term is defined in existing Sec.  1026.6(b)(3), must be disclosed 
on the Regulation Z periodic statement if it was incurred during the 
billing cycle. If the charges imposed as part of the plan are interest 
charges, these charges must be itemized by type of transaction, and the 
total interest charges that were imposed during the billing cycle and 
year to date must also be disclosed. If the charges imposed as part of 
the plan are fees other than interest charges, these fees must be 
itemized by type, and the total fee charges that were imposed during 
the billing cycle and year to date must be disclosed.
    Existing Sec.  1026.7(b)(13) requires that certain disclosures on 
the Regulation Z periodic statement must be disclosed on the front of 
the first page of the periodic statement. Existing comment 7(b)(13)-1 
explains that some financial institutions provide information about 
deposit account and open-end credit account activity on one periodic 
statement. This existing comment provides that for purposes of 
providing disclosures on the front of the first page of the periodic 
statement pursuant to existing Sec.  1026.7(b)(13), the first page of 
such a combined statement shall be the page on which credit 
transactions first appear.
    Existing Sec.  1026.5(a)(1)(iii) also provides that certain 
disclosures required by subpart B, including periodic statements 
required under Sec.  1026.7, may be provided to the consumer in 
electronic form, subject to compliance with the consumer consent and 
other applicable provisions of the E-Sign Act.
    The periodic statement requirements in final Sec.  1026.7(b) apply 
to covered separate credit features accessible by hybrid prepaid-credit 
cards because card issuers that extend credit under those credit 
features are ``creditors'' that are subject to the periodic statement 
requirements in final Sec.  1026.7, pursuant to existing Sec.  
1026.2(a)(17)(iii) or (iv). As discussed in more detail in the section-
by-section analysis of Sec.  1026.61(a)(2) below, a covered separate 
credit feature accessible by a hybrid prepaid-credit card includes an 
overdraft credit feature offered by a prepaid account issuer, its 
affiliate, or its business partner that can be accessed by a prepaid 
card (except as provided in new Sec.  1026.61(a)(4)). The prepaid card 
is a hybrid prepaid-credit card under new Sec.  1026.61 and a credit 
card under final Sec.  1026.2(a)(15)(i) with respect to the covered 
separate credit feature.
Periodic Statements Under Regulations E and Z
    Under the proposal, under Regulation E, periodic statements would 
have been required under existing Sec.  1005.9(b) to disclose non-
credit transactions on the prepaid account, unless the financial 
institution complied with proposed Sec.  1005.18(c). Specifically, in 
lieu of providing periodic statements required under Sec.  1005.9(b), 
proposed Sec.  1005.18(c)(1) would have permitted a financial 
institution to make available to the consumer: (1) The consumer's 
account balance through a readily available telephone line; (2) an 
electronic history of the consumer's account transactions, such as 
through a Web site, that covers at least 18 months preceding the date 
the consumer electronically accesses the account; and (3) a written 
history of the consumer's account transactions that is provided 
promptly in response to an oral or written request and that covers at 
least 18 months preceding the date the financial institution receives 
the consumer's request.
    In addition, under the proposal, a creditor would have been 
required to provide a Regulation Z periodic statement with respect to 
credit features accessed by prepaid cards that are credit cards because 
card issuers that extend credit under those credit features would have 
been ``creditors'' that are subject to the periodic statement 
requirements in proposed Sec.  1026.7(b), pursuant to existing Sec.  
1026.2(a)(17)(iii) or (iv).
    One industry trade association urged the Bureau not to impose a 
Regulation Z periodic statement requirement in addition to the 
Regulation E statement requirement. This commenter believed that dual 
statements would add to consumer confusion. This commenter believed 
that the Regulation E statement requirements should be modified to 
disclose the finance charge and payment information that otherwise 
would be included in a Regulation Z statement.
    One consumer group commenter indicated that a periodic statement 
under Regulation Z should be required, and supported allowing a 
financial institution to combine the Regulations E and Z periodic 
statements, so long as the combined periodic statement meets the 
requirements of both regulations.
    Under the final rule, a creditor is required to provide a 
Regulation Z periodic statement under final Sec.  1026.7(b) with 
respect to a covered separate credit feature that is accessible by a 
hybrid prepaid-credit card because card issuers that extend credit 
under those credit features are ``creditors'' that are subject to the 
periodic statement requirements in final Sec.  1026.7(b), pursuant to 
existing Sec.  1026.2(a)(17)(iii) or (iv).\632\ The Bureau does not 
believe

[[Page 84197]]

that modifying the Regulation E periodic statement requirement in 
existing Sec.  1005.9(b) or the requirement to provide electronic and 
written account transaction histories pursuant to the periodic 
statement alternative in final Sec.  1005.18(c)(1) to include 
disclosures pertaining to a covered separate credit feature accessible 
by a hybrid prepaid-credit card would benefit consumers. As discussed 
in the section-by-section analysis of Sec.  1026.61(b) below, new Sec.  
1026.61(b) prohibits an overdraft credit feature offered by a prepaid 
account issuer, its affiliate, or its business partner in connection 
with a prepaid account from being structured as a negative balance to 
the asset feature of the prepaid account, except for overdraft credit 
features described in new Sec.  1026.61(a)(4). Instead, a card issuer 
must structure an overdraft credit feature in connection with a prepaid 
account as a separate credit feature, such as a credit account or 
credit subaccount to the prepaid account that is separate from the 
asset feature of the prepaid account, except for overdraft credit 
features described in new Sec.  1026.61(a)(4). This separate credit 
feature is a ``covered separate credit feature'' under new Sec.  
1026.61(a)(2)(i).
---------------------------------------------------------------------------

    \632\ The proposal would have provided that the term ``credit 
card'' includes an account number that is not a prepaid card that 
may be used from time to time to access a credit plan that allows 
deposits directly only into particular prepaid accounts specified by 
the creditor. Under the proposal, Regulation Z periodic statements 
would have been required with respect to credit card accounts that 
are accessed by these account numbers. For the reasons set forth in 
the section-by-section analysis of Sec.  1026.2(a)(15)(i) above, the 
final rule does not adopt the provisions related to the account 
numbers that would have made these account numbers into credit cards 
under Regulation Z.
---------------------------------------------------------------------------

    The Bureau believes that retaining the requirement to provide a 
Regulation Z periodic statement with respect to such an overdraft 
credit feature that is structured as a separate credit feature will 
reinforce for consumers that this credit feature is separate from the 
asset feature of the prepaid account.
    As discussed above, existing Sec.  1026.7(b)(13) requires that 
certain disclosures on the Regulation Z periodic statement must be 
disclosed on the front of the first page of the periodic statement. 
Existing comment 7(b)(13)-1 explains that some financial institutions 
provide information about deposit account and open-end credit account 
activity on one periodic statement. This existing comment provides that 
for purposes of providing disclosures on the front of the first page of 
the periodic statement pursuant to existing Sec.  1026.7(b)(13), the 
first page of such a combined statement is the page on which credit 
transactions first appear. To facilitate compliance, the Bureau is 
amending comment 7(b)(13)-1 to provide that the guidance in this 
comment also applies to financial institutions that provide information 
about prepaid accounts and account activity in connection with covered 
separate credit features accessible by hybrid prepaid-credit cards as 
defined in Sec.  1026.61 on one periodic statement. This revision to 
final comment 7(b)(13)-1 clarifies that if a financial institution 
elects to provide a periodic statement under existing Regulation E 
Sec.  1005.9(b) to a holder of the prepaid account, the financial 
institution is permitted to combine the Regulation E and Regulation Z 
periodic statements. In this case, the financial institution must 
satisfy the requirements of both Regulation E and Regulation Z in 
providing the combined statement. If a financial institution instead 
elects to follow the periodic statement alternative set forth in final 
Regulation E Sec.  1005.18(c)(1), the financial institution still is 
required to provide Regulation Z periodic statements in writing 
pursuant to final Sec.  1026.7. Under existing Sec.  1026.5(a)(1)(iii), 
financial institutions are permitted to provide the Regulation Z 
periodic statements in electronic form, subject to compliance with the 
consumer consent and other applicable provisions of the E-Sign Act.
Charges Imposed as Part of the Plan
    Existing Sec.  1026.7(b)(6) provides that a creditor must disclose 
on the Regulation Z periodic statement, among other things, information 
about the amount of each ``charges imposed as part of the plan,'' as 
that term is defined in existing Sec.  1026.6(b)(3), if the charge was 
incurred during the billing cycle. If the charges imposed as part of 
the plan are interest charges, these charges must be itemized by type 
of transaction, and the total interest charges that were imposed during 
the billing cycle and year to date must also be disclosed. If the 
charges imposed as part of the plan are fees other than interest 
charges, these charges must be itemized by type, and the total fee 
charges that were imposed during the billing cycle and year to date 
must be disclosed.
    Covered separate credit features accessible by hybrid prepaid-
credit cards. As discussed in the section-by-section analysis of Sec.  
1026.6(b)(3) above, the Bureau is adding guidance in new Sec.  
1026.6(b)(3)(iii)(D) and new comment 61(b)(3)(iii)(D)-1 on whether fees 
or charges imposed on the asset feature of a prepaid account are 
``charges imposed as part of the plan'' under final Sec.  1026.6(b)(3) 
with respect to a covered separate credit feature where the credit 
feature and the asset feature are both accessible by a hybrid prepaid-
credit card. As discussed in more detail in the section-by-section 
analysis of Sec.  1026.61(a)(2) below, a covered separate credit 
feature accessible by a hybrid prepaid-credit card includes an 
overdraft credit feature offered by a prepaid account issuer, its 
affiliate, or its business partner that can be accessed by a prepaid 
card (except as provided in new Sec.  1026.61(a)(4)). The prepaid card 
is a hybrid prepaid-credit card under new Sec.  1026.61 and a credit 
card under final Sec.  1026.2(a)(15)(i) with respect to the covered 
separate credit feature.
    Under the final rule, new Sec.  1026.6(b)(3)(iii)(D) provides that 
with regard to a covered separate credit feature and an asset feature 
on a prepaid account that are both accessible by a hybrid prepaid-
credit card, as defined in new Sec.  1026.61, the term ``charges 
imposed as part of the plan'' with respect to the covered separate 
credit feature does not include any fee or charge imposed on the asset 
feature of the prepaid account to the extent that the amount of the fee 
or charge does not exceed comparable fees or charges imposed on prepaid 
accounts in the same prepaid account program that do not have a covered 
separate credit feature accessible by a hybrid prepaid-credit card. As 
described in the section-by-section analysis of Sec.  1026.4(b)(11) 
above, these fees or charges imposed on the asset feature of the 
prepaid account are not finance charges under new Sec.  
1026.4(b)(11)(ii) with respect to the covered separate credit feature. 
As discussed in the section-by-section analysis of Sec.  
1026.4(b)(11)(ii) above, the Bureau believes that to the extent that a 
prepaid account issuer charges the same comparable fee on the asset 
balance of a prepaid account with a covered separate credit feature as 
the fee that it charges on a prepaid account in the same prepaid 
account program without such a credit feature, the fee is not related 
to credit, and thus, is not a finance charge. As such, the Bureau 
believes that these fees are more appropriately disclosed on the 
Regulation E disclosures for the asset feature of the prepaid account 
and should not be disclosed as well on the Regulation Z disclosures 
with respect to the covered separate credit feature. Thus, as discussed 
in the section-by-section analysis of Sec.  1026.6 above, the Bureau is 
excluding these fees or charges from the term ``charges imposed as part 
of the plan'' with respect to covered separate credit features under 
new Sec.  1026.6(b)(3)(iii)(D). Because these fees or charges are not 
charges imposed as part of the plan, these fees or charges are not 
required to be disclosed on the Regulation Z periodic statement under 
existing Sec.  1026.7(b)(6) with respect to the covered separate credit 
feature.
    The fees or charges imposed on the asset feature of the prepaid 
account must be disclosed on the Regulation E periodic statement 
pursuant to existing

[[Page 84198]]

Sec.  1005.9(b), or on the electronic and written account transaction 
histories pursuant to the periodic statement alternative under final 
Regulation E Sec.  1005.18(c)(1). See the section-by-section analysis 
of Regulation E Sec.  1005.18(c)(1) above.
    Non-covered separate credit features. As discussed in the section-
by-section analysis of Sec.  1026.61 below, the Bureau has decided not 
to regulate a prepaid card as a credit card under Regulation Z when it 
accesses credit from certain credit features. For example, under Sec.  
1026.61(a)(2)(ii), a prepaid card is not a hybrid prepaid-credit card 
with respect to a ``non-covered separate credit feature,'' which means 
that the separate credit feature either (1) cannot be accessed in the 
course of a prepaid card transaction to obtain goods or services, 
obtain cash, or conduct P2P transfers; or (2) is offered by an 
unrelated third party that is not the prepaid account issuer, its 
affiliate, or its business partner. A non-covered separate credit 
feature is not subject to the rules applicable to hybrid prepaid-credit 
cards; however, it typically will be subject to Regulation Z depending 
on its own terms and conditions, independent of the connection to the 
prepaid account.
    As discussed in the section-by-section analysis of Sec.  1026.6 
above, to facilitate compliance with the disclosure requirements in 
final Sec.  1026.6(b)(2) through (3) for non-covered separate credit 
features that are subject to existing Sec.  1026.6, the final rule 
provides guidance on how the disclosure requirements in final Sec.  
1026.6(b)(2) and (3) apply to fees and charges imposed on the asset 
feature of a prepaid account in relation to non-covered separate credit 
features accessible by prepaid cards. Specifically, new Sec.  
1026.6(b)(3)(iii)(E) and new comment 61(b)(3)(iii)(E)-1 provide that 
with regard to a non-covered separate credit feature accessible by a 
prepaid card, as defined in new Sec.  1026.61, the term ``charges 
imposed as part of the plan'' does not include any fee or charge 
imposed on the asset feature of the prepaid account. New comment 
6(b)(3)(iii)(E)-1 also cross-references new comment 4(b)(11)-1.ii.B, 
which provides that fees or charges imposed on the asset feature of the 
prepaid account are not finance charges with respect to the non-covered 
separate credit feature.
    As discussed in the section-by-section analysis of Sec.  1026.6 
above, the Bureau believes that these fees or charges are more 
appropriately disclosed on the Regulation E disclosures for the asset 
feature of the prepaid account and should not be disclosed as well on 
the Regulation Z disclosures with respect to the non-covered separate 
credit feature. Thus, as discussed in the section-by-section analysis 
of Sec.  1026.6 above, the Bureau is excluding these fees or charges 
from the term ``charges imposed as part of the plan'' with respect to 
non-covered separate credit features under new Sec.  
1026.6(b)(3)(iii)(E). Because these fees or charges are not charges 
imposed as part of the plan, these fees or charges are not required to 
be disclosed on the Regulation Z periodic statement under existing 
Sec.  1026.7(b)(6) with respect to the non-covered separate credit 
feature that are subject to final Sec.  1026.7. As discussed above, 
fees or charges imposed on the asset feature of the prepaid account 
must be disclosed on the Regulation E periodic statement under existing 
Sec.  1005.9(b) or on the electronic and written account transaction 
histories provided to consumers pursuant to the periodic statement 
alternative set forth in final Regulation E Sec.  1005.18(c)(1). See 
also final Regulation E Sec.  1005.18(c)(4).
Paper Periodic Statements
    One consumer group commenter indicated that the Bureau should 
prohibit creditors from making consumers consent to electronic 
communications a condition of a credit feature and from charging fees 
for providing paper periodic statements under Regulation Z. The 
consumer group commenter indicated that while it believes that this 
prohibition should apply to all credit cards and open-end credit, the 
commenter was particularly concerned that prepaid cardholders whose 
cards are linked to credit will be coerced into accepting electronic 
communications even if paper would serve them better.
    The Bureau believes the change is beyond the scope of the proposal, 
and the change is not warranted at this time. Thus, the Bureau is not 
including changes to Regulation Z on these issues as part of the final 
rule. The Bureau will monitor this issue with respect to prepaid 
cardholders who link covered separate credit features accessible by 
hybrid prepaid-credit cards to their prepaid accounts.
7(b)(11) Due Date; Late Payment Costs
    TILA sections 127(b)(12) and (o), which are implemented in existing 
Sec.  1026.7(b)(11)(i), set forth requirements related to the 
disclosure of payment due dates on periodic statements in the case of a 
credit card account under an open-end consumer credit plan.\633\ Under 
existing Sec.  1026.7(b)(11)(i), for a credit card account under an 
open-end (not home-secured) consumer credit plan, a card issuer 
generally must provide on each periodic statement: (1) The due date for 
a payment, and the due date disclosed must be the same day of the month 
for each billing cycle; and (2) the amount of any late payment fee and 
any increased periodic rate(s) (expressed as an APR(s)) that may be 
imposed on the account as a result of a late payment. Existing Sec.  
1026.7(b)(11)(ii) provides, however, that the requirements of existing 
Sec.  1026.(b)(11)(i) do not apply to the following: (1) Periodic 
statements provided solely for charge card accounts; and (2) periodic 
statements provided for a charged-off account where payment of the 
entire account balance is due immediately.
---------------------------------------------------------------------------

    \633\ 15 U.S.C. 1637(b)(12), (o).
---------------------------------------------------------------------------

    As also noted in the section-by-section analysis of Sec.  
1026.5(b)(2)(ii) above, although TILA sections 127(b)(12) and (o) do 
not, on their face, exclude charge card accounts that are open-end 
credit from the requirement to disclose the due date on each periodic 
statement, the Board in implementing these provisions set forth in 
existing Sec.  1026.7(b)(11)(ii)(A) provided that the payment due date 
requirement and other disclosures set forth in existing Sec.  
1026.7(b)(11)(i) do not apply to periodic statements provided solely 
for charge card accounts. In the supplemental information to the final 
rule adopting the exclusion for charge cards from the due date 
disclosure requirement, the Board noted that charge cards are typically 
products where outstanding balances cannot be carried over from one 
billing cycle to the next and are payable when the periodic statement 
is received.\634\ Therefore, the contractual payment due date for a 
charge card account is the date on which the consumer receives the 
periodic statement (although charge card issuers generally request that 
the consumer make payment by some later date). If the due date 
disclosure requirement and the 21-day rule for delivery of periodic 
statements applied to charge card accounts, the card issuer could no 
longer require payment upon delivery of the statement. Thus, the Board 
concluded that it would not be appropriate to apply the payment due 
date disclosure in existing Sec.  1026.7(b)(11)(i)(A) to periodic 
statements provided solely for charge card accounts.
---------------------------------------------------------------------------

    \634\ 75 FR 7658 at 7672-7673, Feb. 22, 2010.
---------------------------------------------------------------------------

    The proposal would have amended existing Sec.  1026.7(b)(11)(ii)(A) 
to provide that the due date disclosure does apply to periodic 
statements provided solely

[[Page 84199]]

for charge card accounts where the charge card account is accessed by a 
charge card that is a prepaid card. Thus, under the proposal, the due 
date disclosure in proposed Sec.  1026.7(b)(11)(i)(A) would have 
applied to periodic statements provided for a credit card account under 
an open-end (not home-secured) consumer credit plan, including a charge 
card account, where the account is accessed by a credit card that is a 
prepaid card.
    One industry trade association indicated that the Bureau should not 
subject prepaid cards that are charge cards to rules that do not apply 
to other types of charge cards but did not specify why this specific 
proposal was not necessary.
    The Bureau is adopting Sec.  1026.7(b)(11)(ii)(A) as proposed, with 
revisions to be consistent with new Sec.  1026.61. Specifically, final 
Sec.  1026.7(b)(11)(ii)(A) provides that the due date disclosure does 
apply to periodic statements provided for covered separate credit 
features that are charge card accounts accessible by hybrid prepaid-
credit cards, as defined in Sec.  1026.61, where the charge card 
account is a credit card account under an open-end (not home-secured) 
consumer credit plan.\635\ Thus, under the final rule, the due date 
disclosure in final Sec.  1026.7(b)(11)(i)(A) applies to periodic 
statements provided for covered separate credit features accessible by 
hybrid prepaid-credit cards, including charge card accounts, where the 
covered separate credit feature is a credit card account under an open-
end (not home-secured) consumer credit plan. As discussed in more 
detail in the section-by-section analysis of Sec.  1026.61(a)(2) below, 
a covered separate credit feature accessible by a hybrid prepaid-credit 
card includes an overdraft credit feature offered by a prepaid account 
issuer, its affiliate, or its business partner that can be accessed by 
a prepaid card (except as provided in new Sec.  1026.61(a)(4)). The 
prepaid card is a hybrid prepaid-credit card under new Sec.  1026.61 
and a credit card under final Sec.  1026.2(a)(15)(i) with respect to 
the covered separate credit feature.
---------------------------------------------------------------------------

    \635\ The proposal would have provided that the term ``credit 
card'' includes an account number that is not a prepaid card that 
may be used from time to time to access a credit plan that allows 
deposits directly only into particular prepaid accounts specified by 
the creditor. Proposed Sec.  1026.7(b)(11)(ii)(A)(2) would have 
provided that the due date disclosure set forth in Sec.  
1026.7(b)(11)(i)(A) does apply to periodic statements provided 
solely for charge card accounts where the charge card accounts are 
accessed by such account numbers. For the reasons set forth in the 
section-by-section analysis of Sec.  1026.2(a)(15)(i) above, the 
final rule does not adopt the proposed changes to Sec.  
1026.7(b)(11)(ii)(A)(2) related to these account numbers.
---------------------------------------------------------------------------

    The Bureau believes that this due date requirement, the requirement 
in final Sec.  1026.5(b)(2)(ii)(A), and the changes to the offset 
prohibition in final Sec.  1026.12(d)(3), will ensure that the due date 
of a covered separate credit feature accessible by a hybrid prepaid-
credit card that is a credit card account under an open-end (not home-
secured) consumer credit plan is not so closely aligned with the timing 
of when funds are deposited into the prepaid account that card issuers 
can circumvent the offset prohibition.
    As discussed in more detail in the section-by-section analysis of 
Sec.  1026.12(d)(3) below, the Bureau is concerned that with respect to 
covered separate credit features accessible by hybrid prepaid-credit 
cards, including charge card accounts, that are credit card accounts 
under an open-end (not home-secured) consumer credit plan, some card 
issuers may attempt to circumvent the prohibition on offsets by 
specifying that each transaction on the covered separate credit feature 
is due on the date on which funds are subsequently deposited into the 
account, and obtaining a consumer's written authorization to deduct all 
or part of the cardholder's credit card debt when deposits are received 
into the prepaid account to help ensure that the debt is repaid. The 
Bureau believes that card issuers that offer covered separate credit 
features accessible by hybrid prepaid-credit cards may rely 
significantly on obtaining a consumer's written authorization of daily 
or weekly debits to the prepaid account to repay the credit card debt 
given the overall creditworthiness of prepaid accountholders who choose 
to use covered separate credit features. The Bureau also believes that 
card issuers that offer covered separate credit features accessible by 
hybrid prepaid-credit cards may be able to obtain a consumer's written 
authorization to debit the prepaid account for the credit card debt 
more easily than for other types of credit card accounts because 
consumers may believe that, in order to obtain credit, they have no 
alternative but to provide written authorization to allow a card issuer 
to deduct all or part of the cardholder's credit card debt from the 
linked prepaid account.
    The revisions adopted in final Sec.  1026.7(b)(11), along with the 
changes adopted in final Sec.  1026.5(b)(2)(ii)(A), in the offset 
provisions in final Sec.  1026.12(d)(3), and in the compulsory use 
provisions in final Regulation E Sec.  1005.10(e)(1), would mean, 
respectively, that with respect to covered separate credit features 
that are accessible by hybrid prepaid-credit cards, including charge 
card accounts, that are credit card accounts under an open-end (not 
home-secured) consumer credit plan, card issuers: (1) Would be required 
to adopt reasonable procedures designed to ensure that periodic 
statements for the covered separate credit features are mailed or 
delivered at least 21 days prior to the payment due date disclosed on 
the periodic statement and the due date disclosed must be the same day 
of the month for each billing cycle; (2) could move funds automatically 
from the asset account held by the card issuer to the covered separate 
credit feature held by the card issuer to pay some or all of the credit 
card debt no more frequently than once per month, such as on the 
payment due date (pursuant to the consumer's signed, written agreement 
that the issuer may do so); and (3) would be required to offer 
consumers a means to repay their outstanding credit balances on the 
covered separate credit feature other than automatic repayment (such as 
by means of a transfer of funds from the asset account to the credit 
account that the consumer initiates on the prepaid account's online 
banking Web site following a cash reload to the asset account).
Section 1026.8 Identifying Transactions on Periodic Statements
    TILA section 127(b)(2) requires creditors to identify on periodic 
statements credit extensions that occurred during a billing cycle.\636\ 
The statute calls for the Bureau to implement requirements that are 
sufficient to identify the transaction or to relate the credit 
extension to sales vouchers or similar instruments previously 
furnished.
---------------------------------------------------------------------------

    \636\ 15 U.S.C. 1637(b)(2).
---------------------------------------------------------------------------

    Existing Sec.  1026.8 sets forth the requirements for how issuers 
must describe each credit transaction on the periodic statement. 
Existing Sec.  1026.8 generally provides that a creditor must identify 
credit transactions on or with the first periodic statement that 
reflects the transaction by furnishing certain information. Existing 
Sec.  1026.8(a) sets forth the requirements for describing a ``sale 
credit'' transaction on the periodic statement. A ``sale credit'' 
generally means a credit transaction involving the sale of property or 
services. Existing Sec.  1026.8(b) sets forth the requirements for 
describing a ``nonsale credit'' transaction on the periodic statement. 
A ``nonsale credit'' transaction generally means a credit transaction 
that does not involve the sale of property or services.

[[Page 84200]]

The final rule provides guidance on how creditors may comply with the 
requirements in final Sec.  1026.8(a) and (b) with respect to covered 
separate credit features accessible by hybrid prepaid-credit cards.
8(a) Sale Credit
    Existing Sec.  1026.8(a) provides that for each credit transaction 
involving the sale of property or services, the creditor generally must 
disclose the amount and date of the transaction, and either: (1) A 
brief identification of the property or services purchased, for 
creditors and sellers that are the same or related; or (2) the seller's 
name and the city and State or foreign country where the transaction 
took place. The creditor may omit the address or provide any suitable 
designation that helps the consumer to identify the transaction when 
the transaction took place at a location that is not fixed; took place 
in the consumer's home; or was a mail, internet, or telephone order. 
Existing comment 8(a)-1 provides that the term ``sale credit'' refers 
to a purchase in which the consumer uses a credit card or otherwise 
directly accesses an open-end line of credit to obtain goods or 
services from a merchant, whether or not the merchant is the card 
issuer or creditor.
The Bureau's Proposal
    Under the proposal, sale credit would have included credit 
transactions where a prepaid card that is a credit card is used to 
obtain goods or services from a merchant. Thus, under the proposal, any 
time a prepaid card that was a credit card was used to obtain goods or 
services from a merchant and the transaction in whole or in part was 
funded with credit, the credit transaction would have been disclosed as 
``sale credit'' under proposed Sec.  1026.8(a) rather than as nonsale 
credit under proposed Sec.  1026.8(b).
    Existing comment 8(a)-2 provides guidance on how to disclose the 
amount of the credit transaction if sale transactions are not billed in 
full on any single statement. The proposal would have moved the 
existing language of comment 8(a)-2 to proposed comment 8(a)-2.i. The 
proposal also would have added comment 8(a)-2.ii to provide that the 
term ``sale credit'' includes a purchase in which the consumer uses a 
prepaid card that is a credit card to obtain goods or services from a 
merchant and the transaction is wholly or partially funded by credit, 
whether or not the merchant is the card issuer or creditor. Proposed 
comment 8(a)-2.ii also would have provided guidance on how to disclose 
the amount of the credit transaction for purposes of certain prepaid 
transactions. Proposed comment 8(a)-2.ii would have set forth guidance 
on how to disclose a transaction at point of sale where credit is 
accessed by a prepaid card that is a credit card, and that transaction 
partially involves the purchase of goods or services and partially 
involves other credit, such as cash back given to the cardholder. In 
this situation, proposed comment 8(a)-2.ii would have provided that the 
creditor must disclose the amount of credit as ``sale credit'' under 
existing Sec.  1026.8(a), including the portion of the transaction that 
involves credit that is not for a purchase of goods or services.
    Proposed comment 8(a)-2.ii also would have provided that if a 
prepaid card that is a credit card is used to obtain goods or services 
from a merchant and the transaction is partially funded by the 
consumer's prepaid account and partially funded by credit, the amount 
to be disclosed under existing Sec.  1026.8(a) is the amount of the 
credit extension, not the total amount of the purchase transaction. For 
example, assume that a cardholder makes a $50 purchase with the prepaid 
card but only has $20 in funds in the prepaid account. The $30 of 
credit would have been disclosed on the Regulation Z periodic 
statement. Under the Regulation E proposal, the amount of the 
transaction that is funded from the prepaid account would have been 
disclosed either on the Regulation E periodic statement or on the 
electronic and written histories of account transactions pursuant to 
the periodic statement alternative set forth in proposed Regulation E 
Sec.  1005.18(c)(1)(ii).
Comments Received
    The Bureau solicited comment on whether the Bureau should consider 
a disclosure that would appear on the Regulation Z periodic statement 
that would notify consumers when a particular transaction is funded 
partially through the prepaid account and partially funded through 
credit so that consumers would know to look at the Regulation E 
periodic statement or account history for additional information 
related to that transaction.
    One consumer group commenter indicated that the Bureau should 
require that the entire transaction be disclosed on both the Regulation 
Z periodic statement and the Regulation E periodic statement under 
Sec.  1005.9(b) (or on the electronic and written account transaction 
histories pursuant to the periodic statement alternative under proposed 
Sec.  1005.18(c)(1)), indicating on each statement that only part of 
the transaction came from each account. This commenter believed that 
consumers who are trying to identify transactions would be confused if 
the amount listed on each statement does not match the transaction 
amount.
The Final Rule
    The final rule moves proposed comment 8(a)-2.ii to new comment 
8(a)-9 and revises this guidance as discussed below. The Bureau also is 
revising existing comment 8(a)-1 to provide a cross-reference to new 
comment 8(a)-9 for guidance on when credit accessible by a hybrid 
prepaid-credit card from a covered separate credit feature must be 
disclosed on the Regulation Z periodic statement as sale credit or 
nonsale credit.
    New comment 8(a)-9 provides guidance on when credit accessible by a 
hybrid prepaid-credit card from a covered separate credit feature must 
be disclosed on the Regulation Z periodic statement as sale credit or 
nonsale credit. As discussed in more detail in the section-by-section 
analysis of Sec.  1026.61(a)(2) below, a covered separate credit 
feature accessible by a hybrid prepaid-credit card includes an 
overdraft credit feature offered by a prepaid account issuer, its 
affiliate, or its business partner that can be accessed by a prepaid 
card (except as provided in new Sec.  1026.61(a)(4)). The prepaid card 
is a hybrid prepaid-credit card under new Sec.  1026.61 and a credit 
card under final Sec.  1026.2(a)(15)(i) with respect to the covered 
separate credit feature.
    New comment 8(a)-9 recognizes that a card issuer with respect to a 
covered separate credit feature accessible by a hybrid prepaid-credit 
card may structure the overdraft credit feature in two ways to cover 
situations where the consumer has insufficient or unavailable funds in 
the asset feature of the prepaid account at the time of authorization 
or settlement to cover the amount of the transaction conducted with the 
card to obtain goods or services, obtain cash, or conduct P2P 
transfers. With respect to the first way, new comment 8(a)-9.i explains 
that the covered separate credit feature could be structured such that 
a consumer can use a hybrid prepaid-credit card to make a purchase to 
obtain goods or services from a merchant, and credit is drawn directly 
from the covered separate credit feature without transferring funds 
into the asset feature of the prepaid account to cover the amount of 
the purchase. For example, assume that the consumer has $10 of funds in 
the asset feature of the prepaid account and initiates a transaction 
with a merchant to obtain goods or services with the hybrid

[[Page 84201]]

prepaid-credit card for $25. In this case, $10 is debited from the 
asset feature, and $15 of credit is drawn directly from the covered 
separate credit feature accessed by the hybrid prepaid-credit card 
without any transfer of funds into the asset feature of the prepaid 
account to cover the amount of the purchase.
    New comment 8(a)-9.i provides that such a transaction is a ``sale 
credit'' under final Sec.  1026.8(a). In this example, the $15 credit 
transaction will be treated as ``sale credit'' under final Sec.  
1026.8(a).
    With respect to the second way, new comment 8(a)-9.ii explains that 
a covered separate credit feature accessible by a hybrid prepaid-credit 
card could be structured where a consumer uses a hybrid prepaid-credit 
card to make a purchase to obtain goods or services from a merchant, 
and credit is transferred from the covered separate credit feature into 
the asset feature of the prepaid account to cover the amount of the 
purchase. For example, again, assume that the consumer has $10 of funds 
in the asset feature of the prepaid account and initiates a transaction 
with a merchant to obtain goods or services with the hybrid prepaid-
credit card for $25. In this case, the $15 is transferred from the 
covered separate credit feature to the asset feature, and a transaction 
of $25 is debited from the asset feature of the prepaid account.
    New comments 8(a)-9.ii provides that such a transaction is a 
``nonsale credit'' under final Sec.  1026.8(b). In this example, the 
$15 credit transaction is treated as ``nonsale credit'' under Sec.  
1026.8(b). The Bureau notes, however, that while this type of credit 
transaction is disclosed as ``nonsale credit'' under final Sec.  
1026.8(b) on the Regulation Z periodic statement, this transaction is 
still considered a transaction made with the card to purchase goods or 
services under final Sec.  1026.12(c) and would be subject to final 
Sec.  1026.12(c). See the section-by-section analysis of Sec.  
1026.12(c) below.
    The Bureau believes that for disclosure purposes under final 
Sec. Sec.  1026.7(b)(2) and 1026.8, it is appropriate to distinguish 
these two ways in which a creditor may structure a covered separate 
credit feature accessible by a hybrid prepaid-credit card. The Bureau 
believes that this distinction will help consumers better recognize and 
understand the credit transactions when they are disclosed on the 
Regulation Z periodic statement. The Bureau believes that this is 
particularly true when a transaction involves situations where the 
hybrid prepaid-credit card is used to obtain goods or services from a 
merchant and the transaction is partially paid with funds from the 
asset feature of the consumer's prepaid account, and partially paid 
with credit from a covered separate credit feature.
    As discussed above, a credit transaction will be disclosed as 
``sale credit'' on the Regulation Z periodic statement where a consumer 
uses a hybrid prepaid-credit card to make a purchase to obtain goods or 
services from a merchant, and credit is drawn directly from the covered 
separate credit feature to cover the amount of the purchase without 
transferring funds into the asset feature of the prepaid account. New 
comment 8(a)-9.iii provides for these types of transactions, if a 
hybrid prepaid-credit card is used to obtain goods or services from a 
merchant and the transaction is partially funded by the consumer's 
prepaid account and partially funded by credit from the covered 
separate credit feature, the amount to be disclosed under final Sec.  
1026.8(a) as a ``sale credit' is the amount of the credit extension, 
not the total amount of the purchase transaction.
    For example, again, assume that the consumer has $10 of funds in 
the asset feature of the prepaid account and initiates a transaction 
with a merchant to obtain goods or services with the hybrid prepaid-
credit card for $25. In this case, $10 is debited from the asset 
feature, and $15 of credit is drawn directly from the covered separate 
credit feature to cover the amount of the purchase without any transfer 
of funds into the asset feature of the prepaid account. The $15 credit 
transaction is disclosed as ``sale credit'' on the Regulation Z 
periodic statement, and the $10 part of the transaction is disclosed on 
the Regulation E periodic statement under existing Regulation E Sec.  
1005.9(b), or alternatively, on the electronic and written account 
transaction histories pursuant to the periodic statement alternative 
under final Regulation E Sec.  1005.18(c)(1).
    In this example, because the credit transaction is treated as 
``sale credit'' under existing Sec.  1026.8(a), the following 
information regarding the credit portion of the transaction (the $15 
credit portion, in the example above) generally will be disclosed on 
the Regulation Z periodic statement: (1) The amount of the transaction; 
(2) the date of the transaction; (3) the merchant's name; and (4) the 
merchant's location. In this example, as set forth in existing 
Regulation E Sec.  1005.9(b)(1) and final Sec.  1005.18(c)(3), similar 
information will be disclosed on the Regulation E periodic statement, 
or alternatively, the electronic and written account transaction 
histories regarding the portion of the transaction that involves asset 
funds ($10 in the above example), namely: (1) The amount of the 
transaction; (2) the date of the transaction; (3) the merchant's name; 
and (4) the merchant's location. The Bureau believes that because both 
parts of the transaction are disclosed consistently on the Regulation Z 
and Regulation E periodic statements (or on the electronic and written 
account transaction histories provided to consumers pursuant to the 
periodic statement alternative under final Regulation E Sec.  
1005.18(c)(1)), a consumer will be better able to match up the two 
parts of the transaction. Thus, the Bureau does not believe that it is 
necessary in this case to disclose both portions of the transaction on 
each periodic statement, as suggested by a consumer group commenter as 
discussed above.
    The Bureau recognizes that for purchases of goods or services that 
involve overdrafts on asset accounts that are executed via debit cards, 
the credit transaction may be disclosed as nonsale credit. In 
particular, comment 8(b)-1.iii provides that nonsale credit includes 
the use of an overdraft credit plan accessed by a debit card, even if 
such use is in connection with a purchase of goods or services. In a 
1981 rulemaking implementing the Truth in Lending Simplification and 
Reform Act, the Board indicated that several commenters requested 
clarification regarding whether a creditor should identify a 
transaction as sale or nonsale credit when a consumer uses a debit card 
with an overdraft feature to purchase goods, and in doing so, activates 
the overdraft. The Board expressed its belief that the credit portions 
of such transactions could be viewed as cash advances, and therefore 
permitted the credit portions to be disclosed as nonsale credit at the 
creditor's option even though a purchase is involved.\637\ As discussed 
in the Overview of the Final Rule's Amendments to Regulation Z section, 
the Bureau is not intending to revise rules in Regulation Z that apply 
to overdraft plans accessed by debit cards. Nonetheless, for 
transactions discussed above with respect to covered separate credit 
features accessible by hybrid prepaid-credit cards, the Bureau believes 
that disclosing the credit transaction as sale credit would be more 
helpful to consumers than disclosing the transaction as nonsale credit 
because consumers would receive the seller's name, and the city and 
State or

[[Page 84202]]

foreign country where the transaction took place.
---------------------------------------------------------------------------

    \637\ 46 FR 20848, 20861 (Apr. 7, 1981).
---------------------------------------------------------------------------

    If the credit transaction were treated as nonsale credit, the 
consumer would not receive the information about the seller's name and 
address. As discussed above, the Bureau believes that the information 
about the seller's name and address may be useful to consumers in 
identifying the credit transactions where a hybrid prepaid-credit card 
is used to obtain goods or services from a merchant, and credit is 
drawn directly from the covered separate credit feature to cover the 
amount of the purchase without transferring funds into the asset 
feature of the prepaid account. As discussed above, the Bureau also 
notes that under Regulation E, on the periodic statement, or the 
electronic and written account transaction histories under the periodic 
statement alternative, a transaction that involves a withdrawal from 
the prepaid account at point of sale must include the merchant's name 
and location. Thus, as discussed above, with respect to a single 
transaction that involves both a withdrawal from the prepaid account 
and an extension of credit, disclosing such a credit transaction as 
sale credit could help consumers match up the part of the transaction 
that appears on the Regulation Z periodic statement with the part of 
the transaction that appears on the Regulation E periodic statement or 
account transaction history.
    On the other hand, as set forth in new comments 8(a)-9.ii and 8(b)-
1.vi a credit transaction is disclosed as ``nonsale credit'' under 
final Sec.  1026.8(b) on the Regulation Z periodic statement where a 
consumer uses a hybrid prepaid-credit card to make a purchase to obtain 
goods or services from a merchant, and credit is transferred from the 
covered separate credit feature accessed by the hybrid prepaid-credit 
card into the asset feature of the prepaid account to cover the amount 
of the purchase. For example, again assume that the consumer has $10 of 
funds in the asset feature of the prepaid account and initiates a 
transaction with a merchant to obtain goods or services with the hybrid 
prepaid-credit card for $25. In this case, $15 will be transferred from 
the covered separate credit feature to the asset feature, and a 
transaction of $25 is debited from the asset feature of the prepaid 
account.
    In this example, the following information must be disclosed under 
Sec.  1026.8(b) on the Regulation Z periodic statement with respect to 
the portion of the transaction that involves credit ($15 in this 
example): (1) A brief identification of the transaction; (2) the amount 
of the transaction; and (3) at least one of the following dates: The 
date of the transaction; the date the transaction was debited to the 
consumer's account; or if the consumer signed the credit document, the 
date appearing on the document.
    Also, in this example, as set forth in existing Regulation E Sec.  
1005.9(b)(1) and final Sec.  1005.18(c)(3), the following information 
will be given on the Regulation E periodic statement (or alternatively, 
the electronic and written account transaction histories) regarding the 
transfer of credit into the asset feature of the prepaid account (the 
$15 transfer from the covered separate credit feature): (1) The type of 
transfer and type of account from which funds were transferred; (2) the 
amount of the transfer; and (3) the date the transfer was credited to 
the consumer's account. In addition, as set forth in existing 
Regulation E Sec.  1005.9(b)(1) and final Sec.  1005.18(c)(3), the 
following information will be provided on the Regulation E periodic 
statement (or alternatively, the electronic and written account 
transaction histories) regarding the $25 debit to the asset feature: 
(1) The amount of the transaction; (2) the date of the transaction; and 
(3) the merchant's name and location.
    The Bureau believes that this information on the Regulation Z and E 
periodic statements (or alternatively, on the electronic and written 
account transaction histories pursuant to the periodic statement 
alternative under final Regulation E Sec.  1005.18(c)(1)) will allow 
consumers to understand better the connection between outgoing 
transfers from covered separate credit features that are shown on the 
Regulation Z periodic statements and the incoming transfers that are 
shown on the Regulation E periodic statements (or alternatively, the 
electronic and written account transaction histories). The Regulation E 
periodic statement or account transaction histories also will show 
information about the purchase transaction made with the card. In the 
example above, the entire amount of the transaction ($25 purchase 
transaction) will be shown on the Regulation E periodic statement or 
the account transaction histories.
    Transactions that partially involve the purchase of goods or 
services and partially involves other credit. New comment 8(a)-9.iii 
also provides that if a transaction is ``sale credit'' as described 
above, for a transaction at point of sale conducted using a hybrid 
prepaid-credit card that accesses credit from a covered separate credit 
feature where the transaction partially involves the purchase of goods 
or services and partially involves other credit, such as cash back 
given to the cardholder, the creditor must disclose the entire amount 
of the credit as sale credit, including the part of the transaction 
that does not relate to the purchase of goods or services.
    The Bureau understands that creditors may not be able to identify 
separately the amount of the credit transaction that relates to the 
purchase of goods or services at a merchant and the amount of the 
credit transaction that relates to other types of credit, such as cash 
back given to the cardholder. In this case, the card issuer may only be 
able to determine the total amount of credit extended for that 
transaction. To ensure that consumers are better able to recognize 
credit transactions disclosed on periodic statements, new comment 8(a)-
9.iii requires that a creditor disclose the entire amount of the credit 
transaction as ``sale credit'' under final Sec.  1026.8(a). Under this 
approach, a creditor must disclose the entire amount of the credit 
transaction, the date of the transaction, and the merchant's name and 
location on the Regulation Z periodic statement. The Bureau believes 
such information is sufficient to allow a consumer to identify a 
transaction, even where part of the amount of the transaction is for 
cash back or other forms of credit given to the cardholder at point of 
sale. For these types of transactions, the Bureau anticipates that the 
cardholder will associate the entire credit transaction, including the 
cash back portion of the credit, with the merchant's name.
8(b) Nonsale Credit
    Existing Sec.  1026.8(b) provides that for each credit transaction 
not involving the sale of property or services, the creditor generally 
must disclose a brief identification of the transaction; the amount of 
the transaction; and at least one of the following dates: (1) The date 
of the transaction; (2) the date the transaction was debited to the 
consumer's account; or (3) if the consumer signed the credit document, 
the date appearing on the document. Existing comment 8(b)-1 provides 
that the term ``nonsale credit'' refers to any form of loan credit, 
including, for example: (1) A cash advance; (2) an advance on a credit 
plan that is accessed by overdrafts on a checking account; (3) the use 
of a ``supplemental credit device'' in the form of a check or draft or 
the use of the overdraft credit plan accessed by a debit card, even if 
such use is in connection with a purchase of goods or services; and (4) 
miscellaneous debits to remedy mispostings, returned checks, and 
similar entries.

[[Page 84203]]

    The proposal would have added an additional example to existing 
comment 8(b)-1 to provide guidance on when credit transactions are 
``nonsale credit'' when credit is accessed by a prepaid card that is a 
credit card. First, proposed comment 8(b)-1.v would have explained that 
``nonsale credit'' includes an advance at an ATM on a credit plan that 
is accessed by a prepaid card that is a credit card. This proposed 
comment also would have clarified that if a prepaid card that is a 
credit card is used to obtain an advance at an ATM and the transaction 
is partially funded by the consumer's prepaid account and partially 
funded by a credit extension, the amount to be disclosed under proposed 
Sec.  1026.8(b) is the amount of the credit extension, not the total 
amount of the ATM transaction.
    The proposal also would have made technical revisions to two 
comments--existing comment 8(b)-1.ii and existing comment 8(b)-2--which 
would have provided guidance regarding overdraft credit plans in order 
to make clear that these comments do not apply to overdraft credit 
plans related to prepaid accounts.
    The Bureau did not receive any specific comments on this aspect of 
the proposal. The Bureau is adopting new comment 8(b)-1.v as proposed, 
with revisions to be consistent with new Sec.  1026.61.\638\ New 
comment 8(b)-1.v provides that an advance at an ATM on a covered 
separate credit feature accessible by a hybrid prepaid-credit card as 
defined in Sec.  1026.61 is an example of nonsale credit under Sec.  
1026.8(b). This comment also provides that if a hybrid prepaid-credit 
card is used to obtain an advance at an ATM and the transaction is 
partially paid with funds from the asset feature of the prepaid account 
and partially paid with a credit extension from the covered separate 
credit feature, the amount to be disclosed under final Sec.  1026.8(b) 
is the amount of the credit extension, not the total amount of the ATM 
transaction.
---------------------------------------------------------------------------

    \638\ The proposal would have provided that the term ``credit 
card'' includes an account number that is not a prepaid card that 
may be used from time to time to access a credit plan that allows 
deposits directly only into particular prepaid accounts specified by 
the creditor. Proposed comment 8(b)-1.vi would have explained that 
``nonsale credit' includes an advance on a credit plan accessed by 
such an account number. For the reasons set forth in the section-by-
section analysis of Sec.  1026.2(a)(15)(i) above, the final rule 
does not adopt the proposed comment 8(b)-1.vi related to these 
account numbers.
---------------------------------------------------------------------------

    As discussed in more detail in the section-by-section analysis of 
Sec.  1026.8(a), the Bureau also is adding new comment 8(b)-1.vi to 
provide that a credit transaction will be disclosed as ``nonsale 
credit'' under final Sec.  1026.8(b) on the Regulation Z periodic 
statement where a consumer uses a hybrid prepaid-credit card as defined 
in new Sec.  1026.61 to make a purchase to obtain goods or services 
from a merchant, and credit is transferred from a covered separate 
credit feature accessed by the hybrid prepaid-credit card into the 
asset feature of the prepaid account to cover the amount of the 
purchase, as described in new comment 8(a)-9.ii. In this scenario, the 
amount to be disclosed under final Sec.  1026.8(b) is the amount of the 
credit extension, not the total amount of the purchase transaction.
    Consistent with the proposal, the final rule also adopts final 
comments 8(b)-1.ii and comment 8(b)-2 as proposed with revisions to 
specify that the term ``prepaid account'' is defined in new Sec.  
1026.61.
Section 1026.10 Payments
10(a) General Rule
    TILA section 164(a), which is implemented in existing Sec.  
1026.10(a), provides that payments received from an obligor under an 
open-end consumer credit plan or a credit card account by the creditor 
shall be posted promptly to the obligor's account as specified in 
regulations of the Bureau.\639\ Existing Sec.  1026.10(a) generally 
provides that a creditor for open-end credit or a credit card account 
shall credit a payment to the consumer's account as of the date of 
receipt, except when a delay in crediting does not result in a finance 
or other charge or except as provided in Sec.  1026.10(b). Existing 
comment 10(a)-2 provides guidance on the term ``date of receipt'' as 
used in existing Sec.  1026.10(a). Specifically, existing comment 
10(a)-2 provides that the ``date of receipt'' is the date that the 
payment instrument or other means of completing the payment reaches the 
creditor. Existing comment 10(a)-2.ii provides an example illustrating 
the date of receipt for payments related to payroll deduction plans. 
Specifically, existing comment 10(a)-2.ii provides that in a payroll 
deduction plan in which funds are deposited to an asset account held by 
the creditor, and from which payments are made periodically to an open-
end credit account, payment is received on the date when it is debited 
to the asset account (rather than on the date of the deposit), provided 
the payroll deduction method is voluntary and the consumer retains use 
of the funds until the contractual payment date.
---------------------------------------------------------------------------

    \639\ 15 U.S.C. 1666c; see also 15 U.S.C. 1602(g).
---------------------------------------------------------------------------

    The proposal would have amended this comment to reference proposed 
changes that would have been added to proposed Sec.  1026.12(d)(3) 
related to the prohibition on offsets. As discussed in more detail in 
the section-by-section analysis of Sec.  1026.12(d) below, existing 
Sec.  1026.12(d)(1) provides that a card issuer may not take any 
action, either before or after termination of credit card privileges, 
to offset a cardholder's indebtedness arising from a consumer credit 
transaction under the relevant credit card plan against funds of the 
cardholder held on deposit with the card issuer. Nonetheless, existing 
Sec.  1026.12(d)(3) provides that the prohibition on offsets does not 
prohibit a plan, if authorized in writing by the cardholder, under 
which the card issuer may periodically deduct all or part of the 
cardholder's credit card debt from a deposit account held with the card 
issuer (subject to the limitations in existing Sec.  1026.13(d)(1)). 
With respect to credit cards that are also prepaid cards, the proposal 
would have added proposed Sec.  1026.12(d)(3)(ii) to define 
``periodically'' to mean no more frequently than once per calendar 
month. Thus, under proposed Sec.  1026.12(d)(3), with respect to such 
credit card accounts that would have been accessed by a prepaid card 
that is a credit card, a card issuer would have been permitted to 
deduct automatically all or a part of the cardholder's credit card debt 
from the prepaid account or other deposit account held by the card 
issuer no more frequently than once per month, pursuant to a signed, 
written authorization by the cardholder to do so.
    The proposal would have revised existing comment 10(a)-2.ii to 
explain that proposed Sec.  1026.12(d)(3)(ii) prevents card issuers, 
with respect to credit card accounts accessed by prepaid cards that are 
credit cards, from automatically deducting credit card account payments 
from a prepaid account or other deposit account held by the card issuer 
more frequently than once per calendar month. In a payroll deduction 
plan in which funds are deposited to a prepaid account held by the 
creditor, and from which payments are made on a monthly basis to a 
credit card account accessed by a prepaid card that is a credit card, 
payment would have been considered to be received on the date when it 
is debited to the prepaid account (rather than on the date of the 
deposit), provided the payroll deduction method is voluntary and the 
consumer retains use of the funds until the contractual payment date.
    The Bureau did not receive comment on this aspect of the proposal. 
The

[[Page 84204]]

Bureau is adopting revisions to existing comment 10(a)-2.ii as 
proposed, with technical revisions to clarify the intent of the 
provision and to be consistent with new Sec.  1026.61.\640\ Final 
comment 10(a)-2.ii explains that in a payroll deduction plan in which 
funds are deposited to an asset account held by the creditor, and from 
which payments are made periodically to an open-end credit account, 
payment is received on the date when it is debited to the asset account 
(rather than on the date of the deposit), provided the payroll 
deduction method is voluntary and the consumer retains use of the funds 
until the contractual payment date. The comment also explains that 
final Sec.  1026.12(d)(3)(ii) defines ``periodically'' to mean no more 
frequently than once per calendar month for payments made periodically 
from a deposit account, such as prepaid account, held by a card issuer 
to pay credit card debt incurred with respect to a covered separate 
credit feature accessible by a hybrid prepaid-credit card as defined in 
new Sec.  1026.61 that is held by the card issuer. In a payroll 
deduction plan in which funds are deposited to a prepaid account held 
by the card issuer, and from which payments are made on a monthly basis 
to a covered separate credit feature accessible by a hybrid prepaid-
credit card that is held by the card issuer, payment is received on the 
date when it is debited to the prepaid account (rather than on the date 
of the deposit), provided the payroll deduction method is voluntary and 
the consumer retains use of the funds until the contractual payment 
date. As discussed in more detail in the section-by-section analysis of 
Sec.  1026.61(a)(2) below, a covered separate credit feature accessible 
by a hybrid prepaid-credit card includes an overdraft credit feature 
offered by a prepaid account issuer, its affiliate, or its business 
partner that can be accessed by a prepaid card (except as provided in 
new Sec.  1026.61(a)(4)). The prepaid card is a hybrid prepaid-credit 
card under new Sec.  1026.61 and a credit card under final Sec.  
1026.2(a)(15)(i) with respect to the covered separate credit feature.
---------------------------------------------------------------------------

    \640\ The proposal would have provided that the term ``credit 
card'' includes an account number that is not a prepaid card that 
may be used from time to time to access a credit plan that allows 
deposits directly only into particular prepaid accounts specified by 
the creditor. The proposal would have revised comment 10(a)-2.ii to 
explain that Sec.  1026.12(d)(3)(ii) prevents card issuers, with 
respect to credit card accounts accessed by such account numbers, 
from automatically deducting credit card account payments from a 
prepaid account or other deposit account held by the card issuer 
more frequently than once per calendar month. For the reasons set 
forth in the section-by-section analysis of Sec.  
1026.2(a)(15)(i)above, the final rule does not adopt the proposed 
changes to comment 10(a)-2.ii related to these account numbers.
---------------------------------------------------------------------------

10(b) Specific Requirements for Payments
    Existing Sec.  1026.10(b) generally sets forth certain rules 
related to how creditor must handle payments received from consumers. 
Existing Sec.  1026.10(b)(1) generally provides that a creditor may 
specify reasonable requirements for payments that enable most consumers 
to make conforming payments. Nonetheless, existing comment 10(b)-1 
explains that a creditor may be prohibited from specifying payment by 
preauthorized EFT and cross-references EFTA section 913.
    As a technical revision, the proposal would have amended this 
comment to cross-reference Regulation E Sec.  1005.10(e), which 
implements EFTA section 913. The Bureau did not receive any comments on 
this proposed revision. Consistent with the proposal, the final rule 
adopts final comment 10(b)-1 to explain that a creditor may be 
prohibited from specifying payment by preauthorized EFT and to cross-
reference both EFTA section 913 and Regulation E Sec.  1005.10(e).
Section 1026.12 Special Credit Card Provisions
    Existing Sec.  1026.12 contains special rules applicable to credit 
cards and credit card accounts, including conditions under which a 
credit card may be issued, liability of cardholders for unauthorized 
use, cardholder rights to assert merchant claims and defenses against 
the card issuer, and the prohibition on offsets by issuers.
12(a) Issuance of Credit Cards
    TILA section 132, which is implemented by existing Sec.  
1026.12(a), generally prohibits a person from issuing credit cards 
except in response to a request or application. Section 132 explicitly 
exempts from this prohibition credit cards issued as renewals of or 
substitutes for previously accepted credit cards.\641\
---------------------------------------------------------------------------

    \641\ 15 U.S.C. 1642.
---------------------------------------------------------------------------

    Existing Sec.  1026.12(a) provides that regardless of the purpose 
for which a credit card is to be used, including business, commercial, 
or agricultural use, no credit card shall be issued to any person 
except: (1) In response to an oral or written request or application 
for the card; or (2) as a renewal of, or substitute for, an accepted 
credit card. As discussed in more detail below, the final rule provides 
guidance on how the prohibition on issuing unsolicited credit cards 
applies to hybrid prepaid-credit cards that can access covered separate 
credit features.
12(a)(1) Addition of a Credit Feature
    Under the proposal, a prepaid card could not have accessed 
automatically a credit feature that would make the prepaid card into a 
credit card at the time the card is purchased by the consumer at point 
of sale. A card issuer could have added a credit card feature to a 
prepaid card only in response to a consumer's explicit request or 
application.
    The proposal would have modified existing comment 12(a)(1)-2 
specifically to explain that the addition of a credit card feature to 
an existing prepaid card constitutes ``issuance'' for purposes of 
unsolicited issuance under existing Sec.  1026.12(a). Specifically, the 
existing comment 12(a)(1)-2 provides that if the consumer has a non-
credit card, the addition of credit features to the card (for example, 
the granting of overdraft privileges on a checking account when the 
consumer already has a check guarantee card) constitutes issuance of a 
credit card. The proposal would have revised existing comment 12(a)(1)-
2 to provide guidance relating to prepaid cards. Specifically, proposed 
comment 12(a)(1)-2 would have provided that if the consumer has a non-
credit card, including a prepaid card, the addition of a credit feature 
or plan to the card that would make the card into a credit card under 
Sec.  1026.2(a)(15)(i) constitutes issuance of a credit card. The 
proposal also would have added an example related to prepaid cards. 
Specifically, the proposal would have added proposed comment 12(a)(1)-
2.ii to provide that allowing a prepaid card to access a credit plan 
that would make the card into a credit card under Sec.  
1026.2(a)(15)(i) would constitute issuance of a credit card. The 
existing example relating to check guarantee cards would have been 
moved to proposed comment 12(a)(1)-2.i.
    The Bureau did not receive any specific comments on the proposed 
revisions to existing comment 12(a)(1)-2. The Bureau is adopting 
comment 12(a)(1)-2 as proposed, with revisions to be consistent with 
new Sec.  1026.61. Consistent with the proposal, the final rule revises 
existing comment 12(a)(1)-2 to provide that if the consumer has a non-
credit card, including a prepaid card, the addition of a credit feature 
or plan to the card that would make the card into a credit card under 
Sec.  1026.2(a)(15)(i) constitutes issuance of a credit card. The final 
rule also moves the existing example related

[[Page 84205]]

to check guarantee cards to final comment 12(a)(1)-2.i. The final rule 
also adds a new example in final comment 12(a)(1)-2.ii to provide that 
issuance of a credit card includes allowing a prepaid card to access a 
covered separate credit feature that would make the card into a hybrid 
prepaid-credit card as defined in new Sec.  1026.61 with respect to the 
covered separate credit feature. As discussed in more detail in the 
section-by-section analysis of Sec.  1026.61(a)(2) below, a covered 
separate credit feature accessible by a hybrid prepaid-credit card 
includes an overdraft credit feature offered by a prepaid account 
issuer, its affiliate, or its business partner that can be accessed by 
a prepaid card (except as provided in new Sec.  1026.61(a)(4)). The 
prepaid card is a hybrid prepaid-credit card under new Sec.  1026.61 
and a credit card under final Sec.  1026.2(a)(15)(i) with respect to 
the covered separate credit feature.
Issuance of a Non-Credit Card
    Existing comment 12(a)(1)-7.i explains that a non-credit card may 
be sent on an unsolicited basis by an issuer that does not propose to 
connect the card to any credit plan.\642\ The comment states that a 
credit feature may be added to a previously issued non-credit card only 
upon the consumer's specific request. Existing comment 12(a)(1)-7.ii 
provides as an example, that a purchase-price discount card may be sent 
on an unsolicited basis by an issuer that does not propose to connect 
the card to any credit plan. The comment further explains that an 
issuer demonstrates that it proposes to connect the card to a credit 
plan by, for example, including promotional materials about credit 
features or account agreements and disclosures required by Sec.  
1026.6. The comment also states that the issuer violates the rule 
against unsolicited issuance if, for example, at the time the card is 
sent a credit plan can be accessed by the card or the recipient of the 
unsolicited card has been preapproved for credit that the recipient can 
access by contacting the issuer and activating the card.
---------------------------------------------------------------------------

    \642\ The Bureau notes that a prepaid card is an access device 
under Regulation E, as that term is defined in existing Regulation E 
Sec.  1005.2(a)(1), and is subject to the issuance rules set forth 
in existing Regulation E Sec.  1005.5. See also the commentary to 
final Sec.  1005.18(a).
---------------------------------------------------------------------------

    Under the proposal, the current language of existing comment 
12(a)(1)-7.i and ii would have been moved to proposed comment 12(a)(1)-
7.i.A and B respectively and would have been limited to the issuance of 
non-credit cards that are not prepaid cards. The proposal also would 
have added comment 12(a)(1)-7.ii to provide guidance on when the 
issuance of a prepaid card would be viewed as the issuance of a credit 
card. Specifically, proposed comment 12(a)(1)-7.ii would have provided 
that existing Sec.  1026.12(a)(1) would not apply to the issuance of a 
prepaid card where an issuer does not connect the card to any credit 
plan that would make the prepaid card into a credit card at the time 
the card is issued and only opens a credit card account, or provides an 
application or solicitation, to open a credit or charge card account, 
that would be accessed by that card in compliance with proposed Sec.  
1026.12(h) (which has been moved to new Sec.  1026.61(c) in the final 
rule). As discussed in more detail in the section-by-section analysis 
of Sec.  1026.61(c) below, the Bureau proposed to add Sec.  1026.12(h) 
to require a card issuer to wait at least 30 days after the prepaid 
account has been registered before opening a credit card account for 
the holder of the prepaid account that will be accessed by the prepaid 
card, or providing a solicitation or an application to the holder of 
the prepaid account to open a credit or charge card account that will 
be accessed by the prepaid card. Proposed comment 12(a)(1)-7.ii also 
would have explained that a credit feature may be added to a previously 
issued prepaid card only upon the consumer's specific request and only 
in compliance with proposed Sec.  1026.12(h).
    Proposed comment 12(a)(1)-7.ii further would have explained, 
however, that an issuer does not make a prepaid card into a credit card 
simply by providing the disclosures required by proposed Regulation E 
Sec.  1005.18(b)(2)(i)(B)(9) and (ii)(B) with the prepaid card. As 
discussed in the section-by-section analyses of Regulation E Sec.  
1005.18(b)(2)(x) and (4)(vii) above, under the proposal, a financial 
institution would have been required to provide certain disclosures 
about credit card accounts that may be offered in connection with 
prepaid accounts. Under the proposal, a financial institution would 
have been required to disclose in the short form and long form 
disclosures provided in connection with the prepaid account certain 
information about any credit plan that may be offered at any point to 
the holder of the prepaid account where the credit plan would be 
accessed by a credit card that also is a prepaid card. These 
disclosures would have enabled consumers to shop more effectively for 
prepaid accounts by informing them of both whether a credit card 
account may be offered in connection with the prepaid account and some 
of the terms of such a credit card account. Proposed comment 12(a)(1)-
7.ii would have provided guidance that providing these disclosures 
would not have violated the rule against unsolicited issuance of a 
credit card because, otherwise, selling such cards in retail locations 
or otherwise providing them on an unsolicited basis to consumers would 
violate Regulation Z if these required disclosures were included with 
the prepaid card.
    The Bureau did not receive any specific comments on proposed 
comment 12(a)(1)-7.ii. As technical revisions, consistent with the 
proposal, the final rule moves the current language of existing comment 
12(a)(1)-7.i and ii to final comment 12(a)(1)-7.i.A and B respectively 
and limits this language to the issuance of non-credit cards that are 
not prepaid cards.
    The Bureau also is adopting new comment 12(a)(1)-7.ii as proposed, 
with revisions to be consistent with new Sec.  1026.61. New comment 
12(a)(1)-7.ii provides that existing Sec.  1026.12(a)(1) does not apply 
to the issuance of a prepaid card where an issuer does not connect the 
card to any covered separate credit feature that would make the prepaid 
card into a hybrid prepaid-credit card as defined in Sec.  1026.61 at 
the time the card is issued and only opens a covered separate credit 
feature, provides an application or solicitation to open a covered 
separate credit feature, or allows an existing credit feature to become 
a covered separate credit feature accessible by a hybrid prepaid-credit 
card as defined in new Sec.  1026.61 in compliance with new Sec.  
1026.61(c). As discussed in more detail in the section-by-section 
analysis of Sec.  1026.61(a)(2) below, a covered separate credit 
feature accessible by a hybrid prepaid-credit card includes an 
overdraft credit feature offered by a prepaid account issuer, its 
affiliate, or its business partner that can be accessed by a prepaid 
card (except as provided in new Sec.  1026.61(a)(4)). The prepaid card 
is a hybrid prepaid-credit card under new Sec.  1026.61 and a credit 
card under final Sec.  1026.2(a)(15)(i) with respect to the covered 
separate credit feature.
    New comment 12(a)(1)-7.ii also clarifies that a covered separate 
credit feature may be added to a previously issued prepaid card only 
upon the consumer's application or specific request and only in 
compliance with new Sec.  1026.61(c). This comment clarifies that an 
issuer does not make a prepaid card into a hybrid prepaid-credit card 
simply by providing the disclosures required by Regulation E

[[Page 84206]]

Sec.  1005.18(b)(2)(x), (4)(iv), and (vii) with the prepaid card. In 
addition, the comment provides a cross-reference to existing Sec.  
1026.12(a)(2) and related commentary for when a hybrid prepaid-credit 
card as defined in Sec.  1026.61 may be issued as a replacement or 
substitute for another hybrid prepaid-credit card. The comment also 
provides a cross-reference to existing Regulation E Sec.  1005.5 and 
final Sec.  1005.18(a), and related commentary, that govern the 
issuance of access devices under Regulation E.
12(a)(2)
    Existing Sec.  1026.12(a) provides that regardless of the purpose 
for which a credit card is to be used, including business, commercial, 
or agricultural use, no credit card shall be issued to any person 
except: (1) In response to an oral or written request or application 
for the card; or (2) as a renewal of, or substitute for, an accepted 
credit card. Existing comments 12(a)(2)-5 and -6 provide guidance on 
the exception to the unsolicited issuance rule when a card is issued as 
a renewal of, or substitute for, an accepted credit card.
    Specifically, existing comment 12(a)(2)-5 (the so-called ``one for 
one'' rule) provides that an accepted card generally may be replaced by 
no more than one renewal or substitute card. For example, the card 
issuer may not replace a credit card permitting purchases and cash 
advances with two cards, one for the purchases and another for the cash 
advances. Existing comment 12(a)(2)-6 provides, however, two exceptions 
to this general ``one for one'' rule. First, existing comment 12(a)(2)-
6.i provides that the unsolicited issuance rule in existing Sec.  
1026.12(a) does not prohibit the card issuer from replacing a debit/
credit card with a credit card and another card with only debit 
functions (or debit functions plus an associated overdraft capability) 
because the latter card could be issued on an unsolicited basis under 
Regulation E. Existing comment 12(a)(2)-6.ii also provides that 
existing Sec.  1026.12(a) does not prohibit a card issuer from 
replacing an accepted card with more than one renewal or substitute 
card, provided that: (1) No replacement card accesses any account not 
accessed by the accepted card; (2) for terms and conditions required to 
be disclosed in account-opening disclosures under existing Sec.  
1026.6, all replacement cards are issued subject to the same terms and 
conditions, except that a creditor may vary terms for which no change-
in-terms notice is required under existing Sec.  1026.9(c); and (3) 
under the account's terms the consumer's total liability for 
unauthorized use with respect to the account does not increase.
    Under the proposal, the example in existing comment 12(a)(2)-6.ii 
would have been moved to proposed comment 12(a)(2)-6.iii. The proposal 
also would have added comment 12(a)(2)-6.ii to explain that the one-
for-one rule would not prevent an issuer from replacing a single card 
that is both a prepaid card and a credit card with two cards--one card 
that is a credit card and another card that is a separate prepaid card, 
where the latter card is not a credit card. In addition, under the 
proposal, the example in comment 12(a)(2)-6.i related to debit cards 
would have been revised for clarity; no substantive changes would have 
been intended.
    The Bureau did not receive comments on the proposed revision to 
existing comment 12(a)(2)-6. The Bureau is adopting this comment as 
proposed, with revisions as discussed below. First, the Bureau is 
revising the example in existing comment 12(a)(2)-6.i related to debit 
cards for clarity; no substantive changes are intended. Second, the 
Bureau is moving existing comment 12(a)(2)-6.ii to final comment 
12(a)(2)-6.iii.
    Third, the Bureau is adopting comment 12(a)(2)-6.ii as proposed 
with revisions to use consistent terminology with new Sec.  1026.61. 
Specifically, the Bureau is adding new comment 12(a)(2)-6.ii to provide 
that the one-for-one rule does not prevent an issuer from replacing a 
single card that is both a prepaid card and a credit card with two 
cards--one card that is a credit card and one card that is a separate 
prepaid card where the latter card is not a hybrid prepaid-credit card 
as defined in new Sec.  1026.61. As discussed in more detail in the 
section-by-section analysis of Sec.  1026.61(a)(2) below, a covered 
separate credit feature accessible by a hybrid prepaid-credit card 
includes an overdraft credit feature offered by a prepaid account 
issuer, its affiliate, or its business partner that can be accessed by 
a prepaid card (except as provided in new Sec.  1026.61(a)(4)). The 
prepaid card is a hybrid prepaid-credit card under new Sec.  1026.61 
and a credit card under final Sec.  1026.2(a)(15)(i) with respect to 
the covered separate credit feature.
12(c) Right of Cardholder To Assert Claims or Defenses Against Card 
Issuer
    Under TILA section 170, as implemented in existing Sec.  
1026.12(c), a cardholder may assert against the card issuer a claim or 
defense for disputes as to goods or services purchased in a consumer 
credit transaction with a credit card. The claim or defense applies 
only as to unpaid balances for the goods or services and any finance or 
other charges imposed on that amount if the merchant honoring the card 
fails to resolve the dispute. The right is further limited generally to 
disputes exceeding $50 for purchases made in the consumer's home State 
or within 100 miles of the cardholder's address.\643\
---------------------------------------------------------------------------

    \643\ See 15 U.S.C. 1666i.
---------------------------------------------------------------------------

    Existing comment 12(c)-3 and existing comment 12(c)(1)-1 provides 
guidance on the types of transactions that are covered by existing 
Sec.  1026.12(c) and the types of transactions that are not covered. 
Existing comment 12(c)(1)-1 provides that the consumer may assert 
claims or defenses only when the goods or services are ``purchased with 
the credit card.'' This could include mail, internet, or telephone 
orders, if the purchase is charged to the credit card account.
The Bureau's Proposal
    The proposal would have amended existing comment 12(c)(1)-1 and 
added proposed comment 12(c)-5 to explain that existing Sec.  
1026.12(c) would apply when goods or services are purchased using a 
credit card that also is a prepaid card. Proposed comment 12(c)-5 also 
would have provided guidance on how existing Sec.  1026.12(c) applies 
to transactions at point of sale where a prepaid card that is a credit 
card is used to obtain goods or services from a merchant, and the 
transaction is partially funded by the consumer's prepaid account and 
partially funded by credit. For these types of transactions, proposed 
comment 12(c)-5 would have provided that the amount of the purchase 
transaction that is funded by credit generally would be subject to the 
requirements of existing Sec.  1026.12(c), and it also would have 
provided that the amount of the transaction funded from the prepaid 
account would not be subject to the requirements of Sec.  1026.12(c).
    Existing comments 12(c)-3 and 12(c)(1)-1.iv provide that the 
provisions in existing Sec.  1026.12(c) generally do not apply to 
purchases effected by use of either a check guarantee card or a debit 
card when used to draw on overdraft credit plans. Existing comment 
12(c)(1)-1.ii also provides that the provisions in existing Sec.  
1026.12(c) do not apply to the purchase of goods or services using a 
check accessing an overdraft account and a credit card used solely for 
identification of the consumer. On the other hand, if the credit card 
is used to make partial payment for the purchase and not merely for 
identification, the right to assert claims or defenses would apply to 
credit extended via the credit

[[Page 84207]]

card, although not to the credit extended on the overdraft line. The 
Board adopted these exceptions in 1981 as part of implementing the 
Truth in Lending Simplification and Reform Act.\644\ In the 
supplemental information provided with that rulemaking, the Board 
indicated that it had decided to exempt check guarantee cards and debit 
cards when used to draw on an overdraft line because of serious 
operational problems cited by commenters as arising from applying the 
claims and defenses provisions to check guarantee and debit card 
transactions. The proposal would not have revised these provisions, 
except to revise existing comment 12(c)(1)-1.ii to specify that the 
comment does not apply to an overdraft line in connection with a 
prepaid account.
---------------------------------------------------------------------------

    \644\ 46 FR 20848, 20865 (Apr. 7, 1981); see also 46 FR 50288, 
50313 (Oct. 9, 1981).
---------------------------------------------------------------------------

Comments Received
    The Bureau did not receive comments from industry on proposed 
comments 12(c)(1)-1 and 12(c)-5. With respect to split-tender 
transactions discussed above, two consumer group commenters urged the 
Bureau to use its authority under TILA section 105 to extend the claim 
and defenses provision to the amount of the transaction that is funded 
from the prepaid account. They believed that doing so would help reduce 
consumer confusion.
The Final Rule
    The Bureau is adopting proposed comments 12(c)(1)-1 and 12(c)-5 
with revisions.\645\ Consistent with the proposal, final comment 
12(c)(1)-1 provides that the provisions in existing Sec.  1026.12(c) 
apply to property or services purchased with the hybrid prepaid-credit 
card that accesses a covered separate credit feature, as defined in new 
Sec.  1026.61. In addition, new comment 12(c)-5 is revised from the 
proposal to clarify that existing Sec.  1026.12(c) applies to purchases 
made with a hybrid prepaid-credit card that accesses a covered separate 
credit feature, regardless of whether the covered separate credit 
feature is structured such that credit is transferred from the covered 
separate credit feature to the asset feature of the prepaid account to 
cover the amount of the purchase transaction made with the hybrid 
prepaid-credit card, or whether the covered separate credit feature is 
structured such that credit is directly drawn from the covered separate 
credit feature to cover the amount of the purchase transaction made 
with the hybrid prepaid-credit card.
---------------------------------------------------------------------------

    \645\ The proposal would have provided that the term ``credit 
card'' includes an account number that is not a prepaid card that 
may be used from time to time to access a credit plan that allows 
deposits directly only into particular prepaid accounts specified by 
the creditor. Proposed 12(c)(1)-1.i would have provided that the 
provision in Sec.  1026.12(c) would not apply to an advance on a 
credit plan accessed by such an account number. For the reasons set 
forth in the section-by-section analysis of Sec.  1026.2(a)(15)(i) 
above, the final rule does not adopt the proposed changes to comment 
12(c)(1)-1.i related to these account numbers.
---------------------------------------------------------------------------

    As discussed in more detail in the section-by-section analysis of 
Sec.  1026.61(a)(2) below, a covered separate credit feature accessible 
by a hybrid prepaid-credit card includes an overdraft credit feature 
offered by a prepaid account issuer, its affiliate, or its business 
partner that can be accessed by a prepaid card (except as provided in 
new Sec.  1026.61(a)(4)). The prepaid card is a hybrid prepaid-credit 
card under new Sec.  1026.61 and a credit card under final Sec.  
1026.2(a)(15)(i) with respect to the covered separate credit feature.
    As discussed in more detail in the section-by-section analysis of 
Sec.  1026.8(a) above, the Bureau recognizes that a card issuer with 
respect to a covered separate credit feature accessible by a hybrid 
prepaid-credit card may structure the credit feature in two ways to 
cover situations where the consumer has insufficient or unavailable 
funds in the asset feature of the prepaid account at the time of 
authorization or settlement to cover the amount of the transaction 
conducted with the card to obtain goods or services, obtain cash, or 
conduct P2P transfers. First, the covered separate credit feature could 
be structured such that a consumer can use a hybrid prepaid-credit card 
to make a purchase to obtain goods or services from a merchant, and 
credit is drawn directly from the covered separate credit feature 
without transferring funds into the asset feature of the prepaid 
account to cover the amount of the purchase. For example, assume that 
the consumer has $10 of funds in the asset feature of the prepaid 
account and initiates a transaction with a merchant to obtain goods or 
services with the hybrid prepaid-credit card for $25. In this case, $10 
is debited from the asset feature, and $15 of credit is drawn directly 
from the covered separate credit feature accessed by the hybrid 
prepaid-credit card without any transfer of funds into the asset 
feature of the prepaid account to cover the amount of the purchase.
    Second, the covered separate credit feature accessible by a hybrid 
prepaid-credit card could be structured such that when a consumer uses 
a hybrid prepaid-credit card to make a purchase to obtain goods or 
services from a merchant, credit is transferred from the covered 
separate credit feature into the asset feature of the prepaid account 
to cover the amount of the purchase. For example, assume the same facts 
as above, except that the $15 is transferred from the covered separate 
credit feature to the asset feature, and a transaction of $25 is 
debited from the asset feature of the prepaid account.
    The Bureau is adding new comment 12(c)-5.i to provide that both of 
these situations would be examples of a consumer using a hybrid 
prepaid-credit card to access a covered separate credit feature to 
purchase property or services. This is true even though the latter 
situation (where credit is transferred from the covered separate credit 
feature to the asset feature of the prepaid account to cover the amount 
of the purchase transaction) is disclosed as nonsale credit under final 
Sec.  1026.8(b).
    Consistent with the proposal, the Bureau has not exempted from the 
provisions of existing Sec.  1026.12(c) credit extended for purchases 
made with hybrid prepaid-credit cards. For the reasons set forth in the 
Overview of the Final Rule's Amendments to Regulation Z section, the 
Bureau believes that covered separate credit features that are 
accessible by hybrid prepaid-credit cards generally should be subject 
to the provisions in Regulation Z that apply to credit features 
accessible by credit cards.
    Consistent with the proposal, the Bureau also is adding new comment 
12(c)-5.ii to provide that for a transaction at point of sale where a 
hybrid prepaid-credit card is used to obtain goods or services from a 
merchant and the transaction is partially paid with funds from the 
asset feature of the prepaid account and partially paid with credit 
from the covered separate credit feature, the amount of the purchase 
transaction that is funded by credit is subject to the requirements of 
existing Sec.  1026.12(c). The amount of the transaction funded from 
the prepaid account is not subject to the requirements of existing 
Sec.  1026.12(c).
    With respect to split-tender transactions where a purchase with the 
hybrid prepaid-credit card is partially paid with funds from the asset 
feature of the prepaid account and partially paid with credit from the 
covered separate credit feature, the Bureau is not using its adjustment 
authority under TILA section 105 to extend the claims and defenses 
provision in existing Sec.  1026.12(c) to the amount of the transaction 
that is funded from the asset feature of the prepaid account. In split-
tender transactions, the Bureau believes that the provision in existing 
Sec.  1026.12(c) should only apply to the

[[Page 84208]]

amount of the transaction that is paid with credit and is accessed by 
the hybrid prepaid-credit card when it is acting as a credit card to 
access the covered separate credit feature.
    For the reasons discussed in the Overview of the Final Rule's 
Amendments to Regulation Z section, the Bureau also is retaining the 
existing exemptions contained in existing comments 12(c)-3 and 
12(c)(1)-1.ii and iv related to purchases effected by use of either a 
check guarantee card or a debit card when used to draw on overdraft 
credit plans. Existing comments 12(c)-3 and 12(c)(1)-1.iv provide that 
the provisions in existing Sec.  1026.12(c) generally do not apply to 
purchases effected by use of either a check guarantee card or a debit 
card when used to draw on overdraft credit plans. In addition, existing 
comment 12(c)(1)-1.ii also provides that the provisions in existing 
Sec.  1026.12(c) do not apply to the purchase of goods or services by 
using a check accessing an overdraft account and a credit card used 
solely for identification of the consumer. Consistent with the 
proposal, the Bureau is revising the example in existing comment 
12(c)(1)-1.ii to specify that the comment does not apply to covered 
separate credit features accessible by hybrid prepaid-credit cards.
12(d) Offsets by Card Issuer Prohibited
    TILA section 169 generally prohibits card issuers from taking any 
action to offset a cardholder's credit card indebtedness against funds 
of the cardholder held on deposit with the card issuer. Nonetheless, a 
card issuer would not violate this provision if the card issuer 
periodically deducts all or a portion of a consumer's credit card debt 
from the consumer's deposit account, if the periodic deductions are in 
accordance with a preauthorized written authorization by the consumer 
and the card issuer does not deduct payment for any portion of the 
outstanding balance that is in dispute.\646\ This TILA section also 
provides that the prohibition described above does not alter or affect 
the right under State law of a card issuer to attach or otherwise levy 
upon funds of a cardholder held on deposit with the card issuer if that 
remedy is constitutionally available to creditors generally.\647\ TILA 
section 169 is implemented by Sec.  1026.12(d).
---------------------------------------------------------------------------

    \646\ 15 U.S.C. 1666h(a).
    \647\ 15 U.S.C. 1666h(b).
---------------------------------------------------------------------------

    Existing Sec.  1026.12(d)(1) provides that a card issuer may not 
take any action, either before or after termination of credit card 
privileges, to offset a cardholder's indebtedness arising from a 
consumer credit transaction under the relevant credit card plan against 
funds of the cardholder held on deposit with the card issuer. Existing 
Sec.  1026.12(d)(2) provides that the prohibition on offsets in 
existing Sec.  1026.12(d)(1) does not alter or affect the right of a 
card issuer acting under State or Federal law to do any of the 
following with regard to funds of a cardholder held on deposit with the 
card issuer if the same procedure is constitutionally available to 
creditors generally: (1) Obtain or enforce a consensual security 
interest in the funds; (2) attach or otherwise levy upon the funds; or 
(3) obtain or enforce a court order relating to the funds. Existing 
Sec.  1026.12(d)(3) provides that the prohibition on offsets set forth 
in existing Sec.  1026.12(d)(1) does not prohibit a plan, if authorized 
in writing by the cardholder, under which the card issuer may 
periodically deduct all or part of the cardholder's credit card debt 
from a deposit account held with the card issuer (subject to the 
limitations in existing Sec.  1026.13(d)(1)).
    Congress added the offset provision in TILA section 169 as part of 
the Fair Credit Billing Act.\648\ In adding this offset provision, 
Congress was concerned that
---------------------------------------------------------------------------

    \648\ Public Law 93-495, 88 Stat. 1500 (Oct. 28, 1974).

    Funds in these accounts can be attached without any recourse to 
the courts and in spite of any valid legal defense the cardholder 
may have against the bank. Banks which issue cards and also have the 
cardholder's funds on deposit may thus obtain a unique leverage over 
the consumer. Other creditors would have to apply to a court before 
being permitted to attach funds in a borrowers' deposit 
account.\649\
---------------------------------------------------------------------------

    \649\ S. Rep. No. 93-278, at 9 (June 28, 1973).
---------------------------------------------------------------------------

12(d)(1) General Rule
    Existing Sec.  1026.12(d)(1) provides that a card issuer may not 
take any action, either before or after termination of credit card 
privileges, to offset a cardholder's indebtedness arising from a 
consumer credit transaction under the relevant credit card plan against 
funds of the cardholder held on deposit with the card issuer.
The Bureau's Proposal
    The proposal would have provided that the term ``credit card'' 
includes a prepaid card (including a prepaid card that is solely an 
account number) that is a single device that may be used from time to 
time to access a credit plan, except if that prepaid card only accesses 
credit that is not subject to any finance charge, as defined in Sec.  
1026.4, or any fee described in Sec.  1026.4(c), and is not payable by 
written agreement in more than four installments. Thus, under the 
proposal, the offset provision in existing Sec.  1026.12(d) would have 
applied to credit plans that are accessed by prepaid cards that are 
credit cards under the proposal. The proposal also would have added 
proposed comment 12(d)-1 to make clear that for purposes of the 
prohibition on offsets in existing Sec.  1026.12(d), funds of the 
cardholder held on deposit include funds in a consumer's prepaid 
account and the term deposit account includes a prepaid account.
    Existing comment 12(d)(1)-2 provides that if the consumer tenders 
funds as a deposit (to a checking account, for example) held by the 
card issuer, the card issuer may not apply the funds to repay 
indebtedness on the consumer's credit card account. The proposal would 
have amended this comment to provide guidance on the tender of funds as 
a deposit to a prepaid account. Specifically, this comment would have 
been revised to specify that if the card issuer receives funds 
designated for the consumer's prepaid account with the issuer, such as 
by means of an ACH deposit or cash reload, the card issuer may not 
automatically apply the funds to repay indebtedness on the consumer's 
credit card account. As a technical revision, the proposal also would 
have added the title ``General rule'' to existing Sec.  1026.12(d)(1); 
no substantive change would have been intended by this addition.
Comments Received
    Several commenters, including industry trade associations and 
issuing banks, opposed applying the offset provision to overdrafts on 
prepaid accounts. One of these commenters indicated that applying the 
offset provision to overdraft credit features accessed by prepaid cards 
would deny consumers the ability to access short-term credit in 
connection with prepaid accounts. Another of these industry commenters 
believed that when a prepaid account user overdraws his account, the 
consumer likely intends funds subsequently deposited into the prepaid 
account to satisfy the overdraft. This industry commenter believed that 
the offset provision would prevent a consumer from achieving that 
expected outcome and could mislead prepaid account users into thinking 
they have more funds available than they actually do. Another of these 
industry commenters indicated that the offset prohibition would 
increase the cost of credit to consumers. This commenter indicated that 
the offset prohibition would make it more difficult for

[[Page 84209]]

creditors to recover debts owed to them. This commenter indicated the 
longer and more difficult it is for creditors to recover debts, the 
more costly it is for consumers to access credit.
    Several consumer groups supported application of the offset 
provision to prepaid cards that would have been credit cards under the 
proposal. One consumer group commenter urged the Bureau to make clear 
that payroll deduction plans are covered by the offset prohibition.
The Final Rule
    Consistent with the proposal, the final rule adds the title 
``General rule'' to existing Sec.  1026.12(d)(1); no substantive change 
is intended. The Bureau also is adopting comments 12(d)-1 and 12(d)(1)-
2 as proposed with revisions to refer to Sec.  1026.61 for the 
definition of ``prepaid account.''
    Pursuant to the final rule, the offset prohibition in existing 
Sec.  1026.12(d) applies to covered separate credit features accessible 
by hybrid prepaid-credit cards because these credit features are credit 
card accounts under the final rule.\650\ As discussed in more detail in 
the section-by-section analysis of Sec.  1026.61(a)(2) below, a covered 
separate credit feature accessible by a hybrid prepaid-credit card 
includes an overdraft credit feature offered by a prepaid account 
issuer, its affiliate, or its business partner that can be accessed by 
a prepaid card (except as provided in new Sec.  1026.61(a)(4)). The 
prepaid card is a hybrid prepaid-credit card under new Sec.  1026.61 
and a credit card under final Sec.  1026.2(a)(15)(i) with respect to 
the covered separate credit feature.
---------------------------------------------------------------------------

    \650\ The proposal would have provided that the term ``credit 
card'' includes an account number that is not a prepaid card where 
that account number accesses a credit plan where extensions of 
credit are permitted to be deposited directly only into particular 
prepaid accounts specified by the creditor. The proposal would have 
applied the offset prohibition in Sec.  1026.12(d) to credit card 
accounts accessed by such account numbers. For the reasons set forth 
in the section-by-section analysis of Sec.  1026.2(a)(15)(i) above, 
the offset prohibition does not apply to accounts simply because 
they are accessed by these account numbers because under the final 
rule, these account numbers are not credit cards.
---------------------------------------------------------------------------

    As discussed above, several commenters, including industry trade 
associations and issuing banks, opposed applying the offset provision 
to overdrafts on prepaid accounts. One of these commenters indicated 
that applying the offset provision to overdraft credit features 
accessed by prepaid cards would deny consumers the ability to access 
short-term credit in connection with prepaid accounts. One industry 
commenter indicated that the offset prohibition would increase the cost 
of credit to consumers by making it more difficult for creditors to 
recover debts owed to them. For the reasons set forth in the Overview 
of the Final Rule's Amendments to Regulation Z section, the Bureau 
believes that covered separate credit features accessible by hybrid 
prepaid-credit cards should receive the important protections that 
apply to credit card accounts generally under Regulation Z, including 
the offset prohibitions in final Sec.  1026.12(d). The Bureau also 
believes that additional protections with respect to the offset 
provision in final Sec.  1026.12(d) are needed with respect to covered 
separate credit features accessible by hybrid prepaid-credit cards, as 
discussed in the section-by-section discussion of Sec.  1026.12(d)(2) 
and (3). The Bureau believes that the requirements in final Sec.  
1026.12(d), along with changes to the timing requirement for a periodic 
statement in final Sec.  1026.5(b)(2)(ii)(A) and the compulsory use 
provision in Regulation E (final Sec.  1005.10(e)(1)), are important 
protections that will allow consumers to retain control over the funds 
in their prepaid accounts if a covered separate credit feature becomes 
associated with those accounts because they will be able to control 
when and how debts are repaid.
    As discussed above, one industry commenter believed that when a 
prepaid account user overdraws his account, the consumer likely intends 
funds subsequently deposited into the prepaid account to satisfy the 
overdraft. This industry commenter believed that the offset provision 
would prevent a consumer from achieving that expected outcome and could 
mislead prepaid account users into thinking they have more funds 
available than they actually do. The Bureau believes that the 
Regulation Z account-opening disclosures and periodic statement 
disclosures, as well as explanations of contractual terms that card 
issuers typically provide to consumers, will help ensure that consumers 
understand the terms of their covered separate credit features, 
including how to make payments on the credit card accounts.
    As discussed above, one consumer group commenter urged the Bureau 
to make clear that payroll deduction plans are covered by the offset 
prohibition. The Bureau has not added any additional guidance in final 
Sec.  1026.12(d) or its related commentary regarding the applicability 
of the offset provision to payroll deduction plans. The Bureau does not 
believe that special guidance related to payroll deduction plans is 
necessary. The Bureau believes that under the current offset provision 
(and the final rule), the offset provision would apply to payroll 
deductions that are deposited into a consumer's asset account that is 
held by the credit card issuer. Nonetheless, the offset provision does 
not apply if the payroll deductions are deposited into a consumer's 
asset account that is held with the employer or with a person other 
than the credit card issuer. The offset provision also would not apply 
to payroll deductions that are used directly to pay a covered separate 
credit feature that is accessible by a hybrid prepaid-credit card where 
payroll deduction funds are never deposited into a consumer's asset 
account with the credit card issuer.
12(d)(2) Rights of the Card Issuer
    TILA section 169(a) generally prohibits card issuers from taking 
any action to offset a cardholder's credit card indebtedness against 
funds of the cardholder held on deposit with the card issuer.\651\ TILA 
section 169(b) provides, however, that the prohibition on offset does 
not alter or affect the right under State law of a card issuer to 
attach or otherwise levy upon funds of a cardholder held on deposit 
with the card issuer if that remedy is constitutionally available to 
creditors generally.\652\
---------------------------------------------------------------------------

    \651\ 15 U.S.C. 1666h(a).
    \652\ 15 U.S.C. 1666h(b).
---------------------------------------------------------------------------

    Implementing TILA section 169, existing Sec.  1026.12(d)(2) 
provides that that the prohibition on offsets in existing Sec.  
1026.12(d)(1) does not alter or affect the right of a card issuer 
acting under State or Federal law to attach or otherwise levy upon the 
funds of a cardholder held on deposit with the card issuer if the same 
procedure is constitutionally available to creditors generally. 
Existing Sec.  1026.12(d)(2) also provides two additional methods for 
obtaining funds that the Board found were not prohibited by the 
prohibition on offsets in TILA section 169. Specifically, existing 
Sec.  1026.12(d)(2) provides that the prohibition on offsets in 
existing Sec.  1026.12(d)(1) does not alter or affect the right of a 
card issuer acting under State or Federal law to use either of the 
following two methods if the same method is constitutionally available 
to creditors generally: (1) Obtain or enforce a consensual security 
interest in the funds; or (2) obtain or enforce a court order relating 
to the funds.
    The Board adopted these additional two methods in 1981 as part of 
its rulemaking to implement the Truth in Lending Simplification and 
Reform Act.\653\ In the supplemental information

[[Page 84210]]

to that rulemaking, with respect to the method related to security 
interests, the Board stated its belief that TILA section 169 was not 
intended to apply to the granting of security interests in cardholders' 
deposit accounts. In addition, the Board imposed certain limitations on 
the use of security interests that it believed would prevent 
circumvention of the offset prohibition because: (1) Only consensual 
security interests are permitted, and thus the cardholder must 
affirmatively agree to grant the security interest; (2) the security 
interest can be enforced only through procedures by which other 
creditors could enforce their security interests in the same funds; and 
(3) any security interest granted to secure credit card indebtedness 
will be disclosed in the card issuer's initial disclosures to the 
cardholder. The Board considered but rejected limiting the amount of 
the security interest to a specified amount, reasoning that other 
third-party creditors are not required to do so. The Board believed 
that these requirements should eliminate the possibility of unfair 
surprise to consumers and of unfair advantage for depository 
institutions over other creditors that Congress sought to avoid in 
enacting TILA section 169.\654\
---------------------------------------------------------------------------

    \653\ 46 FR 20848 (Apr. 7, 1981).
    \654\ 46 FR 20848, 20866 (Apr. 7, 1981).
---------------------------------------------------------------------------

    Existing comment 12(d)(2)-1 is intended to ensure that the security 
interest is consensual. Specifically, existing comment 12(d)(2)-1 
provides that in order to qualify for the exception stated in Sec.  
1026.12(d)(2), a security interest must be affirmatively agreed to by 
the consumer and must be disclosed in the issuer's account-opening 
disclosures under Sec.  1026.6. The security interest must not be the 
functional equivalent of a right of offset; as a result, routinely 
including in agreements contract language indicating that consumers are 
giving a security interest in any deposit accounts maintained with the 
issuer does not result in a security interest that falls within the 
exception in existing Sec.  1026.12(d)(2).
    For a security interest to qualify for the exception under existing 
Sec.  1026.12(d)(2), as discussed in existing comment 12(d)(2)-1.i and 
ii, the following conditions must be met: (1) the consumer must be 
aware that granting a security interest is a condition for the credit 
card account (or for more favorable account terms) and must 
specifically intend to grant a security interest in a deposit account; 
and (2) the security interest must be obtainable and enforceable by 
creditors generally. If other creditors could not obtain a security 
interest in the consumer's deposit accounts to the same extent as the 
card issuer, the security interest is prohibited by existing Sec.  
1026.12(d)(2).
    Current comment 12(d)(2)-1.i provides that indicia of the 
consumer's awareness and intent to provide a security interest include 
at least one of the following (or a substantially similar procedure 
that evidences the consumer's awareness and intent): (1) Separate 
signature or initials on the separate agreement indicating that a 
security interest is being given; (2) placement of the security 
agreement on a separate page, or otherwise separating the security 
interest provisions from other contract and disclosure provisions; or 
(3) reference to a specific amount of deposited funds or to a specific 
deposit account number.
The Bureau's Proposal
    The proposal would have retained current guidance in comment 
12(d)(2)-1.i requiring that the consumer must be aware that granting a 
security interest is a condition for the credit card account (or for 
more favorable account terms) and must specifically intend to grant a 
security interest in a deposit account. The proposal would have moved 
the current guidance in comment 12(d)(2)-1.i discussing indicia of the 
consumer's awareness and intent to grant a security interest to 
proposed comment 12(d)(2)-1.ii and would have amended that comment to 
indicate that guidance only applies to deposit accounts that are not 
prepaid accounts. The proposal would have added new comment 12(d)(2)-
1.iii discussing indicia of the consumer's awareness and intent to 
grant a security interest with respect to prepaid accounts. The 
proposal also would have moved guidance in existing comment 12(d)(2)-
1.ii to new proposed comment 12(d)(2)-1.iv; no substantive change would 
have been intended.
    With respect to proposed comment 12(d)(2)-1.iii, the Bureau 
believed that additional protections may be needed to ensure that 
consumers understand that they are giving a security interest with 
respect to credit features that are accessed by prepaid cards that are 
credit cards. To prevent the security interest from becoming the 
functional equivalent to an offset, the proposal would have set forth 
in proposed comment 12(d)(2)-1.iii the steps that card issuers must 
take to demonstrate a consumer's awareness of and intent to grant a 
security interest in a prepaid account. Specifically, a card issuer 
would have been required to meet all the following conditions: (1) In 
addition to being disclosed in the issuer's account-opening disclosures 
under Sec.  1026.6, the security agreement must be provided to the 
consumer in a document separate from the prepaid account agreement and 
the credit card account agreement; (2) the separate document setting 
forth the security agreement must be signed by the consumer; (3) the 
separate document setting forth the security agreement must refer to 
the prepaid account number and to a specific amount of funds in the 
prepaid account in which the card issuer is taking a security interest, 
and these two elements of the document must be separately signed or 
initialed by the consumer; and (4) the separate document setting forth 
the security agreement must specifically enumerate the conditions under 
which the card issuer will enforce the security interest, and each of 
those conditions must be separately signed or initialed by the 
consumer.
    In addition, as a technical revision, the proposal would have added 
the title ``Rights of the card issuer'' to Sec.  1026.12(d)(2); no 
substantive change was intended.
Comments Received
    The Bureau solicited comment on the approach discussed above. The 
Bureau also solicited comment on whether these additional protections 
are sufficient to ensure that security interests do not become the 
functional equivalent to an offset when a credit card account is 
directly linked to a prepaid account through an overdraft feature. If 
these additional protections were not sufficient, the Bureau sought 
comment on what additional protections would be sufficient to ensure 
that the security interests taken in prepaid accounts are consensual. 
Alternatively, the Bureau sought comment on whether it should prohibit 
a card issuer from obtaining or enforcing any consensual security 
interest in the funds of a cardholder held in a prepaid account with 
the card issuer, to ensure that card issuers cannot circumvent the 
prohibition on offsets by taking routinely a security interest in the 
prepaid account funds without consumer awareness of the security 
interest.
    The Bureau did not receive specific comments from industry 
commenters on proposed comment 12(d)(2)-1.iii. One consumer group 
commenter indicated that the Bureau should ban card issuers from taking 
a security interest in prepaid accounts or require they be established 
only using a separate account. This commenter believed that even with 
the proposed safeguards, it would be too easy for a card issuer to 
obtain the consumer's signature on a

[[Page 84211]]

document. This commenter indicated that at a minimum, the Bureau should 
require funds from a prepaid card that would be the security interest 
to be segregated into a different, separate account that is not a 
transaction account, such as a savings account. In addition, this 
commenter indicated that the security interest should be limited to the 
initial deposit.
The Final Rule
    The Bureau is adopting comment 12(d)(2)-1 as proposed with 
technical revisions to clarify the intent of the provision and with 
revisions to be consistent with new Sec.  1026.61. Consistent with the 
proposal, the final rule retains current guidance in 12(d)(2)-1.i 
requiring that the consumer must be aware that granting a security 
interest is a condition for the credit card account (or for more 
favorable account terms) and must specifically intend to grant a 
security interest in a deposit account. The final rule also moves the 
current guidance 1.ii and revises this current guidance to clarify the 
intent of the provision and to provide that it only applies in relation 
to credit card accounts other than covered separate credit features 
accessible by hybrid prepaid-credit cards as defined in Sec.  1026.61. 
As discussed in more detail below, the final rule also adds new comment 
12(d)(2)-1.iii discussing indicia of the consumer's awareness and 
intent to provide a security interest in relation to covered separate 
credit features accessible by hybrid prepaid in comment 12(d)(2)-1.i 
discussing indicia of the consumer's awareness and intent to provide a 
security interest to final comment 12(d)(2)--credit cards. The final 
rule also moves guidance in existing comment 12(d)(2)-1.ii to final 
comment 12(d)(2)-1.iv; no substantive change is intended. As technical 
revisions, the final rule adds the title ``Rights of the card issuer'' 
to Sec.  1026.12(d)(2) and revises the existing language of Sec.  
1026.12(d)(2) to use the phrase ``this paragraph (d)'' instead of 
``this paragraph''; no substantive change is intended.
    As discussed above, the Bureau is adopting new comment 12(d)(2)-
1.iii as proposed, with technical revisions to clarify the intent of 
the provision and with revisions to be consistent with new Sec.  
1026.61. Specifically, new comment 12(d)(2)-1.iii provides that with 
respect to a covered separate credit feature accessible by a hybrid 
prepaid-credit card as defined in Sec.  1026.61, for a consumer to show 
awareness and intent to grant a security interest in a deposit account, 
including a prepaid account, all of the following conditions must be 
met: (1) In addition to being disclosed in the issuer's account-opening 
disclosures under existing Sec.  1026.6, the security agreement must be 
provided to the consumer in a document separate from the deposit 
account agreement and the credit card account agreement; (2) the 
separate document setting forth the security agreement must be signed 
by the consumer; (3) the separate document setting forth the security 
agreement must refer to the deposit account number, and to a specific 
amount of funds in the deposit account in which the card issuer is 
taking a security interest and these two elements of the document must 
be separately signed or initialed by the consumer; and (4) the separate 
document setting forth the security agreement must specifically 
enumerate the conditions under which the card issuer will enforce the 
security interest, and each of those conditions must be separately 
signed or initialed by the consumer.
    As discussed in more detail in the section-by-section analysis of 
Sec.  1026.61(a)(2) below, a covered separate credit feature accessible 
by a hybrid prepaid-credit card includes an overdraft credit feature 
offered by a prepaid account issuer, its affiliate, or its business 
partner that can be accessed by a prepaid card (except as provided in 
new Sec.  1026.61(a)(4)). The prepaid card is a hybrid prepaid-credit 
card under new Sec.  1026.61 and a credit card under final Sec.  
1026.2(a)(15)(i) with respect to the covered separate credit feature.
    The Bureau believes that prepaid account issuers may have 
significant interest in securing credit card debt on a covered separate 
credit feature accessible by a hybrid prepaid-credit card by means of 
the prepaid account. These credit features will always be associated 
with this linked asset account, and the Bureau believes that prepaid 
card users who use the cards to obtain consumer credit from a covered 
separate credit feature are likely to have lower credit scores than 
credit card users overall. Unlike traditional secured credit cards, 
these prepaid cards likely would not be marketed as secured credit 
cards and would not require consumers to establish a new separate 
account or to set aside specific funds. As a result, prepaid consumers 
are less likely than secured credit card users to understand that they 
are required to provide a security interest in the prepaid account in 
order to receive the covered separate credit feature. In addition, 
these prepaid consumers may have a need to be able to manage their 
prepaid accounts very carefully to cover both daily expenses and any 
credit repayments.
    With regard to security interests in connection with covered 
separate credit features accessible by hybrid prepaid-credit cards, the 
Bureau believes that all of the indicia in new comment 12(d)(2)-2.iii, 
including delineating a specific dollar amount as being subject to the 
security interest, will help to ensure that such security interest 
arrangements do not circumvent the offset provision in TILA section 169 
by ensuring that consumers focus careful attention on the consequences 
of granting security interests so that consumers are better prepared to 
manage their accounts to both cover daily expenses and repay any credit 
extensions.
    At this time, the Bureau does not believe that it is necessary to 
ban security interests in prepaid accounts or to provide that a covered 
separate credit feature accessible by a hybrid prepaid-credit card only 
can be secured by a separate asset account that is not the prepaid 
account. The Bureau believes that the protections adopted in the final 
rule are sufficient to protect consumers from security interests taken 
in prepaid account with respect to a covered separate credit feature 
from becoming functional equivalents of offsets, but the Bureau will 
continue to monitor how providers in the prepaid market use consensual 
security interests.
12(d)(3) Periodic Deductions
    Implementing TILA section 169, existing Sec.  1026.12(d)(3) 
provides that the prohibition on offsets set forth in Sec.  
1026.12(d)(1) does not prohibit a plan, if authorized in writing by the 
cardholder, under which the card issuer may periodically deduct all or 
part of the cardholder's credit card debt from a deposit account held 
with the card issuer (subject to the limitations in existing Sec.  
1026.13(d)(1)).
The Bureau's Proposal
    Neither TILA section 169 nor existing Sec.  1026.12(d)(3) defines 
``periodically'' for purposes of existing Sec.  1026.12(d)(3). The 
proposal would have added proposed Sec.  1026.12(d)(3)(ii) to provide 
that with respect to prepaid cards that are credit cards, for purposes 
of existing Sec.  1026.12(d)(3), ``periodically'' means no more 
frequently than once per calendar month. For example, a deduction could 
be scheduled for each monthly due date disclosed on the applicable 
periodic statement in accordance with the requirements of proposed 
Sec.  1026.7(b)(11)(i)(A) or on an earlier date in each calendar month 
in accordance with a written authorization signed by the consumer. 
Thus, under proposed Sec.  1026.12(d)(3), with respect to such credit 
plans accessed by prepaid

[[Page 84212]]

card that is a credit card, a card issuer would have been permitted to 
deduct all or a part of the cardholder's credit card debt automatically 
from the prepaid account or other deposit account held by the card 
issuer no more frequently than once per month, pursuant to a signed, 
written authorization by the cardholder to do so. Proposed comment 
12(d)(3)-3 would have provided an example to illustrate when card 
issuers could deduct automatically all or part of the cardholder's 
credit card debt from a deposit account (such as a prepaid account) 
held with the card issuer under proposed Sec.  1026.12(d)(3) with 
respect to credit cards that are also prepaid cards. Proposed comment 
12(d)(3)-3 would have provided that with respect to those credit cards, 
a card issuer would not be prohibited under proposed Sec.  1026.12(d) 
from periodically deducting all or part of the cardholder's credit card 
debt from a deposit account (such as a prepaid account) held with the 
card issuer (subject to the limitations of existing Sec.  
1026.13(d)(1)) under a plan that is authorized in writing by the 
cardholder, so long as the creditor does not deduct all or part of the 
cardholder's credit card debt from the deposit account (such as a 
prepaid account) more frequently than once per calendar month, pursuant 
to such a plan. The proposed comment would have provided the following 
example: With respect to credit cards that are also prepaid cards, 
assume that a periodic statement is sent out each month to a cardholder 
on the first day of the month and the payment due date for the amount 
due on that statement is the 25th day of each month. In this case, the 
card issuer would not have been prohibited under proposed Sec.  
1026.12(d) from automatically deducting the amount due on the periodic 
statement on the 25th of each month, or on an earlier date in each 
calendar month, from a deposit account held by the card issuer if the 
deductions were pursuant to a plan that was authorized in writing by 
the cardholder (as discussed in existing comment 12(d)(3)-1) and 
complied with the limitations in existing Sec.  1026.13(d)(1). Proposed 
comment 12(d)(3)-3 also would have explained that the card issuer would 
be prohibited under proposed Sec.  1026.12(d) from automatically 
deducting all or part of the cardholder's credit card debt from a 
deposit account (such as a prepaid account) held with the card issuer 
more frequently than once per calendar month, such as on a daily or 
weekly basis, or whenever deposits are made to the deposit account.
    As technical revisions, the proposal also would have: (1) Added the 
title ``Periodic deductions'' to Sec.  1026.12(d)(3); and (2) moved 
existing Sec.  1026.12(d)(3) to proposed Sec.  1026.12(d)(3)(i). No 
substantive changes would have been intended.
Comments Received
    One credit union service organization indicated that the Bureau 
should not adopt the proposed definition of ``periodically.'' This 
commenter indicated that consumers should have the choice to allow for 
automatic multiple payments within the same month, like consumers have 
with other financial products such as traditional credit card programs. 
This commenter indicated that some consumers may prefer to pay smaller 
amounts more frequently instead of paying a larger amount once a month.
    One consumer group commenter indicated that the preauthorized 
payment plan exception set forth in existing Sec.  1026.12(d)(3) should 
not apply to credit features accessed by prepaid cards that are credit 
cards. Thus, card issuers of those credit features should not be 
permitted to deduct credit card balances on those credit features from 
prepaid accounts pursuant to existing Sec.  1026.12(d)(3). Another 
consumer group commenter indicated that with respect to credit features 
accessed by prepaid cards that are credit cards, a card issuer should 
be permitted under proposed Sec.  1026.12(d)(3) to deduct no more than 
4 percent of the outstanding balance on a monthly basis from the 
prepaid account pursuant to the preauthorized payment plan.
    One consumer group commenter indicated that the Bureau should make 
clear that consumers have the right to revoke authorization for a 
payment plan described in proposed Sec.  1026.12(d)(3). This commenter 
indicated that consumers should be able to exercise the right to revoke 
authorization under existing Sec.  1026.12(d)(3) easily, such as in 
writing, electronically or orally. One consumer group commenter 
indicated that the Bureau should monitor the process that card issuers 
use to gain automatic payment authorization to ensure that it is not 
coercive or misleading so that consumers understand that they have 
signed up for it.
The Final Rule
    As discussed in more detail below, the Bureau is adopting Sec.  
1026.12(d)(3) as proposed, with revisions to be consistent with new 
Sec.  1026.61. Consistent with the proposal, the final rule moves the 
current language in existing Sec.  1026.12(d)(3) to new Sec.  
1026.12(d)(3)(i). The final rule also adds new Sec.  1026.12(d)(3)(ii) 
and new comment 12(d)(3)-3 as proposed, with revisions to be consistent 
with new Sec.  1026.61. New Sec.  1026.12(d)(3)(ii) provides that with 
respect to covered separate credit features accessible by hybrid 
prepaid-credit cards, for purposes of Sec.  1026.12(d)(3), 
``periodically'' means no more frequently than once per calendar month. 
Thus, under new Sec.  1026.12(d)(3)(ii), with respect to a covered 
separate credit feature accessible by a hybrid prepaid-credit card, a 
card issuer may deduct all or a part of the cardholder's credit card 
debt on the covered separate credit feature automatically from the 
prepaid account or other deposit account held by the card issuer no 
more frequently than once per month, pursuant to a signed, written 
authorization by the cardholder to do so. As discussed in more detail 
in the section-by-section analysis of Sec.  1026.61(a)(2) below, a 
covered separate credit feature accessible by a hybrid prepaid-credit 
card includes an overdraft credit feature offered by a prepaid account 
issuer, its affiliate, or its business partner that can be accessed by 
a prepaid card (except as provided in new Sec.  1026.61(a)(4)). The 
prepaid card is a hybrid prepaid-credit card under new Sec.  1026.61 
and a credit card under final Sec.  1026.2(a)(15)(i) with respect to 
the covered separate credit feature.
    As discussed in more detail below, the Bureau also is amending 
existing comment 12(d)(3)-2 to provide that a card issuer is not 
prohibited under final Sec.  1026.12(d) from automatically deducting 
from the consumer's deposit account any fee or charge imposed on the 
asset feature of the prepaid account that is not a charge imposed as 
part of the plan under final Sec.  1026.6(b)(3).
    The Bureau also is making three technical revisions to final Sec.  
1026.12(d)(3) and related commentary. First, the final rule adds the 
title ``Periodic deductions'' to Sec.  1026.12(d)(3). Second, the final 
rule revises the language of existing Sec.  1026.12(d)(3) (renumbered 
as final Sec.  1026.12(d)(3)(i)) to use the phrase ``this paragraph 
(d)'' rather than ``this paragraph.'' Third, the final rule revises 
existing comment 12(d)(3)-1.iii, which references EFTA section 913, to 
also reference final Regulation E Sec.  1005.10(e), which implements 
that section of EFTA.
    Definition of ``periodically.'' New Sec.  1026.12(d)(3)(ii) 
provides that with respect to covered separate credit features 
accessible by hybrid prepaid-credit cards, for purposes of final Sec.  
1026.12(d)(3), ``periodically'' means

[[Page 84213]]

no more frequently than once per calendar month. For example, a 
deduction could be scheduled for each monthly due date disclosed on the 
applicable periodic statement in accordance with the requirements of 
final Sec.  1026.7(b)(11)(i)(A) or on an earlier date in each calendar 
month in accordance with a written authorization signed by the 
consumer. Thus, under final Sec.  1026.12(d)(3), with respect to a 
covered separate credit feature accessible by a hybrid prepaid-credit 
card, a card issuer may deduct all or a part of the cardholder's credit 
card debt on the covered separate credit feature automatically from the 
prepaid account or other deposit account held by the card issuer no 
more frequently than once per month, pursuant to a signed, written 
authorization by the cardholder to do so.\655\
---------------------------------------------------------------------------

    \655\ The proposal would have provided that the term ``credit 
card'' includes an account number that is not a prepaid card that 
may be used from time to time to access a credit plan that allows 
deposits directly only into particular prepaid accounts specified by 
the creditor. With respect to these account numbers, the proposal 
would have set forth a new proposed Sec.  1026.12(d)(3)(ii) and 
comment 12(d)(3)-3 that would have provided that for purposes of the 
exception for automatic payment plans as discussed in Sec.  
1026.12(d)(3), ``periodically'' would have meant no more frequently 
than once per calendar month. For the reasons set forth in the 
section-by-section analysis of Sec.  1026.2(a)(15)(i)above, the 
final rule does not adopt the proposed revisions to Sec.  
1026.12(d)(3)(ii) and comment 12(d)(3)-3 related to these account 
numbers.
---------------------------------------------------------------------------

    The Bureau also is adopting comment 12(d)(3)-3 as proposed, with 
revisions to be consistent with new Sec.  1026.61. New comment 
12(d)(3)-3 provides that with respect to covered separate credit 
features accessible by hybrid prepaid-credit cards, a card issuer would 
not be prohibited under final Sec.  1026.12(d) from periodically 
deducting all or part of the cardholder's credit card debt on the 
covered separate credit feature from a deposit account (such as a 
prepaid account) held with the card issuer (subject to the limitations 
of existing Sec.  1026.13(d)(1)) under a plan that is authorized in 
writing by the cardholder, so long as the creditor does not deduct all 
or part of the cardholder's credit card debt from the deposit account 
more frequently than once per calendar month pursuant to such a plan.
    This comment provides the following example: With respect to a 
covered separate credit feature accessible by a hybrid prepaid-credit 
card, assume that a periodic statement is sent out each month to a 
cardholder on the first day of the month and the payment due date for 
the amount due on that statement is the 25th day of each month. In this 
case, the card issuer is not prohibited under final Sec.  1026.12(d) 
from automatically deducting the amount due on the periodic statement 
on the 25th of each month, or on an earlier date in each calendar 
month, from a deposit account held by the card issuer, if the 
deductions are pursuant to a plan that is authorized in writing by the 
cardholder (as discussed in final comment 12(d)(3)-1) and comply with 
the limitations in existing Sec.  1026.13(d)(1). New comment 12(d)(3)-3 
also explains that the card issuer is prohibited under final Sec.  
1026.12(d) from automatically deducting all or part of the cardholder's 
credit card debt on the covered separate credit feature from a deposit 
account (such as a prepaid account) held with the card issuer more 
frequently than once per calendar month, such as on a daily or weekly 
basis, or whenever deposits are made or expected to be made to the 
deposit account.
    The Bureau believes that allowing a card issuer to execute a 
preauthorized transfer once per calendar month to repay all or some of 
a consumer's credit card balance on a covered separate credit feature 
accessible by a hybrid prepaid-credit card is appropriate because card 
issuers of covered separate credit features linked to prepaid accounts 
generally are restricted from providing periodic statements more 
frequently than on a monthly basis, and the due date must be the same 
day of the month for each billing cycle. As discussed in the section-
by-section analyses of Sec. Sec.  1026.5(b)(2)(ii) and 1026.7(b)(11) 
above, for covered separate credit features accessible by hybrid 
prepaid-credit cards that are credit card accounts under an open-end 
(not home-secured) consumer credit plan, the card issuer must adopt 
reasonable procedures to ensure that periodic statements are mailed or 
delivered at least 21 days prior to the payment due date disclosed on 
the periodic statement, and the due date must be the same day of the 
month for each billing cycle.
    The Bureau is concerned that, with respect to covered separate 
credit features that are accessible by hybrid prepaid-credit cards, 
some card issuers may attempt to circumvent the prohibition on offsets 
by obtaining a consumer's written authorization to deduct all or part 
of the cardholder's credit card debt on the covered separate credit 
feature on a daily or weekly basis from the prepaid account to help 
ensure that the debt is repaid. If ``periodically'' is not defined for 
purposes of final Sec.  1026.12(d)(3), the Bureau believes that card 
issuers that offer covered separate credit features accessible by 
hybrid prepaid-credit cards may obtain a consumer's written 
authorization to daily or weekly debits to the prepaid account to repay 
the credit card debt on the covered separate credit feature given the 
overall creditworthiness of prepaid accountholders who rely on covered 
separate credit features. In addition, the Bureau believes prepaid 
consumers may grant the authorization more readily than other credit 
cardholders because these consumers may believe that providing such 
authorization is required.
    An appropriate interval for ``periodic[]'' deduction plans may 
depend on the facts and circumstances of the particular credit feature, 
but because of the above reasons, the Bureau believes that an 
appropriate interval for covered separate credit features accessible by 
hybrid prepaid-credit cards is no more frequently than once per 
calendar month.
    The Bureau believes that the requirement in final Sec.  
1026.12(d)(3), along with changes to the timing requirement for a 
periodic statement in final Sec.  1026.5(b)(2)(ii)(A) and the 
compulsory use provision in Regulation E (final Sec.  1005.10(e)(1)), 
are necessary to fully effectuate the intent of the provisions and 
would allow consumers to retain control over the funds in their prepaid 
accounts even when a covered separate credit feature accessible by a 
hybrid prepaid-credit card becomes associated with that account, which 
is consistent with the prohibition on offsets. In particular, with 
these changes, such card issuers (1) are required to adopt reasonable 
procedures designed to ensure that periodic statements for covered 
separate credit features are mailed or delivered at least 21 days prior 
to the payment due date disclosed on the periodic statement, and the 
due date disclosed must be the same day of the month for each billing 
cycle; (2) can move funds automatically from the asset account held by 
the card issuer to the credit card account held by the card issuer to 
pay some or all of the credit card debt on covered separate credit 
features no more frequently than once per month, such as on the payment 
due date (pursuant to the consumer's signed, written agreement that the 
issuer may do so); and (3) are required to offer consumers a means to 
repay their outstanding credit balances on covered separate credit 
features other than automatic repayment (such as by means of a transfer 
of funds from the asset account to the credit account that the consumer 
initiates on the prepaid account's online banking Web site).

[[Page 84214]]

    As discussed above, one credit union service organization indicated 
that the Bureau should not adopt the proposed definition of 
``periodically.'' This commenter indicated that consumers should have 
the choice to allow for automatic multiple payments within the same 
month, like consumers have with other financial products such as 
traditional credit card programs. This commenter indicated that some 
consumers may prefer to pay smaller amounts more frequently instead of 
paying a larger amount once a month. The Bureau notes that under 
existing comment 12(d)(3)-2.ii, a card issuer is not prohibited under 
the offset provision in Sec.  1026.12(d)(1) from debiting the 
cardholder's deposit account on the cardholder's specific request 
rather than on an automatic periodic basis (for example, a cardholder 
might check a box on the credit card bill stub, requesting the issuer 
to debit the cardholder's account to pay that bill). Thus, under the 
final rule, a consumer may still provide specific requests for payment 
more frequently than once per month as described in existing comment 
12(d)(3)-2.ii (for example, a cardholder might check a box on the 
credit card bill stub, requesting the issuer to debit the cardholder's 
account to pay that bill), so long as those payments are not on an 
automatic periodic basis more frequently than once per month.
    In addition, as discussed above, one consumer group commenter 
indicated that the preauthorized payment plan exception set forth in 
existing Sec.  1026.12(d)(3) should not apply to credit features 
accessed by prepaid cards that are credit cards. Thus, card issuers of 
those credit features should not be permitted to deduct credit card 
balances on those credit features from prepaid accounts pursuant to 
existing Sec.  1026.12(d)(3). Another consumer group commenter 
indicated that with respect to credit features accessed by prepaid 
cards that are credit cards, a card issuer should be permitted under 
proposed Sec.  1026.12(d)(3) to deduct no more than 4 percent of the 
outstanding balance on a monthly basis from the prepaid account 
pursuant to the preauthorized payment plan. The Bureau does not adopt 
these additional protections suggested by these commenters at this 
time. The Bureau believes that the requirement in final Sec.  
1026.12(d)(3), along with changes to the timing requirement for a 
periodic statement in final Sec.  1026.5(b)(2)(ii)(A) and the 
compulsory use provision in Regulation E (final Sec.  1005.10(e)(1)), 
provide sufficient protections to consumers to help ensure that 
consumers retain control over the funds in their prepaid accounts even 
when a covered separate credit feature accessible by a hybrid prepaid-
credit card becomes associated with that account, which is consistent 
with the prohibition on offsets. The Bureau will continue to monitor 
the use of automatic payment plans.
    Also, as discussed above, one consumer group commenter indicated 
that the Bureau should make clear that consumers have the right to 
revoke authorization for a payment plan, described in proposed Sec.  
1026.12(d)(3). This commenter indicated that consumers should be able 
to exercise the right to revoke authorization under existing Sec.  
1026.12(d)(3) easily, such as in writing, electronically or orally. 
Another consumer group commenter indicated that the Bureau should 
monitor the process that card issuers use to gain automatic payment 
authorization to ensure that it is not coercive or misleading so that 
consumers understand that they have signed up for it.
    The final rule does not provide specific guidance on how consumers 
may revoke the authorization provided pursuant to final Sec.  
1026.12(d)(3). The Bureau notes that under final Sec.  1026.12(d)(3), 
the exception from the offset provision for automatic payments only 
applies to automatic payment plans that are ``authorized'' in writing 
by the cardholder. At this time, the Bureau believes that State or 
other applicable law, including UDAAP law, should determine whether an 
automatic payment plan has been ``authorized'' and when an 
authorization has been revoked for purposes of final Sec.  
1026.12(d)(3). The Bureau will continue to monitor the processes that 
card issuers use to gain automatic payment authorization and the 
processes by which consumers can revoke authorization, to ensure that 
processes provided by card issuers for obtaining authorization are 
understandable to consumers and that consumers have reasonable methods 
available to revoke the authorization.
    Fees or charges imposed on the asset feature of a prepaid account 
that are not charges imposed as part of the plan. Existing Sec.  
1026.12(d)(1) provides that a card issuer may not take any action, 
either before or after termination of credit card privileges, to offset 
a cardholder's indebtedness arising from a consumer credit transaction 
under the relevant credit card plan against funds of the cardholder 
held on deposit with the card issuer. Existing comment 12(d)(1)-3 
provides that the offset prohibition applies to any indebtedness 
arising from transactions under a credit card plan, including accrued 
finance charges and other charges on the account. Existing comment 
12(d)(3)-2 provides that Sec.  1026.12(d)(1) does not prohibit a card 
issuer from automatically deducting charges for participation in a 
program of banking services (one aspect of which may be a credit card 
plan).
    The Bureau did not propose revisions to existing comments 12(d)(1)-
3 or 12(d)(3)-2. Nonetheless, as discussed in more detail below, the 
Bureau is adopting revisions to comment 12(d)(3)-2 to be consistent 
with new Sec.  1026.61, changes in the final rule to the definition of 
``finance charge'' in final Sec.  1026.4, and the definition of 
``charges imposed as part of the plan'' in final Sec.  1026.6(b)(3). To 
reflect these changes and to facilitate compliance with Sec.  
1026.12(d), the Bureau is adding comment 12(d)(3)-2.iii to provide that 
the offset prohibition in final Sec.  1026.12(d) does not prohibit a 
card issuer from automatically deducting any fee or charge imposed on 
the asset feature of the prepaid account that is not a charge imposed 
as part of the plan under final Sec.  1026.6(b)(3) from a consumer's 
deposit account, such a prepaid account, held by the card issuer. This 
clarification applies to both covered separate credit features 
accessible by a hybrid prepaid-credit card and non-covered separate 
credit features that are subject to final Sec.  1026.12(d).\656\
---------------------------------------------------------------------------

    \656\ With respect to incidental credit that meets the 
conditions set forth in new Sec.  1026.61(a)(4), new Sec.  
1026.61(a)(4)(ii)(C) makes clear that a prepaid account issuer may 
still satisfy the exception in new Sec.  1026.61(a)(4) even if it 
debits fees or charges from the asset feature when there are 
insufficient or unavailable funds in the asset feature to cover 
those fees or charges at the time they are imposed, so long as those 
fees or charges are not credit-related fees enumerated in new Sec.  
1026.61(a)(4)(ii)(B). New comment 61(a)(4)-1.iv.A states that for 
this type of credit, the prepaid account issuer is not a card issuer 
under Sec.  1026.2(a)(7) with respect to the prepaid card.
---------------------------------------------------------------------------

    As discussed in more detail in the section-by-section analysis of 
Sec.  1026.61(a)(2) below, new Sec.  1026.61(a)(2)(i) provides that a 
prepaid card is a ``hybrid prepaid-credit card'' with respect to a 
separate credit feature if the card meets the following two conditions: 
(1) The card can be used from time to time to access credit from the 
separate credit feature in the course of authorizing, settling, or 
otherwise completing transactions conducted with the card to obtain 
goods or services, obtain cash, or conduct P2P transfers; and (2) the 
separate credit feature is offered by the prepaid account issuer,

[[Page 84215]]

its affiliate, or its business partner. New Sec.  1026.61(a)(2)(i) 
defines such a separate credit feature accessible by a hybrid prepaid-
credit card as a ``covered separate credit feature.'' Thus, the hybrid 
prepaid-credit card can access both the covered separate credit feature 
and the asset feature of the prepaid account, and the hybrid prepaid-
credit card is a credit card under Regulation Z with respect to the 
covered separate credit feature.
    Nonetheless, new Sec.  1026.61(a)(2)(ii) provides that a prepaid 
card is not a hybrid prepaid-credit card with respect to a separate 
credit feature that does not meet both of the conditions above, for 
example, where the credit feature is offered by an unrelated third 
party that is not the prepaid account issuer, its affiliate or its 
business partner. As described in new Sec.  1026.61(a)(2)(ii), a non-
covered separate credit feature is not subject to the rules applicable 
to hybrid prepaid-credit cards; however, it typically will be subject 
to Regulation Z depending on its own terms and conditions, independent 
of the connection to the prepaid account. Thus, a non-covered separate 
credit feature may be subject to the provisions in Sec.  1026.12(d) in 
its own right based on the terms and conditions of the non-covered 
separate credit feature, independent of the connection to the prepaid 
account.
    As discussed in the section-by-section analysis of Sec.  
1026.6(b)(3) above, the Bureau is adding new Sec.  1026.6(b)(3)(iii)(D) 
and new comment 6(b)(3)(iii)(D)-1 which provide that with regard to a 
covered separate credit feature and an asset feature on a prepaid 
account that are both accessible by a hybrid prepaid-credit card as 
defined in new Sec.  1026.61, the term ``charges imposed as part of the 
plan'' does not include any fee or charge imposed on the asset feature 
of the prepaid account to the extent that the amount of the fee or 
charge does not exceed comparable fees or charges imposed on prepaid 
accounts in the same prepaid account program that do not have a credit 
feature accessible by a hybrid prepaid-credit card. As described in the 
section-by-section analysis of Sec.  1026.4(b)(11) above, these fees or 
charges imposed on the asset feature of the prepaid account are not 
finance charges under new Sec.  1026.4(b)(11)(ii). With respect to a 
covered separate credit feature, new comment 12(d)(3)-2.iii makes clear 
that final Sec.  1026.12(d) does not prevent a card issuer from 
automatically deducting from a consumer's deposit account, such as a 
prepaid account, held with the card issuer any fee or charge imposed on 
the asset feature of the prepaid account that is not a charge imposed 
as part of the plan under new Sec.  1026.6(b)(3)(iii)(D) with respect 
to the covered separate credit feature. As discussed in more detail in 
the section-by-section analyses of Sec. Sec.  1026.4 and 1026.6, the 
Bureau believes that fees or charges imposed on the asset feature of a 
prepaid account that are not finance charges, and thus are not charges 
imposed as part of the plan under new Sec.  1026.6(b)(3)(iii)(D), are 
more appropriately regulated under Regulation E than under Regulation Z 
with respect to the covered separate credit feature.
    The Bureau also is adding new Sec.  1026.6(b)(3)(iii)(E) and new 
comment 6(b)(3)(iii)(E)-1, which provide that with regard to a non-
covered separate credit feature accessible by a prepaid card, as 
defined in Sec.  1026.61, the term ``charges imposed as part of the 
plan'' does not include any fee or charge imposed on the asset feature 
of the prepaid account. New comment 61(b)(3)(iii)(E)-1 also cross-
references new comment 4(b)(11)-1.ii.B, which provides that fees or 
charges imposed on the asset feature of the prepaid account are not 
finance charges with respect to the non-covered separate credit 
feature. With respect to a non-covered separate credit feature, new 
comment 12(d)(3)-2.iii makes clear that final Sec.  1026.12(d) does not 
prevent a card issuer from automatically deducting from a consumer's 
deposit account, such as a prepaid account, held with the card issuer 
any fee or charge imposed on the asset feature of the prepaid account 
that is not a charge imposed as part of the plan under new Sec.  
1026.6(b)(3)(iii)(E) with respect to the non-covered separate credit 
feature. Because none of the fees or charges imposed on the asset 
feature of the prepaid account are charges imposed as part of the plan 
with respect to a non-covered separate credit feature under new Sec.  
1026.6(b)(3)(iii)(E), final Sec.  1026.12(d) does not prevent a card 
issuer from automatically deducting any of these fees or charges from a 
consumer's deposit account, such as a prepaid account, held with the 
card issuer. As discussed in more detail in the section-by-section 
analyses of Sec. Sec.  1026.4 and 1026.6, the Bureau believes that fees 
or charges imposed on the asset feature of a prepaid account are more 
appropriately regulated under Regulation E rather than Regulation Z 
with respect to the non-covered separate credit feature.
Section 1026.13 Billing Error Resolution
    TILA section 161, as implemented in existing Sec.  1026.13, sets 
forth error resolution procedures for billing errors that relate to any 
extension of credit that is made in connection with an open-end account 
or credit card account. Specifically, it requires a consumer to provide 
written notice of an error within 60 days after the first periodic 
statement reflecting the alleged error is sent.\657\ The written notice 
triggers a creditor's duty to investigate the claim within prescribed 
time limits.
---------------------------------------------------------------------------

    \657\ 15 U.S.C. 1666; see also 15 U.S.C. 1602(g).
---------------------------------------------------------------------------

13(a) Definition of Billing Error
13(a)(3)
    Existing Sec.  1026.13(a) defines a ``billing error'' for purposes 
of the error resolution procedures. Under existing Sec.  1026.13(a)(3), 
the term ``billing error'' includes disputes about an extension of 
credit for property or services not accepted by the consumer or not 
delivered to the consumer as agreed. Existing comment 13(a)(3)-2 
explains that, in certain circumstances, a consumer may assert a 
billing error under existing Sec.  1026.13(a)(3) with respect to 
property or services obtained through any extension of credit made in 
connection with a consumer's use of a third-party payment service.
    Proposed Sec.  1026.2(a)(15)(vii) would have provided a definition 
for ``account number where extensions of credit are permitted to be 
deposited directly only into particular prepaid accounts specified by 
the creditor.'' As used in the proposal, this term would have meant an 
account number that is not a prepaid card that may be used from time to 
time to access a credit plan that allows deposits directly into 
particular prepaid accounts specified by the creditor but does not 
allow the consumer to deposit directly extensions of credit from the 
plan into asset accounts other than particular prepaid accounts 
specified by the creditor. Proposed comment 2(a)(15)-2.i.G would have 
provided that these account numbers were credit cards under the 
proposal.
    Similar to the provision relating to third-party intermediaries, 
the proposal would have added proposed comment 13(a)(3)-2.ii to address 
situations where goods or services are purchased using funds deposited 
into a prepaid account and those funds are credit drawn from a credit 
plan that is accessed by an account number where extensions of credit 
are permitted to be deposited directly only into particular prepaid

[[Page 84216]]

accounts specified by the creditor. The proposal would have moved the 
existing guidance in comment 13(a)(3)-2 to proposed 13(a)(3)-2.i.
    The Bureau did not receive specific comments on proposed comment 
13(a)(3)-2.ii. For the reasons set forth in the section-by-section 
analysis of Sec.  1026.2(a)(15)(i), the Bureau has not adopted proposed 
Sec.  1026.2(a)(15)(vii) and proposed comment 2(a)(15)-2.i.G that would 
have made these account numbers into credit cards under Regulation Z. 
Thus, Bureau has not adopted proposed comment 13(a)(3)-2.ii related to 
these account numbers.
13(i) Relation to Electronic Fund Transfer Act and Regulation E
    Existing Sec.  1026.13(i) provides guidance on whether billing 
error provisions under Regulation E or Regulation Z apply in certain 
overdraft-related transactions. Specifically, existing Sec.  1026.13(i) 
provides that if an extension of credit is incident to an EFT and is 
under an agreement between a consumer and a financial institution to 
extend credit when the consumer's account is overdrawn or to maintain a 
specified minimum balance in the consumer's account, the creditor must 
comply with the requirements of Regulation E Sec.  1005.11 governing 
error resolution rather than those of existing Sec.  1026.13(a), (b), 
(c), (e), (f), and (h). The provisions of existing Sec.  1026.13 (d) 
and (g) would still apply to the credit portion of these transactions.
    As discussed in the Overview of the Final Rule's Amendments to 
Regulation Z section, currently under Regulation Z, overdraft credit is 
subject to Regulation Z only if there is an agreement to extend credit, 
which is typically described as an overdraft line of credit. In those 
cases, existing Sec.  1026.13(i) applies when a transaction is 
partially funded through an EFT from an asset account and partially 
funded through an overdraft credit line. Such transactions will be 
subject to both Regulation Z and E. Under existing Sec.  1026.13(i), 
for those transactions, the creditor must comply with the requirements 
of Regulation E Sec.  1005.11 governing error resolution rather than 
those of existing Sec.  1026.13(a), (b), (c), (e), (f), and (h). The 
provisions of existing Sec.  1026.13(d) and (g) would still apply to 
the credit portion of these transactions. Currently under Regulation Z, 
with respect to an asset account with a linked overdraft line of 
credit: (1) if a transaction only accesses the overdraft line of credit 
and does not access funds in the asset account, the error resolution 
provisions in Regulation Z apply, and the error resolution provisions 
in Regulation E do not apply; and (2) if a transaction only accesses 
the funds in the asset account and does not access the overdraft line 
of credit, the error resolution provisions in Regulation E apply, and 
the error resolution provisions in Regulation Z do not apply. In 
addition, current Regulation Z does not apply to overdraft credit where 
there is not an agreement to extend credit. As discussed in existing 
comment 13(i)-2, overdraft transactions made under those overdraft 
credit programs are governed solely by the error resolution provisions 
in Regulation E. Existing comment 13(i)-3 provides an example of the 
application of existing Sec.  1026.13(i) to transactions where a 
consumer withdraws money at an ATM machine and activates an overdraft 
line of credit on the checking account.
    As discussed in existing comment 13(i)-1, credit extended directly 
from a non-overdraft credit line is governed solely by Regulation Z, 
even though a combined credit card/access device is used to obtain the 
extension.
The Bureau's Proposal
    First, the proposal would have moved the existing language of 
current Sec.  1026.13(i) to proposed Sec.  1026.13(i)(1) and would have 
revised that language to specify that this provision would apply to 
asset accounts that are not prepaid accounts. Second, existing comment 
13(i)-2 would have been revised to specify that the comment only apply 
to asset accounts that are not prepaid accounts. Third, existing 
comment 13(i)-3 would have been revised to specify that the example set 
forth in that comment only applies to debit cards. Proposed Sec.  
1026.2(a)(15)(iv) would have defined ``debit card'' to mean ``any card, 
plate, or other single device that may be used from time to time to 
access an asset account other than a prepaid account.'' The proposed 
definition of ``debit card'' also would have specified that it does not 
include a prepaid card.
    The proposal would have added proposed Sec.  1026.13(i)(2) to 
provide that with respect to a credit plan in connection with a prepaid 
account, a creditor must comply with the requirements of existing 
Regulation E Sec.  1005.11 governing error resolution rather than those 
of Sec.  1026.13(a), (b), (c), (e), (f), and (h) with respect to an 
extension of credit incident to an EFT when the consumer's prepaid 
account is overdrawn if the credit plan is subject to subpart B of this 
regulation. The provisions of existing Sec.  1026.13(d) and (g) would 
still apply to the credit portion of these transactions.
    The proposal also would have added proposed comment 13(i)-4 to 
provide guidance on how proposed Sec.  1026.13(i)(2) would have applied 
to credit plans in connection with prepaid accounts. Specifically, 
proposed comment 13(i)-4 would have provided that for a credit 
extension involving a credit plan in connection with a prepaid account 
that is subject to subpart B, when the credit extension is incident to 
an EFT and occurs when the prepaid account is overdrawn, whether 
Regulation E or Regulation Z applies depends on the nature of the 
transaction. For example, if the transaction solely involves an 
extension of credit under an overdraft plan and does not include a 
debit to the prepaid account, the error resolution requirements of 
Regulation Z would have applied. If the transaction debited a prepaid 
account only (with no credit extended under the overdraft plan), the 
provisions of Regulation E would have applied. Nonetheless, under the 
proposal, if the transaction debits a prepaid account but also draws on 
an overdraft plan subject to subpart B, a creditor would have been 
required to comply with the requirements of existing Regulation E Sec.  
1005.11 and proposed Sec.  1005.18(e) governing error resolution, 
rather than those of Sec.  1026.13 (a), (b), (c), (e), (f), and (h).
    Proposed comment 13(i)-5 would have explained that an overdraft 
credit plan would not be subject to subpart B if the credit plan is 
only accessed by a prepaid card that is not a credit card. Under 
proposed comment 2(a)(15)-2.i.F, a prepaid card would not have been a 
credit card if the prepaid card only accesses credit that is not 
subject to any finance charge, as defined in Sec.  1026.4, or fee 
described in Sec.  1026.4(c), and is not payable by written agreement 
in more than four installments. For these types of credit plans, under 
the proposal, only the error resolution provisions in Regulation E 
would have applied.
Comments Received and Final Rule
    The Bureau did not receive comment on this aspect of the proposal. 
Consistent with the proposal, the Bureau is adopting Sec.  1026.13(i) 
as proposed, with several technical revisions to clarify the intent of 
the provision and to be consistent with new Sec.  1026.61.\658\ 
Consistent with the

[[Page 84217]]

proposal, the Bureau is moving existing Sec.  1026.13(i) to new Sec.  
1026.13(i)(1) and is revising this language to specify that this 
provision does not apply to transactions involving prepaid accounts as 
defined in Sec.  1026.61. In addition, the Bureau is revising existing 
comment 13(i)-2 to make clear that the comment do not apply to 
transactions involving prepaid accounts defined in Sec.  1026.61. 
Consistent with the proposal, the final rule also amends final comment 
13(i)-3 to make clear that the example set forth in the comment only 
applies to debit cards. New Sec.  1026.2(a)(5)(iv) defines ``debit 
card'' to mean ``any card, plate, or other single device that may be 
used from time to time to access an asset account other than a prepaid 
account.'' The definition of ``debit card'' also specifies that it does 
not include a prepaid card.
---------------------------------------------------------------------------

    \658\ The proposal would have provided that the term ``credit 
card'' includes an account number that is not a prepaid card that 
may be used from time to time to access a credit plan that allows 
deposits directly only into particular prepaid accounts specified by 
the creditor. Existing comment 13(i)-1 would have been revised to 
explain that with respect to a credit account accessed by such an 
account number, proposed Sec.  1026.13(i) would not have applied to 
transfers from that plan to a prepaid account. For the reasons set 
forth in the section-by-section analysis of Sec.  1026.2(a)(15)(i) 
above, the final rule does not adopt the proposed revision to 
existing comment 13(i)-1 related to these account numbers.
---------------------------------------------------------------------------

    As discussed in more detail below, the Bureau also is adding new 
Sec.  1026.13(i)(2) to provide guidance on how the error resolution 
provision in Regulations E and Z apply to transactions with respect to 
a covered separate credit feature accessible by a hybrid prepaid-credit 
card as defined in new Sec.  1026.61. As a technical revision, the 
Bureau also is revising final Sec.  1026.13(i) to reference the error 
resolution provisions in both final Regulation E Sec. Sec.  1005.11 and 
1005.18(e) as applicable because the Regulation E error resolution 
rules that apply to prepaid accounts are set forth in both final 
Sec. Sec.  1005.11 and 1005.18(e). Specifically, with respect to 
covered separate credit features, a creditor must comply with the 
requirements of final Regulation E Sec. Sec.  1005.11 and 1005.18(e) 
governing error resolution rather than those of existing Sec.  
1026.13(a), (b), (c), (e), (f), and (h) with respect to an extension of 
credit incident to an EFT when the hybrid prepaid-credit card accesses 
both funds in the asset feature of the prepaid account and a credit 
extension from the credit feature with respect to a particular 
transaction. The provisions of existing Sec.  1026.13(d) and (g) still 
apply to the credit portions of these transactions. The final rule also 
is adopting comment 13(i)-4 as proposed with revisions to be consistent 
with new Sec.  1026.61. The Bureau has revised the guidance in new 
comment 13(i)-5 to be consistent with new Sec.  1026.61.
Covered Separate Credit Features Accessible by Hybrid Prepaid-Credit 
Cards
    As discussed in more detail in the section-by-section analysis of 
Sec.  1026.61(a)(2) below, a covered separate credit feature accessible 
by a hybrid prepaid-credit card includes an overdraft credit feature 
offered by a prepaid account issuer, its affiliate, or its business 
partner that can be accessed by a prepaid card (except as provided in 
new Sec.  1026.61(a)(4)). The prepaid card is a hybrid prepaid-credit 
card under new Sec.  1026.61 and a credit card under final Sec.  
1026.2(a)(15)(i) with respect to the covered separate credit feature.
    The Bureau is adding new Sec.  1026.13(i)(2) to provide guidance on 
how the error resolution provisions in Regulations E and Z apply to 
transactions with respect to a covered separate credit feature 
accessible by a hybrid prepaid-credit card as defined in new Sec.  
1026.61. Specifically, with respect to these credit features, a 
creditor must comply with the requirements of final Regulation E 
Sec. Sec.  1005.11 and 1005.18(e) governing error resolution rather 
than those of existing Sec.  1026.13(a), (b), (c), (e), (f), and (h) 
with respect to an extension of credit incident to an EFT when the 
hybrid prepaid-credit card accesses both funds in the asset feature of 
the prepaid account and a credit extension from the credit feature with 
respect to a particular transaction. The provisions of existing Sec.  
1026.13(d) and (g) still apply to the credit portion of these 
transactions.
    In addition, the Bureau is adopting proposed comment 13(i)-4 with 
revisions to be consistent with new Sec.  1026.61. New comment 13(i)-4 
provides that with respect to a covered separate credit feature 
accessible by a hybrid prepaid-credit card, whether Regulation E or 
Regulation Z applies depends on the nature of the transaction. If the 
transaction solely involves an extension of credit under a covered 
separate credit feature and does not access funds from the asset 
feature of the prepaid account, the error resolution requirements of 
Regulation Z apply. New comment 13(i)-4.i provides the following 
example: Assume that there is $0 in the asset feature of the prepaid 
account, and the consumer makes a $25 transaction with the card. The 
error resolution requirements of Regulation Z apply to the transaction. 
New comment 13(i)-4.i provides that this is true regardless of whether 
the $25 of credit is drawn directly from the covered separate credit 
feature without a transfer to the asset feature of the prepaid account 
to cover the amount of the transaction, or whether the $25 of credit is 
transferred from the covered separate credit feature to the asset 
feature of the prepaid account to cover the amount of the transaction.
    New comment 13(i)-4.ii provides that if the transaction accesses 
funds from the asset feature of a prepaid account only (with no credit 
extended under the covered separate credit feature), the provisions of 
Regulation E apply.
    New comment 13(i)-4.iii provides that if the transaction accesses 
funds from the asset feature of a prepaid account but also involves an 
extension of credit under the covered separate credit feature, a 
creditor must comply with the requirements of final Regulation E 
Sec. Sec.  1005.11 and 1005.18(e) governing error resolution rather 
than those of Sec.  1026.13(a), (b), (c), (e), (f), and (h). New 
comment 13(i)-4.iii provides the following illustration: Assume that 
there is $10 in the asset feature of the prepaid account, and the 
consumer makes a $25 transaction with the card. The error resolution 
requirements of Regulations E and Z apply as described above to the 
transaction. New comment 13(i)-4.iii also provides that this is true 
regardless of whether $10 is debited from the asset feature and $15 of 
credit is drawn directly from the covered separate credit feature 
without a transfer to the asset feature of the prepaid account to cover 
the amount of the transaction, or whether $15 of credit is transferred 
from the covered separate credit feature to the asset feature of the 
prepaid account and a $25 transaction is debited from the asset feature 
to cover the amount of the transaction.
    Except with respect to prepaid accounts as defined in Sec.  
1026.61, new Sec.  1026.13(i)(1) focuses on whether there is an 
agreement between a consumer and a financial institution to extend 
credit when the consumer's account is overdrawn or to maintain a 
specified minimum balance in the consumer's account, consistent with 
current Sec.  1026.13(i). On the other hand, for covered separate 
credit features accessible by a hybrid prepaid-credit card, new Sec.  
1026.13(i)(2) applies if credit is extended under a covered separate 
credit feature that is accessible by hybrid prepaid-credit card and the 
transaction involves an extension of credit incident to an EFT when the 
hybrid prepaid-credit card accesses both funds in the asset feature of 
the prepaid account and a credit extension from the credit feature. As 
described in new comment 61(a)(1)-1, a prepaid card can be a hybrid 
prepaid-credit card under Regulation Z even if, for example, the person 
that can extend credit does not

[[Page 84218]]

agree in writing to extend the credit, the person retains discretion 
not to extend the credit, or the person does not extend the credit once 
the consumer has exceeded a certain amount of credit.
    The Bureau believes that it is appropriate to apply the error 
resolution procedures in Regulation E generally to transactions that 
debit a prepaid account but also draw on a covered separate credit 
feature accessible by the hybrid prepaid-credit card. The Bureau 
believes that this approach is consistent with EFTA section 909(c), 
which applies EFTA's limits on liability for unauthorized use to 
transactions which involve both an unauthorized EFT and an extension of 
credit pursuant to an agreement between the consumer and the financial 
institution to extend such credit to the consumer in the event the 
consumer's account is overdrawn.\659\
---------------------------------------------------------------------------

    \659\ 15 U.S.C. 1693g(c).
---------------------------------------------------------------------------

    An unauthorized EFT on a prepaid account generally would be subject 
to the limits on liability in existing Regulation E Sec.  1005.6 and 
final Sec.  1005.18(e); an unauthorized EFT on a prepaid account also 
is an error for purposes of the error resolution procedures set forth 
in existing Regulation E Sec.  1005.11(a)(1) and final Sec.  
1005.18(e). Although billing errors under existing Sec.  1026.13(a) 
include a broader category than only unauthorized use, the Bureau 
believes it is necessary and proper to exercise its adjustment and 
exception authority under TILA section 105(a) to apply Regulation E's 
error resolution provisions and limited Regulation Z error resolution 
provisions to these transactions, to facilitate compliance with EFTA 
section 908 and TILA section 161 on error resolution. The Bureau is 
concerned that conflicting provisions could apply to transactions that 
debit a prepaid account but also draw on a covered separate credit 
feature accessible by a hybrid prepaid-credit card if Regulation E's 
provisions applied to limits on liability for unauthorized use, and 
Regulation Z's provisions generally apply to investigation of billing 
errors, including transactions involving unauthorized use. To avoid 
these potential conflicts and to facilitate compliance, new Sec.  
1026.13(i)(2) requires a creditor to comply with the requirements of 
final Regulation E Sec. Sec.  1005.11 and 1005.18(e) governing error 
resolution, rather than those of Sec.  1026.13(a), (b), (c), (e), (f), 
and (h), if the transaction debits a prepaid account but also draws on 
a covered separate credit feature accessible by a hybrid prepaid-credit 
card. This approach is also consistent with the existing provisions in 
Regulation E Sec.  1005.12(a)(1)(iv) and Regulation Z Sec.  1026.13(i), 
which apply Regulation E's liability limitation and error resolution 
procedures to an extension of credit that is incident to an EFT for 
overdraft lines of credit accessed by debit cards.
Credit Features That Are Not Accessible by a Hybrid Prepaid-Credit Card
    As discussed above, proposed comment 13(i)-5 would have explained 
that an overdraft credit plan would not be subject to subpart B if the 
credit plan is only accessed by a prepaid card that is not a credit 
card. Under proposed comment 2(a)(15)-2.i.F, a prepaid card would not 
have been a credit card if the prepaid card only accesses credit that 
is not subject to any finance charge, as defined in Sec.  1026.4, or 
fee described in Sec.  1026.4(c), and is not payable by written 
agreement in more than four installments. For these types of credit 
plans, under the proposal, only the error resolution provisions in 
Regulation E would have applied.
    The Bureau did not receive any specific comment on proposed comment 
13(i)-5. The Bureau has revised the guidance in new comment 13(i)-5 to 
be consistent with new Sec.  1026.61 and with revisions to Regulation E 
Sec.  1005.12(a).
    As discussed in the section-by-section analysis of Sec.  1026.61 
below, the Bureau has decided to exclude prepaid cards from being 
covered as credit cards under Regulation Z when they access certain 
specified types of credit. First, under new Sec.  1026.61(a)(2)(ii), a 
prepaid card is not a hybrid prepaid-credit card with respect to a 
``non-covered separate credit feature,'' which means that the separate 
credit feature either (1) cannot be accessed in the course of a prepaid 
card transaction to obtain goods or services, obtain cash, or conduct 
P2P transfers; or (2) is offered by an unrelated third party that is 
not the prepaid account issuer, its affiliate, or its business partner. 
A non-covered separate credit feature is not subject to the rules 
applicable to hybrid prepaid-credit cards; however, it typically will 
be subject to Regulation Z depending on its own terms and conditions, 
independent of the connection to the prepaid account. Second, under new 
Sec.  1026.61(a)(4), a prepaid card also is not a hybrid prepaid-credit 
card when the prepaid card accesses incidental credit in the form of a 
negative balance on the asset account where the prepaid account issuer 
generally does not charge credit-related fees for the credit. A prepaid 
card is not a hybrid prepaid-credit card under new Sec.  1026.61 or a 
credit card under final Sec.  1026.2(a)(15)(i) when it accesses credit 
from these types of credit features. For more detailed explanations of 
when prepaid cards are not credit cards under Regulation Z, see the 
section-by-section analyses of Sec.  1026.61(a)(2) and (4) below.
    New comment 13(i)-5 explains that Regulation E Sec.  
1005.12(a)(1)(iv)(C) and (D), and (2)(iii) provide guidance on whether 
error resolution procedures in Regulations E or Z apply to transactions 
involving credit features that are accessed by prepaid cards that are 
not hybrid prepaid-credit cards as defined in Sec.  1026.61. New 
Regulation E Sec.  1005.12(a)(1)(iv)(C) provides that with respect to 
transactions that involve credit extended through a negative balance to 
the asset feature of a prepaid account that meets the conditions set 
forth in Sec.  1026.61(a)(4), these transactions are governed solely by 
error resolution procedures in Regulation E, and Regulation Z does not 
apply. New Regulation E Sec.  1005.12(a)(1)(iv)(D) and (2)(iii), taken 
together, provide that with respect to transactions involving a prepaid 
account and a non-covered separate credit feature as defined in Sec.  
1026.61, a financial institution must comply with Regulation E's error 
resolution procedures with respect to transactions that access the 
prepaid account as applicable, and the creditor must comply with 
Regulation Z's error resolution procedures with respect to transactions 
that access the non-covered separate credit feature, as applicable.
    The Bureau notes that overdraft credit features that are exempt 
under new Sec.  1026.61(a)(4) would not be subject to final Sec.  
1026.13(i) because these credit features are not accessible by hybrid 
prepaid-credit cards and are not subject to Regulation Z generally 
(including Sec.  1026.13).
    A non-covered separate credit feature may be subject to the 
provisions in Sec.  1026.13 generally in its own right based on the 
terms and conditions of the non-covered separate credit feature, 
independent of the connection to the prepaid account. Nonetheless, even 
if Sec.  1026.13 generally is applicable to a non-covered separate 
credit feature, final Sec.  1026.13(i) will not be applicable to the 
credit feature. Instead, the prepaid account issuer must comply with 
Regulation E with respect to the transactions on the prepaid account, 
and the creditor must comply with Regulation Z with respect to the non-
covered separate credit feature. The Bureau believes that it is 
appropriate that a non-related third-party creditor must comply only 
with Regulation Z error resolution procedures with respect to the non-
covered separate credit feature even if the credit feature functions as 
an overdraft credit feature

[[Page 84219]]

because this creditor may not know that its credit feature is being 
used as an overdraft credit feature in relation to the prepaid account.
Subpart G--Special Rules Applicable to Credit Card Accounts and Open-
End Credit Offered to College Students
    Except for existing Sec.  1026.60, which concerns certain credit 
card disclosures, all of the provisions in subpart G implement the 
Credit CARD Act. The provisions in subpart G that implement the Credit 
CARD Act generally apply to a ``card issuer,'' as defined in existing 
Sec.  1026.2(a)(7), that extends credit under a ``credit card account 
under an open-end (not home-secured) consumer credit plan,'' as defined 
in existing Sec.  1026.2(a)(15)(ii).\660\ Among other things, subpart G 
contains provisions to implement the Credit CARD Act that:
---------------------------------------------------------------------------

    \660\ Section 1026.57(c) applies to all open-end credit. That 
section prohibits a card issuer or creditor from offering a tangible 
item to a college student on or near a college campus or at an event 
sponsored by the college to induce the student to apply for or open 
an open-end credit plan.
---------------------------------------------------------------------------

     Prohibit card issuers from extending credit without 
assessing the consumer's ability to pay, with special rules regarding 
the extension of credit to persons under the age of 21.\661\
---------------------------------------------------------------------------

    \661\ Sec.  1026.51.
---------------------------------------------------------------------------

     Restrict the amount of required fees that an issuer can 
charge during the first year after an account is opened.\662\
---------------------------------------------------------------------------

    \662\ Sec.  1026.52(a)(1).
---------------------------------------------------------------------------

     Limit the amount card issuers can charge for ``back-end'' 
penalty fees, such as when a consumer makes a late payment or exceeds 
his or her credit limit.\663\
---------------------------------------------------------------------------

    \663\ Sec.  1026.52(b)(1).
---------------------------------------------------------------------------

     Ban ``declined transaction fees'' and other penalty fees 
where there is no cost to the card issuer associated with the violation 
of the account agreement.\664\
---------------------------------------------------------------------------

    \664\ Sec.  1026.52(b)(2).
---------------------------------------------------------------------------

     Restrict the circumstances under which card issuers can 
increase interest rates and certain fees on credit card accounts and 
establish procedures for doing so.\665\
---------------------------------------------------------------------------

    \665\ Sec. Sec.  1026.55 and 1026.59.
---------------------------------------------------------------------------

     Restrict fees for over-the-limit transactions to one per 
billing cycle and require that the consumer opt-in to payment of such 
transactions in order for the fee to be charged.\666\
---------------------------------------------------------------------------

    \666\ Sec.  1026.56.
---------------------------------------------------------------------------

     Require institutions of higher education to publicly 
disclose agreements with card issuers and limit the marketing of credit 
cards on or near college campuses.\667\
---------------------------------------------------------------------------

    \667\ Sec.  1026.57.

In addition, subpart G also contains existing Sec.  1026.60, which sets 
forth disclosures that card issuers generally must provide on or with a 
solicitation or an application to open a credit or charge card account.
    The Bureau is adding a new Sec.  1026.61 which defines when a 
prepaid card is a credit card under Regulation Z (using the term 
``hybrid prepaid-credit card''). As discussed in the Overview of the 
Final Rule's Amendments to Regulation Z section above and in more 
detail in the section-by-section analysis of Sec.  1026.61 below, the 
Bureau generally intends to cover under Regulation Z overdraft credit 
features in connection with prepaid accounts where the credit features 
are offered by the prepaid account issuer, its affiliates, or its 
business partners. New Sec.  1026.61(b) generally requires that such 
credit features be structured as separate subaccounts or accounts, 
distinct from the prepaid asset account, to facilitate transparency and 
compliance with various Regulation Z requirements. New Sec.  
1026.61(a)(2)(i) provides that a prepaid card is a ``hybrid prepaid-
credit card'' with respect to a separate credit feature if the card 
meets the following two conditions: (1) The card can be used from time 
to time to access credit from the separate credit feature in the course 
of authorizing, settling, or otherwise completing transactions 
conducted with the card to obtain goods or services, obtain cash, or 
conduct P2P transfers; and (2) the separate credit feature is offered 
by the prepaid account issuer, its affiliate, or its business partner. 
New Sec.  1026.61(a)(2)(i) defines such a separate credit feature 
accessible by a hybrid prepaid-credit card as a ``covered separate 
credit feature.'' Thus, the hybrid prepaid-credit card can access both 
the covered separate credit feature and the asset feature of the 
prepaid account, and the hybrid prepaid-credit card is a credit card 
under Regulation Z with respect to the covered separate credit feature.
    New Sec.  1026.61(c) (moved from Sec.  1026.12(h) in the proposal) 
provides that with respect to a covered separate credit feature that 
could be accessible by a hybrid prepaid-credit card at any point, a 
card issuer must not do any of the following until 30 days after the 
prepaid account has been registered: (1) Open a covered separate credit 
feature accessible by the hybrid prepaid-credit card; (2) make a 
solicitation or provide an application to open a covered separate 
credit feature accessible by the hybrid prepaid-credit card; or (3) 
allow an existing credit feature that was opened prior to the consumer 
obtaining the prepaid account to become a covered separate credit 
feature accessible by the hybrid prepaid-credit card.
    As discussed in the section-by-section analysis of Sec.  1026.61 
below, the Bureau also has decided to exclude prepaid cards from being 
covered as credit cards under Regulation Z when they access certain 
specified types of credit. First, under new Sec.  1026.61(a)(2)(ii), a 
prepaid card is not a hybrid prepaid-credit card with respect to a 
``non-covered separate credit feature,'' which means that the separate 
credit feature either (1) cannot be accessed in the course of a prepaid 
card transaction to obtain goods or services, obtain cash, or conduct 
P2P transfers; or (2) is offered by an unrelated third party that is 
not the prepaid account issuer, its affiliate, or its business partner. 
Second, under new Sec.  1026.61(a)(4), a prepaid card also is not a 
hybrid prepaid-credit card when the prepaid card accesses incidental 
credit in the form of a negative balance on the asset account where the 
prepaid account issuer generally does not charge credit-related fees 
for the credit. A prepaid card is not a hybrid prepaid-credit card 
under new Sec.  1026.61 or a credit card under new Sec.  
1026.2(a)(15)(i) when it accesses credit from these types of credit 
features. For more detailed explanations of when prepaid cards are not 
credit cards under Regulation Z, see the section-by-section analyses of 
Sec.  1026.61(a)(2) and (4) below.
    As discussed in the section-by-section analysis of Sec.  
1026.2(a)(20) above, the Bureau anticipates that most covered separate 
credit features accessible by hybrid prepaid-credit cards will meet the 
definition of ``open-end credit'' and that credit will not be home-
secured. See the section-by-section analysis of the definition of 
``credit'' in final Sec.  1026.2(a)(14), the definition of ``open-end-
credit'' in final Sec.  1026.2(a)(20), and the definition of ``finance 
charge'' in final Sec.  1026.4. In addition, as discussed in the 
section-by-section analyses of Sec.  1026.2(a)(7), (15)(i), and (ii) 
above, a covered separate credit feature accessible by a hybrid 
prepaid-credit card that is an open-end (not home-secured) credit plan 
is a ``credit card account under an open-end (not home-secured) 
consumer credit plan,'' and the person issuing the hybrid prepaid-
credit card (and its affiliate or business partner if that entity is 
offering the covered separate credit feature accessible by the hybrid 
prepaid-credit card) are ``card issuers.'' As a result, pursuant to the 
final rule, provisions in subpart G generally will apply to covered 
separate credit features accessible by hybrid

[[Page 84220]]

prepaid-credit cards that are open-end (not home-secured) credit 
plans.\668\
---------------------------------------------------------------------------

    \668\ A person would not be extending open-end credit where the 
covered separate credit feature accessed by the hybrid prepaid-
credit card does not meet the definition of ``open-end credit,'' 
such as when a finance charge is not imposed in connection with the 
credit feature. See the section-by-section analysis of Sec.  
1026.2(a)(20) above.
---------------------------------------------------------------------------

    As discussed in more detail below, the Bureau is amending 
commentary to the following provisions to provide guidance on how 
certain provisions in subpart G would apply to covered separate credit 
features accessible by hybrid prepaid-credit cards that are open-end 
(not home-secured) credit plans: \669\
---------------------------------------------------------------------------

    \669\ One commenter asked the Bureau to provide specific 
guidance in the commentary to Sec.  1026.51 that modeled income may 
be used with respect to credit card accounts accessed by prepaid 
cards that are credit cards to meet the requirements set forth in 
Sec.  1026.51. The Bureau notes that existing comment 51(a)(1)(i)-
5.iv provides that for purposes of Sec.  1026.51(a), a card issuer 
may consider the consumer's current or reasonably expected income 
and assets based on information obtained through any empirically 
derived, demonstrably and statistically sound model that reasonably 
estimates a consumer's income or assets, including any income or 
assets to which the consumer has a reasonable expectation of access. 
The Bureau notes that this existing guidance in comment 51(a)(1)(i)-
5.iv applies to covered separate credit features accessible by 
hybrid prepaid-credit cards that are subject to Sec.  1026.51. The 
Bureau does not believe that additional guidance is needed with 
respect to these credit features.
---------------------------------------------------------------------------

    (1) Section 1026.52(a), which restricts required fees charged 
during the first year the account is opened;
    (2) Section 1026.52(b), which restricts the imposition of penalty 
fees, including the ban on declined transaction fees;
    (3) Section 1026.55(a), which restricts the circumstances under 
which card issuers can increase interest rates and certain fees on 
credit card accounts; and
    (4) Section 1026.57, which limits the marketing of credit cards to 
college students.\670\
---------------------------------------------------------------------------

    \670\ The Overview of the Final Rule's Amendments to Regulation 
Z section above describes some of the benefits from these 
regulations for prepaid account consumers.

The final rule also provides guidance on how Sec.  1026.60, which 
requires disclosures to be provided on or with a solicitation or 
application to open a credit or charge card account, applies to covered 
separate credit features accessible by hybrid prepaid-credit cards.
    The final rule also provides guidance on how provisions in existing 
Sec.  1026.52(a) and (b), and in existing Sec. Sec.  1026.55 and 
1026.60, apply to non-covered separate credit features that are 
accessible by prepaid cards as defined by new Sec.  1026.61. A non-
covered separate credit feature may be subject to the provisions in 
Sec.  1026.52(a) and (b), and in existing Sec. Sec.  1026.55 and 
1026.60, in its own right based on the terms and conditions of the non-
covered separate credit feature, independent of the connection to the 
prepaid account. The final rule provides that with respect to such non-
covered separate credit features, the provisions in existing Sec.  
1026.52(a) and (b), and in existing Sec. Sec.  1026.55 and 1026.60, do 
not apply to fees or charges imposed on a prepaid account in relation 
to non-covered separate credit features.
Section 1026.52 Limitations on Fees
52(a) Limitations During First Year After Account Opening
52(a)(1) General Rule
    TILA section 127(n)(1) restricts the imposition of certain fees 
during the first year after opening a credit card account under an 
open-end consumer credit plan in order to restrict certain ``fee 
harvester'' or subprime credit cards that charged a large amount of 
fees early in the account relationship to the credit line, which 
significantly reduced the credit available to a consumer during the 
first year. Specifically, the statute provides that no payment of any 
fees (other than any late fee, over-the-limit fee, or fee for a payment 
returned for insufficient funds) may be made from the credit made 
available under the terms of the account where the account terms would 
require consumers to pay an aggregate amount of non-exempt fees in 
excess of 25 percent of the total amount of credit authorized under the 
account when the account is opened.
    This provision is implemented in existing Sec.  1026.52(a). 
Specifically, existing Sec.  1026.52(a)(1) provides that generally the 
total amount of fees a consumer is required to pay with respect to a 
credit card account under an open-end (not home-secured) consumer 
credit plan during the first year after account opening must not exceed 
25 percent of the credit limit in effect when the account is opened. 
Under existing Sec.  1026.52(a)(2), fees not subject to the 25 percent 
restriction are late payment fees, over-the-limit fees, returned-
payment fees, or fees that the consumer is not required to pay with 
respect to the account. Existing comment 52(a)(1)-1 provides that the 
25 percent limit in existing Sec.  1026.52(a)(1) applies to fees that 
the card issuer charges to the account as well as to fees that the card 
issuer requires the consumer to pay with respect to the account through 
other means (such as through a payment from the consumer's asset 
account to the card issuer or from another credit account provided by 
the card issuer).
    The proposal would have amended existing comment 52(a)(1)-1 to add 
a prepaid account as an example of a consumer's asset account. Thus, 
under the proposal, for a credit card account under an open-end (not 
home-secured) consumer credit plan that is accessed by a prepaid card 
that is a credit card, the 25 percent limit in existing Sec.  
1026.52(a)(1) would have applied to fees that the card issuer charges 
to the credit card account as well as to fees that the card issuer 
requires the consumer to pay with respect to the account through other 
means (such as through a payment to the card issuer from the consumer's 
prepaid account or other asset account or from another credit account 
provided by the card issuer). Proposed comment 52(a)(1)-1.iii and iv 
would have added two new examples to existing comment 52(a)(1)-1 to 
illustrate how the prohibition in existing Sec.  1026.52(a) would have 
applied to credit card accounts under an open-end (not home-secured) 
consumer credit plan that are accessed by prepaid cards that are credit 
cards.
    One industry trade association indicated that the Bureau should not 
apply the 25 percent cap to fees imposed for overdrafts on prepaid 
accounts or should include broader exemptions for fees (such as for 
cash advance fees) that are more appropriately tailored for prepaid 
account usage. This commenter believed that the 25 percent cap on fees 
imposed during the first year the credit card account is opened will 
likely make it cost-prohibitive for issuers to provide overdraft and 
other credit features.
    Several consumer group commenters indicated that the restriction in 
existing Sec.  1026.52(a) should be expanded to apply beyond the first 
year after a credit feature accessed by a prepaid card that is a credit 
card is opened. One of the consumer groups indicated that in the 
alternative, the rule could state that any increase in the credit limit 
under a credit feature accessed by a prepaid card that is a credit card 
constitutes a new credit agreement and results in another year where 
fees cannot exceed 25 percent of the credit limit. This commenter 
indicated that without this safeguard, a card issuer could offer a very 
small amount of credit free of charge for a year, and then increase the 
credit limit after the first year while charging any fees it wishes, 
potentially causing cardholders serious harm.
    Several consumer group commenters also indicated that the 
restriction in existing Sec.  1026.52(a) should apply to fees that are 
charged by the card issuer

[[Page 84221]]

for the credit feature prior to the credit feature being opened.
    The Bureau sought comment on whether additional amendments to the 
regulation or commentary would be helpful to effectuate its 
interpretation of the statute or to facilitate compliance. For example, 
the Bureau sought comment on whether it would be helpful to mandate the 
disclosure to consumers of the initial credit line that is made 
available under the terms of the account, including any linked credit 
accounts. One consumer group commenter also indicated that with respect 
to a credit feature accessed by prepaid cards that are credit cards, 
card issuers should be required to disclose to consumers the credit 
limit that will apply to the credit feature. This commenter indicated 
that consumers should not have to guess at their credit limits. This 
commenter indicated that the restrictions in existing Sec.  1026.52(a) 
cannot fully protect consumers unless they know what their credit limit 
is and can check to see if fees exceed 25 percent of that limit.
    As discussed below, consistent with the proposal, existing Sec.  
1026.52(a) applies to a covered separate credit feature accessible by a 
hybrid prepaid-credit card that is a ``credit card account under an 
open-end (not home-secured) consumer credit plan,'' as that term is 
defined in final Sec.  1026.2(a)(15)(ii). As discussed in more detail 
in the section-by-section analysis of Sec.  1026.61(a)(2) below, a 
covered separate credit feature accessible by a hybrid prepaid-credit 
card includes an overdraft credit feature offered by a prepaid account 
issuer, its affiliate, or its business partner that can be accessed by 
a prepaid card (except as provided in new Sec.  1026.61(a)(4)). The 
prepaid card is a hybrid prepaid-credit card under new Sec.  1026.61 
and a credit card under final Sec.  1026.2(a)(15)(i) with respect to 
the covered separate credit feature.
    In addition, the Bureau is adopting revisions to existing comment 
52(a)(1)-1 consistent with the proposal with a technical revision to 
refer to Sec.  1026.61 for the definition of ``prepaid account.'' Also, 
the Bureau is adopting the examples in proposed comment 52(a)(1)-1.iii 
and iv as proposed, with several technical revisions to clarify the 
intent of the examples and to be consistent with new Sec.  1026.61.
    With respect to covered separate credit features accessible by 
hybrid prepaid-credit cards, the Bureau has not expanded the scope of 
the restriction in existing Sec.  1026.52(a) to apply this restriction 
beyond the first year the credit feature is opened, or to apply to fees 
that are charged prior to account opening. In addition, the Bureau has 
not provided that that any increase in the credit limit under a credit 
feature accessible by a hybrid prepaid-credit card constitutes a new 
credit agreement and results in another year where fees cannot exceed 
25 percent of the credit limit. Also, the Bureau has not exempted 
additional credit-related fees (such as for cash advance fees) from the 
restriction in existing Sec.  1026.52(a), as requested by one industry 
commenter as discussed above. The Bureau believes that existing Sec.  
1026.52(a) should apply to covered separate credit features accessible 
by hybrid prepaid-credit cards in similar circumstances in which it 
applies to other credit card accounts that are subject to that 
restriction.
    The Bureau also has not required card issuers to disclose credit 
limits on covered separate credit features accessible by hybrid 
prepaid-credit cards. For customer-service reasons and other reasons, 
credit card issuers typically disclose the credit limits applicable to 
credit card accounts to consumers even though that disclosure is not 
specifically required by TILA and Regulation Z. For similar reasons, 
the Bureau believes that card issuers that are providing covered 
separate credit features accessible by hybrid prepaid-credit cards will 
have an incentive to disclose the credit limits on these credit 
features as well. For these reasons, the Bureau at this time does not 
believe that it is necessary under Regulation Z to require that card 
issuers providing covered separate credit features accessible by hybrid 
prepaid-credit cards must disclose a credit limit with respect to these 
credit features.
52(a)(2) Fees Not Subject to Limitations
    Existing Sec.  1026.52(a)(2) provides that the 25 percent 
restriction does not apply to late payment fees, over-the-limit fees, 
returned-payment fees, or fees that the consumer is not required to pay 
with respect to the account. Existing comment 52(a)(2)-1 provides 
guidance on the types of fees that are included in the 25 percent 
threshold. Specifically, existing comment 52(a)(2)-1 provides that 
except as provided in existing Sec.  1026.52(a)(2), existing Sec.  
1026.52(a) applies to any fees or other charges that a card issuer will 
or may require the consumer to pay with respect to a credit card 
account during the first year after account opening, other than charges 
attributable to periodic interest rates. The existing comment further 
clarifies that for example, Sec.  1026.52(a) applies to: (1) Fees that 
the consumer is required to pay for the issuance or availability of 
credit described in Sec.  1026.60(b)(2), including any fee based on 
account activity or inactivity and any fee that a consumer is required 
to pay in order to receive a particular credit limit; (2) fees for 
insurance described in Sec.  1026.4(b)(7) or debt cancellation or debt 
suspension coverage described in Sec.  1026.4(b)(10) written in 
connection with a credit transaction, if the insurance or debt 
cancellation or debt suspension coverage is required by the terms of 
the account; (3) fees that the consumer is required to pay in order to 
engage in transactions using the account (such as cash advance fees, 
balance transfer fees, foreign transaction fees, and fees for using the 
account for purchases); (4) fees that the consumer is required to pay 
for violating the terms of the account (except to the extent 
specifically excluded by existing Sec.  1026.52(a)(2)(i)); (5) fixed 
finance charges; and (6) minimum charges imposed if a charge would 
otherwise have been determined by applying a periodic interest rate to 
a balance except for the fact that such charge is smaller than the 
minimum.
The Bureau's Proposal
    The proposal would have moved current comments 52(a)(2)-2 and -3 to 
proposed comments 52(a)(2)-4 and -5, respectively with no intended 
substantive change. The Bureau proposed to add new comment 52(a)(2)-2 
that would have provided additional examples of the types of fees that 
would be covered by the 25 percent limitation for credit card accounts 
under an open-end (not home-secured) consumer credit plan that are 
accessed by prepaid cards that are credit cards. Specifically, proposed 
comment 52(a)(2)-2 would have provided that except as provided in 
existing Sec.  1026.52(a)(2), existing Sec.  1026.52(a) applies to any 
charge or fee, other than a charge attributable to a periodic interest 
rate, that the card issuer will or may require the consumer to pay in 
connection with a credit account accessed by a prepaid card that is a 
credit card, including fees that are assessed on the prepaid account in 
connection with credit accessed by the prepaid card. Under proposed 
comment 52(a)(2)-2, these fees would have included, but would not have 
been limited to: (1) Per transaction fees for ``shortages'' or 
``overdrafts;'' (2) fees for transferring funds from a credit account 
to a prepaid account that are both accessed by the prepaid card; (3) a 
daily, weekly, or monthly (or other periodic) fee (other than a 
periodic interest rate) assessed each period a prepaid account is in 
``overdraft'' status, or would be in overdraft status but for funds 
supplied by a linked line of credit accessed by the prepaid card; or 
(4) a daily, weekly, or

[[Page 84222]]

monthly (or other periodic) fee (other than a periodic interest rate) 
assessed each period a line of credit accessed by the prepaid card has 
an outstanding balance.
    The proposal also would have revised the section heading to Sec.  
1026.52(a) to delete the reference to limitations prior to account 
opening to be consistent with the scope of the limitations set forth in 
Sec.  1026.52(a); no substantive change would have been intended.
Comments Received
    One consumer group commenter indicated that the Bureau should 
clarify that ``load'' fees are included for purposes of the 25 percent 
restriction, even if they are charged to the prepaid account. This 
commenter indicated that transfer fees and a load fees are essentially 
the same thing and the card issuer should not be allowed to evade the 
restriction in existing Sec.  1026.52(a) by charging the fees to the 
prepaid account.
The Final Rule
    In the final rule, the Bureau is moving existing comments 52(a)(2)-
2 and -3 to final comments 52(a)(2)-4 and -5 respectively; no 
substantive change is intended. In addition, the section heading to 
Sec.  1026.52(a) is revised to delete the reference to limitations 
prior to account opening to be consistent with the scope of the 
limitations set forth in Sec.  1026.52(a); no substantive change is 
intended. As discussed in more detail below, the Bureau is adding new 
comments 52(a)(2)-2 and -3 to provide guidance on how Sec.  1026.52(a) 
applies to covered separate credit features accessible by hybrid 
prepaid-credit cards and non-covered separate credit features as 
defined in Sec.  1026.61 that are subject to Sec.  1026.52(a).\671\
---------------------------------------------------------------------------

    \671\ The proposal would have provided that the term ``credit 
card'' includes an account number that is not a prepaid card that 
may be used from time to time to access a credit plan that allows 
deposits directly only into particular prepaid accounts specified by 
the creditor. Proposed comment 52(a)(2)-3 would have provided an 
additional example of the types of fees that that would be covered 
by the 25 percent limitation for credit card accounts under an open-
end (not home-secured) consumer credit plan that are accessed by 
such account numbers. For the reasons set forth in the section-by-
section analysis of Sec.  1026.2(a)(15)(i), the final rule does not 
adopt proposed comment 52(a)(2)-3 related to these account numbers.
---------------------------------------------------------------------------

    Covered separate credit features accessible by hybrid prepaid-
credit cards. The Bureau is revising proposed comment 52(a)(2)-2 from 
the proposal to be consistent with new Sec.  1026.61. New comment 
52(a)(2)-2 provides that with regard to a covered separate credit 
feature and an asset feature on a prepaid account that are both 
accessible by a hybrid prepaid-credit card as defined in new Sec.  
1026.61 where the credit feature is a credit card account under an 
open-end (not home-secured) consumer credit plan, final Sec.  
1026.52(a) applies to the following fees: (1) Except as provided in 
Sec.  1026.52(a)(2), any fee or charge imposed on the covered separate 
credit feature, other than a charge attributable to a periodic interest 
rate, during the first year after account opening that the card issuer 
will or may require the consumer to pay in connection with the credit 
feature; and (2) except as provided in existing Sec.  1026.52(a)(2), 
any fee or charge imposed on the asset feature of the prepaid account 
(other than a charge attributable to a periodic interest rate) during 
the first year after account opening that the card issuer will or may 
require the consumer to pay where that fee or charge is a charge 
imposed as part of the plan under final Sec.  1026.6(b)(3). As 
discussed in more detail in the section-by-section analysis of Sec.  
1026.61(a)(2) below, a covered separate credit feature accessible by a 
hybrid prepaid-credit card includes an overdraft credit feature offered 
by a prepaid account issuer, its affiliate, or its business partner 
that can be accessed by a prepaid card (except as provided in new Sec.  
1026.61(a)(4)). The prepaid card is a hybrid prepaid-credit card under 
new Sec.  1026.61 and a credit card under final Sec.  1026.2(a)(15)(i) 
with respect to the covered separate credit feature.
    As discussed in more detail in the section-by-section analysis of 
Sec.  1026.6 above, with regard to a covered separate credit feature 
and an asset feature on a prepaid account that are both accessible by a 
hybrid prepaid-credit card, a fee or charge imposed on the asset 
feature of the prepaid account is a ``charge imposed as part of the 
plan'' under final Sec.  1026.6(b)(3) to the extent that the amount of 
the fee or charge exceeds comparable fees or charges imposed on prepaid 
accounts in the same prepaid account program that do not have a covered 
separate credit feature accessible by a hybrid prepaid-credit card. 
This fee or charge also is a finance charge under new Sec.  
1026.4(b)(11)(ii).
    The Bureau believes that the restriction on fees set forth in TILA 
section 127(n)(1), as implemented in existing Sec.  1026.52(a), 
provides important protections for consumers, particularly in the 
context of covered separate credit features accessible by hybrid 
prepaid-credit cards. As discussed above, a covered separate credit 
feature accessible by a hybrid prepaid-credit card under new Sec.  
1026.61(a)(2)(ii) includes an overdraft credit feature offered by 
prepaid account issuer, its affiliate, or its business partner in 
connection with a prepaid account. In this case, the covered separate 
credit feature accessible by a hybrid prepaid-credit card is designed 
to provide liquidity to the prepaid account. As discussed above, except 
as provided in existing Sec.  1026.52(a)(2), with regard to a covered 
separate credit feature and an asset feature on a prepaid account that 
are both accessible by a hybrid prepaid-credit card as defined in new 
Sec.  1026.61, the restriction in final Sec.  1026.52(a) applies to 
fees or charges imposed on the covered separate credit feature 
accessible by a hybrid prepaid-credit card, as well as fees or charges 
imposed on the asset feature of the prepaid account when those fees are 
``charges imposed as part of the plan'' under final Sec.  1026.6(b)(3).
    Although the Bureau believes that issuers will generally assess 
credit-related fees on the covered separate credit feature, TILA 
section 127(n)(1) applies to ``any fees,'' with some exceptions, that 
the consumer is required to pay under the terms of a credit card 
account under an open-end consumer credit plan. That term readily 
encompasses credit-related fees that are imposed on the asset feature 
of the prepaid account because it speaks to what the fees relate to, 
not where they are placed. Even if the term were ambiguous, the Bureau 
believes--based on its expertise and experience with respect to credit 
card markets--that interpreting it to encompass credit-related fees 
imposed on the asset feature would promote the purposes of TILA to 
protect the consumer against inaccurate and unfair credit billing and 
credit card practices. The Bureau believes that from the consumer's 
perspective, there is no practical difference between a fee charged 
against the covered separate credit feature and a credit-related fee 
charged to the asset feature of the prepaid account in order to access 
credit because both functionally reduce the total amount of credit 
available to the consumer through the covered separate credit feature 
accessible by the hybrid prepaid-credit card until such fees are paid. 
If TILA section 127(n)(1) were not interpreted to include credit-
related fees charged across any linked accounts, the Bureau is 
concerned that card issuers could hide non-exempt fees by imposing them 
on the asset feature of the prepaid account or by creating separate 
artificially distinct credit accounts and attempting to collect the 
non-exempt fees from those linked credit accounts.
    The Bureau also is adding new comment 52(a)(2)-3 to provide that 
final Sec.  1026.52(a) does not apply to any fee or

[[Page 84223]]

charge imposed on the asset feature of the prepaid account that is not 
a charge imposed as part of the plan under new Sec.  
1026.6(b)(3)(iii)(D) with respect to the covered separate credit 
feature. The Bureau notes that under new Sec.  1026.6(b)(3)(iii)(D) and 
new comment 6(b)(3)(iii)(D)-1, with regard to a covered separate credit 
feature and an asset feature on a prepaid account that are both 
accessible by a hybrid prepaid-credit card as defined in new Sec.  
1026.61, a fee or charge imposed on the asset feature of the prepaid 
account is not a ``charge imposed as part of the plan'' with respect to 
the covered separate credit feature to the extent that the amount of 
the fee or charge does not exceed comparable fees or charges imposed on 
prepaid accounts in the same prepaid account program that do not have a 
credit feature accessible by a hybrid prepaid-credit card. As described 
in the section-by-section analysis of Sec.  1026.4(b)(11)(ii), these 
fees or charges imposed on the asset feature of the prepaid account are 
not finance charges under new Sec.  1026.4(b)(11)(ii). As discussed in 
more detail in the section-by-section analyses of Sec. Sec.  1026.4 and 
1026.6 above, the Bureau believes that fees or charges imposed on the 
asset feature of a prepaid account that are not finance charges (and 
thus, not charges imposed as part of the plan under new Sec.  
1026.6(b)(3)(iii)(D)) with respect to the covered separate credit 
feature are more appropriately regulated under Regulation E, rather 
than regulated under Regulation Z, with respect to the covered separate 
credit feature.
    As discussed above, one consumer group commenter indicated that the 
Bureau should clarify that ``load'' fees are included for purposes of 
the 25 percent restriction, even if they are charged to the prepaid 
account. As discussed in the section-by-section analysis of Sec.  
1026.4(b)(11)(ii) above, new comment 4(b)(11)(ii)-1 sets forth the 
circumstances in which load or transfer fees imposed on the asset 
feature of the prepaid account are finance charges under new Sec.  
1026.4(b)(11)(ii). To the extent that a load fee or transfer fee that 
is imposed on the asset feature of a prepaid account is a finance 
charge under new Sec.  1026.4(b)(11)(ii), that load or transfer fee is 
subject to the 25 percent restriction under Sec.  1026.52(a) because 
those fees would be ``charges imposed as part of the plan'' under final 
Sec.  1026.6(b)(3).
    Non-covered separate credit features. As discussed in more detail 
in the section-by-section analysis of Sec.  1026.61(a)(2) below, a 
prepaid card is not a hybrid prepaid-credit card with respect to a 
``non-covered separate credit feature,'' which means that the separate 
credit feature either (1) cannot be accessed in the course of a prepaid 
card transaction to obtain goods or services, obtain cash, or conduct 
P2P transfers; or (2) is offered by an unrelated third party that is 
not the prepaid account issuer, its affiliate, or its business partner. 
As described in new Sec.  1026.61(a)(2)(ii), a non-covered separate 
credit feature is not subject to the rules applicable to hybrid 
prepaid-credit cards; however, it typically will be subject to 
Regulation Z depending on its own terms and conditions, independent of 
the connection to the prepaid account. Thus, a non-covered separate 
credit feature may be subject to the provisions in Sec.  1026.52(a) in 
its own right.
    With respect to such non-covered separate credit features that are 
subject to Sec.  1026.52(a), new comment 52(a)(2)-3 also provides that 
final Sec.  1026.52(a) does not apply to any fee or charge imposed on 
the asset feature of the prepaid account that is not a charge imposed 
as part of the plan under new Sec.  1026.6(b)(3)(iii)(E) with respect 
to the non-covered separate credit feature. Under new Sec.  
1026.6(b)(3)(iii)(E) and new comment 6(b)(3)(iii)(E)-1, with respect to 
a non-covered separate credit feature that is accessible by a prepaid 
card as defined in new Sec.  1026.61, none of the fees or charges 
imposed on the asset feature of the prepaid account are ``charges 
imposed as part of the plan'' under final Sec.  1026.6(b)(3) with 
respect to the non-covered separate credit feature. New comment 
6(b)(3)(iii)(E)-1 also cross-references new comment 4(b)(11)-1.ii.B, 
which provides that none of the fees or charges imposed on the asset 
feature of the prepaid account are finance charges under final Sec.  
1026.4 with respect to the non-covered separate credit feature. Thus, 
final Sec.  1026.52(a) does not apply to any fees or charges imposed on 
the asset feature of the prepaid account with respect to the non-
covered separate credit feature. As discussed in more detail in the 
section-by-section analyses of Sec. Sec.  1026.4 and 1026.6 above, the 
Bureau believes that fees or charges imposed on the asset feature of a 
prepaid account are more appropriately regulated under Regulation E, 
rather than regulated under Regulation Z, with respect to the non-
covered separate credit feature.
52(b) Limitations on Penalty Fees
    TILA section 149(a) provides that the amount of any penalty fee or 
charge that a card issuer may impose with respect to a credit card 
account under an open-end consumer credit plan in connection with any 
omission with respect to, or violation of, the cardholder agreement, 
including any late payment fee, over-the-limit fee, or any other 
penalty fee or charge, shall be reasonable and proportional to such 
omission or violation.\672\ TILA section 149(e) provides that the 
Bureau, in consultation with certain agencies, may issue rules to 
provide an amount for any penalty fee or charge described in TILA 
section 149(a) that is presumed to be reasonable and proportional to 
the omission or violation to which the fee or charge relates.\673\
---------------------------------------------------------------------------

    \672\ 15 U.S.C. 1665d(a).
    \673\ 15 U.S.C. 1665d(e).
---------------------------------------------------------------------------

    Implementing TILA section 149, existing Sec.  1026.52(b) provides 
that a card issuer must not impose a fee for violating the terms or 
other requirements of a credit card account under an open-end (not 
home-secured) consumer credit plan unless the dollar amount of the fee: 
(1) Is consistent with either the cost analysis in existing Sec.  
1026.52(b)(1)(i) or the safe harbors in existing Sec.  
1026.52(b)(1)(ii); and (2) does not exceed the dollar amount associated 
with the violation in accordance with existing Sec.  1026.52(b)(2)(i). 
Under existing Sec.  1026.52(b)(2)(ii), a card issuer also must not 
impose more than one fee for violating the terms or other requirements 
of a credit card account under an open-end (not home-secured) consumer 
credit plan based on a single event or transaction.
    As discussed in the section-by-section analysis of Sec.  
1026.52(b)(2)(i)(B) below, the Bureau proposed guidance on declined 
transaction fees in relation to credit card accounts under an open-end 
(not home-secured) consumer credit plan accessed by prepaid cards that 
would have been credit cards under the proposal. These declined 
transaction fees are discussed in more detail in the section-by-section 
analysis of Sec.  1026.52(b)(2)(i)(B) below.
    The Bureau did not propose any other additional guidance in 
relation to Sec.  1026.52(b) with respect to credit card accounts under 
an open-end (not home-secured) consumer credit plan accessed by prepaid 
cards that would have been credit cards under the proposal. 
Nonetheless, the Bureau believes that additional guidance is needed 
with respect to the restrictions on penalty fees contained in final 
Sec.  1026.52(b) given the changes in the final rule to the definition 
of ``finance charge'' in final Sec.  1026.4, and the definition of 
``charges imposed as part of the plan'' in final Sec.  1026.6(b)(3), 
and the addition of new Sec.  1026.61.

[[Page 84224]]

    As discussed in more detail below, the final rule adds new comment 
52(b)-3 to provide guidance on how the restrictions in final Sec.  
1026.52(b) generally apply to fees or charges imposed in connection 
with covered separate credit features accessible by hybrid prepaid-
credit cards, as defined in new Sec.  1026.61, where the credit feature 
is a credit card account under an open-end (not home-secured) consumer 
credit plan. The final rule also adds new comment 52(b)-4 to provide 
that the restrictions in final Sec.  1026.52(b) do not apply to fees or 
charges imposed on the asset feature of the prepaid account with 
respect to covered separate credit features accessible by hybrid 
prepaid-credit cards when the fees or charges are not ``charges imposed 
as part of the plan'' under new Sec.  1026.6(b)(3)(iii)(D) with respect 
to the covered separate credit feature. Comment 52(b)-4 also provides 
that the restrictions in final Sec.  1026.52(b) do not apply to fees or 
charges imposed on the asset feature of a prepaid account with respect 
to non-covered separate credit features.
    In addition, in the proposal, the Bureau solicited comment on 
issues related to fees imposed by card issuers when preauthorized 
payments are returned unpaid. Specifically, the Bureau solicited 
comment on situations where at the time a preauthorized payment is set 
to occur, the prepaid account does not have sufficient funds to cover 
the amount of the credit card payment. The Bureau solicited comment on: 
(1) How credit card issuers anticipate handling this situation, 
including cases where the prepaid account contains funds sufficient to 
pay some but not all of the credit card payment due; (2) whether 
issuers anticipate charging a specific fee because the preauthorized 
payment could not be completed, in addition to any late fee that might 
be charged if the credit card balance were not paid by the due date; 
and (3) whether the Bureau should adopt any specific rules to address 
these issues, and if so, what rules should the Bureau adopt.
    The proposal included this request for comment in the discussion of 
the offset prohibition in proposed Sec.  1026.12(d). With respect to 
credit card accounts accessed by prepaid cards that would have been 
credit cards under the proposal, proposed Sec.  1026.12(d)(3) would 
have allowed an exception for certain preauthorized payment plans to 
the offset prohibition in proposed Sec.  1026.12(d)(1). In response to 
this request for comment, several consumer group commenters indicated 
that the Bureau should adopt additional restrictions in Sec.  
1026.52(b) related to the circumstances in which card issuers can 
charge fees when preauthorized payments are returned unpaid and/or 
related to the amount of the fees. As discussed in more detail below, 
one consumer group commenter indicated that the Bureau should prohibit 
these fees under Sec.  1026.52(b). Several consumer group commenters 
indicated that the Bureau should adopt additional restrictions in Sec.  
1026.52(b) limiting the circumstances in which these fees can be 
charged and limiting the amount of the fees.
    As discussed in the section-by-section analysis of Sec.  
1026.12(d)(3) above, respect to covered separate credit features 
accessible by hybrid prepaid-credit cards, as defined in new Sec.  
1026.61, final Sec.  1026.12(d)(3) sets forth an exception for certain 
preauthorized payment plans with respect to the offset prohibition in 
final Sec.  1026.12(d). As discussed in more detail below, the 
restrictions in existing Sec.  1026.52(b) related to returned payment 
fees apply to fees that are imposed by card issuers when preauthorized 
payments are returned unpaid. The Bureau does not believe that 
additional restrictions are needed at this time under final Sec.  
1026.52(b) with respect to the circumstances in which these fees can be 
charged or the amount of the fees in connection with covered separate 
credit features accessible by hybrid prepaid-credit cards.
General Guidance
    Covered separate credit features accessible by hybrid prepaid-
credit cards. As discussed in more detail in the section-by-section 
analysis of Sec.  1026.61(a)(2) below, a covered separate credit 
feature accessible by a hybrid prepaid-credit card includes an 
overdraft credit feature offered by a prepaid account issuer, its 
affiliate, or its business partner that can be accessed by a prepaid 
card (except as provided in new Sec.  1026.61(a)(4)). The prepaid card 
is a hybrid prepaid-credit card under new Sec.  1026.61 and a credit 
card under final Sec.  1026.2(a)(15)(i) with respect to the covered 
separate credit feature.
    New Sec.  1026.61(b) generally requires that such credit features 
be structured as separate subaccounts or accounts, distinct from the 
prepaid asset account, to facilitate transparency and compliance with 
various Regulation Z requirements. To reflect this change and to ensure 
compliance with the restrictions in Sec.  1026.52(b), new comment 
52(b)-3 provides that with regard to a covered separate credit feature 
and an asset feature on a prepaid account that are both accessible by a 
hybrid prepaid-credit card as defined in new Sec.  1026.61 where the 
credit feature is a credit card account under an open-end (not home-
secured) consumer credit plan, final Sec.  1026.52(b) applies to any 
fee for violating the terms or other requirements of the credit 
feature, regardless of whether those fees are imposed on the credit 
feature or on the asset feature of the prepaid account. For example, 
assume that a late fee will be imposed by the card issuer if the 
separate credit feature becomes delinquent or if a payment is not 
received by a particular date. This fee is subject to final Sec.  
1026.52(b) regardless of whether the fee is imposed on the asset 
feature of the prepaid account or on the covered separate credit 
feature.
    The Bureau believes that the restriction on penalty fees set forth 
in TILA section 149(a), and implemented in existing Sec.  1026.52(b), 
provides important protections for consumers, particularly in the 
context of covered separate credit features accessible by hybrid 
prepaid-credit cards. Covered separate credit features accessible by 
hybrid prepaid-credit cards are designed to provide liquidity to the 
prepaid account.
    As described above, new comment 52(b)-3 provides that with regard 
to a covered separate credit feature and an asset feature on a prepaid 
account that are both accessible by a hybrid prepaid-credit card, as 
defined in Sec.  1026.61 where the credit feature is a credit card 
account under an open-end (not home-secured) consumer credit plan, 
Sec.  1026.52(b) applies to any fee for violating the terms or other 
requirements of the credit feature, regardless of whether those fees 
are imposed on the credit feature or on the asset feature of the 
prepaid account. TILA section 149(a) applies to any penalty fee or 
charge that a card issuer may impose with respect to a credit card 
account under an open-end consumer credit plan. Those terms readily 
encompass credit-related fees that are imposed on the asset feature of 
the prepaid account. Even if the terms were ambiguous, the Bureau 
believes--based on its expertise and experience with respect to credit 
markets--that interpreting them to encompass credit-related fees 
imposed on the asset feature would promote the purposes of TILA to 
protect the consumer against inaccurate and unfair credit billing and 
credit card practices. From the consumer's perspective, there is no 
practical difference when a penalty fee for a violation of the covered 
separate credit feature is charged against the covered separate credit 
feature and when it is charged to the asset feature of the prepaid 
account. If TILA section 149(a)

[[Page 84225]]

were not interpreted to include penalty fees for violations of the 
covered separate credit feature charged to the asset feature, the 
Bureau is concerned that card issuers could avoid the restrictions set 
forth in TILA section 149(a) and final Sec.  1026.52(b) with respect to 
these fees simply by imposing them on the asset feature of the prepaid 
account.
    In addition, to facilitate compliance with final Sec.  1026.52(b), 
new comment 52(b)-4 provides that final Sec.  1026.52(b) does not apply 
to any fee or charge imposed on the asset feature of the prepaid 
account that is not a charge imposed as part of the plan under new 
Sec.  1026.6(b)(3)(iii)(D) with respect to a covered separate credit 
feature. As discussed above, the Bureau believes this additional 
guidance is needed given the changes in the final rule to the 
definition of ``finance charge'' in final Sec.  1026.4, the definition 
of ``charges imposed as part of the plan'' in final Sec.  1026.6(b)(3), 
and the addition of new Sec.  1026.61.
    As discussed in more detail in the section-by-section analysis of 
Sec.  1026.6 above, with respect to a fee or charge imposed on the 
asset feature of a prepaid account accessible by a hybrid prepaid-
credit card, a fee or charge imposed on the asset feature of the 
prepaid account is a ``charge imposed as part of the plan'' under final 
Sec.  1026.6(b)(3) to the extent that the amount of the fee or charges 
exceeds comparable fees or charges imposed on prepaid accounts in the 
same prepaid account program that do not have a credit feature 
accessible by a hybrid prepaid-credit card. This fee or charge also is 
a finance charge under new Sec.  1026.4(b)(11)(ii).
    Nonetheless, under new Sec.  1026.6(b)(3)(iii)(D) and new comment 
6(b)(3)(iii)(D)-1, with regard to a covered separate credit feature and 
an asset feature on a prepaid account that are both accessible by a 
hybrid prepaid-credit card, as defined in new Sec.  1026.61, a fee or 
charge imposed on the asset feature of the prepaid account is not a 
``charge imposed as part of the plan'' with respect to the covered 
separate credit feature to the extent that the amount of the fee or 
charges does not exceed comparable fees or charges imposed on prepaid 
accounts in the same prepaid account program that do not have a credit 
feature accessible by a hybrid prepaid-credit card. As described in the 
section-by-section analysis of Sec.  1026.4(b)(11)(ii) above, these 
fees or charges imposed on the asset feature of the prepaid account are 
not finance charges under new Sec.  1026.4(b)(11)(ii).
    As discussed in more detail in the section-by-section analyses of 
Sec. Sec.  1026.4 and 1026.6 above, the Bureau believes that fees or 
charges imposed on the asset feature of a prepaid account that are not 
finance charges (and thus, not charges imposed as part of the plan 
under new Sec.  1026.6(b)(3)(iii)(D)) with respect to the covered 
separate credit feature are more appropriately regulated under 
Regulation E, rather than regulated under Regulation Z, with respect to 
the covered separate credit feature. Thus, new comment 52(b)-4 provides 
that final Sec.  1026.52(b) does not apply to any fee or charge imposed 
on the asset feature of the prepaid account that is not a charge 
imposed as part of the plan under new Sec.  1026.6(b)(3)(iii)(D) with 
respect to the covered separate credit feature.
    Non-covered separate credit features. As discussed in more detail 
in the section-by-section analysis of Sec.  1026.61(a)(2) below, a 
prepaid card is not a hybrid prepaid-credit card with respect to a 
``non-covered separate credit feature,'' which means that the separate 
credit feature either (1) cannot be accessed in the course of a prepaid 
card transaction to obtain goods or services, obtain cash, or conduct 
P2P transfers; or (2) is offered by an unrelated third party that is 
not the prepaid account issuer, its affiliate, or its business partner. 
As described in new Sec.  1026.61(a)(2)(ii), a non-covered separate 
credit feature is not subject to the rules applicable to hybrid 
prepaid-credit cards; however, it typically will be subject to 
Regulation Z depending on its own terms and conditions, independent of 
the connection to the prepaid account. Thus, a non-covered separate 
credit feature may be subject to the provisions in Sec.  1026.52(b) in 
its own right.
    With respect to non-covered separate credit features that are 
subject to final Sec.  1026.52(b), new comment 52(b)-4 also provides 
that final Sec.  1026.52(b) does not apply to any fee or charge imposed 
on the asset feature of the prepaid account that is not a charge 
imposed as part of the plan under new Sec.  1026.6(b)(3)(iii)(E) with 
respect to a non-covered separate credit feature. Under new Sec.  
1026.6(b)(3)(iii)(E) and new comment 6(b)(3)(iii)(E)-1, with respect to 
a non-covered separate credit feature as defined in new Sec.  1026.61, 
none of the fees or charges imposed on the asset feature of the prepaid 
account are ``charges imposed as part of the plan'' under final Sec.  
1026.6(b)(3) with respect to the non-covered separate credit feature. 
New comment 6(b)(3)(iii)(E)-1 also cross-references new comment 
4(b)(11)-1.ii.B, which provides that none of the fees or charges 
imposed on the asset feature of the prepaid account are finance charges 
under final Sec.  1026.4 with respect to the non-covered separate 
credit feature. Thus, final Sec.  1026.52(b) does not apply to fees or 
charges imposed on the asset feature of the prepaid account with 
respect to the non-covered separate credit feature. As discussed in 
more detail in the section-by-section analyses of Sec. Sec.  1026.4 and 
1026.6 above, the Bureau believes that fees or charges imposed on the 
asset feature of a prepaid account are more appropriately regulated 
under Regulation E, rather than regulated under Regulation Z, with 
respect to the non-covered separate credit feature.
Fees for Preauthorized Payments That Are Returned Unpaid
    As discussed above, in the proposal, the Bureau solicited comment 
on situations where at the time a preauthorized payment is set to 
occur, the prepaid account does not have sufficient funds to cover the 
amount of the credit card payment. The Bureau solicited comment on: (1) 
How credit card issuers anticipate handling this situation, including 
cases where the prepaid account contains funds sufficient to pay some, 
but not all, of the credit card payment due; (2) whether issuers 
anticipate charging a specific fee because the preauthorized payment 
could not be completed, in addition to any late fee that might be 
charged if the credit card balance was not paid by the due date; and 
(3) whether the Bureau should adopt any specific rules to address these 
issues, and if so, what rules should the Bureau adopt.
    The proposal included this request for comment in the discussion of 
the offset prohibition in proposed Sec.  1026.12(d). With respect to 
credit card accounts accessed by prepaid cards that would have been 
credit cards under the proposal, proposed Sec.  1026.12(d)(3) would 
have allowed an exception for certain preauthorized payment plans to 
the offset prohibition in proposed Sec.  1026.12(d)(1). In response to 
this request for comment, several consumer group commenters indicated 
that the Bureau should adopt additional restrictions in Sec.  
1026.52(b) related to the circumstances in which card issuers can 
charge fees when preauthorized payments are returned unpaid and/or 
related to the amount of the fees. One consumer group commenter 
indicated that the Bureau should adopt rules to cover the situation 
where the consumer authorizes periodic deductions, but there is not 
enough money to cover a payment when due. In particular, this commenter 
indicated the Bureau should

[[Page 84226]]

prohibit fees that are imposed by card issuers when preauthorized 
payments are returned unpaid under existing Sec.  
1026.52(b)(2)(i)(B)(1) as a ``declined transaction fee.'' Existing 
Sec.  1026.52(b)(2)(i)(B) provides that a card issuer must not impose a 
fee for violating the terms or other requirements of a credit card 
account under an open-end (not home-secured) consumer credit plan when 
there is no dollar amount associated with the violation. Existing Sec.  
1026.52(b)(2)(i)(B)(1) provides that there is no dollar amount 
associated with transactions that the card issuer declines to 
authorize, and thus fees charged for those declined transactions are 
prohibited under existing Sec.  1026.52(b)(2)(i)(B).
    In the alternative, this commenter indicated that the Bureau should 
use its authority to establish ``additional requirements'' to provide 
for a ``right to cure'' period for the limited circumstance of prepaid 
consumers who have authorized automatic deductions to repay credit 
associated with their prepaid card. This commenter indicated that the 
Bureau should require the card issuer to provide a limited time period, 
such as one week, to add funds to the prepaid account before a penalty 
fee under Sec.  1026.52(b) could be imposed. In that case, any penalty 
fees would be subject to the limitations of existing Sec.  1026.52(b), 
namely, that the fee amount (1) must be consistent with either the cost 
analysis in existing Sec.  1026.52(b)(1)(i) or the safe harbors in 
existing Sec.  1026.52(b)(1)(ii); and (2) does not exceed the dollar 
amount associated with the violation under existing Sec.  
1026.52(b)(2)(i). In addition, under existing Sec.  1026.52(b)(2)(ii), 
a card issuer could not impose more than one fee for violating the 
terms or other requirements of a credit card account under an open-end 
(not home-secured) consumer credit plan based on a single event or 
transaction.
    Another consumer group commenter indicated that if the prepaid 
account does not have enough funds to satisfy a requested transfer or a 
preauthorized payment, the Bureau should provide some kind of cushion 
where consumers could avoid a fee if the debt obligation falls below a 
certain threshold--i.e., less than $20--and that no fee should be 
greater than the minimum 4 percent repayment amount and/or the 
overdraft service charge.
    As discussed in the section-by-section analysis of Sec.  
1026.12(d)(3) above, with respect to covered separate credit features 
accessible by hybrid prepaid-credit cards, as defined in Sec.  1026.61, 
final Sec.  1026.12(d)(3) sets forth an exception for certain 
preauthorized payment plans with respect to the offset prohibition in 
final Sec.  1026.12(d). The Bureau does not believe that fees imposed 
by card issuers when preauthorized payments are returned unpaid are 
fees for declined transactions under Sec.  1026.52(b)(2)(i)(B)(1). The 
Bureau believes that it is clear under existing comment 52(b)-1.i.B 
that fees imposed by card issuers when preauthorized payments are 
returned unpaid constitute fees for returned payments and are regulated 
as returned payment fees under Sec.  1026.52(b)(1), (2)(i)(A), and 
(2)(ii). Specifically, existing comment 52(b)(1)-i.B provides that the 
limitations in Sec.  1026.52(b) apply to returned payment fees and any 
other fees imposed by a card issuer if a payment initiated via check, 
ACH, or other payment method is returned. Existing commentary to Sec.  
1026.52(b)(1), (2)(i)(A), and (2)(ii) provide guidance on how the 
restrictions in existing Sec.  1026.52(b)(1), (2)(i)(A) and (2)(ii) 
apply to returned payment fees. See, e.g., comments 52(b)(1)(i)-7, 
52(b)(1)(ii)-1.i.B, 52(b)(1)(ii)-1.iii.C, 52(b)(2)(i)-2, and 
52(b)(2)(ii)-1.ii, iii and v through vii. For example, Sec.  
1026.52(b)(1), and (b)(2)(i)(A) and related commentary restrict the 
amount of the fee that a card issuer can impose for a returned payment. 
In addition, if a payment has been returned and is submitted again for 
payment by the card issuer, comment 52(b)(2)(i)-2 provides that there 
is no additional dollar amount associated with a subsequent return of 
that payment and a card issuer is prohibited from imposing an 
additional returned payment fee. Also, comment 52(b)(2)(ii)-1.ii.A and 
B provide that a card issuer is prohibited from assessing both a late 
payment fee and a returned payment fee based on a single event or 
transaction. The existing restrictions in Sec.  1026.52(b)(1), 
(2)(i)(A), and (2)(ii), and related commentary regarding returned 
payment fees apply to fees imposed by card issuers when preauthorized 
payments are returned unpaid in connection with covered separate credit 
features accessible by hybrid prepaid-credit cards, as defined in Sec.  
1026.61, that are subject to Sec.  1026.52(b).
    The Bureau has not established additional requirements beyond those 
contained in Sec.  1026.52(b)(1), (2)(i)(A), and (2)(ii) and related 
commentary regarding returned payment fees in connection with covered 
separate credit features accessible by hybrid prepaid-credit cards, 
such as a right to cure period for prepaid consumers where 
preauthorized payments have been returned unpaid. At this time, the 
Bureau believes that the fee restrictions that apply generally to 
credit card accounts in existing Sec.  1026.52(b)(1), (2)(i)(A), and 
(2)(ii) and related commentary with respect to returned payments are 
sufficient to protect consumers with respect to the circumstances in 
which card issuer can impose fees for preauthorized payments that are 
returned unpaid in connection with covered separate credit features 
accessible by hybrid prepaid-credit cards. The Bureau will continue to 
monitor whether additional safeguards are needed.
52(b)(2) Prohibited Fees
52(b)(2)(i) Fees That Exceed Dollar Amount Associated With Violation
52(b)(2)(i)(B) No Dollar Amount Associated With Violation
    Existing Sec.  1026.52(b)(2)(i)(B) provides that a card issuer must 
not impose a fee for violating the terms or other requirements of a 
credit card account under an open-end (not home-secured) consumer 
credit plan when there is no dollar amount associated with the 
violation. Existing Sec.  1026.52(b)(2)(i)(B)(1) through (3), 
respectively, prohibit the following fees because there is no dollar 
amount associated with the following violations: (1) Transactions that 
the card issuer declines to authorize; (2) account inactivity; and (3) 
the closure or termination of an account.
The Bureau's Proposal
    The Bureau proposed to add comment 52(b)(2)(i)-7, which would have 
provided guidance on when the ban on declined transaction fees in 
existing Sec.  1026.52(b)(2)(i)(B)(1) would apply in the context of 
prepaid accounts. Specifically, this proposed comment would have 
provided that existing Sec.  1026.52(b)(2)(i)(B)(1) applies to the 
consumer's transactions using the prepaid card where a declined 
transaction would have accessed the consumer's credit account with the 
card issuer had it been authorized. Finally, the proposed comment would 
have provided that fees imposed for declining a transaction that would 
have only accessed the prepaid account and would not have accessed the 
consumer's credit card account would not be covered by existing Sec.  
1026.52(b)(2)(i)(B)(1).
Comments Received
    The Bureau requested comment on whether once a credit card account 
has been added to a prepaid card, it should prohibit a card issuer from 
thereafter assessing a fee for declining to authorize a prepaid card 
transaction,

[[Page 84227]]

notwithstanding that a given transaction would not have accessed the 
credit card account even had it been authorized. Several consumer group 
commenters indicated that the Bureau should prohibit declined 
transaction fees on prepaid accounts generally. One of these consumer 
group commenters indicated that it could be confusing to determine 
whether a declined transaction would have accessed the prepaid account 
or a credit feature. This commenter believed that these fees are unfair 
penalty fees, especially if they exceed the cost (if any) to the 
prepaid account issuer of the declined transaction.
    Also, as discussed in more detail below, several consumer groups 
requested that the Bureau adopt additional protections under Sec.  
1026.52(b) with respect to credit card accounts that are accessed by 
prepaid cards that are credit cards. For example, one consumer group 
commenter indicated that the Bureau should clarify that the following 
two types of fees are penalty fees prohibited under existing Sec.  
1026.52(b)(2)(i)(B) because no dollar amount is associated with the 
violation: (1) Fees for placing a stop payment on preauthorized 
transfers; and (2) legal process fees. Another consumer group commenter 
indicated that any expenditure not associated with a purchase 
transaction should not be able to trigger an overdraft fee.
The Final Rule
    As discussed in more detail below, the final rule adopts new 
comment 52(b)(2)(i)-7 as proposed with revisions to be consistent with 
new Sec.  1026.61. New comment 52(b)(2)(i)-7 provides that with regard 
to a covered separate credit feature and an asset feature on a prepaid 
account that are both accessible by a hybrid prepaid-credit card as 
defined in Sec.  1026.61, Sec.  1026.52(b)(2)(i)(B)(1) prohibits 
declined transaction fees from being imposed in connection with the 
covered separate credit feature, regardless of whether the declined 
transaction fee is imposed on the credit feature or on the asset 
feature of the prepaid account.
    Also, as discussed above and in more detail below, several consumer 
groups requested that the Bureau adopt additional protections under 
Sec.  1026.52(b) with respect to credit card accounts that are accessed 
by prepaid cards that are credit cards. As discussed in more detail 
below, the Bureau has not adopted such restrictions in final Sec.  
1026.52(b) or related commentary in relation to covered separate credit 
features accessible by hybrid prepaid-credit cards.
    Declined transaction fees. As discussed above, the Bureau proposed 
to add comment 52(b)(2)(i)-7, which would have provided guidance on 
when the ban on declined transaction fees in existing Sec.  
1026.52(b)(2)(i)(B)(1) would apply in the context of prepaid accounts. 
Specifically, this proposed comment would have provided that existing 
Sec.  1026.52(b)(2)(i)(B)(1) applies to the consumer's transactions 
using the prepaid card where a declined transaction would have accessed 
the consumer's credit account with the card issuer had it been 
authorized. Finally, the proposed comment would have provided that fees 
imposed for declining a transaction that would have only accessed the 
prepaid account and would not have accessed the consumer's credit card 
account would not be covered by existing Sec.  1026.52(b)(2)(i)(B)(1).
    The Bureau requested comment on whether, once a credit card account 
has been added to a prepaid card, the Bureau should prohibit a card 
issuer from thereafter assessing a fee for declining to authorize a 
prepaid card transaction, notwithstanding that a given transaction 
would not have accessed the credit card account even had it been 
authorized. Several consumer group commenters indicated that the Bureau 
should prohibit declined transaction fees on prepaid accounts 
generally. One of these consumer group commenters indicated that it 
could be confusing to determine whether a declined transaction would 
have accessed the prepaid account or a credit feature. This commenter 
believed that these fees are unfair penalty fees, especially if they 
exceed the cost (if any) to the prepaid account issuer of the declined 
transaction.
    The Bureau is adopting proposed comment 52(b)(2)(i)-7 with 
revisions to reflect terminology consistent with new Sec.  
1026.61.\674\ New comment 52(b)(2)(i)-7 provides that with regard to a 
covered separate credit feature and an asset feature on a prepaid 
account that are both accessible by a hybrid prepaid-credit card as 
defined in Sec.  1026.61 where the credit feature is a credit card 
account under an open-end (not home-secured) consumer credit plan, 
Sec.  1026.52(b)(2)(i)(B)(1) prohibits card issuers from imposing 
declined transaction fees in connection with the covered separate 
credit feature, regardless of whether the declined transaction fee is 
imposed on the credit feature or on the asset feature of the prepaid 
account. For example, if the hybrid prepaid-credit card attempts to 
access credit from the covered separate credit feature and the 
transaction is declined, existing Sec.  1026.52(b)(2)(i)(B)(1) 
prohibits the card issuer from imposing a declined transaction fee, 
regardless of whether the fee is imposed on the credit feature or on 
the asset feature of the prepaid account. Fees imposed for declining a 
transaction that would have only accessed the asset feature of the 
prepaid account and would not have accessed the covered separate credit 
feature accessible by the hybrid prepaid-credit card are not covered by 
existing Sec.  1026.52(b)(2)(i)(B)(1).
---------------------------------------------------------------------------

    \674\ The proposal would have provided that the term ``credit 
card'' includes an account number that is not a prepaid card that 
may be used from time to time to access a credit plan that allows 
deposits directly only into particular prepaid accounts specified by 
the creditor. Proposed comment 52(b)(2)(i)-7 would have provided 
that the prohibition in Sec.  1026.52(b)(2)(i)(B)(1) applies to 
declined transaction fees imposed on credit card accounts accessed 
by such account numbers. For the reasons set forth in the section-
by-section analysis of Sec.  1026.2(a)(15)(i) above, the final rule 
does not adopt the proposed changes to comment 52(b)(2)(i)-7 related 
to these account numbers.
---------------------------------------------------------------------------

    As discussed in more detail in the section-by-section analysis of 
Sec.  1026.61(a)(2) below, a covered separate credit feature accessible 
by a hybrid prepaid-credit card includes an overdraft credit feature 
offered by a prepaid account issuer, its affiliate, or its business 
partner that can be accessed by a prepaid card (except as provided in 
new Sec.  1026.61(a)(4)). The prepaid card is a hybrid prepaid-credit 
card under new Sec.  1026.61 and a credit card under final Sec.  
1026.2(a)(15)(i) with respect to the covered separate credit feature.
    The Bureau believes that a fee for declining a transaction where 
the prepaid account issuer attempts to access credit from the covered 
separate credit feature accessible by the hybrid prepaid-credit card 
and the transaction is declined is no different than a fee for 
declining a credit card transaction, which is prohibited by current 
Sec.  1026.52(b)(2)(i)(B)(1). Thus, such a declined transaction fee is 
prohibited by final Sec.  1026.52(b)(2)(i)(B)(1), regardless of whether 
the fee is imposed on the credit feature or on the asset feature of the 
prepaid account.
    As discussed above, several consumer group commenters indicated 
that the Bureau should prohibit declined transaction fees on prepaid 
accounts generally. One of these consumer group commenters indicated 
that it could be confusing to determine whether a declined transaction 
would have accessed the prepaid account or a credit feature. This 
commenter believed that these fees are unfair penalty fees, especially 
if they exceed the cost (if any) to the prepaid account issuer of the 
declined transaction. Consistent with

[[Page 84228]]

the proposal, new comment 52(b)(2)(i)-7 makes clear that fees imposed 
for declining a transaction that would have only accessed the asset 
feature of the prepaid account and would not have accessed the covered 
separate credit feature accessible by the hybrid prepaid-credit card 
are not covered by final Sec.  1026.52(b)(2)(i)(B)(1). The Bureau does 
not believe that it is appropriate to apply final Sec.  
1026.52(b)(2)(i)(B)(1) to fees for declined transactions that would not 
have accessed the covered separate credit feature accessible by the 
hybrid prepaid-credit card because fees for those declined transactions 
are not directly related to credit.\675\
---------------------------------------------------------------------------

    \675\ As discussed above, certain commenters indicated that 
declined transaction fees should be prohibited on prepaid accounts 
generally or should be deemed unfair penalty fees, irrespective of 
when there is a credit feature in connection with the prepaid 
account. The Bureau believes such changes are outside the scope of 
the proposal, and does not make the change at this time. However, 
the Bureau continues to monitor such fees generally and whether any 
practices raise concerns. The Bureau further notes, however, that 
although the Board did not address declined transaction fees in its 
2009 rulemaking addressing overdraft services, the Board noted in 
response to comments received that such fees could raise significant 
fairness issues under the FTC Act, because the institution bears 
little, if any, risk or cost to decline authorization of an ATM or 
one-time debit card transaction. See 74 FR 59033, 59041 (Nov. 17, 
2009).
---------------------------------------------------------------------------

    Stop payment fees and legal process fees. As discussed above, one 
consumer group commenter indicated that the Bureau should clarify that 
the following two types of fees are penalty fees prohibited under 
existing Sec.  1026.52(b)(2)(i)(B) because no dollar amount is 
associated with the violation: (1) Fees for placing a stop payment on 
preauthorized transfers; and (2) legal process fees. The Bureau does 
not believe it is appropriate at this time to include these 
clarifications because these requirements are beyond the scope of the 
proposal, and the Bureau has not collected information about whether 
there are costs for prepaid account issuers related to the 
circumstances in which these fees are charged.
    Restriction on overdraft fees. As indicated above, one consumer 
group commenter indicated that any expenditure not associated with a 
purchase transaction should not be able to trigger an overdraft fee. 
This commenter indicated that a consumer should never be charged an 
overdraft fee because the consumer incurred another fee that caused the 
overdraft. The commenter suggested that the general principle should be 
that prepaid account issuers should never be able to charge an 
overdraft fee of any kind if the issuer has not extended a payment to a 
third party.
    The Bureau has not adopted a restriction on imposing credit-related 
fees on a credit extension from a covered separate credit feature 
unless the credit extension is for a purchase transaction. The 
requirement is beyond the scope of the proposal. In addition, as 
discussed above and in the section-by-section analysis of Sec.  
1026.52(a), the Bureau notes that the provisions in Sec.  1026.52(a) 
and (b) apply to credit-related fees in connection with covered 
separate credit features accessible by hybrid prepaid-credit cards, as 
applicable.
Section 1026.55 Limitations on Increasing Annual Percentage Rates, 
Fees, and Charges
    TILA section 171(a) generally prohibits creditors from increasing 
any APR, fee, or finance charge applicable to any outstanding balance 
on a credit card account under an open-end consumer credit plan, with 
some exceptions.\676\ TILA section 172 provides that a creditor 
generally cannot increase a rate, fee, or finance charge during the 
first year after account opening and that a promotional rate generally 
cannot expire earlier than six months.\677\
---------------------------------------------------------------------------

    \676\ See 15 U.S.C. 1666i-1.
    \677\ See 15 U.S.C. 1666i-2.
---------------------------------------------------------------------------

    TILA sections 171 and 172 are implemented in existing Sec.  
1026.55. Existing Sec.  1026.55(a) provides that except as provided in 
existing Sec.  1026.55(b), a card issuer must not increase an APR or a 
fee or charge required to be disclosed under existing Sec.  
1026.6(b)(2)(ii), (iii), or (xii) on a credit card account under an 
open-end (not home-secured) consumer credit plan.
    The Bureau did not propose changes to Sec.  1026.55 or related 
commentary. Nonetheless, the Bureau believes that additional guidance 
is needed with respect to the restrictions in final Sec.  1026.55 given 
the changes in the final rule to the definition of ``finance charge'' 
in final Sec.  1026.4, the definition of ``charges imposed as part of 
the plan'' in final Sec.  1026.6(b)(3), and the addition of new Sec.  
1026.61.
    As discussed in more detail below, the final rule adds new comment 
55(a)-3 to provide guidance on how the restrictions in final Sec.  
1026.55 generally apply to fees or charges imposed in connection with 
covered separate credit features accessible by hybrid prepaid-credit 
cards, as defined in new Sec.  1026.61, where the credit feature is a 
credit card account under an open-end (not home-secured) consumer 
credit plan. The final rule also adds new comment 55(a)-4 to provide 
that the restrictions in final Sec.  1026.55 do not apply to fees or 
charges imposed on the asset feature of the prepaid account with 
respect to covered separate credit features accessible by hybrid 
prepaid-credit cards when the fees or charges are not ``charges imposed 
as part of the plan'' under new Sec.  1026.6(b)(3)(iii)(D) with respect 
to the covered separate credit feature. New comment 55(a)-4 also 
provides that final Sec.  1026.55 does not apply to fees or charges 
imposed on the asset feature of a prepaid account with respect to a 
non-covered separate credit feature.
Covered Separate Credit Features Accessible by Hybrid Prepaid-Credit 
Cards
    As discussed in more detail in the section-by-section analysis of 
Sec.  1026.61(a)(2) below, a covered separate credit feature accessible 
by a hybrid prepaid-credit card includes an overdraft credit feature 
offered by a prepaid account issuer, its affiliate, or its business 
partner that can be accessed by a prepaid card (except as provided in 
new Sec.  1026.61(a)(4)). The prepaid card is a hybrid prepaid-credit 
card under new Sec.  1026.61 and a credit card under final Sec.  
1026.2(a)(15)(i) with respect to the covered separate credit feature.
    New Sec.  1026.61(b) generally requires that such credit features 
be structured as separate subaccounts or accounts, distinct from the 
prepaid asset account, to facilitate transparency and compliance with 
various Regulation Z requirements. Given this change and to ensure 
compliance with Sec.  1026.55, the Bureau is adding new comment 55(a)-3 
to provide guidance on when fees or charges imposed in connection with 
covered separate credit features are subject to the restrictions in 
existing Sec.  1026.55. New comment 55(a)-3 provides that with regard 
to a covered separate credit feature and an asset feature on a prepaid 
account that are both accessible by a hybrid prepaid-credit card as 
defined in new Sec.  1026.61 where the credit feature is a credit card 
account under an open-end (not home-secured) consumer credit plan, 
final Sec.  1026.55(a) prohibits card issuers from increasing an APR or 
any fee or charge required to be disclosed under existing Sec.  
1026.6(b)(2)(ii), (iii), or (xii) on a credit card account unless 
specifically permitted by one of the exceptions in existing Sec.  
1026.55(b). This is true regardless of whether these fees or APRs are 
imposed on the asset feature of the prepaid account or on the credit 
feature.
    TILA section 171 and 172 apply, respectively, to any APR, fee, or 
finance charge applicable to any outstanding balance and to any APR, 
fee, or finance charge on any credit card account under

[[Page 84229]]

an open-end consumer credit plan. Those terms readily encompass credit-
related fees that are imposed on the asset feature of the prepaid 
account. Even if the terms were ambiguous, the Bureau believes--based 
on its expertise and experience with respect to credit markets--that 
interpreting them to encompass credit-related fees imposed on the asset 
feature would promote the purposes of TILA to protect the consumer 
against inaccurate and unfair credit billing and credit card practices. 
From the consumer's perspective, there is no practical difference when 
an APR or any fee or charge described in existing Sec.  1026.55(a) 
imposed in connection with a covered separate credit feature is charged 
against the separate credit feature and when it is charged to the asset 
feature of the prepaid account. If TILA sections 171 and 172 were not 
interpreted to include APRs or fees or charges described in existing 
Sec.  1026.55(a) in connection to the covered separate credit feature 
when those fees or charges are imposed on the asset feature, the Bureau 
is concerned that card issuers could avoid the restrictions set forth 
in TILA sections 171 and 172 and Sec.  1026.55(a) with respect to these 
fees or charges simply by imposing them on the asset feature of the 
prepaid account.
    New comment 55(a)-4 provides that with regard to a covered separate 
credit feature and an asset feature on a prepaid account that are both 
accessible by a hybrid prepaid-credit card as defined in new Sec.  
1026.61, final Sec.  1026.55(a) does not apply to any fee or charge 
imposed on the asset feature of the prepaid account that is not a 
charge imposed as part of the plan under new Sec.  1026.6(b)(3)(iii)(D) 
with respect to the covered separate credit feature. As discussed in 
more detail in the section-by-section analysis of Sec.  1026.6 above, 
with respect to a fee or charge imposed on the asset feature of a 
prepaid account accessible by a hybrid prepaid-credit card, a fee or 
charge imposed on the asset feature of the prepaid account is a 
``charge imposed as part of the plan'' to the extent that the amount of 
the fee or charges exceeds comparable fees or charges imposed on 
prepaid accounts in the same prepaid account program that do not have a 
credit feature accessible by a hybrid prepaid-credit card. This fee or 
charge also is a finance charge under new Sec.  1026.4(b)(11)(ii).
    Under new Sec.  1026.6(b)(3)(iii)(D) and new comment 
6(b)(3)(iii)(D)-1, a fee or charge imposed on the asset feature of the 
prepaid account is not a ``charge imposed as part of the plan'' to the 
extent that the amount of the fee or charges does not exceed comparable 
fees or charges imposed on prepaid accounts in the same prepaid account 
program that do not have a credit feature accessible by a hybrid 
prepaid-credit card. These fees or charges imposed on the asset feature 
of the prepaid account are not finance charges under new Sec.  
1026.4(b)(11)(ii) in relation to the covered separate credit feature. 
The Bureau believes that this guidance facilitates compliance with 
final Sec.  1026.55(a) by providing additional clarity to card issuers 
on how the restrictions in final Sec.  1026.55(a) apply to fees or 
charges imposed on the asset feature of the prepaid account accessible 
by a hybrid prepaid-credit card. As discussed in more detail in the 
section-by-section analyses of Sec. Sec.  1026.4 and 1026.6 above, the 
Bureau believes that fees or charges imposed on the asset feature of a 
prepaid account that are not finance charges (and thus, not charges 
imposed as part of the plan under new Sec.  1026.6(b)(3)(iii)(D)) with 
respect to the covered separate credit feature are more appropriately 
regulated under Regulation E, rather than regulated under Regulation Z, 
with respect to the covered separate credit feature.
Non-Covered Separate Credit Features
    As discussed in more detail in the section-by-section analysis of 
Sec.  1026.61(a)(2) below, a prepaid card is not a hybrid prepaid-
credit card with respect to a ``non-covered separate credit feature,'' 
which means that the separate credit feature either (1) cannot be 
accessed in the course of a prepaid card transaction to obtain goods or 
services, obtain cash, or conduct P2P transfers; or (2) is offered by 
an unrelated third party that is not the prepaid account issuer, its 
affiliate, or its business partner. As described in new Sec.  
1026.61(a)(2)(ii), a non-covered separate credit feature is not subject 
to the rules applicable to hybrid prepaid-credit cards; however, it 
typically will be subject to Regulation Z depending on its own terms 
and conditions, independent of the connection to the prepaid account. 
Thus, a non-covered separate credit feature may be subject to the 
provisions in Sec.  1026.55 in its own right.
    With respect to non-covered separate credit features that are 
subject to Sec.  1026.55, new comment 55(a)-4 provides that final Sec.  
1026.55 does not apply to any fee or charge imposed on the asset 
feature of the prepaid account that is not a charge imposed as part of 
the plan under new Sec.  1026.6(b)(3)(iii)(E). The Bureau notes that 
under new Sec.  1026.6(b)(3)(iii)(E) and new comment 6(b)(3)(iii)(E)-1, 
with respect to a non-covered separate credit feature as defined in new 
Sec.  1026.61, none of the fees or charges imposed on the asset feature 
of the prepaid account are ``charges imposed as part of the plan'' 
under final Sec.  1026.6(b)(3) with respect to the non-covered separate 
credit feature. New comment 6(b)(3)(iii)(E)-1 also cross-references new 
comment 4(b)(11)-1.ii.B which provides that none of the fees or charges 
imposed on the asset feature of the prepaid account are finance charges 
under final Sec.  1026.4 with respect to the non-covered separate 
credit feature. Thus, final Sec.  1026.55 does not apply to any fees or 
charges imposed on the asset feature of the prepaid account with 
respect to the non-covered separate credit feature. As discussed in 
more detail in the section-by-section analyses of Sec. Sec.  1026.4 and 
1026.6 above, the Bureau believes that fees or charges imposed on the 
asset feature of a prepaid account are more appropriately regulated 
under Regulation E, rather than regulated under Regulation Z, with 
respect to the non-covered separate credit feature.
Section 1026.57 Reporting and Marketing Rules for College Student Open-
End Credit
57(a) Definitions
    TILA section 127(r) requires creditors to submit an annual report 
to the Bureau containing the terms and conditions of all business, 
marketing, promotional agreements, and college affinity card agreements 
with an institution of higher education, or other related entities, 
with respect to any college student credit card issued to a college 
student at such institution.\678\ This TILA section is implemented by 
existing Sec.  1026.57(d), which requires card issuers that are a party 
to one or more ``college credit card agreements'' to submit annual 
reports to the Bureau regarding those agreements.
---------------------------------------------------------------------------

    \678\ 15 U.S.C. 1637(r).
---------------------------------------------------------------------------

    Existing Sec.  1026.57(a)(5) defines ``college credit card 
agreement'' to mean any business, marketing, or promotional agreement 
between a card issuer and an institution of higher education or an 
affiliated organization in connection with which college student credit 
cards are issued to college students currently enrolled at that 
institution. Existing Sec.  1026.57(a)(1) defines ``college student 
credit card'' as used in the term ``college credit card agreement'' to 
mean a credit card issued under a credit card account under an open-end 
(not home-secured) consumer credit plan to any college student.

[[Page 84230]]

The Bureau's Proposal
    Existing comment 57(a)(1)-1 provides guidance on the definition of 
``college student credit card'' which is used in the definition of 
``college credit card agreement.'' The proposal would have amended this 
comment to include a prepaid card that is a credit card that is issued 
to any college student under a credit card account under an open-end 
(not home-secured) consumer credit plan. Proposed comment 57(a)(1)-1 
also would have provided that the definition of college student credit 
card includes a prepaid account that is issued to any college student 
where an open-end (not home-secured) consumer credit plan may be added 
in connection with the prepaid account and the credit account may be 
accessed by a prepaid card that is a credit card.
    Existing comment 57(a)(5)-1 provides guidance on the definition of 
``college credit card agreement.'' The proposal would have amended this 
comment to include guidance on when an agreement related to a prepaid 
account would be considered a ``college credit card agreement.'' 
Proposed comment 57(a)(5)-1 would have provided that the definition of 
``college credit card agreement'' includes a business, marketing, or 
promotional agreement between a card issuer and a college or university 
(or an affiliated organization, such as an alumni club or a foundation) 
if the agreement either provides for the addition of open-end (not 
home-secured) consumer credit plans to previously-issued prepaid 
accounts that were issued to full-time or part-time students, where 
that credit account would be accessed by a prepaid card that is a 
credit card. Proposed comment 57(a)(5)-1 also would have provided that 
the definition of ``college credit card agreement'' includes a 
business, marketing, or promotional agreement between a card issuer and 
a college or university (or an affiliated organization, such as an 
alumni club or a foundation) if (1) an agreement provides for the 
issuance of prepaid accounts to full-time or part-time students; and 
(2) an open-end (not home-secured) consumer credit plan may be added in 
connection with the prepaid account where that credit account may be 
accessed by a prepaid card that is a credit card.
Comments Received and the Final Rule
    The Bureau did not receive any comment on this aspect of the 
proposal. The Bureau is adopting proposed comments 57(a)(1)-1 and 
57(a)(5)-1 with technical revisions to clarify the intent of the 
comments, and to be consistent with new Sec.  1026.61.\679\ Final 
comment 57(a)(1)-1 provides that the definition of ``college student 
credit card'' includes a hybrid prepaid-credit card as defined by new 
Sec.  1026.61 that is issued to any college student where the card 
accesses a covered separate credit feature that is a credit card 
account under an open-end (not home-secured) consumer credit plan. The 
definition of ``college student credit card'' also includes a prepaid 
account as defined in Sec.  1026.61 that is issued to any college 
student where a covered separate credit feature that is a credit card 
account under an open-end (not home-secured) consumer credit plan may 
be added in the future to the prepaid account. As discussed in more 
detail in the section-by-section analysis of Sec.  1026.61(a)(2) below, 
a covered separate credit feature accessible by a hybrid prepaid-credit 
card includes an overdraft credit feature offered by a prepaid account 
issuer, its affiliate, or its business partner that can be accessed by 
a prepaid card (except as provided in new Sec.  1026.61(a)(4)). The 
prepaid card is a hybrid prepaid-credit card under new Sec.  1026.61 
and a credit card under final Sec.  1026.2(a)(15)(i) with respect to 
the covered separate credit feature.
---------------------------------------------------------------------------

    \679\ The proposal would have provided that the term ``credit 
card'' includes an account number that is not a prepaid card that 
may be used from time to time to access a credit plan that allows 
deposits directly only into particular prepaid accounts specified by 
the creditor. The proposal would have provided in comments 57(a)(1)-
1 and 57(a)(5)-1 guidance on the definitions of ``college student 
credit card'' and ``college credit card agreement'' related to 
credit card accounts that are accessed by these account numbers. For 
the reasons set forth in the section-by-section analysis of Sec.  
1026.2(a)(15)(i) above, the final rule does not adopt the proposed 
changes to comments 57(a)(1)-1 and 57(a)(5)-1 related to these 
account numbers.
---------------------------------------------------------------------------

    Final comment 57(a)(5)-1 provides that the definition of ``college 
credit card agreement'' includes a business, marketing, or promotional 
agreement between a card issuer and a college or university (or an 
affiliated organization, such as an alumni club or a foundation) if the 
agreement provides for the addition of a covered separate credit 
feature that is a credit card account under an open-end (not home-
secured) consumer credit plan accessible by a hybrid prepaid-credit 
card to prepaid accounts previously issued to full-time or part-time 
students. This definition also includes a business, marketing, or 
promotional agreement between a card issuer and a college or university 
(or an affiliated organization, such as an alumni club or a foundation) 
if (1) the agreement provides for the issuance of prepaid accounts as 
defined in Sec.  1026.61 to full-time or part-time students; and (2) a 
covered separate credit feature that is a credit card account under an 
open-end (not home-secured) consumer credit plan may be added in the 
future to the prepaid account.
    Pursuant to the Bureau's amendments to commentary, final Sec.  
1026.57(d) requires a card issuer that is a party to one or more 
college credit card agreements in connection with covered separate 
credit features accessible by hybrid prepaid-credit cards to submit 
annual reports to the Bureau regarding those agreements. In addition, a 
card issuer is required to submit agreements that provide for the 
issuance of prepaid accounts to full-time or part-time students even if 
a covered separate credit feature is not linked to the prepaid account 
when the prepaid accounts are issued, so long as such credit features 
may be added in connection with the prepaid accounts.
    As discussed in more detail in the section-by-section analysis of 
Sec.  1026.61(c) below, new Sec.  1026.61(c) provides that with respect 
to a covered separate credit feature that could be accessible by a 
hybrid prepaid-credit card at any point, a card issuer must not do any 
of the following until 30 days after the prepaid account has been 
registered: (1) Open a covered separate credit feature accessible by 
the hybrid prepaid-credit card; (2) make a solicitation or provide an 
application to open a covered separate credit feature accessible by the 
hybrid prepaid-credit card; or (3) allow an existing credit feature 
that was opened prior to the consumer obtaining the prepaid account to 
become a covered separate credit feature accessible by the hybrid 
prepaid-credit card. Thus, a prepaid card in connection with a prepaid 
account cannot access a covered separate credit feature at the time the 
prepaid account is opened. Nonetheless, the Bureau believes that the 
marketing efforts related to a prepaid account, including the 
inducements given by a card issuer to open a prepaid account, have an 
impact on whether consumers may request that a covered separate credit 
feature accessible by a hybrid prepaid-credit card be linked to the 
prepaid account when such covered separate credit features are offered 
to them. Thus, even though a prepaid account will not have a covered 
separate credit feature linked to it at the time the prepaid account is 
opened, if a covered separate credit feature that is a credit card 
account under an open-end (not home-secured) consumer credit plan 
accessible by a hybrid prepaid-credit card may be linked to a prepaid 
account as described above in the future, the prepaid account at the 
time of issuance

[[Page 84231]]

would be a ``college student credit card'' for purposes of final Sec.  
1026.57(a)(1) if the prepaid account is issued to a college student. As 
a result, under the final rule, a card issuer that is a party to one or 
more agreements between the card issuer and a college or university (or 
an affiliated organization, such as an alumni club or a foundation) 
must submit annual reports to the Bureau regarding those agreements if: 
(1) An agreement provides for the issuance of prepaid accounts to full-
time or part-time students; and (2) a covered separate credit feature 
that is a credit card account under an open-end (not home-secured) 
consumer credit plan accessible by a hybrid prepaid-credit card may be 
added in connection with the prepaid account.
    The Bureau believes it is necessary and proper to exercise its 
adjustment authority under TILA section 105(a), to apply section 
127(r)'s requirements for college card agreements to prepaid cards 
where covered separate credit features that are credit card accounts 
under an open-end (not home-secured) consumer credit plan accessible by 
hybrid prepaid-credit cards may subsequently be added, to further the 
purposes of TILA. The provisions in TILA section 127(r) addressing 
college credit cards reflect Congress's particular concern with 
providing special protections for students to ensure that students can 
make informed credit decisions, and the Bureau believes that including 
such cards is consistent with such congressional concerns for college 
students and credit card debt. Further, these concerns might be 
heightened with respect to prepaid accounts to which covered separate 
credit features that are credit card accounts under an open-end (not 
home-secured) consumer credit plan accessible by hybrid prepaid-credit 
cards may be linked because students might be prone to use such prepaid 
accounts as their primary transaction account.
57(b) Public Disclosure of Agreements
    TILA section 140(f)(1) provides that an institution of higher 
education must publicly disclose any contract or other agreement made 
with a card issuer or creditor for the purpose of marketing a credit 
card.\680\ This TILA provision is implemented by existing Sec.  
1026.57(b), which provides that an institution of higher education must 
publicly disclose any contract or other agreement made with a card 
issuer or creditor for the purpose of marketing a credit card.
---------------------------------------------------------------------------

    \680\ 15 U.S.C. 1650(f)(1).
---------------------------------------------------------------------------

    The Bureau proposed comment 57(b)-3 to explain that existing Sec.  
1026.57(b) applies to any contract or other agreement that an 
institution of higher education makes with a card issuer or creditor 
for the purpose of marketing either (1) the addition of open-end (not 
home-secured) consumer credit accounts to prepaid accounts previously 
issued to full-time or part-time students, where that credit account 
would be accessed by a prepaid card that is a credit card; or (2) 
prepaid accounts where a credit account may be added in connection with 
the prepaid account and that credit account may be accessed by a 
prepaid card that is a credit card. Thus, under proposed Sec.  
1026.57(b), an institution of higher education would have been required 
to publicly disclose such agreements.
    One consumer group commenter indicated that it is not enough to 
require an institution of higher education to offer a disclosure on 
marketing agreements with card issuers. This commenter believed that 
the Bureau should specifically require that these disclosures be made 
available on the institution's Web site. This commenter believed that 
these disclosures should be available on the same screen as the 
application for the card and would disclose the dollar amount received 
by the institution and any terms associated with those fees. The 
commenter believed that these terms should be listed in English and 
Spanish.
    The Bureau is adopting proposed comment 57(b)-3 as proposed with 
technical revisions to clarify the intent of the comment and to be 
consistent with new Sec.  1026.61.\681\ Under the final rule, new 
comment 57(b)-3 provides that existing Sec.  1026.57(b) applies to any 
contract or other agreement that an institution of higher education 
makes with a card issuer or creditor for the purpose of marketing 
either (1) the addition of a covered separate credit feature that is a 
credit card account under an open-end (not home-secured) consumer 
credit plan to prepaid accounts as defined in Sec.  1026.61 that were 
previously issued to full-time or part-time students; or (2) new 
prepaid accounts where a covered separate credit feature that is a 
credit card account under an open-end (not home-secured) consumer 
credit plan may in the future be added to the prepaid account. Thus, 
under Sec.  1026.57(b), an institution of higher education must 
publicly disclose such agreements.
---------------------------------------------------------------------------

    \681\ The proposal would have provided that the term ``credit 
card'' includes an account number that is not a prepaid card that 
may be used from time to time to access a credit plan that allows 
deposits directly only into particular prepaid accounts specified by 
the creditor. The proposal would have provided in comment 57(b)-3 
that institutions of higher education must disclose marketing 
agreements related to credit card accounts accessed by these account 
numbers. For the reasons set forth in the section-by-section 
analysis of Sec.  1026.2(a)(15)(i) above, the final rule does not 
adopt the proposed changes to comment 57(b)-3 related to these 
account numbers.
---------------------------------------------------------------------------

    As discussed in more detail in the section-by-section analysis of 
Sec.  1026.61(a)(2) below, a covered separate credit feature accessible 
by a hybrid prepaid-credit card includes an overdraft credit feature 
offered by a prepaid account issuer, its affiliate, or its business 
partner that can be accessed by a prepaid card (except as provided in 
new Sec.  1026.61(a)(4)). The prepaid card is a hybrid prepaid-credit 
card under new Sec.  1026.61 and a credit card under final Sec.  
1026.2(a)(15)(i) with respect to the covered separate credit feature.
    The Bureau believes it is necessary and proper to exercise its 
adjustment authority under TILA section 105(a) to effectuate the 
purposes of TILA by applying section 140(f)'s requirements for college 
card agreements to prepaid cards where covered separate credit features 
that are credit card accounts under an open-end (not home-secured) 
consumer credit plan accessible by hybrid prepaid-credit cards may 
subsequently be added. The provisions in TILA section 140(f) addressing 
college card agreements reflect Congress's particular concern with 
providing special protections for students to ensure that students can 
make informed credit decisions, and the Bureau believes that including 
such cards is consistent with such congressional concerns for college 
students and credit card debt. The Bureau believes that the marketing 
efforts related to a prepaid account, including the inducements given 
by a card issuer to open a prepaid account, may have an impact on 
whether consumers may request that a covered separate credit feature 
that is a credit card account under an open-end (not home-secured) 
consumer credit plan accessible by hybrid prepaid-credit card be linked 
to the prepaid account, as discussed above, when such covered separate 
credit features are offered to them. Thus, the Bureau believes that the 
marketing related to a prepaid account where a covered separate credit 
feature accessible by a hybrid prepaid-credit card may be added would 
constitute marketing of a credit card. Thus, under the final rule, an 
institution of higher education must publicly disclose agreements for 
the marketing of prepaid accounts where a covered separate credit 
feature that is a credit card account under an open-end (not home-
secured) consumer credit plan accessible by a hybrid prepaid-credit

[[Page 84232]]

card may be added in connection with the prepaid account.
    As discussed above, one consumer group commenter indicated that it 
is not enough to require an institution of higher education to offer a 
disclosure related to marketing agreements with card issuers. This 
commenter believed that the Bureau should specifically require that 
these disclosures be made available on the institution's Web site. This 
commenter believed that these disclosures should be available on the 
same screen as the application for the card and disclose the dollar 
amount received by the institution and any terms associated with those 
fees. The commenter believed that these terms should be listed in 
English and Spanish.
    The final rule does not impose additional requirements on 
institutions of higher education to disclose marketing agreements. The 
Bureau believes such changes are outside the scope of the proposal and 
does not make the change at this time. The Bureau notes that existing 
comment 1026.57(b)-1 provides that institutions of higher education may 
comply with the requirement in existing Sec.  1026.57(b) by publishing 
any relevant credit card agreement on their Web site or by making such 
agreements available free of charge upon request using reasonable 
procedures and in a reasonable timeframe. In addition, the Bureau sent 
a warning letter in December 2015 to several institutions of higher 
education because their agreements were not posted on their Web sites 
and could not be publicly obtained by the Bureau using reasonable 
procedures and in a reasonable timeframe.\682\ In the letter, the 
Bureau noted that publishing the agreement on the Web site is proving 
to be the least burdensome and most straightforward means of complying 
with Sec.  1026.57(b), and that any other approach may be less 
effective and creates compliance risk.
---------------------------------------------------------------------------

    \682\ See Press Release, CFPB, CFPB Warns Colleges About Secret 
Campus Credit Card Contracts (Dec. 16, 2015), available at https://www.consumerfinance.gov/about-us/newsroom/cfpb-warns-colleges-about-secret-campus-credit-card-contracts/.
---------------------------------------------------------------------------

57(c) Prohibited Inducements
    TILA section 140(f)(2) provides that no card issuer or creditor may 
offer to a student at an institution of higher education any tangible 
item to induce such student to apply for or participate in an open-end 
consumer credit plan offered by such card issuer or creditor, if such 
offer is made: (1) On the campus of an institution of higher education; 
(2) near the campus of an institution of higher education, as 
determined by rule of the Bureau; or (3) at an event sponsored by or 
related to an institution of higher education.\683\ This TILA provision 
is implemented in existing Sec.  1026.57(c), which provides that no 
card issuer or creditor may offer a college student any tangible item 
to induce such student to apply for or open an open-end consumer credit 
plan offered by such card issuer or creditor, if such offer is made: 
(1) On the campus of an institution of higher education; (2) near the 
campus of an institution of higher education; or (3) at an event 
sponsored by or related to an institution of higher education.
---------------------------------------------------------------------------

    \683\ 15 U.S.C. 1650(f)(2).
---------------------------------------------------------------------------

    The Bureau proposed to add comment 57(c)-7 to explain that existing 
Sec.  1026.57(c) applies to (1) the application for or opening of a 
credit card account that is being added to previously-issued prepaid 
accounts that were issued to full-time or part-time students, where 
that credit account would be accessed by a prepaid card that is a 
credit card; or (2) the application for or opening of a prepaid account 
where a credit account may be added in connection with the prepaid 
account where that credit account may be accessed by a prepaid card 
that is a credit card.
    The Bureau did not receive comments on this aspect of the proposal. 
The Bureau is adopting proposed comment 57(c)-7 with revisions to be 
consistent with new Sec.  1026.61.\684\ New comment 57(c)-7 provides 
that final Sec.  1026.57(c) applies to (1) the application for or 
opening of a covered separate credit feature that is a credit card 
account under an open-end (not home-secured) consumer credit plan 
accessible by a hybrid prepaid-credit card as defined in Sec.  1026.61 
that is being added to a prepaid account as defined as Sec.  1026.61 
previously issued to a full-time or part-time student as well as (2) 
the application for or opening of a prepaid account where a covered 
separate credit feature that is a credit card account under an open-end 
(not home-secured) consumer credit plan accessible by a hybrid prepaid-
credit card as defined in Sec.  1026.61 may be added in the future to 
the prepaid account. As discussed in more detail in the section-by-
section analysis of Sec.  1026.61(a)(2) below, a covered separate 
credit feature accessible by a hybrid prepaid-credit card includes an 
overdraft credit feature offered by a prepaid account issuer, its 
affiliate, or its business partner that can be accessed by a prepaid 
card (except as provided in new Sec.  1026.61(a)(4)). The prepaid card 
is a hybrid prepaid-credit card under new Sec.  1026.61 and a credit 
card under final Sec.  1026.2(a)(15)(i) with respect to the covered 
separate credit feature.
---------------------------------------------------------------------------

    \684\ The proposal would have provided that the term ``credit 
card'' includes an account number that is not a prepaid card that 
may be used from time to time to access a credit plan that allows 
deposits directly only into particular prepaid accounts specified by 
the creditor. The proposal would have provided in comment 57(c)-7 
guidance on how the prohibition in Sec.  1026.57(c) applies to 
credit card accounts that are accessed by these account numbers. For 
the reasons set forth in the section-by-section analysis of Sec.  
1026.2(a)(15)(i) above, the final rule does not adopt the proposed 
changes to comment 57(c)-7 related to these account numbers.
---------------------------------------------------------------------------

    The Bureau believes that the marketing efforts related to a prepaid 
account, including the inducements given by a card issuer to open a 
prepaid account, may have an impact on whether consumers may request 
that a covered separate credit feature that is a credit card account 
under an open-end (not home-secured) consumer credit plan accessible by 
a hybrid prepaid-credit card be linked to the prepaid account, as 
discussed above, when such covered separate credit features are offered 
to them. Thus, any tangible item given to induce college students to 
apply for or open a prepaid account where a covered separate credit 
feature that is a credit card account under an open-end (not home-
secured) consumer credit plan accessible by a hybrid prepaid-credit 
card may be added in connection with the prepaid account would also be 
interpreted as an inducement to encourage a college student to apply 
for or open such a covered separate credit feature in connection with 
the prepaid account. As a result, under final Sec.  1026.57(c), a card 
issuer or creditor would be prohibited from offering a college student 
any tangible item to induce the student to apply for or open a prepaid 
account offered by the card issuer or creditor where a covered separate 
credit feature that is a credit card account under an open-end (not 
home-secured) consumer credit plan accessible by a hybrid prepaid-
credit card may be added in connection with the prepaid account, if the 
offer is made: (1) On the campus of an institution of higher education; 
(2) near the campus of an institution of higher education; or (3) at an 
event sponsored by or related to an institution of higher education.
Section 1026.58 Internet Posting of Credit Card Agreements
    TILA section 122(d), implemented by existing Sec.  1026.58, 
generally requires card issuers to post their card agreements on the 
internet and to provide those agreements to the Bureau. Separately, as 
part of this final rule, the Bureau is adopting similar provisions

[[Page 84233]]

for prepaid accounts in final Regulation E Sec.  1005.19. Although the 
Bureau is not revising Sec.  1026.58, it notes that the requirements of 
Sec.  1026.58 and those of Regulation E Sec.  1005.19 are distinct and 
independent of one another. In other words, issuers must comply with 
both as appropriate. The Bureau notes, however, that it does not 
believe it is likely that any agreement will constitute both a credit 
card agreement and a prepaid account agreement and thus be required to 
be submitted under both Sec.  1026.58 and Regulation E Sec.  1005.19. 
Given the requirement in new Sec.  1026.61(b) that credit features 
accessible by hybrid prepaid-credit cards generally must be structured 
as separate subaccounts or accounts distinct from the prepaid asset 
account, in conjunction with the account-opening disclosure 
requirements in existing Sec.  1026.6 and the initial disclosure 
requirements in existing Regulation E Sec.  1005.7(b) as well as final 
Sec.  1005.18(f)(1), the Bureau believes it is unlikely that an issuer 
would use a single agreement to provide all such disclosures for both a 
prepaid account and for a covered separate credit feature.
    The Bureau reminds credit card issuers that while final Regulation 
E Sec.  1005.19(f) provides a delayed effective date of October 1, 2018 
to submit prepaid account agreements to the Bureau, the requirement to 
submit credit card agreements for covered separate credit features 
accessible by hybrid prepaid-credit cards that are credit card accounts 
under an open-end (not home-secured) consumer credit plan becomes 
effective with the rest of this final rule on October 1, 2017.
Section 1026.60 Credit and Charge Card Applications and Solicitations
    TILA section 127(c) generally requires card issuers to provide 
certain cost disclosures on or with an application or solicitation to 
open a credit or charge card account.\685\ This TILA provision is 
implemented by Sec.  1026.60.
---------------------------------------------------------------------------

    \685\ 15 U.S.C. 1637(c).
---------------------------------------------------------------------------

    Existing comment 60-1 provides that Sec.  1026.60 generally 
requires that credit disclosures be contained in application forms and 
solicitations initiated by a card issuer to open a credit or charge 
card account. The existing comment also cross-references Sec.  
1026.60(a)(5) and (e)(2) for exceptions, Sec.  1026.60(a)(1) and 
accompanying commentary for the definition of solicitation, and Sec.  
1026.2(a)(15) and accompanying commentary for the definition of charge 
card. The proposal would have amended existing comment 60-1 to cross-
reference proposed Sec.  1026.12(h) (renumbered as new Sec.  1026.61(c) 
in the final rule) for restrictions on when credit or charge card 
accounts can be added to previously issued prepaid accounts.
    The Bureau did not receive any specific comments on the proposed 
revisions to comment 60-1. Consistent with the proposal, the final rule 
adopts final comment 60-1 with revisions to be consistent with new 
Sec.  1026.61. The final rule revises comment 60-1 to provide a cross-
reference to new Sec.  1026.61(c) for restrictions on when credit or 
charge card accounts can be added to previously issued prepaid 
accounts. See the section-by-section analysis of Sec.  1026.61(c) below 
for a discussion of these restrictions.
60(a) General Rules
60(a)(5) Exceptions
    Existing Sec.  1026.60(a)(5) provides several exceptions to the 
requirements in existing Sec.  1026.60 to provide cost disclosures on 
or with credit or charge card applications or solicitations. 
Specifically, existing Sec.  1026.60(a)(5) provides that existing Sec.  
1026.60 does not apply to: (1) Home-equity plans accessible by a credit 
or charge card that are subject to the requirements of existing Sec.  
1026.40; (2) overdraft lines of credit tied to asset accounts accessed 
by check-guarantee cards or by debit cards; (3) lines of credit 
accessed by check-guarantee cards or by debit cards that can be used 
only at ATMs; (4) lines of credit accessed solely by account numbers; 
(5) additions of a credit or charge card to an existing open-end plan; 
(6) general purpose applications, unless the application, or material 
accompanying it, indicates that it can be used to open a credit or 
charge card account; or (7) consumer-initiated requests for 
applications. These exemptions are not specifically listed in TILA 
section 127(c).
    In 1989, to implement the disclosure provisions in TILA section 
127(c) as amended by the Fair Credit and Charge Card Disclosure Act of 
1988,\686\ the Board exempted the following credit card accounts from 
the disclosure requirements set forth in its Sec.  226.5a (which are 
contained in the Bureau's existing Regulation Z Sec.  1026.60): (1) 
Home equity plans accessible by a credit or charge card that are 
subject to the Home Equity Loan Consumer Protection Act of 1988, Public 
Law 100-709; (2) overdraft lines of credit tied to asset accounts 
accessed by check guarantee cards or by debit cards; or (3) lines of 
credit accessed by check guarantee cards or by debit cards that can be 
used only at ATMs.\687\ In the supplemental information to that 
rulemaking, the Board indicated that a number of commenters raised 
issues concerning coverage of the proposed rule given the broad 
definition of the term ``credit card'' in the regulation.\688\ Among 
other things, the Board reported that commenters argued that 
congressional intent was to require disclosures only for 
``traditional'' credit card accounts used primarily to purchase goods 
and services, and not for other types of accounts that do not fall 
within such a category or for which the use of a credit or charge card 
as an access device is merely incidental to the product being 
offered.\689\
---------------------------------------------------------------------------

    \686\ Public Law 100-583, 102 Stat. 2960.
    \687\ 54 FR 13855, 13857 (Apr. 6, 1989).
    \688\ Id.
    \689\ Id.
---------------------------------------------------------------------------

    In 1990, the Board added commentary to its Regulation Z Sec.  
226.5a (now existing Sec.  1026.60) to provide that the disclosures set 
forth in its Regulation Z Sec.  226.5a also did not apply to: (1) Lines 
of credit accessed solely by account numbers; (2) the addition of a 
credit or charge card to an existing open-end plan; (3) general purpose 
applications unless the application, or material accompanying it, 
indicates that it can be used to open a credit or charge card account; 
or (4) consumer-initiated requests for applications.\690\ In the 
supplemental information to the 1990 rulemaking, the Board did not 
explain why it was including these exemptions.
---------------------------------------------------------------------------

    \690\ See 55 FR 13103, 13107 (Apr. 9, 1990).
---------------------------------------------------------------------------

    As discussed above, existing Sec.  1026.60(a)(5)(iv) currently 
provides that the disclosure requirements in existing Sec.  1026.60 do 
not apply to lines of credit accessed solely by account numbers. The 
proposal would have amended existing Sec.  1026.60(a)(5)(iv) to provide 
that this exception does not apply where the account number is a credit 
card where extensions of credit are permitted to be deposited directly 
only into particular prepaid accounts specified by the creditor. Under 
the proposal, these account numbers would have been credit cards. Thus, 
under the proposal, a card issuer would have been required to provide 
the disclosures required by existing Sec.  1026.60 on or with a 
solicitation or application to open a credit or charge card account 
that would have been accessed by an account number that is a credit 
card where extensions of credit are permitted to be deposited directly 
only into particular prepaid accounts specified by the creditor.
    The Bureau did not receive any comments on proposed

[[Page 84234]]

Sec.  1026.60(a)(5)(iv). As discussed in more detail in the section-by-
section analysis of Sec.  1026.2(a)(15)(i) above, the Bureau is not 
adopting proposed Sec.  1026.2(a)(15)(vii) and proposed comment 
2(a)(15)-2.i.G, which would have made these account numbers into credit 
cards under Regulation Z.
    Nonetheless, the Bureau is revising the proposed changes to Sec.  
1026.60(a)(5)(iv) to refer to an account number that is a hybrid 
prepaid-credit card, rather than an account number where extensions of 
credit are permitted to be deposited directly only into particular 
prepaid accounts specified by the creditor. Specifically, the Bureau is 
revising the exemption in existing Sec.  1026.60(a)(5)(iv) that relates 
to lines of credit accessed solely by account numbers so that this 
exception would not apply to a covered separate credit feature solely 
accessible by an account number that is a hybrid prepaid-credit card, 
as defined in new Sec.  1026.61.
    The Bureau noted in the proposal that a card issuer generally would 
be required to provide the cost disclosures in existing Sec.  1026.60 
on or with solicitations or applications to open a credit or charge 
card account that is accessed by a prepaid card that is a credit card. 
Consistent with the intent of the proposal, the Bureau is revising the 
exemption in existing Sec.  1026.60(a)(5)(iv) to make clear that the 
cost disclosures in existing Sec.  1026.60 must be provided on or with 
solicitations or applications to open a covered separate credit feature 
accessible by a hybrid prepaid-credit card even when that hybrid 
prepaid-credit card is solely an account number.
    As discussed in more detail in the section-by-section analysis of 
Sec.  1026.61(a)(2) below, a covered separate credit feature accessible 
by a hybrid prepaid-credit card includes an overdraft credit feature 
offered by a prepaid account issuer, its affiliate, or its business 
partner that can be accessed by a prepaid card (except as provided in 
new Sec.  1026.61(a)(4)). The prepaid card is a hybrid prepaid-credit 
card under new Sec.  1026.61 and a credit card under final Sec.  
1026.2(a)(15)(i) with respect to the covered separate credit feature.
    The Bureau does not believe that it is appropriate to except a 
covered separate credit feature accessible by a hybrid prepaid-credit 
card that is solely an account number from the disclosure requirements 
set forth in TILA section 127(c). The Bureau believes that the cost 
disclosures in final Sec.  1026.60 would be helpful to consumers in 
deciding whether to open such a covered separate credit feature 
accessible by a hybrid prepaid-credit card.
60(b) Required Disclosures
    TILA section 127(c), implemented by existing Sec.  1026.60, 
generally requires card issuers to provide certain cost disclosures on 
or with an application or solicitation to open a credit or charge card 
account.\691\ Under existing Sec.  1026.60, card issuers generally are 
required to provide the following disclosures, among other cost 
disclosures, on or with the applications or solicitations for credit 
cards: (1) The APRs applicable to the account for purchases, cash 
advances, and balance transfers; (2) any annual or other periodic fee, 
expressed as an annualized amount, that is imposed for the issuance or 
availability of a credit card, including any fee based on account 
activity or inactivity; (3) any non-periodic fees related to opening 
the account, such as one-time membership or participation fees; (4) any 
minimum or fixed finance charge that could be imposed during a billing 
cycle; (5) any transaction charge imposed on purchases, cash advances, 
or balance transfers; (6) any late payment fees, over the limit fees, 
or returned payment fees; (7) whether a grace period on purchases 
applies; (8) the name of the balance computation method used to 
determine the balance for purchases; (9) any fees for required 
insurance, debt cancellation, or debt suspension coverage; (10) if the 
fees imposed at account opening are 15 percent or more of the minimum 
credit limit for the card, disclosures about the available credit that 
will remain after those fees are imposed; and (11) a reference to the 
Bureau's Web site where consumers may obtain information about shopping 
for and using credit cards.
---------------------------------------------------------------------------

    \691\ 15 U.S.C. 1637(c).
---------------------------------------------------------------------------

    Under existing Sec.  1026.60(b), charge card issuers generally are 
required to provide the above disclosure on or with the applications or 
solicitations for charge cards, except that a charge card issuer is not 
required to disclose: (1) The APRs applicable to the account for 
purchases, cash advances, and balance transfers; (2) any minimum or 
fixed finance charge that could be imposed during a billing cycle; (3) 
whether a grace period on purchases applies; (4) the name of the 
balance computation method used to determine the balance for purchases; 
(5) any fees for required insurance, debt cancellation, or debt 
suspension coverage; and (6) if the fees imposed at account opening are 
15 percent or more of the minimum credit limit for the card, 
disclosures about the available credit that will remain after those 
fees are imposed.
    The Bureau did not propose any changes to existing Sec.  1026.60(b) 
or its related commentary. One consumer group commenter indicated that 
with respect to credit card accounts that will be accessed by a prepaid 
card that is a charge card, the Bureau should require disclosure of the 
following items in the table required to be provided on or with 
applications or solicitations: (1) Any minimum or fixed finance charge 
that could be imposed during a billing cycle; (2) any fees for required 
insurance, debt cancellation, or debt suspension coverage; and (3) if 
the fees imposed at account opening are 15 percent or more of the 
minimum credit limit for the card, disclosures about the available 
credit that will remain after those fees are imposed. This commenter 
believed that unlike traditional charge cards, prepaid cards that are 
charge cards have a significant possibility of imposing fixed finance 
charges; offering credit insurance, debt cancellation, or debt 
suspension; or having fees in excess of the 15 percent threshold for 
the credit availability disclosure.
    As discussed in more detail below, the Bureau is revising existing 
Sec.  1026.60(b) to provide that with respect to a covered separate 
credit feature that is a charge card account accessible by a hybrid 
prepaid-credit card as defined in new Sec.  1026.61, a charge card 
issuer must provide the above three disclosures.
    In addition, as discussed in more detail below, new comment 60(b)-3 
provides guidance on the application of the disclosure requirements in 
existing Sec.  1026.60(b) to fees or charges imposed on a covered 
separate credit feature or an asset feature that are both accessible by 
a hybrid prepaid-credit card. The final rule also adds new comment 
60(b)-4 to provide that the disclosures in final Sec.  1026.60(b) do 
not apply to fees or charges imposed on the asset feature of the 
prepaid account with respect to covered separate credit features 
accessible by hybrid prepaid-credit cards when the fees or charges are 
not ``charges imposed as part of the plan'' under new Sec.  
1026.6(b)(3)(iii)(D) with respect to the covered separate credit 
feature. New comment 60(b)-4 also provides that the disclosures in 
final Sec.  1026.60(b) do not apply to fees or charges imposed on the 
asset feature of a prepaid account with respect to a non-covered 
separate credit feature. The Bureau believes this additional guidance 
in new comments 60(b)-3 and -4 is needed given the changes in the final 
rule to the definition of ``finance charge'' in final Sec.  1026.4, the 
definition of ``charges imposed as part of the plan''

[[Page 84235]]

in final Sec.  1026.6(b)(3), and the addition of new Sec.  1026.61.
Covered Separate Credit Features Accessible by Hybrid Prepaid-Credit 
Cards That Are Charge Cards
    As discussed above, one consumer group commenter indicated that 
with respect to a credit card account that will be accessed by a 
prepaid card that is a charge card, the Bureau should require 
disclosure of the following items in the table required to be provided 
on or with applications or solicitations: (1) Any minimum or fixed 
finance charge that could be imposed during a billing cycle; (2) any 
fees for required insurance, debt cancellation, or debt suspension 
coverage; and (3) if the fees imposed at account opening are 15 percent 
or more of the minimum credit limit for the card, disclosures about the 
available credit that will remain after those fees are imposed. This 
commenter believed that unlike traditional charge cards, prepaid cards 
that are charge cards have a significant possibility of imposing fixed 
finance charges; offering credit insurance, debt cancellation, or debt 
suspension; or having fees in excess of the 15 percent threshold for 
the credit availability disclosure.
    In response to the comment, the Bureau is revising existing Sec.  
1026.60(b) to provide that with respect to a covered separate credit 
feature that is a charge card account accessible by a hybrid prepaid-
credit card as defined in new Sec.  1026.61, a charge card issuer also 
must provide the above three disclosures. As discussed in more detail 
in the section-by-section analysis of Sec.  1026.61(a)(2) below, a 
covered separate credit feature accessible by a hybrid prepaid-credit 
card includes an overdraft credit feature offered by a prepaid account 
issuer, its affiliate, or its business partner that can be accessed by 
a prepaid card (except as provided in Sec.  1026.61(a)(4)). The prepaid 
card is a hybrid prepaid-credit card under Sec.  1026.61 and a credit 
card under Sec.  1026.2(a)(15)(i) with respect to the covered separate 
credit feature.
    TILA section 127(c)(5) states that the Bureau may, by regulation, 
require the disclosure of information in addition to that otherwise 
required by 127(c), and modify any disclosure of information required 
by 127(c), in any application or solicitation to open a charge card 
account for any person, if the Bureau determines that such action is 
necessary to carry out the purposes of, or prevent evasions of, any 
paragraph of this subsection. The Bureau believes that use of its 
authority under TILA section 105(a) and 127(c)(5) to amend Sec.  
1026.60(b) to require such charge card issuers to provide these three 
disclosures is necessary and proper to effectuate the purposes of TILA 
to help ensure the informed use of covered separate credit features 
accessible by hybrid prepaid-credit cards that are charge cards. 
Specifically, TILA section 102 provides that one of the main purposes 
of TILA is to promote the informed use of credit by ensuring meaningful 
disclosure of credit terms so that consumers will be able to compare 
more readily the various credit terms available and avoid the 
uninformed use of credit.\692\ In addition, the Bureau believes that 
requiring these three disclosures for covered separate credit features 
accessible by hybrid prepaid-credit cards that are charge cards will, 
consistent with Dodd-Frank Act section 1032(a), ensure that the terms 
of these charge card accounts are fully, accurately, and effectively 
disclosed to consumers in a manner that permits consumers to understand 
the costs, benefits, and risks associated with the charge card account.
---------------------------------------------------------------------------

    \692\ 15 U.S.C. 1601.
---------------------------------------------------------------------------

    The Bureau believes that these disclosures may be more helpful for 
covered separate credit features accessible by hybrid prepaid-credit 
cards that are charge cards than they would be for traditional charge 
card accounts. Traditional charge card accounts typically require 
charge cardholders to repay the charge card balance in full each month. 
Thus, the required credit insurance, debt cancellation, or debt 
suspension disclosures typically would not apply to these accounts 
because the cardholders are not allowed to revolve charge card 
balances. In addition, traditional charge card accounts are generally 
targeted to more creditworthy individuals. Thus, these charge cards 
typically have a higher credit limit and typically do not charge fees 
for credit availability that exceed 15 percent of the initial credit 
line. Traditional charge card issuers also typically do not impose 
fixed finance charges.
    Nonetheless, the Bureau believes that covered separate credit 
features accessible by hybrid prepaid-credit cards that are charge 
cards may more likely be targeted to consumers with lower credit scores 
than credit card users overall and the card issuer may not require that 
charge card balances be repaid in full each month. Thus, in these 
cases, charge card issuers may be more likely to charge fixed finance 
charges; require credit insurance, debt cancellation, or debt 
suspension products; or charge fees for credit availability that might 
exceed the 15 percent threshold. Thus, the Bureau believes that it is 
appropriate to apply these disclosures when a covered separate credit 
feature accessible by a hybrid prepaid-credit card that is a charge 
card is opened.
Fee Imposed on the Asset Feature of the Prepaid Account
    Covered separate credit features accessible by hybrid prepaid-
credit cards. As discussed in more detail in the section-by-section 
analysis of Sec.  1026.61(a)(2) below, a covered separate credit 
feature accessible by a hybrid prepaid-credit card includes an 
overdraft credit feature offered by a prepaid account issuer, its 
affiliate, or its business partner that can be accessed by a prepaid 
card (except as provided in new Sec.  1026.61(a)(4)). The prepaid card 
is a hybrid prepaid-credit card under new Sec.  1026.61 and a credit 
card under final Sec.  1026.2(a)(15)(i) with respect to the covered 
separate credit feature.
    New Sec.  1026.61(b) generally requires that such credit features 
be structured as separate subaccounts or accounts, distinct from the 
prepaid asset account, to facilitate transparency and compliance with 
various Regulation Z requirements. Nonetheless, the final rule 
characterizes certain fees or charges that are imposed on the asset 
feature of the prepaid account as finance charges in connection with a 
covered separate credit feature where both the asset feature and the 
credit feature are accessible by a hybrid prepaid-credit card. As 
discussed in more detail in the section-by-section analysis of Sec.  
1026.4(b)(11)(ii) above, new Sec.  1026.4(b)(11)(ii) provides that with 
regard to a covered separate credit feature and an asset feature on a 
prepaid account that are both accessible by a hybrid prepaid-credit 
card as defined in new Sec.  1026.61, fees or charges imposed on the 
asset feature of the prepaid account generally are finance charges only 
to the extent that the amount of the fee or charge exceeds comparable 
fees or charges imposed on prepaid accounts in the same prepaid account 
program that do not have a covered separate credit feature accessible 
by a hybrid prepaid-credit card. As discussed in more detail in the 
section-by-section analysis of Sec.  1026.6 above, the final rule also 
clarifies that with regard to a covered separate credit feature and an 
asset feature on a prepaid account that are both accessible by a hybrid 
prepaid-credit card as defined in new Sec.  1026.61, fees or charges 
imposed on the asset feature that are not finance charges also are not 
``charges imposed as part of the plan'' with respect to the covered 
separate credit feature.

[[Page 84236]]

    Given this guidance in the final rule related to fees or charges 
imposed on the asset feature of the prepaid account in connection with 
a covered separate credit feature accessible by a hybrid prepaid-credit 
card, new comment 60(b)-3 provides that with regard to a covered 
separate credit feature and an asset feature on a prepaid account that 
are both accessible by a hybrid prepaid-credit card as defined in Sec.  
1026.61, a card issuer is required to disclose under final Sec.  
1026.60(b) any fees or charges imposed on the asset feature of the 
prepaid account that are charges imposed as part of the plan under 
final Sec.  1026.6(b)(3) to the extent those fees or charges fall 
within the categories of fees or charges required to be disclosed under 
final Sec.  1026.60(b). For example, assume that a card issuer imposes 
a $1.25 per transaction fee on the asset feature of a prepaid account 
for purchases when a hybrid prepaid-credit card accesses a separate 
credit feature in the course of authorizing, settling, or otherwise 
completing purchase transactions conducted with the card, and the card 
issuer charges $0.50 per transaction for purchases to access funds in 
prepaid accounts in the same program without such a credit feature. In 
this case, the $0.75 excess is a charge imposed as part of the plan 
under final Sec.  1026.6(b)(3) and must be disclosed under final Sec.  
1026.60(b)(4).
    To facilitate compliance with the disclosure requirements in Sec.  
1026.60, new comment 60(b)-4 provides that a card issuer is not 
required under final Sec.  1026.60(b) to disclose any fee or charge 
imposed on the asset feature of the prepaid account that is not a 
charge imposed as part of the plan under new Sec.  1026.6(b)(3)(iii)(D) 
with respect to the covered separate credit feature. As discussed in 
more detail in the section-by-section analysis of Sec.  1026.6 above, 
under new Sec.  1026.6(b)(3)(iii)(D) and new comment 6(b)(3)(iii)(D)-1, 
a fee or charge imposed on the asset feature of the prepaid account is 
not a ``charge imposed as part of the plan'' to the extent that the 
amount of the fee or charge does not exceed comparable fees or charges 
imposed on prepaid accounts in the same prepaid account program that do 
not have a credit feature accessible by a hybrid prepaid-credit card. 
As described in the section-by-section analysis of Sec.  
1026.4(b)(11)(ii) above, these fees or charges imposed on the asset 
feature of the prepaid account are not finance charges under new Sec.  
1026.4(b)(11)(ii). The Bureau believes that the guidance in new comment 
60(b)-3 aids compliance with final Sec.  1026.60 by providing 
additional clarity to card issuers on how the disclosure requirements 
in final Sec.  1026.60(b) apply to fees or charges imposed on the asset 
feature of the prepaid account accessible by a hybrid prepaid-credit 
card. As discussed in more detail in the section-by-section analyses of 
Sec. Sec.  1026.4 and 1026.6 above, the Bureau believes that fees or 
charges imposed on the asset feature of a prepaid account that are not 
finance charges (and thus, not charges imposed as part of the plan 
under new Sec.  1026.6(b)(3)(iii)(D)) with respect to the covered 
separate credit feature are more appropriately regulated under 
Regulation E, rather than regulated under Regulation Z, with respect to 
the covered separate credit feature.
    Non-covered separate credit features. As discussed in more detail 
in the section-by-section analysis of Sec.  1026.61(a)(2) below, new 
Sec.  1026.61(a)(2)(ii) provides that a prepaid card is not a hybrid 
prepaid-credit card with respect to a ``non-covered separate credit 
feature,'' which means that the separate credit feature either (1) 
cannot be accessed in the course of a prepaid card transaction to 
obtain goods or services, obtain cash, or conduct P2P transfers; or (2) 
is offered by an unrelated third party that is not the prepaid account 
issuer, its affiliate, or its business partner. A non-covered separate 
credit feature is not subject to the rules applicable to hybrid 
prepaid-credit cards; however, it typically will be subject to 
Regulation Z depending on its own terms and conditions, independent of 
the connection to the prepaid account. Thus, a non-covered separate 
credit feature may be subject to the disclosure requirements in Sec.  
1026.60 in its own right.
    With respect to non-covered separate credit features that are 
subject to Sec.  1026.60, new comment 60(b)-4 provides that the 
disclosure requirements in final Sec.  1026.60 do not apply to any fee 
or charge imposed on the asset feature of the prepaid account that is 
not a charge imposed as part of the plan under new Sec.  
1026.6(b)(3)(iii)(E) with respect to the non-covered separate credit 
feature. Under new Sec.  1026.6(b)(3)(iii)(E) and new comment 
60(b)(3)(iii)(E)-1, with respect to a non-covered separate credit 
feature as defined in new Sec.  1026.61, none of the fees or charges 
imposed on the asset feature of the prepaid account are ``charges 
imposed as part of the plan'' under final Sec.  1026.6(b)(3) with 
respect to the non-covered separate credit feature. New comment 
6(b)(3)(iii)(E)-1 also cross-references comment 4(b)(11)-1.ii.B which 
provides that none of the fees or charges imposed on the asset feature 
of the prepaid account are finance charges under final Sec.  1026.4 
with respect to the non-covered separate credit feature. Thus, a card 
issuer of a non-covered separate credit feature would not be required 
to disclose any fees or charges imposed on the asset feature of the 
prepaid account under final Sec.  1026.60(b) with respect to the non-
covered separate credit feature. As discussed in more detail in the 
section-by-section analyses of Sec. Sec.  1026.4 and 1026.6 above, the 
Bureau believes that fees or charges imposed on the asset feature of a 
prepaid account are more appropriately regulated under Regulation E, 
rather than regulated under Regulation Z, with respect to the non-
covered separate credit feature.
60(b)(4) Transaction Charges
    Existing Sec.  1026.60(b)(4), which implements TILA section 
127(c)(1)(A)(ii)(III), generally requires that card issuers disclose on 
or with solicitations or applications to open credit or charge card 
accounts any transaction charge imposed on purchases.\693\ The proposal 
would have added proposed comment 60(b)(4)-3 to provide guidance on 
when fees would be considered transaction fees for purchases under 
existing Sec.  1026.60(b)(4) for prepaid cards that are credit cards. 
Specifically, proposed comment 60(b)(4)-3 would have provided that if a 
card issuer assesses a fee (other than a periodic rate that may be used 
to compute the finance charge on an outstanding balance) for credit 
accessed by a credit card that is a prepaid card to make a purchase, 
that fee is a transaction charge as described in existing Sec.  
1026.60(b)(4). Proposed comment 60(b)(4)-3 also would have provided 
that such fees must be disclosed as transaction charges under existing 
Sec.  1026.6(b)(4) whether the fee is a flat per transaction fee to 
make a purchase, a flat fee for each day (or other period) the consumer 
has an outstanding balance of purchase transactions, or a one-time fee 
for transferring funds from the consumer's credit account to the 
consumer's prepaid account to cover the shortfall in the prepaid 
account as a result of a purchase with the prepaid card.
---------------------------------------------------------------------------

    \693\ 15 U.S.C. 1637(c)(1)(A)(ii)(III).
---------------------------------------------------------------------------

    The Bureau did not receive specific comments on this aspect of the 
proposal. The Bureau is adopting proposed comment 60(b)(4)-3 with 
revisions to be consistent with Sec. Sec.  1026.8 and 1026.61. New 
comment 60(b)(4)-3.i provides that with respect to a covered separate 
credit feature accessible by a hybrid prepaid-credit card as defined by

[[Page 84237]]

new Sec.  1026.61, if a card issuer assesses a fee (other than a 
periodic rate that may be used to compute the finance charge on an 
outstanding balance) to make a purchase where this fee is imposed as 
part of the plan as described in final Sec.  1026.6(b)(3), that fee is 
a transaction charge described in final Sec.  1026.60(b)(4). This is 
true whether the fee is a per transaction fee to make a purchase or a 
flat fee for each day (or other period) the consumer has an outstanding 
balance of purchase transactions. As discussed in more detail in the 
section-by-section analysis of Sec.  1026.61(a)(2) below, a covered 
separate credit feature accessible by a hybrid prepaid-credit card 
includes an overdraft credit feature offered by a prepaid account 
issuer, its affiliate, or its business partner that can be accessed by 
a prepaid card (except as provided in new Sec.  1026.61(a)(4)). The 
prepaid card is a hybrid prepaid-credit card under new Sec.  1026.61 
and a credit card under final Sec.  1026.2(a)(15)(i) with respect to 
the covered separate credit feature.
    With respect to a covered separate credit feature accessible by a 
hybrid prepaid-credit card, new comment 60(b)(4)-3.ii provides guidance 
on whether a fee must be disclosed as a fee for a purchase transaction 
under final Sec.  1026.60(b)(4) or a cash advance transaction under 
final Sec.  1026.60(b)(8). New comment 60(b)(4)-3.ii provides that a 
fee for a transaction will be treated as a fee to make a purchase under 
final Sec.  1026.60(b)(4) in cases where a consumer uses a hybrid 
prepaid-credit card as defined in new Sec.  1026.61 to make a purchase 
to obtain goods or services from a merchant, and credit is drawn 
directly from a covered separate credit feature accessed by the hybrid 
prepaid-credit card without transferring funds into the asset feature 
of the prepaid account to cover the amount of the purchase. For 
example, assume that the consumer has $10 of funds in the asset feature 
of the prepaid account and initiates a transaction with a merchant to 
obtain goods or services with the hybrid prepaid-credit card for $25. 
In this case, $10 is debited from the asset feature and $15 of credit 
is drawn directly from the covered separate credit feature accessed by 
the hybrid prepaid-credit card without any transfer of funds into the 
asset feature of the prepaid account to cover the amount of the 
purchase. A per transaction fee imposed for the $15 credit transaction 
must be disclosed under final Sec.  1026.60(b)(4).
    As discussed in the section-by-section analysis of Sec.  1026.8(a) 
above, this guidance in new comment 60(b)(4)-3.ii is consistent with 
guidance for disclosing those credit transactions as ``sale credit'' on 
Regulation Z periodic statements under final Sec. Sec.  1026.7(b)(2) 
and 1026.8(a) with respect to covered separate credit features 
accessible by hybrid prepaid-credit cards.
    In contrast, new comment 60(b)(4)-3.iii provides that a fee for a 
transaction will be treated as a cash advance fee under final Sec.  
1026.60(b)(8) in cases where a consumer uses a hybrid prepaid-credit 
card as defined in new Sec.  1026.61 to make a purchase to obtain goods 
or services from a merchant, and credit is transferred from a covered 
separate credit feature accessed by the hybrid prepaid-credit card into 
the asset feature of the prepaid account to cover the amount of the 
purchase. For example, assume the same facts as above, except that the 
$15 will be transferred from the covered separate credit feature to the 
asset feature, and a transaction of $25 is debited from the asset 
feature of the prepaid account. In this case, a per transaction fee for 
the $15 credit transaction must be disclosed under final Sec.  
1026.60(b)(8).
    As discussed in the section-by-section analysis of Sec.  1026.8(a) 
above, this guidance in new comment 60(b)(4)-3.iii is consistent with 
guidance for disclosing those credit transactions as ``nonsale credit'' 
on Regulation Z periodic statements under final Sec. Sec.  1026.7(b)(2) 
and 1026.8(b) with respect to covered separate credit features 
accessible by hybrid prepaid-credit cards.
60(b)(8) Cash Advance Fee
    Existing Sec.  1026.60(b)(8), which implements TILA section 
127(c)(1)(B)(i), generally requires that card issuers disclose on or 
with solicitations or applications to open credit or charge card 
accounts any fee imposed for an extension of credit in the form of cash 
or its equivalent.\694\
---------------------------------------------------------------------------

    \694\ 15 U.S.C. 1637(c)(1)(B)(i).
---------------------------------------------------------------------------

    The proposal would have added proposed comment 60(b)(8)-4 to 
provide guidance on when fees would be considered cash advance fees 
that must be disclosed under existing Sec.  1026.60(b)(8) for credit 
card accounts that are accessed by prepaid cards. In addition, proposed 
comment 60(b)(8)-4 would provide guidance on how cash advance fees must 
be disclosed. Specifically, proposed comment 60(b)(8)-4 would have 
provided that if a card issuer assesses a fee (other than a periodic 
rate that may be used to compute the finance charge on an outstanding 
balance) for a cash advance accessed by a credit card that is a prepaid 
card, such as a cash withdrawal at an ATM, that fee is a cash advance 
fee. Under proposed comment 60(b)(8)-4, if the cash advance fee is the 
same dollar amount as the transaction charge for purchases described in 
existing Sec.  1026.60(b)(4), the card issuer could have disclosed the 
fee amount under a heading that indicates the fee applies to both 
purchase transactions and cash advances. Proposed comment 60(b)(8)-4 
would have provided the following three examples of how cash advance 
fees must be disclosed.
    Under proposed comment 60(b)(8)-4.i, the first example would have 
provided that a card issuer assesses a $15 fee for credit accessed by a 
credit card that is a prepaid card to purchase goods or services at the 
point of sale when the consumer has insufficient or unavailable funds 
in the prepaid account. Under this proposed example, the card issuer 
assesses a $25 fee for credit accessed by a prepaid card for a cash 
advance at an ATM when the consumer has insufficient or unavailable 
funds in the prepaid account. In this instance, under the proposal, the 
card issuer could have disclosed separately a purchase transaction 
charge of $15 and a cash advance fee of $25.
    Under proposed comment 60(b)(8)-4.ii, the second example would have 
provided that a card issuer assesses a $15 fee for credit accessed by a 
credit card that is a prepaid card to purchase goods or services at the 
point of sale when the consumer has insufficient or unavailable funds 
in the prepaid account. Under this proposed example, the card issuer 
also assesses a $15 fee for credit accessed by a credit card that is a 
prepaid card for providing cash at an ATM when the consumer has 
insufficient or unavailable funds in the prepaid account. In this 
instance, under the proposal, the card issuer could have disclosed the 
$15 fee under a heading that indicates the fee applies to both purchase 
transactions and ATM cash advances. Alternatively, under the proposal, 
the card issuer could have disclosed the $15 fee on two separate rows, 
with one row indicating that a $15 fee applies to purchase 
transactions, and a second row indicating that a $15 fee applies to ATM 
cash advances.
    Under proposed comment 60(b)(8)-4.iii, the third example would have 
provided that a card issuer assesses a $15 fee for credit accessed by a 
credit card that is a prepaid card for providing cash at an ATM when 
the consumer has insufficient or unavailable funds in the prepaid 
account. The card issuer also assesses a fee of $1.50 for out-of-
network ATM cash withdrawals and $1.00 fee for in-network ATM cash 
withdrawals. The card issuer must

[[Page 84238]]

disclose the cash advance fee as $16.50 for out-of-network ATM cash 
withdrawals, indicating that $1.50 is for the out-of-network ATM 
withdrawal fee, such as ``$16.50 (including a $1.50 out-of-network ATM 
withdrawal fee).'' The card issuer also could have disclosed the cash 
advance fee as $16.00 for in-network ATM cash withdrawals, indicating 
that $1.00 is for the in-network ATM withdrawal fee, such as ``$16 
(including a $1.00 in-network ATM cash withdrawal fee).''
    The Bureau did not receive specific comments on this aspect of the 
proposal. The Bureau is adopting proposed comment 60(b)(8)-4 as 
proposed with technical revisions to clarify the intent of the comment 
and to be consistent with final Sec.  1026.8 and new Sec.  
1026.61.\695\ New comment 60(b)(8)-4.i provides that with respect to a 
covered separate credit feature accessible by a hybrid prepaid-credit 
card as defined by new Sec.  1026.61, if a card issuer assesses a fee 
(other than a periodic rate that may be used to compute the finance 
charge on an outstanding balance) for a cash advance, such as a cash 
withdrawal at an ATM, where this fee is imposed as part of the plan as 
described in Sec.  1026.6(b)(3), that fee is a cash advance fee. As 
discussed in more detail in the section-by-section analysis of Sec.  
1026.61(a)(2) below, a covered separate credit feature accessible by a 
hybrid prepaid-credit card includes an overdraft credit feature offered 
by a prepaid account issuer, its affiliate, or its business partner 
that can be accessed by a prepaid card (except as provided in new Sec.  
1026.61(a)(4)). The prepaid card is a hybrid prepaid-credit card under 
new Sec.  1026.61 and a credit card under final Sec.  1026.2(a)(15)(i) 
with respect to the covered separate credit feature.
---------------------------------------------------------------------------

    \695\ The proposal would have provided that the term ``credit 
card'' includes an account number that is not a prepaid card that 
may be used from time to time to access a credit plan that allows 
deposits directly only into particular prepaid accounts specified by 
the creditor. Proposed comment 60(b)(8)-5 would have provided 
guidance on when fees will be considered cash advance fees under 
Sec.  1026.60(b)(8) with respect to credit card accounts accessed by 
such accounts numbers. For the reasons set forth in the section-by-
section analysis of Sec.  1026.2(a)(15)(i) above, the final rule 
does not adopt proposed comment 60(b)(8)-5 related to these account 
numbers.
---------------------------------------------------------------------------

    For the reasons discussed in the section-by-section analyses of 
Sec. Sec.  1026.8 and 1026.60(a)(4), new comment 60(b)(8)-4.i also 
provides that a fee for a transaction will be treated as a cash advance 
fee under final Sec.  1026.60(b)(8) in cases where a consumer uses a 
hybrid prepaid-credit card as defined in new Sec.  1026.61 to make a 
purchase to obtain goods or services from a merchant, and credit is 
transferred from a covered separate credit feature accessed by the 
hybrid prepaid-credit card into the asset feature of the prepaid 
account to cover the amount of the purchase. See also new comment 
60(b)(4)-3.iii. As discussed in the section-by-section analysis of 
Sec.  1026.8(a) above, this guidance in new comment 60(b)(8)-4.i is 
consistent with guidance for disclosing those credit transactions as 
``nonsale credit'' on Regulation Z periodic statements under final 
Sec. Sec.  1026.7(b)(2) and 1026.8(b) with respect to covered separate 
credit features accessible by hybrid prepaid-credit cards.
    New comment 60(b)(8)-4.ii also provides that if the cash advance 
fee is the same dollar amount as the transaction charge for purchases 
described in final Sec.  1026.60(b)(4), the card issuer may disclose 
the fee amount under a heading that indicates the fee applies to both 
purchase transactions and cash advances. Consistent with proposed 
comment 60(a)(8)-4, new comment 60(a)(8)-4.ii provides examples of how 
fees for purchase transactions described in final Sec.  1026.60(b)(4) 
and fees for cash advances described in final Sec.  1026.60(b)(8) that 
are charged on the covered separate credit feature must be disclosed.
Section 1026.61 Hybrid Prepaid-Credit Cards
    The Bureau is adding new Sec.  1026.61 which defines when a prepaid 
card is a credit card under Regulation Z (using the term ``hybrid 
prepaid-credit card''). As discussed in the Overview of the Final 
Rule's Amendments to Regulation Z section above and in more detail 
below, the Bureau generally intends to cover under Regulation Z 
overdraft credit features in connection with prepaid accounts where the 
credit features are offered by the prepaid account issuer, its 
affiliates, or its business partners. Section 1026.61(b) generally 
requires that such credit features be structured as separate 
subaccounts or accounts, distinct from the prepaid asset account, to 
facilitate transparency and compliance with various Regulation Z 
requirements. New Sec.  1026.61(a)(2)(i) provides that a prepaid card 
is a ``hybrid prepaid-credit card'' with respect to a separate credit 
feature if the card meets the following two conditions: (1) The card 
can be used from time to time to access credit from the separate credit 
feature in the course of authorizing, settling, or otherwise completing 
transactions conducted with the card to obtain goods or services, 
obtain cash, or conduct P2P transfers; and (2) the separate credit 
feature is offered by the prepaid account issuer, its affiliate, or its 
business partner. New Sec.  1026.61(a)(2)(i) defines such a separate 
credit feature accessible by a hybrid prepaid-credit card as a 
``covered separate credit feature.'' Thus, the hybrid prepaid-credit 
card can access both the covered separate credit feature and the asset 
feature of the prepaid account, and the hybrid prepaid-credit card is a 
credit card under Regulation Z with respect to the covered separate 
credit feature.
    New Sec.  1026.61(c) (moved from Sec.  1026.12(h) in the proposal) 
provides that with respect to a covered separate credit feature that 
could be accessible by a hybrid prepaid-credit card at any point, a 
card issuer must not do any of the following until 30 days after the 
prepaid account has been registered: (1) Open a covered separate credit 
feature accessible by the hybrid prepaid-credit card; (2) make a 
solicitation or provide an application to open a covered separate 
credit feature accessible by the hybrid prepaid-credit card; or (3) 
allow an existing credit feature that was opened prior to the consumer 
obtaining the prepaid account to become a covered separate credit 
feature accessible by the hybrid prepaid-credit card.
    As discussed in the section-by-section analysis of Sec.  1026.61 
below, the Bureau also has decided to exclude prepaid cards from being 
covered as credit cards under Regulation Z when they access certain 
specified types of credit. First, new Sec.  1026.61(a)(2)(ii) provides 
that a prepaid card is not a hybrid prepaid-credit card with respect to 
a separate credit feature that does not meet both of the conditions 
above, for example, where the credit feature is offered by an unrelated 
third party that is not the prepaid account issuer, its affiliate or 
its business partner. Such credit features are defined as ``non-covered 
separate credit features,'' as discussed in the section-by-section 
analysis of Sec.  1026.61(a)(2) below. Second, under new Sec.  
1026.61(a)(4), a prepaid card also is not a hybrid prepaid-credit card 
when the prepaid card accesses incidental credit in the form of a 
negative balance on the asset account where the prepaid account issuer 
generally does not charge credit-related fees for the credit. A prepaid 
card is not a hybrid prepaid-credit card under new Sec.  1026.61 or a 
credit card under final Sec.  1026.2(a)(15)(i) when it accesses credit 
from these types of credit features. For more detailed explanations of 
when prepaid cards are not credit cards under Regulation Z, see

[[Page 84239]]

the section-by-section analyses of Sec.  1026.61(a)(2) and (4) below.
    New comment 61(a)-1 explains that in addition to the rules set 
forth in new Sec.  1026.61, hybrid prepaid-credit cards and covered 
separate credit features accessible by hybrid prepaid-credit cards are 
also subject to other rules in Regulation Z, and some of those rules 
and related commentary contain specific guidance related to hybrid 
prepaid-credit cards and covered separate credit features accessible by 
hybrid prepaid-credit cards. For example, as discussed in the section-
by-section analyses of Sec. Sec.  1026.2(a)(15)(i) and 1026.61(a), a 
hybrid prepaid-credit card is a credit card for purposes of this 
regulation with respect to a covered separate credit feature. A covered 
separate credit feature accessible by a hybrid prepaid-credit card also 
will be a credit card account under an open-end (not home-secured) 
consumer credit plan, as defined in final Sec.  1026.2(a)(15)(ii), if 
the covered separate credit feature is an open-end (not home-secured) 
credit plan. Thus, the provisions of Regulation Z that apply to credit 
cards and credit card accounts under an open-end (not home-secured) 
consumer credit plan generally will apply to hybrid prepaid-credit 
cards and covered separate credit features accessible by hybrid 
prepaid-credit cards as applicable (see generally subparts B and G). 
Some of those rules and related commentary contain specific guidance 
with respect to hybrid prepaid-credit cards and covered separate credit 
features accessible by hybrid prepaid-credit cards. See the section-by-
section analyses of subparts A, B and G in this final rule.
61(a) Hybrid Prepaid-Credit Card
    TILA section 103(l) defines the term ``credit card'' to mean any 
card, plate, coupon book, or other credit device existing for the 
purpose of obtaining money, property, labor, or services on 
credit.\696\ Under Regulation Z, the term ``credit card'' is defined in 
existing Sec.  1026.2(a)(15)(i) to mean ``any card, plate, or other 
single credit device that may be used from time to time to obtain 
credit.''
---------------------------------------------------------------------------

    \696\ 15 U.S.C. 1602(l).
---------------------------------------------------------------------------

The Bureau's Proposal
    The proposal would have provided guidance on when the following 
devices related to prepaid accounts are ``credit cards'': (1) Prepaid 
cards, as defined in proposed Sec.  1026.2(a)(15)(v) to mean any card, 
code, or other device that can be used to access a ``prepaid account'' 
as defined in proposed Sec.  1026.2(a)(15)(vi) consistent with proposed 
Regulation E; and (2) account numbers that are not prepaid cards that 
may be used from time to time to access a credit plan that allows 
deposits directly only into particular prepaid accounts specified by 
the creditor but does not allow consumers to deposit directly 
extensions of credit from the plan into asset accounts other than 
particular prepaid accounts specified by the creditor, as defined in 
proposed Sec.  1026.2(a)(15)(vii).
    Prepaid cards. The proposal would have covered a broad range of 
credit plans as credit card accounts under Regulation Z when they were 
accessed by a prepaid card. First, under the proposal, credit plans, 
including overdraft services and overdraft lines of credit, directly 
accessed by prepaid cards generally would have been credit card 
accounts under Regulation Z. Under the proposal, this would have 
applied where credit is ``pulled'' by a prepaid card, such as when the 
consumer uses the prepaid card at point of sale to access an overdraft 
plan to fund a purchase. In particular, proposed comment 2(a)(15)-2.i.F 
would have provided that the term ``credit card'' generally includes a 
prepaid card that is a single device that may be used from time to time 
to access a credit plan.
    The proposal intended broadly to capture a prepaid card as a credit 
card when it directly accessed a credit plan, regardless of whether 
that credit plan was structured as a separate credit plan or as 
negative balance to the prepaid account. The Bureau recognized that 
under the proposal, credit would have included: (1) Transactions that 
are authorized where the consumer has insufficient or unavailable funds 
in the prepaid account at the time of authorization; and (2) 
transactions on a prepaid account where the consumer has insufficient 
or unavailable funds in the prepaid account at the time the transaction 
is paid. Such transactions would have been credit accessed by a prepaid 
card that is a credit card under the proposal regardless of whether the 
person established a separate credit account to extend the credit or 
whether the credit was simply reflected as a negative balance on the 
prepaid account.
    The proposal would not have applied the credit card rules in 
situations in which a prepaid card only assessed credit that is not 
subject to any finance charge, as defined in Sec.  1026.4, or fee 
described in Sec.  1026.4(c), and was not payable by written agreement 
in more than four installments. Specifically, the proposal provided 
that the prepaid card in such situations would not have been a credit 
card. As discussed in the section-by-section analysis of Sec.  1026.4 
above, the proposal also included revisions to the definition of 
``finance charge'' in Sec.  1026.4(a) and (b)(2) and their related 
commentary to delineate when a fee imposed in relation to credit 
accessed by a prepaid card that is a credit card would have been a 
finance charge under Sec.  1026.4. In general, the proposal would have 
treated any transaction charges imposed on a cardholder by a card 
issuer on a prepaid account in connection with credit accessed by a 
prepaid card as a finance charge, regardless of how the amount of the 
fees compared to fees the issuer charged on non-credit transactions or 
accounts that did not involve credit access. The Bureau recognized 
that, under the proposal, if a prepaid account issuer would have 
imposed a per transaction fee on a prepaid account for any transactions 
authorized or settled on the prepaid account, the prepaid account 
issuer would have needed to waive that per transaction fee imposed on 
the prepaid account when the transaction accessed credit in order to 
take advantage of the proposed exception for when a prepaid card would 
not be a credit card under the proposal.
    Account numbers that are not prepaid cards. As discussed in more 
detail in the section-by-section analysis of Sec.  1026.2(a)(15)(i) 
above, proposed Sec.  1026.2(a)(15)(vii) would have included within the 
definition of credit card ``an account number where extensions of 
credit are permitted to be deposited directly only into particular 
prepaid accounts specified by the creditor.'' As used in the proposal, 
this term would have meant an account number that was not a prepaid 
card that may be used from time to time to access a credit plan that 
allowed deposits directly into particular prepaid accounts specified by 
the creditor but did not allow the consumer to deposit directly 
extensions of credit from the plan into asset accounts other than 
particular prepaid accounts specified by the creditor. Proposed comment 
2(a)(15)-2.i.G would have provided that these account numbers were 
credit cards under the proposal.
    This proposal language would have covered credit plans that are not 
accessed directly by prepaid cards but instead are structured as 
``push'' accounts. Under such a credit plan, a person would provide 
credit accessed by an account number where such extensions of credit 
may only be deposited directly into particular prepaid accounts 
specified by the person and cannot be deposited directly

[[Page 84240]]

into another asset account, such as a deposit account. For example, 
such a credit plan may allow a consumer to use an account number to 
request that an extension of credit be deposited directly into a 
particular prepaid account specified by the creditor when the consumer 
does not have adequate funds in the prepaid account to cover the full 
amount of a transaction using the prepaid card. In the proposal, the 
Bureau expressed concern that these types of credit plans could act as 
substitutes for credit plans directly accessed by a prepaid card. The 
Bureau did not, however, propose to cover general purpose lines of 
credit where a consumer has the freedom to choose where to deposit 
directly the credit funds.
Comments Received on Prepaid Cards Accessing Credit From Separate 
Credit Features
    In response to the proposal, several commenters expressed concern 
about the way the proposal would have applied the credit card rules to 
credit products that were structured as standalone plans or products, 
rather than as negative balances on the prepaid account. An issuing 
credit union requested clarification that the proposal would have 
applied the credit card rules to situations in which a prepaid card 
could be used to initiate the load or transfer of credit to a prepaid 
account, but this load or transfer could not occur in course of 
processing transactions conducted with the card when there were 
insufficient funds in the prepaid account to cover the amount of the 
transaction. This commenter noted that consumers can consciously load 
value to their prepaid account using their debit card or credit card, 
where this load is not occurring as part of an overdraft feature in 
connection with the prepaid account. When using the debit card, the 
consumer may consciously load funds from an overdraft or line of credit 
product that is linked to a traditional checking account. When using a 
credit card, the consumer is loading credit from an available credit 
card balance to fund the prepaid account. This commenter urged the 
Bureau to clarify that such loads do not make the prepaid card into a 
credit card under Regulation Z.
    On the other hand, as discussed above, several consumer group 
commenters suggested that the credit card rules should apply to a 
credit account even if the credit account did not function as an 
overdraft credit feature with respect to a prepaid account, so long as 
credit from the credit account was deposited into the prepaid account. 
These commenters urged the Bureau to apply the credit card rules to all 
credit transferred to a prepaid account, even if there is another way 
to access the credit.
    Another consumer group commenter suggested that the Bureau should 
apply the credit card rules to all open-end lines of credit where 
credit is deposited or transferred to prepaid accounts if either (1) 
the creditor is the same institution as or has a business relationship 
with the prepaid issuer; or (2) the creditor reasonably anticipates 
that a prepaid card will be used as an access device for the line of 
credit. Nonetheless, this commenter said that the final rule should not 
impact a completely unrelated credit account that has no connection to 
prepaid issuers or consumers identified as prepaid card users, even 
though the creditor allows credit to be transferred from the credit 
account through the ACH system.
    Two industry trade associations said the Bureau should not consider 
a prepaid card to be a credit card with respect to a separate credit 
feature when the credit feature is offered by an unrelated third party 
rather than the prepaid account issuer or an associated company. These 
commenters indicated that such unrelated third-party creditors are not 
in a position to know that they have additional obligations under 
Regulation Z at the point in time that a prepaid account issuer or a 
consumer chooses to use a credit feature offered by the unrelated 
third-party creditor as a form of overdraft credit feature in relation 
to a prepaid account. Several other commenters, including an industry 
trade association, a program manager, and several issuing banks, 
requested clarification that a prepaid card would not be a credit card 
under the proposal where it accesses credit deposited into the prepaid 
account from a separate credit feature offered by an unrelated third-
party creditor. These commenters argued that prepaid account issuer may 
not know that the deposited funds are credit.
    On the other hand, several consumer groups supported the proposed 
rule's approach in considering a third party that offers an open-end 
credit feature accessed by a prepaid card to be an agent of the prepaid 
account issuer and thus a credit card issuer with responsibilities 
under Regulation Z. They believed the proposed rule would deter evasion 
by third-party creditors that allow their credit features to be used as 
an overdraft credit feature accessed by prepaid cards.
Comments Received on Prepaid Cards Accessing Credit Through a Negative 
Balance on the Asset Feature of a Prepaid Account
    The Bureau also received comments on the proposal regarding when a 
prepaid card is a credit card when it accesses credit extended through 
a negative balance on the asset feature of the prepaid account. As 
discussed above, the proposal would have provided that a prepaid card 
would not have been a credit card under existing Sec.  1026.2(a)(15)(i) 
if the prepaid card only accesses credit that is not subject to any 
finance charge, as defined in Sec.  1026.4, or fee described in Sec.  
1026.4(c), and is not payable by written agreement in more than four 
installments.
    Many industry commenters argued that the Bureau should not regulate 
overdraft credit features in connection with prepaid accounts under 
Regulation Z except where there is an agreement to extend credit, 
consistent with how overdraft credit is treated currently with respect 
to checking accounts. These commenters said that the Bureau should 
instead subject overdraft credit programs where there is not an 
agreement to the opt-in regime in Regulation E Sec.  1005.17, which 
currently applies to overdraft services provided for ATM and one-time 
debit card transactions. Several commenters, including industry trade 
associations, a credit union service organization, a credit reporting 
agency, and a program manager, also asserted that overdraft credit does 
not meet the definition of ``credit'' under TILA because with respect 
to overdraft credit, there is no right to defer payment and/or no right 
to incur debt. These comments are discussed in more detail in the 
Overview of the Final Rule's Amendments to Regulation Z section and in 
the section-by-section analysis of Sec.  1026.2(a)(14) above.
    In commenting on the specifics of the Regulation Z proposal, many 
industry commenters were concerned that because of the breadth of the 
fees that would be considered finance charges under the proposal, a 
prepaid account issuer either could not charge general transactional 
fees on the prepaid account or would have to waive certain fees on any 
transaction that happened to have involved credit, as defined under the 
proposal, in order to avoid triggering the credit card rules.
    For example, one payment network indicated that a prepaid card 
should not be a credit card when it accesses credit extended through a 
negative balance on the asset balance of the prepaid account if the 
only fees charged on the prepaid

[[Page 84241]]

account in connection with the extension of credit are the very same 
fees that would apply to the same transaction on the prepaid card 
without an extension of credit. Similarly, two industry trade 
associations urged that a prepaid card should be a credit card when it 
accesses credit extended through a negative balance on the asset 
balance of the prepaid account only if the prepaid account issuer 
charges fees directly correlated with the overdraft in question. These 
commenters argued that a prepaid card should not be a credit card when 
it accesses credit extended through a negative balance on the asset 
balance of the prepaid account if the prepaid account issuer only 
imposes on the prepaid account fees or charges that are wholly 
unrelated to an overdraft, such as a fee to make a balance inquiry at 
an ATM. These commenters also indicated that a prepaid card should not 
be a credit card when the prepaid account issuer only imposes unrelated 
fees or charges on the prepaid account, even when these unrelated fees 
or charges are imposed when the prepaid account balance is negative.
    Another industry trade association indicated that a monthly fee to 
hold the prepaid account should not be a ``finance charge'' simply 
because it may be imposed when the balance on the prepaid account is 
negative or because negative balances can occur on the prepaid account.
    A program manager indicated that the Bureau should clarify that a 
prepaid card is not a credit card simply because the prepaid account 
issuer charges reasonable debt collection costs (including attorney's 
fees) related to collecting the overdraft credit from a consumer.
    Many industry commenters were particularly concerned that under the 
proposal, a prepaid account issuer would need to waive per transaction 
fees in certain circumstances to avoid triggering the credit card 
rules. The circumstances raised by industry commenters centered on: (1) 
Force pay transactions; (2) payment cushions; and (3) transactions that 
take the account negative when a load of funds from an asset account is 
pending. These comments are discussed below and in further detail in 
the section-by-section analysis of Sec.  1026.61(a)(4).
    Force pay transactions. ``Force pay'' transactions occur where the 
prepaid account issuer is required by card network rules to pay a 
transaction even though there are insufficient or unavailable funds in 
the asset feature of the prepaid account to cover the transaction at 
settlement. This can occur, for example, where a transaction is either 
not authorized in advance, or where there were sufficient or available 
funds in the asset feature of the prepaid account at the time the 
transaction is authorized, but there are insufficient or unavailable 
funds in the asset feature at the time the transaction is settled, and 
a negative balance results on the asset feature when the transaction is 
paid. Because the proposal's definition of finance charge was broad, a 
force pay transaction would have triggered application of the credit 
card rules unless the prepaid account issuer would have waived 
transaction fees. Industry commenters were nearly universally concerned 
about this outcome, arguing that the credit card rules should not apply 
so long as the same fee amount applies regardless of whether the 
transaction is paid entirely from funds in the prepaid account or is 
paid in whole or in part by credit. Industry commenters said requiring 
prepaid account issuers to waive per transaction fees to avoid 
triggering the credit card rules on all force pay transactions would be 
complicated and thus would impose substantial compliance costs. These 
commenters indicated that similar issues also may arise with other per 
transaction fees, such as currency conversion fees when assessed on 
force pay transactions.
    One payment network predicted that if the proposal were finalized, 
rather than create complex waiver rules, a prepaid account issuer might 
instead impose much stricter authorization rules in order to prevent 
inadvertent overdrafts. This commenter indicated that this could make 
it more difficult for prepaid cardholders to use their cards at gas 
pumps, restaurants, hotels, or other locations where these overdrafts 
from force pay transactions are most likely to occur.
    One program manager also indicated that while issuers of other 
prepaid products could possibly avoid being subject to the credit rules 
by changing their fee structure (e.g., charging a monthly fee to hold 
the prepaid account instead of charging a per transaction fee), such an 
option is not available in the payroll card context because State wage 
and hour laws prohibit periodic fees on payroll card accounts.
    With respect to force pay transactions, one consumer group 
commenter supported requiring a prepaid account issuer to waive the per 
transaction fee imposed on a credit transaction where credit is 
extended through a negative balance on the asset feature of the prepaid 
account in order to avoid triggering the credit card rules under the 
proposal. Nonetheless, this commenter indicated that if the Bureau 
decides to make any exceptions with respect to force pay transactions, 
these exceptions should be limited to prepaid account issuers who do 
everything possible to prevent overdrafts, have overdrafts in only very 
rare and unpreventable situations, and do not charge penalty fees 
related to declined transactions, overdrafts, or negative balances.
    Another consumer group commenter similarly urged that if the Bureau 
decides to provide an exception for force pay transactions, the 
exception should only be allowed if the prepaid account issuer does not 
charge a fee to account holders who have a negative balance, and the 
exception should only be provided to those prepaid account issuers that 
take reasonable steps to minimize unpreventable overdrafts. In this 
case, the commenter said that the Bureau also should allow prepaid 
account issuers to recoup no more than 5 percent of funds deposited 
each month until all debts caused by unpreventable overdrafts are paid.
    Payment cushions. One program manager also raised a concern about 
its de minimis purchase cushion, whereby it will authorize transactions 
for some consumers that result in a negative account balance so long as 
the shortfall is less than $10. For prepaid accounts where a per 
transaction fee is imposed on the prepaid account on all transactions 
regardless of whether the transaction is paid entirely with funds from 
the prepaid account or is paid with credit, a prepaid card would have 
been a credit card under the proposal unless the prepaid account issuer 
waived its per transaction fees on transactions that trigger the 
purchase cushion. This commenter said that it may not continue to offer 
its de minimis purchase cushion if it were required to waive these per 
transaction fees.
    One consumer group commenter supported not triggering the credit 
card rules where a prepaid card can only access a de minimis amount of 
credit, using $10 as a safe harbor, if such credit is not promoted or 
disclosed.
    Transactions that take the account negative when a load of funds 
from an asset account is pending. One digital wallet provider raised 
concerns that a prepaid card could be subjected to the credit card 
rules under the proposal where credit could be extended through a 
negative balance on the asset feature of the prepaid account for 
transactions that occur after a consumer has requested a load 
transaction from another asset account to pay for the transaction but 
the load transaction has not yet settled. In this case, transactions on 
the prepaid account may take the account balance negative until the 
load

[[Page 84242]]

transaction from the asset account has settled. This can occur, for 
example, when a consumer authorizes a remittance through a mobile 
wallet which is linked to a checking account, the consumer requests 
that funds be taken from the consumer's checking account to pay for the 
remittance, and the remittance is sent before the incoming transfer of 
funds from the checking account is complete. In this case, the prepaid 
account issuer is extending credit through a negative balance on the 
asset feature of the prepaid account until the incoming transfer of 
funds from the checking account is complete.
    The commenter indicated that in all its multi-currency 
transactions, it charges a currency conversion fee for the transaction, 
including on transactions where credit is extended as described above. 
Nonetheless, this currency conversion fee for a credit transaction as 
described above is the same amount as the fee charged for transactions 
that are paid entirely with funds from the prepaid account. This 
commenter indicated that under the proposal, it would need to waive 
this currency conversion fee for transactions where credit is extended 
to prevent the prepaid card from becoming a credit card under the 
proposal, even though the currency conversion fee it charges for these 
transactions is the same amount as the current conversion fee it 
charges for transactions entirely paid from funds from the prepaid 
account. This commenter said that if a prepaid card would be a credit 
card in this scenario and it was required to waive these fees in order 
to avoid triggering the credit card rules, it would likely stop 
processing transactions that take the prepaid account negative (such as 
remittances discussed above) before the incoming transfer of funds from 
the checking account is complete.
Comments Received on Prepaid Cards That Access Credit When No Fees for 
Credit Are Imposed
    One consumer group commenter expressed concern that the proposal to 
exclude prepaid cards from the definition of credit card if the prepaid 
card only accesses credit that is not subject to a finance charge, as 
defined in Sec.  1026.4, or a fee described Sec.  1026.4(c) would lead 
to evasions. For example, this commenter was concerned that a prepaid 
issuer could offer a ``deluxe'' prepaid card that comes with $100 in 
``free'' overdraft protection, but the prepaid account issuer recovers 
the costs for the credit through other fees charged on the credit 
account that are not finance charges or fees described in Sec.  
1026.4(c), such as higher fees for ``voluntary'' credit insurance that 
is not a finance charge or fee described in Sec.  1026.4(c). This 
commenter urged the Bureau to cover all prepaid cards as credit cards 
when the prepaid card accesses credit, regardless of whether a finance 
charge or a fee described under Sec.  1026.4(c) is imposed for the 
credit. This commenter recognized, however, that exceptions for force 
pay transactions and payment cushions as discussed above may be 
necessary.
Comments Received on Account Numbers That Are Not Prepaid Cards
    As discussed in more detail in the section-by-section analysis of 
Sec.  1026.2(a)(15)(i) above, consumer group commenters indicated that 
the proposal with respect to push accounts was too limited. Several 
consumer group commenters suggested that the credit card rules should 
apply to a credit account even if the credit account did not function 
as an overdraft credit feature with respect to a prepaid account, so 
long as credit from the credit account was deposited into the prepaid 
account. These consumer group commenters indicated that the Bureau 
should apply the credit card rules to all credit transferred to a 
prepaid account, even if there is another way to access the credit.
    Another consumer group commenter indicated that the Bureau should 
apply the credit card rules to all open-end lines of credit where 
credit may be deposited or transferred to prepaid accounts if either 
(1) the creditor is the same institution as or has a business 
relationship with the prepaid issuer; or (2) the creditor reasonably 
anticipates that a prepaid card will be used as an access device for 
the line of credit. Nonetheless, this commenter said that the final 
rule should not impact a completely unrelated credit account that has 
no connection to prepaid issuers or consumers identified as prepaid 
card users, even though the creditor allows credit to be transferred 
from the credit account through the ACH system.
    One issuing bank and one law firm writing on behalf of a coalition 
of prepaid issuers did not support subjecting push accounts to credit 
card rules. One of these industry commenters indicated that attempting 
to cover push accounts as credit card accounts under the proposal 
created an overly complex regulatory regime to address the perceived 
risk of circumvention or evasion of the rules for overdraft plans set 
forth in the proposal.
    One industry trade association commenter indicated that for 
arrangements where the consumer has the choice of whether to use the 
line of credit to cover specified overdrafts or to use the line of 
credit funds for other purposes, this commenter believes it would be 
inappropriate to treat the line of credit (or its associated account 
number) as a credit card. This commenter believed that consumer choice 
makes it clear that the line of credit is a general use line of credit 
and not a substitute for an overdraft line of credit.
The Final Rule
    Based on the comments received as discussed above, the Bureau is 
making substantial changes from the proposal to narrow the 
circumstances in which a prepaid card is a credit card (i.e., hybrid 
prepaid-credit card) under Regulation Z. A summary of these changes are 
discussed below. A more detailed description of the changes in the 
final rule based on the above comments is contained in the section-by-
section analyses of Sec.  1026.61(a)(1), (2) and (4).
    Under the final rule, new Sec.  1026.61(a) sets forth when a 
prepaid card is a credit card under the regulation. New Sec.  
1026.61(a)(1)(i) provides that credit offered in connection with a 
prepaid account is subject to new Sec.  1026.61 and the regulation as 
specified in that section. New Sec.  1026.61(a)(1)(ii) provides 
generally that a prepaid card is a hybrid prepaid-credit card with 
respect to a separate credit feature, as described in new Sec.  
1026.61(a)(2)(i), or with respect to a credit feature structured as a 
negative balance on the asset feature of the prepaid account as 
described in new Sec.  1026.61(a)(3). New Sec.  1026.61(a)(1)(ii) also 
provides that a hybrid prepaid-credit card is a credit card for 
purposes of Regulation Z with respect to those respective credit 
features. New Sec.  1026.61(a)(1)(iii) specifies that a prepaid card is 
not a hybrid prepaid-credit card--and thus not a credit card for 
purposes of Regulation Z--if the only credit offered in connection with 
the prepaid account is incidental credit meeting the conditions set 
forth in new Sec.  1026.61(a)(4).
    Separate credit features. As discussed in more detail below in the 
section-by-section analysis of Sec.  1026.61(a)(2), under new Sec.  
1026.61(a)(2)(i), the term ``covered separate credit feature'' means a 
separate credit feature that is accessible by a hybrid prepaid-credit 
card. Under new Sec.  1026.61(a)(2)(i), a prepaid card is a ``hybrid 
prepaid-credit card'' with respect to a separate credit feature (and 
thus the separate credit feature is a covered separate credit feature) 
if the card meets the following two conditions: (1) The card can be 
used

[[Page 84243]]

from time to time to access credit from the credit feature in the 
course of authorizing, settling, or otherwise completing transactions 
conducted with the card to obtain goods or services, obtain cash, or 
conduct P2P transfers; and (2) the credit feature is offered by the 
prepaid account issuer, its affiliate, or its business partner. The 
hybrid prepaid-credit card can access both the covered credit feature 
and the asset feature of the prepaid account, and is a credit card 
under Regulation Z with respect to the covered separate credit feature.
    New Sec.  1026.61(a)(2)(i) also provides that a separate credit 
feature that meets the two conditions set forth above is a covered 
separate credit feature accessible by a hybrid prepaid-credit card even 
with respect to credit that is drawn or transferred, or authorized to 
be drawn or transferred, from the credit feature outside the course of 
a transaction conducted with the card to obtain goods or services, 
obtain cash, or conduct P2P transfers.
    New Sec.  1026.61(a)(2)(i) would capture overdraft credit features 
that are separate credit features offered by prepaid account issuers, 
their affiliates, or their business partners in connection with a 
prepaid account. For example, a prepaid card is a ``hybrid prepaid-
credit card'' with respect to a separate credit feature offered by a 
prepaid account issuer, its affiliate, or its business partner in cases 
where transactions can be initiated using a prepaid card when there are 
insufficient or unavailable funds in the asset feature in the prepaid 
account at the time the transaction is initiated, and credit can be 
drawn, transferred, or authorized to be drawn or transferred, from the 
credit feature at the time the transaction is authorized to complete 
the transaction. In addition, a prepaid card is a ``hybrid prepaid-
credit card'' with respect to such a credit feature in cases related to 
settlement of transactions where credit can be automatically drawn, 
transferred, or authorized to be drawn or transferred, from the credit 
feature to settle transactions made with the card where there are 
insufficient or unavailable funds in the asset feature of the prepaid 
account at the time the transaction is settled.
    New Sec.  1026.61(a)(2)(i) also captures situations where 
transactions can be initiated using a prepaid card where the card is a 
traditional ``dual purpose'' card. In this case, the card can be used 
both to access the asset feature of a prepaid account and to draw on 
the covered separate credit feature independent of whether there are 
sufficient or available funds in the asset feature to complete the 
transaction. For example, assume that a consumer has $50 in available 
funds in her prepaid account. The consumer initiates a $25 transaction 
with the card to purchase goods and services. If the consumer chooses 
at the time the transaction is initiated to use the card to access the 
asset feature of the prepaid account, the card will draw on the funds 
in the asset feature of the prepaid account to complete the 
transaction. If the consumer chooses at the time the transaction is 
initiated to use the card to access the covered separate credit 
feature, the card will draw on credit from the covered separate credit 
feature to complete the transaction, regardless of the fact that there 
were sufficient or available funds in the prepaid account to complete 
the transaction.
    As discussed in more detail below in the section-by-section 
analysis of Sec.  1026.61(a)(2), new Sec.  1026.61(a)(2)(ii) defines 
the term ``non-covered separate credit feature'' to mean a separate 
credit feature that does not meet the two conditions set forth in new 
Sec.  1026.61(a)(2)(i). A prepaid card is not a hybrid prepaid-credit 
card with respect to a non-covered separate credit feature, even if the 
prepaid card is a hybrid prepaid-credit card with respect to a covered 
separate credit feature as described in new Sec.  1026.61(a)(2)(i). A 
non-covered separate credit feature is not subject to the rules in 
Regulation Z applicable to hybrid prepaid-credit cards; however, it 
typically will be subject to Regulation Z depending on its own terms 
and conditions, independent of the connection to the prepaid account.
    First, a separate credit feature is a ``non-covered separate credit 
feature'' when the separate credit feature is offered by an unrelated 
third party that is not the prepaid account issuer, its affiliate, or 
its business partner. This is true even if the separate credit feature 
functions as an overdraft credit feature with respect to the prepaid 
account. For example, if a consumer links her prepaid account to a 
credit card issued by a card issuer, where the card issuer is not the 
prepaid account issuer, its affiliate, or its business partner, and 
credit is drawn automatically into the prepaid account in the course of 
authorizing, settling, or otherwise completing transactions conducted 
with the prepaid card for which there are insufficient funds in the 
prepaid account, the prepaid card is not a hybrid prepaid-credit card 
with respect to the separate credit feature offered by the unrelated 
third party.
    Second, a separate credit feature is a ``non-covered separate 
credit feature'' if a prepaid card cannot access the separate credit 
feature during the course of authorizing, settling, or otherwise 
completing transactions to obtain goods or services, obtain cash, or 
conduct P2P transfers. This is true even if the separate credit feature 
is offered by the prepaid account issuer, its affiliate, or its 
business partner. For example, assume that a consumer can only conduct 
a draw or transfer of credit, or authorization of either, from a 
separate credit feature to a prepaid account at the prepaid account 
issuer's Web site, and these draws, transfers, or authorizations cannot 
occur in the course of authorizing, settling, or otherwise completing a 
transaction at the Web site to obtain goods or services, obtain cash, 
or conduct P2P transfers.
    For this type of ``non-covered separate credit feature,'' the 
credit feature would not be functioning as an overdraft credit feature 
with respect to the prepaid account. In addition, the prepaid card also 
is not functioning as a traditional ``dual purpose'' card where the 
card can be used both to access the asset feature of a prepaid account 
and to draw on a credit feature in the course of authorizing, settling, 
or otherwise completing transactions conducted with the card to obtain 
goods or services, obtain cash, or conduct P2P transfers independent of 
whether there are sufficient or available funds in the asset feature to 
complete the transaction. Instead, the prepaid card can only be used to 
draw or transfer credit from a separate credit feature outside the 
course of authorizing, settling, or otherwise completing transactions 
conducted with the card to obtain goods or services, obtain cash, or 
conduct P2P transfers.
    As described above, under new Sec.  1026.61(a)(1)(i) and final 
Sec.  1026.2(a)(15)(i), a prepaid card is a credit card (i.e., a hybrid 
prepaid-credit card) for purposes of this regulation with respect to a 
covered separate credit feature. The Bureau is using its interpretive 
authority under TILA section 105(a) to define such prepaid cards as 
credit cards under TILA section 103(l). The Bureau believes that 
defining such prepaid cards as credit cards under Sec.  
1026.2(a)(15)(i) is consistent with the definition of ``credit card'' 
in TILA section 103(l). TILA section 103(l) defines the term ``credit 
card'' to mean any card, plate, coupon book, or other credit device 
existing for the purpose of obtaining money, property, labor, or 
services on credit.\697\ The Bureau believes that such a prepaid card 
meets this TILA definition of

[[Page 84244]]

``credit card'' because it can be used from time to time to obtain 
credit from the separate credit feature in the course of completing 
transactions conducted with the card to obtain goods or services, 
obtain cash, or conduct P2P transfers.
---------------------------------------------------------------------------

    \697\ 15 U.S.C. 1602(l).
---------------------------------------------------------------------------

    For the reasons set forth in the Overview of the Final Rule's 
Amendments to Regulation Z section, the Bureau believes that most 
overdraft credit features offered in connection with prepaid accounts 
should be treated as credit card accounts under Regulation Z, except in 
limited circumstances as discussed below and in the section-by-section 
analysis of Sec.  1026.61(a)(4). As discussed further below, however, 
the Bureau is concerned about covering prepaid cards as credit cards 
when the cards can access separate credit features offered by unrelated 
third parties that have no affiliation or business arrangement with the 
prepaid account issuer, even if the separate credit feature functions 
as an overdraft credit feature in relation to the prepaid account. In 
this case, the unrelated third party may not be aware when its credit 
feature is used as an overdraft credit feature with respect to a 
prepaid account. If unrelated third parties were subject to the 
provisions applicable to hybrid prepaid-credit cards, these third 
parties would face additional compliance risk in connection with the 
prepaid card becoming a new access device for the credit account. The 
Bureau is concerned that such third parties might take steps to try to 
mitigate these kinds of risks, which would make prepaid accounts less 
widely usable by consumers. Thus, as discussed above and in more detail 
in the section-by-section analysis of Sec.  1026.61(a)(2) below, the 
final rule does not cover a prepaid card as a credit card under 
Regulation Z when it accesses separate credit features offered by these 
unrelated third parties. In order to facilitate compliance with TILA, 
the Bureau believes it is necessary and proper to exercise its 
exception authority under TILA section 105(a) to exclude such prepaid 
cards from the definition of ``credit card'' under TILA section 103(l) 
and final Regulation Z Sec.  1026.2(a)(15)(i). The exception would 
facilitate compliance by allowing an unrelated third party to comply 
with the rules in Regulation Z that already apply to the separate 
credit feature without having to comply with additional Regulation Z 
provisions that would apply if the prepaid card were covered as a 
credit card with respect to the credit feature. Under this exception, 
third parties would not face additional compliance risk in connection 
with the prepaid card becoming a new access device for the credit 
account, where the prepaid card may be linked to the separate credit 
feature without the knowledge of the unrelated third party.
    As discussed above and in more detail in the section-by-section 
analysis of Sec.  1026.61(a)(2) below, the Bureau also is clarifying 
that a prepaid card is not a credit card when the prepaid card accesses 
a separate credit feature that is not functioning as an overdraft 
credit feature, and the card is not a traditional ``dual purpose'' card 
as discussed above. In this case, the prepaid card only can access the 
separate credit feature outside the course of authorizing, settling, or 
otherwise completing transactions conducted with the card to obtain 
goods or services, obtain cash, or conduct P2P transfers. Pursuant to 
its interpretive authority under TILA section 105(a), the Bureau is 
defining ``credit card'' in current TILA section 103(l) and final Sec.  
1026.2(a)(15)(i) to exclude a prepaid card from being covered as a 
credit card with respect to a separate credit feature when it only can 
access credit from the separate credit feature outside the course of 
completing transactions conducted with the card to obtain goods or 
services, obtain cash, or conduct P2P transfers. The Bureau does not 
interpret TILA section 103(l) to encompass an account number for a 
prepaid account to be a ``credit card'' under TILA section 103(l) when 
the prepaid account number can only be used as a destination for the 
transfer of money from a separate credit account, and cannot be used to 
obtain credit within the course of a transaction to obtain goods or 
service, obtain cash, or conduct P2P transfers. The Bureau believes 
that when credit is accessed outside of the course of a transaction on 
a prepaid account, it is somewhat less risky for consumers because 
consumers would be required to make a deliberate decision to access the 
credit outside the course of a transaction, and thus can separately 
evaluate the tradeoffs involved. In addition, as discussed further 
below, this approach is consistent with regard to how lines of credit 
that can be accessed by debit cards are treated under the credit card 
rules in Regulation Z. Thus, consistent with this current definition of 
``credit card,'' the Bureau is clarifying that a prepaid card is not a 
credit card with respect to a separate credit feature when it can only 
access the separate credit feature outside the course of authorizing, 
settling, or otherwise completing transactions conducted with the card 
to obtain goods or services, obtain cash, or conduct P2P transfers. The 
Bureau also believes that this clarification is consistent with the 
proposal's general focus on covering overdraft credit features offered 
in connection with prepaid accounts as credit card accounts under 
Regulation Z.
    Credit extended through a negative balance on the asset feature of 
the prepaid account. As discussed in more detail in the section-by-
section analysis of Sec.  1026.61(a)(3) below, under new Sec.  
1026.61(a)(3), a prepaid card that can access credit extended through a 
negative balance on the asset balance of the prepaid card is a hybrid 
prepaid-credit card unless the card can only access incidental credit 
as described in new Sec.  1026.61(a)(4). This provision is intended to 
trigger coverage under the credit card rules with respect to such 
overdraft credit features. Thus, for purposes of coverage, a person 
offering such an overdraft credit feature is a ``card issuer'' under 
final Sec.  1026.2(a)(7) that is subject to Regulation Z, including 
Sec.  1026.61(b).
    In terms of triggering coverage under Regulation Z, under new Sec.  
1026.61(a)(1)(i) and (3)(i) and final Sec.  1026.2(a)(15)(i), a prepaid 
card is a credit card (i.e., hybrid prepaid-credit card) for purposes 
of this regulation when it is a single device that can be used from 
time to time to access credit extended through a negative balance on 
the asset feature of the prepaid account, unless the card can only 
access incidental credit as described in new Sec.  1026.61(a)(4). The 
Bureau is using its interpretive authority under TILA section 105(a) to 
define such prepaid cards as credit cards under TILA section 103(l). 
The Bureau believes that classifying such prepaid cards as credit cards 
under Sec.  1026.2(a)(15)(i) is consistent with the definition of 
``credit card'' in TILA section 103(l). TILA section 103(l) defines the 
term ``credit card'' to mean any card, plate, coupon book, or other 
credit device existing for the purpose of obtaining money, property, 
labor, or services on credit.\698\ The Bureau believes that such a 
prepaid card meets this TILA definition of ``credit card'' because it 
can be used from time to time to access credit that is extended as a 
negative balance on the prepaid account in the course of completing 
transactions conducted with the card to obtain goods or services, 
obtain cash, or conduct P2P transfers.
---------------------------------------------------------------------------

    \698\ 15 U.S.C. 1602(l).
---------------------------------------------------------------------------

    However, as discussed further below, new Sec.  1026.61(b) prohibits 
a card issuer from structuring an overdraft credit feature as a 
negative balance on the

[[Page 84245]]

asset feature of the prepaid account, unless the program is structured 
to involve only incidental credit as provided in new Sec.  
1026.61(a)(4). The Bureau believes that this rule is necessary to 
promote transparency and compliance with the credit card requirements. 
Thus, under new Sec.  1026.61(b), a card issuer must structure an 
overdraft credit feature in connection with a prepaid account as a 
separate credit feature, such as a credit account or credit subaccount 
to the prepaid account that is separate from the asset feature of the 
prepaid account, except for overdraft credit features described in new 
Sec.  1026.61(a)(4). This separate credit feature is a ``covered 
separate credit feature'' under new Sec.  1026.61(a)(2)(i).
    As described in the section-by-section analysis of Sec.  
1026.61(a)(4) below, new Sec.  1026.61(a)(4) provides that an overdraft 
credit feature structured as a negative balance on the asset feature of 
a prepaid account is not accessible by a hybrid prepaid-credit card 
where: (1) The prepaid card cannot access a covered separate credit 
feature as defined in new Sec.  1026.61(a)(2)(i); (2) with respect to 
the prepaid account accessible by the prepaid card, the prepaid account 
issuer generally has a policy and practice of declining to authorize 
transactions made with the card when there are insufficient or 
unavailable funds in the asset feature of the prepaid account to cover 
the amount of the transactions, or the prepaid account issuer only 
authorizes those transactions in circumstances related to certain 
payment cushions and delayed load cushions; and (3) with respect to the 
prepaid account that is accessible by the prepaid card, the prepaid 
account issuer does not charge credit-related fees for any credit 
extended on the asset feature of the prepaid account, except for fees 
or charges for the actual costs of collecting the credit extended if 
otherwise permitted by law.
    Under this exception, a prepaid account issuer may extend credit 
through a negative balance on the asset feature of the prepaid account 
in certain situations, such as force pay transactions, without having 
to waive general transaction fees, as would have been required under 
the proposal to avoid triggering the credit card rules. As discussed 
above, force pay transactions occur where the prepaid account issuer is 
required by card network rules to pay a transaction even though there 
are insufficient or unavailable funds in the asset feature of the 
prepaid account to cover the transaction at settlement. This can occur, 
for example, where a transaction is either not authorized in advance, 
or where there were sufficient or available funds in the asset feature 
of the prepaid account at the time the transaction is authorized, but 
there are insufficient or unavailable funds in the asset feature at the 
time the transaction is settled, and a negative balance results on the 
asset feature when the transaction is paid.
    The exception in new Sec.  1026.61(a)(4) also would allow a prepaid 
account issuer to adopt a payment cushion where the issuer could 
authorize transactions that would take the account balance negative by 
no more than $10 at the time the transaction is authorized. In 
addition, the exception would allow a prepaid account issuer to adopt a 
delayed load cushion. Specifically, in cases where the prepaid account 
issuer has received an instruction or confirmation for an incoming EFT 
originated from a separate asset account to load funds to the prepaid 
account or where the prepaid account issuer has received a request from 
the consumer to load funds to the prepaid account from a separate asset 
account but in either case the funds from the separate asset account 
have not yet settled, the final rule allows a prepaid account issuer to 
authorize transactions that take the prepaid account negative, so long 
as the transactions will not cause the account balance to become 
negative at the time of the authorization by more than the incoming or 
requested load amount, as applicable.
    Thus, the Bureau is intending to exempt overdraft credit features 
that are structured as a negative balance on the asset feature of the 
prepaid account under Regulation Z where the prepaid account issuer 
generally is not authorizing transactions that will take the asset 
feature of the prepaid account negative and the prepaid account issuer 
generally does not charge credit-related fees on credit extended on the 
asset feature of the prepaid account. As discussed in more detail 
below, the Bureau believes that this exception will address a 
substantial number of the concerns expressed by industry commenters 
about situations in which the proposal would have required them to 
waive general transaction fees on incidental credit to avoid triggering 
the credit card rules. In light of the very limited nature of the 
incidental credit at issue, the Bureau believes that it is appropriate 
to exclude this incidental credit from coverage under Regulation Z. 
Thus, to facilitate compliance with TILA, the Bureau believes it is 
necessary and proper to exercise its exception authority under TILA 
section 105(a), to exclude such prepaid cards that qualify for the 
exception under new Sec.  1026.61(a)(4) from the definition of ``credit 
card'' under TILA section 103(l) and final Regulation Z Sec.  
1026.2(a)(15)(i).\699\ The exception in new Sec.  1026.61(a)(4) would 
facilitate compliance by allowing a prepaid account issuer to comply 
only with Regulation E with respect to the prepaid account and this 
incidental credit, instead of also complying with Regulation Z with 
respect to the incidental credit.
---------------------------------------------------------------------------

    \699\ 15 U.S.C. 1602(l).
---------------------------------------------------------------------------

    Given that a prepaid account issuer can only extend credit through 
a negative balance on the asset feature of the prepaid account in 
limited circumstances under the exception in new Sec.  1026.61(a)(4), 
and credit-related fees generally may not be imposed for the credit 
extended, the Bureau anticipates that the credit extended through a 
negative balance on the asset feature of a prepaid account that 
qualifies for the exception would be limited. The Bureau believes that 
certain harms to consumers, such as becoming overextended in using this 
credit, would be limited. Thus, to facilitate compliance, the Bureau 
believes that this type of credit is more properly regulated under 
Regulation E as credit incidental to the prepaid card transaction. For 
example, as discussed in more detail in the section-by-section analysis 
of Regulation E Sec.  1005.12(a) above, Regulation E's provisions in 
final Sec. Sec.  1005.11 and 1005.18(e) regarding error resolution 
would apply to extensions of this credit. In addition, such credit 
extensions would be disclosed on Regulation E periodic statements under 
existing Sec.  1005.9(b) or, if the financial institution follows the 
periodic statement alternative in final Sec.  1005.18(c)(1), on the 
electronic and written histories of the consumer's prepaid account 
transactions.
    Also, as discussed in more detail in the section-by-section 
analysis of Regulation E Sec.  1005.17 above, although this incidental 
credit generally is governed by Regulation E, the Bureau is exempting 
this incidental credit from the opt-in rule in final Sec.  1005.17. 
Existing Sec.  1005.17 sets forth requirements that financial 
institutions must follow in order to provide ``overdraft services'' to 
consumers related to consumers' accounts. Under existing Sec.  1005.17, 
financial institutions must provide consumers with notice of their 
right to opt-in, or affirmatively consent, to the institution's 
overdraft service for ATM and one-time debit card transactions, and 
obtain the consumer's affirmative consent before fees or charges may be 
assessed on the

[[Page 84246]]

consumer's account for paying such overdrafts. For the reasons 
discussed in more detail in the section-by-section analysis of 
Regulation E Sec.  1005.17 above, the Bureau is adding new Sec.  
1005.17(a)(4) to provide that credit accessed from an overdraft credit 
feature that is exempt from Regulation Z under Sec.  1026.61(a)(4) is 
not an overdraft service under final Sec.  1005.17(a) and thus would 
not be subject to the opt-in requirements in final Sec.  1005.17. This 
is true even though the prepaid account issuer may be charging per 
transaction fees that are permitted under new Sec.  
1026.61(a)(4)(ii)(B) with respect to credit accessed from the overdraft 
credit feature. The Bureau does not believe that the opt-in 
requirements in final Sec.  1005.17 are appropriate for these types of 
overdraft credit features given that these overdraft credit features 
may not charge higher per transaction fees for credit extended through 
a negative balance on the asset feature of the prepaid account than the 
per transaction fees charged when the transaction only accesses funds 
in the asset feature of the prepaid account.
    Account numbers that are not prepaid cards. As discussed in more 
detail in the section-by-section analysis of Sec.  1026.2(a)(15)(i) 
above, upon review of the comments and its own analysis, the Bureau has 
decided not to adopt the proposal to provide that an account number for 
a credit account would be a credit card where extensions of credit are 
permitted to be deposited directly only into particular prepaid 
accounts specified by the creditor. In proposing these provisions, the 
Bureau was concerned that a prepaid account issuer and a creditor could 
design arrangements to circumvent the proposed rules in Regulation Z 
applicable to prepaid cards that are credit cards. In this case, a 
third-party creditor could have an arrangement with the prepaid account 
issuer such that credit from the credit account is pushed from the 
credit account to the prepaid account during the course of a particular 
prepaid account transaction to prevent the transaction from taking the 
prepaid account balance negative. These provisions related to account 
numbers of the credit account were designed to prevent this type of 
evasion of the rules applicable to prepaid cards that are credit cards.
    The Bureau is addressing this type of evasion by generally covering 
a prepaid card as a credit card (i.e., ``hybrid prepaid-credit card'') 
when the card can access a separate credit feature that is functioning 
as an overdraft credit feature and is offered by a prepaid account 
issuer, its affiliate, or its business partner.\700\ Specifically, new 
Sec.  1026.61(a)(2)(i) provides that a prepaid card is a ``hybrid 
prepaid-credit card'' with respect to a separate credit feature if the 
card meets the following two conditions: (1) The card can be used from 
time to time to access credit from the separate credit feature in the 
course of authorizing, settling, or otherwise completing transactions 
conducted with the card to obtain goods or services, obtain cash, or 
conduct P2P transfers; and (2) the separate credit feature is offered 
by the prepaid account issuer, its affiliate, or its business partner. 
New Sec.  1026.61(a)(2)(i) defines such a separate credit feature 
accessible by a hybrid prepaid-credit card as a ``covered separate 
credit feature.'' Thus, the hybrid prepaid-credit card can access both 
the covered separate credit feature and the asset feature of the 
prepaid account, and the hybrid prepaid-credit card is a credit card 
under Regulation Z with respect to the covered separate credit feature. 
In this case, as discussed in more detail in the section-by-section 
analysis of Sec.  1026.61(a)(2) below, the final rule provides that a 
prepaid card is a hybrid prepaid-credit card with respect to the 
covered separate credit feature regardless of whether (1) the credit is 
pushed from the covered separate credit feature to the asset feature of 
the prepaid account in the course of authorizing, settling, or 
otherwise completing transactions conducted with the card to obtain 
goods or services, obtain cash, or conduct P2P transfers; or (2) the 
credit is pulled from the covered separate credit feature to the asset 
feature of the prepaid account in the course of authorizing, settling, 
or otherwise completing transactions conducted with the card to obtain 
goods or services, obtain cash, or conduct P2P transfers.
---------------------------------------------------------------------------

    \700\ One consumer group commenter urged the Bureau to include 
an anti-evasion provision in the final rule. This commenter believed 
that the Bureau should be able to rely on an anti-evasion rule to 
prohibit conduct that clearly is against the spirt of the rules, 
even if the final rule does not specifically prohibit that activity. 
The Bureau is not adopting such an anti-evasion rule at this time. 
The Bureau in various ways has crafted the final rule to address 
potential areas of evasion that could arise with respect to the 
application of the rules in Regulation Z to overdraft credit 
features offered by prepaid account issuers, their affiliates, or 
their business partners in connection with prepaid accounts. See, 
e.g., the section-by-section analyses of Sec. Sec.  1026.2(a)(7) and 
(a)(15)(i) and 1026.4(b)(11)(ii) above, and 1026.61(a)(4) and 
(a)(5)(iii) below.
---------------------------------------------------------------------------

    In addition, the final rule also provides that a prepaid card is a 
hybrid prepaid-credit card with respect to a covered separate credit 
feature regardless of whether the covered separate credit feature can 
only be used as an overdraft credit feature accessible by the hybrid 
prepaid-credit card, or whether it is a general line of credit that can 
be accessed in other ways than through the hybrid prepaid-credit card. 
For the reasons set forth in the Overview of the Final Rule's 
Amendments to Regulation Z section, the Bureau believes that consumers 
will benefit from the application of the credit card rules generally to 
a credit account that functions as an overdraft credit feature in 
connection with a prepaid account when that overdraft feature is 
offered by a prepaid account issuer, its affiliate, or its business 
partner, regardless of whether the credit account can only be used as 
an overdraft credit feature. In addition, the Bureau is concerned about 
potential evasion if the provisions set forth in the final rule 
applicable to overdraft credit features described above could be 
avoided simply by providing other uses for the credit account.
    The Bureau believes that the provisions in the final rule described 
above with respect to a covered separate credit feature adequately 
capture situations where a separate credit feature offered by a prepaid 
account issuer, its affiliate, or its business partner functions as an 
overdraft credit feature in relation to a prepaid account. Thus, the 
Bureau believes that it is no longer necessary to treat an account 
number of the credit account as a credit card to capture situations 
when the credit account may function as an overdraft credit feature in 
relation to the prepaid account.
    As discussed above and in more detail in the section-by-section 
analysis of Sec.  1026.61(a)(2) below, the Bureau generally intends to 
cover under Regulation Z overdraft credit features in connection with 
prepaid accounts where the credit features are offered by the prepaid 
account issuer, its affiliates, or its business partners. As discussed 
above and in more detail in the section-by-section analyses of Sec.  
1026.61(a)(2) and (4) below, the Bureau also has decided to exclude 
prepaid cards from being covered as credit cards under Regulation Z 
when they access certain specified types of credit. First, under new 
Sec.  1026.61(a)(2)(ii), a prepaid card is not a hybrid prepaid-credit 
card with respect to a ``non-covered separate credit feature,'' which 
means that the separate credit feature either (1) cannot be accessed in 
the course of a prepaid card transaction to obtain goods or services, 
obtain cash, or conduct P2P transfers, or (2) is offered by an 
unrelated third party that is not the prepaid account issuer, its 
affiliate, or its business partner. Second, under new Sec.  
1026.61(a)(4), a prepaid card also is not a hybrid prepaid-credit card 
when

[[Page 84247]]

the prepaid card accesses incidental credit in the form of a negative 
balance on the asset account where the prepaid account issuer generally 
does not charge credit-related fees for the credit. A prepaid card is 
not a hybrid prepaid-credit card under new Sec.  1026.61 or a credit 
card under final Sec.  1026.2(a)(15)(i) when it accesses credit from 
these types of credit features. For more detailed explanations of when 
prepaid cards are not credit cards under Regulation Z, see the section-
by-section analyses of Sec.  1026.61(a)(2) and (4) below.
61(a)(1) In General
    New Sec.  1026.61(a)(1)(i) provides that credit offered in 
connection with a prepaid account is subject to new Sec.  1026.61, as 
specified in that section. New Sec.  1026.61(a)(1)(ii) provides 
generally that a prepaid card is a hybrid prepaid-credit card with 
respect to a separate credit feature as described in new Sec.  
1026.61(a)(2)(i), or with respect to a credit feature structured as a 
negative balance on the asset feature of the prepaid account, as 
described in new Sec.  1026.61(a)(3). New Sec.  1026.61(a)(1)(ii) also 
provides that a hybrid prepaid-credit card is a credit card for 
purposes of Regulation Z with respect to those respective credit 
features. New Sec.  1026.61(a)(1)(iii) specifies that a prepaid card is 
not a hybrid prepaid-credit card--and thus not a credit card for 
purposes of Regulation Z--if the only credit offered in connection with 
the prepaid account is incidental credit meeting the conditions set 
forth in new Sec.  1026.61(a)(4).
    As described below, the commentary to new Sec.  1026.61(a)(1) 
contains general guidance on the circumstances in which a prepaid card 
is a hybrid prepaid-credit card under Sec.  1026.61(a).
Credit Accessible by a Hybrid Prepaid-Credit Card
    New comment 61(a)(1)-1 makes clear that a prepaid card is a hybrid 
prepaid-credit card if the prepaid card can access credit from a 
covered separate credit feature described in new Sec.  
1026.61(a)(2)(i), or if the prepaid card can access credit through a 
negative balance on the asset feature of a prepaid account described in 
new Sec.  1026.61(a)(3) (except as provided in new Sec.  
1026.61(a)(4)), even if, for example: (1) The person that can extend 
the credit does not agree in writing to extend the credit; (2) the 
person retains discretion not to extend the credit; or (3) the person 
does not extend the credit once the consumer has exceeded a certain 
amount of credit. For the reasons discussed in the Overview of the 
Final Rule's Amendments to Regulation Z section, the Bureau does not 
believe that whether a prepaid card is a credit card under Regulation Z 
should turn on whether the person has agreed in writing to extend the 
credit or retains the discretion not to extend credit in certain 
circumstances.
Prepaid Card That Is Solely an Account Number
    Proposed comment 2(a)(15)-2.i.F would have provided that the term 
``credit card'' includes a prepaid card (including a prepaid card that 
is solely an account number) that is a single device that may be used 
from time to time to access a credit plan, except if that prepaid card 
only accesses credit that is not subject to any finance charge, as 
defined in Sec.  1026.4, or any fee described in Sec.  1026.4(c), and 
is not payable by written agreement in more than four installments. 
Thus, under the proposal, a prepaid card that is solely an account 
number would have been a credit card under Sec.  1026.2(a)(15)(i) if it 
met this standard.
    For reasons discussed in more detail in the section-by-section 
analyses of Sec.  1026.61(a)(2) and (4) below, the Bureau is revising 
from the proposal the circumstances in which a prepaid card is a credit 
card (i.e., hybrid prepaid-credit card). Nonetheless, consistent with 
the proposal, new comment 61(a)(1)-2 provides that a prepaid card that 
is solely an account number is a hybrid prepaid-credit card (and thus 
is a credit card under Regulation Z) if it meets the conditions for 
being a hybrid prepaid-credit card set forth in new Sec.  1026.61(a).
Usable From Time to Time
    Current comment 2(a)(15)-1 provides that a credit card under 
Regulation Z must be usable from time to time. Because this involves 
the possibility of repeated use of a single device, checks and similar 
instruments that can be used only once to obtain a single credit 
extension are not credit cards. The proposal would have revised this 
comment to provide that with respect to a preauthorized check that is 
issued on a prepaid account for which the funds are withdrawn at the 
time of preauthorization using the prepaid account number, the credit 
is obtained using the prepaid account number and not the check. The 
proposal also would have revised this comment to cross-reference 
proposed comment 2(a)(15)-2.i.F for a discussion of when a prepaid 
account number is a credit card.
    The Bureau did not receive specific comment on this aspect of the 
proposal. The final rule moves the proposed guidance in proposed 
comment 2(a)(15)-1 related to prepaid accounts to new comment 61(a)(1)-
3 and revises it to be consistent with new Sec.  1026.61. Consistent 
with current comment 2(a)(15)-1, new comment 61(a)(1)-3 provides that 
in order for a prepaid card to be a hybrid prepaid-credit card under 
new Sec.  1026.61(a), the prepaid card must be capable of being used 
from time to time to access credit as described in new Sec.  
1026.61(a). Because this involves the possibility of repeated use of a 
single device, checks and similar instruments that can be used only 
once to obtain a single credit extension are not hybrid prepaid-credit 
cards. Consistent with the proposal, new comment 61(a)(1)-3 also 
provides that with respect to a preauthorized check that is issued on a 
prepaid account for which credit is extended through a negative balance 
on the asset feature of the prepaid account, or credit is drawn, 
transferred or authorized to be drawn or transferred from a separate 
credit feature, the credit is obtained using the prepaid account number 
and not the check at the time of preauthorization using the prepaid 
account number. The comment states that a prepaid account number is a 
hybrid prepaid-credit card if the account number meets the conditions 
set forth in new Sec.  1026.61(a), as discussed above.
Prepaid Account That Is a Digital Wallet
    One digital wallet provider indicated that the Bureau should 
clarify that the proposal's restrictions do not apply to a digital 
wallet's stored payment credentials. This commenter indicated that 
stored credentials do not present the same risks of consumer harm as 
overdraft protection for prepaid cards. New comment 61(a)(1)-4 provides 
guidance on the circumstances in which prepaid account number for a 
digital wallet that is a prepaid account is a hybrid prepaid-credit 
card under new Sec.  1026.61(a).
    Specifically, new comment 61(a)(1)-4 states that a digital wallet 
that is capable of being loaded with funds is a prepaid account under 
final Regulation E Sec.  1005.2(b)(3). See final Regulation E Sec.  
1005.2(b)(3) and comment 2(b)(3)(i)-6. The comment explains that a 
prepaid account number that can access such a digital wallet is a 
hybrid prepaid-credit card if it meets the conditions set forth in new 
Sec.  1026.61(a).
    New comments 61(a)(1)-4.i.A and B provide illustrations of this 
rule. First, the comments explain that a prepaid account number that 
can access such a digital wallet is a hybrid prepaid-credit card under 
new Sec.  1026.61(a)(2)(i) where it can be used from time to time to: 
(1) Access a covered separate credit feature

[[Page 84248]]

offered by the prepaid account issuer, its affiliate, or its business 
partner in the course of authorizing, settling, or otherwise completing 
a transaction conducted with the prepaid account number to obtain goods 
or services, obtain cash, or conduct P2P transfers as described in new 
Sec.  1026.61(a)(2)(i); or (2) access the stored credentials for a 
covered separate credit feature offered by the prepaid account issuer, 
its affiliate, or its business partner in the course of authorizing, 
settling, or otherwise completing a transaction conducted with the 
prepaid account number to obtain goods or services, obtain cash, or 
conduct P2P transfers as described in new Sec.  1026.61(a)(2)(i).
    Second, new comments 61(a)(1)-4.i.C and D state that a prepaid 
account number that can access such a digital wallet is not a hybrid 
prepaid-credit card with respect to: (1) Credentials stored in the 
prepaid account that access a non-covered separate credit feature as 
described in new Sec.  1026.61(a)(2)(ii) that is not offered by the 
prepaid account issuer, its affiliate, or its business partner, even if 
the prepaid account number can access those credentials in the course 
of authorizing, settling, or otherwise completing a transaction 
conducted with the prepaid account number to obtain goods or services, 
obtain cash, or conduct P2P transfers; or (2) credentials stored in the 
prepaid account that access a non-covered separate credit feature as 
described in new Sec.  1026.61(a)(2)(ii), where the prepaid account 
number cannot access those credential in the course of authorizing, 
settling, or otherwise completing a transaction conducted with the 
prepaid account number to obtain goods or services, obtain cash, or 
conduct P2P transfers, even if such credit feature is offered by the 
prepaid account issuer, its affiliate, or its business partner.
    Third, comment 61(a)(1)-4.ii states that a digital wallet is not a 
prepaid account under final Regulation E Sec.  1005.2(b)(3) if the 
digital wallet can never be loaded with funds, such as a digital wallet 
that only stores payment credentials for other accounts. See final 
Regulation E Sec.  1005.2(b)(3) and comment 2(b)(3)(i)-6. The comment 
explains that an account number that can access such a digital wallet 
would not be a hybrid prepaid-credit card under new Sec.  1026.61(a), 
even if the wallet stores a credential for a separate credit feature 
that is offered by the digital wallet provider, its affiliate, or its 
business partner and can be used in the course of a transaction 
involving the digital wallet.
Prepaid Account That Can Be Used for Bill Payment Services
    To help ensure compliance with the final rule, the Bureau also is 
including guidance in the final rule on when a prepaid card that can be 
used for an online bill payment service offered by the prepaid account 
issuer is a hybrid prepaid-credit card under Sec.  1026.61(a). New 
comment 61(a)(1)-5 provides that where a prepaid account can be used 
for online bill payment services offered by the prepaid account issuer, 
the prepaid card (including a prepaid account number) that can access 
that prepaid account is a hybrid prepaid-credit card if it meets the 
requirements set forth in Sec.  1026.61(a). For example, if a prepaid 
account number can be used from time to time to initiate a transaction 
using the online bill payment service offered by the prepaid account 
issuer to pay a bill, and credit can be drawn, transferred, or 
authorized to be drawn or transferred to the prepaid account from a 
covered separate credit feature offered by the prepaid account issuer, 
its affiliate, or its business partner in the course of authorizing, 
settling, or otherwise completing that transaction as described in 
Sec.  1026.61(a)(2)(i), the prepaid account number would be a hybrid 
prepaid-credit card under Sec.  1026.61(a). In this case, the prepaid 
account number can be used to draw or transfer credit, or authorize the 
draw or transfer of credit, from a covered separate credit feature 
offered by the prepaid account issuer, its affiliate, or its business 
partner in the course of completing a transaction to pay for goods or 
services through the online bill payment service.
Real-Time Notification or Opt-In for Overdrafts
    In the proposal, the Bureau discussed the possibility of requiring 
additional real-time notifications of transactions triggering an 
overdraft or requiring real-time opt-in by consumers to approve each 
overdraft in addition to applying the credit card rules in Regulation Z 
to overdraft credit features in connection with prepaid accounts. The 
Bureau understood that there may be technological, operational, and 
procedural challenges to the timing and delivery of such a notice or 
compliance with such an opt-in requirement, particularly in the point 
of sale retail environment. The Bureau was unsure at the time whether 
such a procedure could be implemented given that notifications and/or 
opt-in might require multiple communications among financial 
institutions, card networks, and merchants. Accordingly, the Bureau did 
not propose any requirements related to real-time notification or opt-
in, but it solicited comment on possible options and suggestions for 
what it might require in this regard for prepaid accounts.
    Several commenters, including industry trade associations and an 
issuing bank, indicated that real-time notification and opt-in is not 
feasible with current technology. Two of these commenters were 
concerned that such notices are not feasible given existing technology 
and that such notices could thus never be reliable and therefore would 
be more likely to lead to consumer confusion. These commenters stated 
that current processing systems will not necessarily have real-time 
balances and cannot be depended upon for providing real-time notices 
with any reliability. Further, these commenters stated that current 
terminals are not capable of displaying the required messaging. Thus, 
these commenters stated that it is not clear that the requisite 
technology is in place to comply with the potential notification and 
opt-in requirements discussed above, and thus there is a likelihood 
that such a requirement could lead to consumer confusion. Moreover, 
even if the card issuer clearly discloses that real-time notifications 
will not always be provided, the fact that they could be provided for 
the majority of transactions will lead consumers over time to believe 
that the notices are more reliable than in fact they are.
    One program manager that offers an overdraft feature in connection 
with some of its prepaid accounts indicated that consumers who use the 
overdraft feature consent to receive notifications electronically, and 
the program manager sends electronic messages notifying consumers when 
they have overdrafted. The program manager indicated that most of these 
consumers with the overdraft feature also choose to receive alert 
messages that provide balance information periodically and after every 
transaction. This program manager indicated that a point-of-sale opt-in 
may present challenges, but it may be feasible to create a program 
where the overdraft feature could be turned on for a time-period during 
which the consumer intends to use the feature.
    One consumer group said that the Bureau should mandate clear and 
deliberate opt-in processes so the consumer knows exactly the moment 
when they can begin incurring overdraft charges. Another consumer group 
commenter stated that current technology exists that can notify a 
person that the account has insufficient funds, via text or email. 
After receiving this notification, consumers could

[[Page 84249]]

transfer funds if they wish to avoid credit. This commenter noted that 
its research has found that many people overdraft without knowing it 
and most would prefer to have transactions declined rather than paying 
a fee for overdrawing their accounts.
    Based on these comments, the Bureau is not adopting real-time 
notification and opt-in requirements at this time. The Bureau will 
continue to monitor developments with respect to real-time notification 
and opt-in.
61(a)(2) Prepaid Card Can Access Credit From a Covered Separate Credit 
Feature
In General
    As discussed above, the Bureau received industry comments stating 
that a prepaid card should not be a credit card with respect to a 
separate credit feature when the credit feature is offered by an 
unrelated third party. On the other hand, as discussed above, several 
consumer groups supported the proposed rule to consider a third party 
that offers an open-end credit feature accessed by a prepaid card to be 
an agent of the prepaid account issuer and thus a credit card issuer 
with responsibilities under Regulation Z.
    In addition, the Bureau received an industry comment that the 
Bureau should clarify that a prepaid card should not be a credit card 
when the prepaid card could be used to initiate the load or transfer of 
credit to the prepaid account, but this load or transfer could not 
occur in order to process transactions conducted with the card when 
there were insufficient funds in the prepaid account to cover the 
amount of the transaction. On the other hand, as discussed above, 
several consumer group commenters suggested that the credit card rules 
should apply to a credit account even if the credit account did not 
function as an overdraft credit feature with respect to a prepaid 
account, so long as credit from the credit account was deposited into 
the prepaid account. These consumer group commenters indicated that the 
Bureau should apply the credit card rules to all credit transferred to 
a prepaid account, even if there is another way to access the credit.
    Another consumer group commenter indicated that the Bureau should 
apply the credit card rules to all open-end lines of credit where 
credit may be deposited or transferred to prepaid accounts if either 
(1) the creditor is the same institution as or has a business 
relationship with the prepaid issuer; or (2) the creditor reasonably 
anticipates that a prepaid card will be used as an access device for 
the line of credit. Nonetheless, this commenter said that the final 
rule should not impact a completely unrelated credit account that has 
no connection to prepaid issuers or consumers identified as prepaid 
card users, even though the creditor allows credit to be transferred 
from the credit account through the ACH system.
    As discussed in more detail below, under the final rule, new Sec.  
1026.61(a)(2)(i)(A) defines a separate credit feature accessible by a 
hybrid prepaid-credit card as described in new Sec.  1026.61(a)(2)(i) 
as a covered separate credit feature. Under new Sec.  
1026.61(a)(2)(i)(A), a prepaid card is a hybrid prepaid-credit card 
with respect to a separate credit feature (and the separate credit 
feature is a covered separate credit feature) when it is a single 
device that can be used from time to time to access the separate credit 
feature where the following two conditions are both satisfied: (1) The 
card can draw, transfer, or authorize the draw or transfer of credit 
from the separate credit feature in the course of authorizing, 
settling, or otherwise completing transactions conducted with the card 
to obtain goods or services, obtain cash, or conduct P2P transfers; and 
(2) the separate credit feature is offered by the prepaid account 
issuer, its affiliate, or its business partner. As discussed in more 
detail below, new Sec.  1026.61(a)(2)(i)(B) provides that a separate 
credit feature that meets the two conditions set forth above is a 
covered separate credit feature accessible by a hybrid prepaid-credit 
card even with respect to credit that is drawn or transferred, or 
authorized to be drawn or transferred, from the credit feature outside 
the course of a transaction conducted with the card to obtain goods or 
services, obtain cash, or conduct P2P transfers.
    As discussed in more detail below, consistent with the proposal, 
under new Sec.  1026.61(a)(2)(i), a prepaid card is a credit card under 
Regulation Z (i.e., hybrid prepaid-credit card) with respect to a 
separate credit feature when the credit feature functions as an 
overdraft credit feature with respect to the prepaid account, and the 
credit feature is offered by the prepaid account issuer, its affiliate, 
or its business partner. Consistent with the proposal, new Sec.  
1026.61(a)(2)(i) also captures situations where transactions can be 
initiated using a prepaid card where the card is a traditional ``dual 
purpose'' card. In this case, the card can be used both to access the 
asset feature of a prepaid account and to draw on the covered separate 
credit feature independent of whether there are sufficient or available 
funds in the asset feature to complete the transaction.
    Under the final rule, a prepaid card is a hybrid prepaid-credit 
card when it can access credit from a covered separate credit feature 
as described in new Sec.  1026.61(a)(2)(i), even if finance charges are 
not charged in relation to this credit. As discussed above, under the 
proposal, a prepaid card would not have been a credit card under Sec.  
1026.2(a)(15)(i) if the prepaid card only accesses credit that is not 
subject to any finance charge, as defined in Sec.  1026.4, or fee 
described in Sec.  1026.4(c), and is not payable by written agreement 
in more than four installments. One consumer group commenter expressed 
concern that the exclusion of prepaid cards from the definition of 
credit card if the prepaid card only accesses credit that is not 
subject to a finance charge, as defined in Sec.  1026.4, or a fee 
described Sec.  1026.4(c) would lead to evasions. For example, this 
commenter was concerned that a prepaid issuer could offer a ``deluxe'' 
prepaid card that comes with $100 in ``free'' overdraft protection but 
recover the costs for the credit through other fees charged on the 
credit account that are not finance charges or fees described in Sec.  
1026.4(c), such as higher fees for purportedly ``voluntary'' credit 
insurance that is not a finance charge or fee described in Sec.  
1026.4(c). This commenter urged the Bureau to cover all prepaid cards 
as a credit card when the prepaid card accesses credit, regardless of 
whether a finance charge or a fee described under Sec.  1026.4(c) is 
imposed for the credit. This commenter recognized, however, that 
exceptions for force pay transactions and payment cushions may be 
necessary.
    To address these concerns, the Bureau provides that a prepaid card 
is a hybrid prepaid-credit card with respect to a covered separate 
credit feature when it meets the two conditions set forth in Sec.  
1026.61(a)(2)(i), regardless of whether finance charges are imposed in 
connection with the credit from the covered separate credit feature. 
The Bureau believes that the final rule is consistent with the intent 
of the proposal and the definition of ``credit card'' under Regulation 
Z, which applies to ``charge cards'' and other credit products meeting 
the regulatory definitions even if they do not involve finance 
charges.\701\ In proposing not to

[[Page 84250]]

apply the credit card rules in situations in which a prepaid card only 
accesses credit that is not subject to any finance charge, as defined 
in Sec.  1026.4, or any fee described in Sec.  1026.4(c), and is not 
payable by written agreement in more than four installments, the Bureau 
intended to provide this exception only with respect to credit extended 
through a negative balance on the asset feature of the prepaid account. 
In the proposal, the Bureau stated its belief that this type of credit, 
where no credit-related fees are imposed, is more properly regulated 
under Regulation E as credit incidental to the prepaid card 
transaction. See the section-by-section analysis of Sec.  1026.61(a)(4) 
below for a description of the exception that is contained in the final 
rule.
---------------------------------------------------------------------------

    \701\ Specifically, Regulation Z defines the term ``credit 
card'' to mean ``any card, plate, or other single credit device that 
may be used from time to time to obtain credit.'' See Sec.  
1026.2(a)(15)(i). In addition, under Regulation Z, a card issuer (or 
its agent) offering credit is a ``creditor'' under Sec.  
1026.2(a)(17)(iii) for purposes of the provisions in subpart B of 
the regulation, regardless of whether a finance charge is imposed 
for the credit.
---------------------------------------------------------------------------

    With regard to covered separate credit features, however, the same 
logic does not apply. Not all credit extensions accessing separate 
credit features via a prepaid card would be subject to Regulation E 
protections if Regulation Z did not apply. Rather, Regulation E would 
apply to credit extensions that are deposited in a prepaid account by 
use of an EFT, but it would not apply to extensions of credit where the 
transaction does not involve an EFT to or from the prepaid account. The 
final rule also is consistent with the definition of ``credit card'' 
under Regulation Z, which does not require that finance charges be 
charged for the credit in order for a device to meet the definition of 
``credit card.''
    The Bureau also believes that considering a prepaid card to be a 
hybrid prepaid-credit card with respect to a covered separate credit 
feature when it meets the two conditions set forth in Sec.  
1026.61(a)(2)(i), regardless of whether finance charges are imposed in 
connection with the credit from the covered separate credit feature, 
also would help prevent card issuers from structuring their fees to 
recover the cost of credit through fees that are not finance charges to 
avoid triggering the credit card rules. The Bureau believes that this 
will help promote transparency and consumers understanding of the costs 
of credit.
    Thus, the final rule provides that a prepaid card is a hybrid 
prepaid-credit card with respect to a covered separate credit feature, 
as defined in Sec.  1026.61(a)(2)(i), regardless of whether finance 
charges are imposed for the credit from the covered separate credit 
feature.
Covered Separate Credit Features
    New Sec.  1026.61(a)(2)(i)(A) provides that a prepaid card is a 
hybrid prepaid-credit card with respect to a separate credit feature 
when it is a single device that can be used from time to time to access 
the separate credit feature and the following two conditions are both 
satisfied: (1) The card can be used to draw, transfer, or authorize the 
draw or transfer of credit from the separate credit feature in the 
course of authorizing, settling, or otherwise completing transactions 
conducted with the card to obtain goods or services, obtain cash, or 
conduct P2P transfers; and (2) the separate credit feature is offered 
by the prepaid account issuer, its affiliate, or its business partner. 
Under new Sec.  1026.61(a)(2)(i)(A), a separate credit feature that is 
accessible by a hybrid prepaid-credit card is a covered separate credit 
feature.
    New Sec.  1026.61(a)(2)(i)(B) provides that a separate credit 
feature that meets the conditions set forth above is a covered separate 
credit feature accessible by a hybrid prepaid-credit card even with 
respect to credit that is drawn or transferred, or authorized to be 
drawn or transferred, from the credit feature outside the course of a 
transaction conducted with the card to obtain goods or services, obtain 
cash, or conduct P2P transfers. In developing these rules, the Bureau 
was conscious that there were two distinct types of credit extensions 
that could occur with respect to a covered separate credit feature. The 
first type of credit extension is where the hybrid prepaid-credit card 
accesses credit in the course of authorizing, settling, or otherwise 
completing a transaction conducted with the card to obtain goods or 
services, obtain cash, or conduct P2P transfers. The second type of 
credit extension is where a consumer makes a standalone draw or 
transfer of credit from the covered separate credit feature, outside 
the course of any transactions conducted with the card to obtain goods 
or services, obtain cash, or conduct P2P transfers. For example, a 
consumer may use the prepaid card at the prepaid account issuer's Web 
site to load funds from the covered separate credit feature outside the 
course of a transaction conducted with the card to obtain goods or 
services, obtain cash, or conduct P2P transfers. The Bureau believes 
that if the prepaid card is capable of accessing the separate credit 
feature in the two conditions set forth in Sec.  1026.61(a)(2)(i), the 
covered separate credit feature is a credit card account under 
Regulation Z, even with respect to draws or transfers of credit from 
the covered separate credit feature that occur outside the course of 
any transactions conducted with the card to obtain goods or service, 
obtain cash, or conduct P2P transfers. This is consistent with other 
provisions in Regulation Z that apply the credit card rules to the 
credit card account generally, even with respect to transactions that 
are not conducted with the credit card, such as convenience check 
transactions. See, e.g., Sec. Sec.  1026.52(a) and (b) and 1026.55 and 
related commentary, and Sec.  1026.12(d)(1) and comment 12(d)(1)-3.
    Under new Sec.  1026.61(a)(2)(i), a hybrid prepaid-credit card that 
can access a covered separate credit feature, as defined in new Sec.  
1026.61(a)(2)(i), is a credit card under Regulation Z with respect to 
that covered separate credit feature. In this case, the hybrid prepaid-
credit card can access both the covered separate credit feature and the 
asset feature of the prepaid account. New comment 61(a)(2)-1.i provides 
that for a prepaid card to be a hybrid prepaid-credit card under new 
Sec.  1026.61(a)(2)(i) with respect to a separate credit feature, the 
prepaid account must be structured such that the draw or transfer of 
credit, or authorizations of either, from a separate credit feature 
offered by the prepaid account issuer, its affiliate, or its business 
partner is capable of occurring in the course of authorizing, settling, 
or otherwise completing transactions conducted with the prepaid card to 
obtain goods or services, obtain cash, or conduct a P2P transfer. In 
this case, the separate credit feature is a covered separate credit 
feature accessible by a hybrid prepaid-credit card under new Sec.  
1026.61(a)(2)(i).
    New comment 61(a)(2)-1.ii makes clear a prepaid card is a hybrid 
prepaid-credit card with respect to a covered separate credit feature 
regardless of whether (1) the credit is pushed from the covered 
separate credit feature to the asset feature of the prepaid account in 
the course of authorizing, settling, or otherwise completing 
transactions conducted with the card to obtain goods or services, 
obtain cash, or conduct P2P transfers; or (2) the credit is pulled from 
the covered separate credit feature to the asset feature of the prepaid 
account in the course of authorizing, settling, or otherwise completing 
transactions conducted with the card to obtain goods or services, 
obtain cash, or conduct P2P transfers. This provision prevents a 
prepaid account issuer from evading the credit card provisions of 
Regulation Z by structuring the transactions as a push of credit funds 
to the prepaid account (as opposed to a pull of credit funds from the 
separate credit feature) during the course of a particular prepaid

[[Page 84251]]

account transaction to prevent the transaction from taking the prepaid 
account balance negative.
    New comment 61(a)(2)-1.iii makes clear that a prepaid card is a 
hybrid prepaid-credit card with respect to a covered separate credit 
feature regardless of whether the covered separate credit feature can 
only be used as an overdraft credit feature, solely accessible by the 
hybrid prepaid-credit card, or whether it is a general line of credit 
that can be accessed in other ways.
    New comment 61(a)(2)-2 provides guidance on when a draw, transfer, 
or authorization of a draw or transfer occurs within the course of 
authorizing, settling, or otherwise completing a transaction conducted 
with the card to obtain goods or services, obtain cash, or conduct P2P 
transfers, as described in new Sec.  1026.61(a)(2)(i). Specifically, 
new comment 61(a)(2)-2.i provides that a draw, transfer, or 
authorization from a separate credit feature is deemed to be in the 
``course of authorizing, settling, or otherwise completing'' a 
transaction if it occurs during the authorization phase of the 
transaction or in later periods up to the settlement of the 
transaction. This comment makes clear that a covered separate credit 
feature accessible by a hybrid prepaid-credit card includes an 
overdraft credit feature offered by a prepaid account issuer, its 
affiliate, or its business partner in connection with a prepaid 
account.
    New comment 61(a)(2)-2.ii focuses on situations in which the credit 
is drawn, transferred, or authorized to be drawn or transferred in the 
course of authorizing a transaction. New comment 61(a)(2)-2.ii makes 
clear that under new Sec.  1026.61(a)(2)(i), a prepaid card is a 
``hybrid prepaid-credit card'' with respect to a separate credit 
feature offered by a prepaid account issuer, its affiliate, or its 
business partner in cases, for example, where (1) transactions can be 
initiated using a prepaid card when there are insufficient or 
unavailable funds in the asset feature of the prepaid account at the 
time the transaction is initiated, and credit is transferred from the 
credit feature to the asset feature at the time the transaction is 
authorized to complete the transaction; and (2) transactions can be 
initiated using a prepaid card when there are insufficient or 
unavailable funds in the asset feature of the prepaid account at the 
time the transaction is initiated and credit is directly drawn from the 
credit feature to complete the transaction, without transferring funds 
into the prepaid account.
    New comment 61(a)(2)-2.iii provides illustrations of transactions 
in which credit is drawn, transferred, or authorized to be drawn or 
transferred in the course of settling a transaction. For example, under 
new Sec.  1026.61(a)(2)(i), a prepaid card is a ``hybrid prepaid-credit 
card'' with respect to such a separate credit feature in cases where 
credit can be automatically drawn, transferred, or authorized to be 
drawn or transferred from the separate credit feature at the time of 
settlement where there are insufficient or unavailable funds in the 
asset feature of the prepaid account to cover the original transaction 
with the card.
    New comment 61(a)(2)-3 clarifies that in addition to overdraft 
credit features, new Sec.  1026.61(a)(2)(i) also covers a prepaid card 
as a hybrid prepaid-credit card (and thus a credit card under 
Regulation Z) where the card is a traditional ``dual purpose'' card. In 
this case, a prepaid card can be used from time to time both to access 
the asset feature of a prepaid account and to draw on the covered 
separate credit feature in the course of a transaction independent of 
whether there are sufficient or available funds in the asset feature to 
complete the transaction. For example, assume that a consumer has $50 
in funds in her prepaid account. The consumer initiates a $25 
transaction with the card to purchase goods and services. If the 
consumer chooses at the time the transaction is initiated to use the 
card to access the prepaid account, the card will draw on the funds in 
the asset feature of the prepaid account to complete the transaction. 
If the consumer chooses at the time the transaction is initiated to use 
the card to access the covered separate credit feature, the card will 
draw on credit from the credit feature to complete the transaction, 
regardless of the fact that there were sufficient or available funds 
the prepaid account to complete the transaction.
    New comment 61(a)(2)-4.i clarifies that new Sec.  1026.61 and other 
provisions in Regulation Z related to hybrid prepaid-credit cards use 
the terms ``covered separate credit feature'' or ``covered separate 
credit feature accessible by a hybrid prepaid-credit card'' to refer to 
a separate credit feature that meets the conditions of new Sec.  
1026.61(a)(2)(i). See, e.g., final Sec. Sec.  1026.4(c)(4), 
1026.7(b)(11)(ii)(A), 1026.12(d)(3)(ii), 1026.60(a)(5)(iv), and 
1026.60(b). In addition, new comment 61(a)(2)-4.i also states that 
several provisions in Regulation Z also describe this arrangement as 
one where a covered separate credit feature and an asset feature on a 
prepaid account are both accessible by a hybrid prepaid-credit card, as 
defined in new Sec.  1026.61. See, e.g., final Sec. Sec.  
1026.4(b)(11), 1026.6(b)(3)(iii)(D), and 1026.13(i)(2).
    New comment 61(a)(2)-4.ii provides guidance on new Sec.  
1026.61(a)(2)(i)(B), which provides that a separate credit feature that 
meets the two conditions set forth in new Sec.  1026.61(a)(2)(i)(A) is 
a covered separate credit feature accessible by a hybrid prepaid-credit 
card even with respect to credit that is drawn or transferred, or 
authorized to be drawn or transferred, from the credit feature outside 
the course of a transaction conducted with the card to obtain goods or 
service, obtain cash, or conduct P2P transfers. New comment 61(a)(2)-
4.ii clarifies that if a prepaid card is capable of drawing or 
transferring credit, or authorizing either, from a separate credit 
feature offered by the prepaid account issuer, its affiliate, or its 
business partner in the course of authorizing, settling, or otherwise 
completing transactions conducted with the prepaid card to obtain goods 
or services, obtain cash, or conduct a P2P transfer, the credit feature 
is a covered separate credit feature accessible by a hybrid prepaid-
credit card, even with respect to credit that is drawn or transferred, 
or authorized to be drawn or transferred, from the credit feature 
outside the course of a transaction conducted with the card to obtain 
goods or services, obtain cash, or conduct P2P transfers. For example, 
with respect to a covered separate credit feature, a consumer may use 
the prepaid card at the prepaid account issuer's Web site to load funds 
from the covered separate credit feature outside the course of a 
transaction conducted with the card to obtain goods or services, obtain 
cash, or conduct P2P transfers. This credit transaction is considered a 
credit transaction on a covered separate credit feature accessible by a 
hybrid prepaid-credit card, even though the load or transfer of funds 
occurred outside the course of a transaction conducted with the card to 
obtain goods or services, obtain cash, or conduct P2P transfers. As 
discussed above, the Bureau believes that if the prepaid card is 
capable of accessing the separate credit feature in the two conditions 
set forth in Sec.  1026.61(a)(2)(i), the covered separate credit 
feature is a credit card account under Regulation Z, even with respect 
to draws or transfers of credit from the covered separate credit 
feature that occur outside the course of any transactions conducted 
with the card to obtain goods or services, obtain cash, or conduct P2P 
transfers.
Non-Covered Separate Credit Features
    As discussed above, in order for a separate credit feature to be a 
``covered

[[Page 84252]]

separate credit feature'' accessible by a hybrid prepaid-credit card, 
the separate credit feature must meet the following two conditions set 
forth in new Sec.  1026.61(a)(2)(i): (1) The card can be used from time 
to time to access credit from the separate credit feature in the course 
of authorizing, settling, or otherwise completing transactions 
conducted with the card to obtain goods or services, obtain cash, or 
conduct P2P transfers; and (2) the separate credit feature is offered 
by the prepaid account issuer, its affiliate, or its business partner.
    New Sec.  1026.61(a)(2)(ii) defines the term ``non-covered separate 
credit feature'' to mean a separate credit feature that does not meet 
these two conditions. Under Sec.  1026.61(a)(2)(ii), a prepaid card 
that accesses credit from a non-covered separate credit feature is not 
a hybrid prepaid-credit card with respect to this non-covered separate 
credit feature, even if the prepaid card is a hybrid prepaid-credit 
card with respect to a covered separate credit feature as described 
above. A non-covered separate credit feature is not subject to the 
rules applicable to hybrid prepaid-credit cards; however, it typically 
will be subject to Regulation Z depending on its own terms and 
conditions, independent of the connection to the prepaid account.
    New comment 61(a)(2)-5.i clarifies that a separate credit feature 
is a ``non-covered separate credit feature'' when the separate credit 
feature is offered by an unrelated third party that is not the prepaid 
account issuer, its affiliate, or its business partner. This is true 
even if the separate credit feature functions as an overdraft credit 
feature with respect to the prepaid account. For example, assume a 
consumer links her prepaid account to a credit card issued by a card 
issuer that is not the prepaid account issuer, its affiliate, or its 
business partner so that credit is drawn automatically into the asset 
feature of the prepaid account in the course of authorizing, settling, 
or otherwise completing transactions conducted with the prepaid card 
for which there are insufficient funds in the asset feature. In this 
case, the separate credit feature is a non-covered separate credit 
feature under Sec.  1026.61(a)(2)(ii). In this situation, the prepaid 
card is not a hybrid prepaid-credit card with respect to the separate 
credit feature offered by the unrelated third-party card issuer.
    New comment 61(a)(2)-5.ii clarifies that a separate credit feature 
is a ``non-covered separate credit feature'' if a prepaid card cannot 
access the separate credit feature during the course of authorizing, 
settling, or otherwise completing transactions to obtain goods or 
services, obtain cash, or conduct P2P transfers. This is true even if 
the separate credit feature is offered by the prepaid account issuer, 
its affiliate, or its business partner. For example, assume that a 
consumer can only conduct a draw or transfer of credit, or 
authorization of either, from a separate credit feature to a prepaid 
account at the prepaid account issuer's Web site, and these draws, 
transfers, or authorizations of either, cannot occur in the course of 
authorizing, settling, or otherwise completing transactions at the Web 
site to obtain goods or services, obtain cash, or conduct P2P 
transfers. In this case, the separate credit feature is a non-covered 
separate credit feature under Sec.  1026.61(a)(2)(ii). In this 
situation, the prepaid card is not a hybrid prepaid-credit card under 
Sec.  1026.61(a)(2) with respect to this non-covered separate credit 
feature.
    New comment 61(a)(2)-5.iii explains that a person offering a non-
covered separate credit feature does not become a card issuer under 
final Sec.  1026.2(a)(7), and thus does not become a creditor under 
final Sec.  1026.2(a)(17)(iii) or (iv), because the prepaid card can be 
used to access credit from the non-covered separate credit feature. The 
person offering the non-covered separate credit feature, however, may 
already have obligations under Regulation Z with respect to that 
separate credit feature. For example, if the non-covered separate 
credit feature is an open-end credit card account offered by an 
unrelated third-party creditor that is not an affiliate or business 
partner of the prepaid account issuer, the person already will be a 
card issuer under final Sec.  1026.2(a)(7) and thus a creditor under 
final Sec.  1026.2(a)(17)(iii). Nonetheless, in that case, the person 
does not need to comply with the provisions in Regulation Z applicable 
to hybrid prepaid-credit cards even though the prepaid card can access 
credit from the non-covered separate credit feature. The obligations 
under Regulation Z that apply to a non-covered separate credit feature 
are not affected by the fact that the prepaid card can access credit 
from the non-covered separate credit feature.
    Each of the two types of non-covered separate credit features is 
discussed in more detail below.
    Non-covered separate credit feature where a prepaid card can access 
a separate credit feature that is not offered by the prepaid account 
issuer, its affiliate, or its business partner. As discussed above, the 
Bureau received comments from industry stating that a prepaid card 
should not be a credit card with respect to a separate credit feature 
when the credit feature is offered by an unrelated third-party. These 
commenters were concerned that an unrelated third party may not be 
aware when its credit feature is used as an overdraft credit feature 
with respect to a prepaid account. If unrelated third parties that 
offer separate credit features were subject to the provisions 
applicable to hybrid prepaid-credit cards, these third parties would 
face additional compliance risk in connection with the prepaid card 
becoming a new access device for the credit account. This would have 
been true even if the third parties were already subject to the credit 
card rules in their own right because the proposal contained a number 
of provisions that would have applied only to prepaid cards that are 
credit cards and would not have applied to credit card accounts 
generally.
    In contrast, several consumer groups supported the proposed rule to 
consider a third party that offers an open-end credit feature accessed 
by a prepaid card to be an agent of the prepaid account issuer and thus 
a credit card issuer with responsibilities under Regulation Z.
    Based on the comments, the Bureau believes it is appropriate not to 
trigger status as a hybrid prepaid-credit card where a credit feature 
is not offered by the prepaid account issuer, its affiliate, or its 
business partner, even if an individual consumer decides to link the 
two accounts such that a draw or transfer of credit, or authorization 
of either, occurs during the course of authorizing, settling, or 
otherwise completing transactions to obtain goods or services, obtain 
cash, or conduct P2P transfers.
    With respect to a third party offering a separate credit feature 
that is neither an affiliate nor a business partner of the prepaid 
account issuer, the Bureau recognizes that this unrelated third party 
may not be aware when its credit feature is used as an overdraft credit 
feature with respect to a prepaid account. If unrelated third parties 
were subject to the provisions applicable to hybrid prepaid-credit 
cards, such third parties would face additional compliance risk in 
connection with the prepaid card becoming a new access device for the 
credit account. This can occur when the prepaid account issuer uses the 
ACH network to execute an authorization from a consumer to pull credit 
for a consumer from a separate credit account offered by an unrelated 
third party. Financial institutions participating in the ACH network 
may have difficulty specifically identifying and blocking pulls of 
credit by a prepaid account (and, unlike with credit/debit

[[Page 84253]]

cards, the prepaid account issuer likely would have no way of knowing 
if the account and routing number a consumer provides for ACH purposes 
accesses a deposit account or a credit account). Moreover, because an 
ACH debit pull may be used to access credit from accounts that are not 
subject to the current credit card rules in their own right, the Bureau 
is concerned that unrelated third parties offering separate credit 
features would face even more challenges if the pull (or the ability to 
initiate pulls) triggered credit card compliance obligations.
    The Bureau also is concerned that unrelated third parties that are 
already subject to the credit card rules in their own right also may be 
unwilling to assume that compliance risk due to the prepaid account 
issuer's actions in linking a separate credit feature offered by an 
unrelated third party to a prepaid account to be used as an overdraft 
credit feature. As a result, the Bureau is concerned that credit card 
networks could prevent prepaid account issuers from being merchants in 
the network for all purposes because credit card issuers would not want 
to be subject to the enhanced obligations in Regulation Z that would 
apply if a prepaid card were deemed to be a credit card with respect to 
a credit card account offered by an unrelated third party. The Bureau 
believes that this rule will reduce the risk that unrelated third 
parties offering separate credit features would take the steps 
described above, which could harm consumers by making prepaid accounts 
less widely usable by consumers.
    Thus, the final rule does not consider a prepaid card to be a 
credit card under the regulation in relation to a separate credit 
feature where an unrelated third party that is not an affiliate or 
business partner of the prepaid account issuer offers the credit 
feature.
    In contrast, the Bureau does believe that it is appropriate to 
consider a prepaid card to be a credit card when it can access an 
overdraft credit feature that is offered by a third party where the 
third party is the prepaid account issuer's affiliate or its business 
partner. As discussed further below in the section-by-section analysis 
of Sec.  1026.61(a)(5), new Sec.  1026.61(a)(5)(i) defines the term 
``affiliate'' for purposes of Sec.  1026.61 and other provisions in 
Regulation Z related to hybrid prepaid-credit cards to mean any company 
that controls, is controlled by, or is under common control with 
another company, as set forth in the Bank Holding Company Act of 1956 
(12 U.S.C. 1841 et seq.).
    As discussed further below in the section-by-section analysis of 
Sec.  1026.61(a)(5), new Sec.  1026.61(a)(5)(iii) defines the term 
``business partner'' for purposes of Sec.  1026.61 and other provisions 
in Regulation Z related to hybrid prepaid-credit cards generally to 
mean a person (other than the prepaid account issuer or its affiliates) 
that can extend credit through a separate credit feature where either 
(1) the person that can extend credit or its affiliate has an agreement 
with the prepaid account issuer or its affiliate that the prepaid card 
can access the separate credit feature in the course of a transaction; 
or (2) the person that can extend credit or its affiliate has a cross-
marketing agreement or other similar arrangement with the prepaid 
account issuer or its affiliate and where, whether or not by agreement, 
the prepaid card can access the separate credit feature in the course 
of a transaction.
    The Bureau believes that it is appropriate to consider such an 
unaffiliated third party that can extend credit to be the prepaid 
account issuer's business partner in the above circumstances because in 
those cases, there is a sufficient connection between the parties such 
that the unaffiliated third party should know that its credit feature 
is accessible by a prepaid card as a credit feature for the prepaid 
account. Also, the Bureau believes that these types of links between 
the prepaid account issuer and the unaffiliated third party are likely 
to involve revenue sharing or payments between the two companies and 
the pricing structure of the two accounts may be related. Thus, the 
Bureau believes that it is appropriate to consider these entities to be 
business partners in this context.
    The Bureau believes that the approach described above of not 
covering a prepaid card as a credit card with respect to a separate 
credit feature when it is offered by a third party that is not an 
affiliate or business partner of the prepaid account issuer addresses 
the concerns discussed above about unintended consequences for 
consumers and third parties alike, while appropriately guarding against 
the risk that third parties offering separate credit features or their 
affiliates would cooperate with prepaid account issuers or their 
affiliates to attempt to evade the intended scope of the rules 
regarding overdraft credit features.
    Non-covered separate credit feature where prepaid card can access 
separate credit feature only outside the course of a transaction. One 
issuing credit union expressed concerned that the proposal would have 
triggered the credit card rules in situations in which a prepaid card 
could be used only to complete standalone loads or transfers of credit 
from a separate credit feature to the prepaid account, but not to 
access credit in the course of a transaction conducted with the prepaid 
card. This commenter noted that consumers can consciously load value to 
their prepaid account using their debit card or credit card, where the 
load is not part of an overdraft feature offered in connection with the 
prepaid account. When using the debit card, the consumer may 
consciously load funds from an overdraft or line of credit product that 
is linked to a traditional checking account. When using a credit card, 
the consumer is loading from an available credit card balance to fund 
the prepaid account. This commenter urged the Bureau to clarify that 
such loads do not make the prepaid card into a credit card under 
Regulation Z.
    Several consumer group commenters suggested that the credit card 
rules should apply to a credit account even if the credit account did 
not function as an overdraft credit feature with respect to a prepaid 
account, so long as credit from the credit account was deposited into 
the prepaid account. These consumer group commenters indicated that the 
Bureau should apply the credit card rules to all credit transferred to 
a prepaid account, even if there is another way to access the credit.
    Another consumer group commenter indicated that the Bureau should 
apply the credit card rules to all open-end lines of credit where 
credit may be deposited or transferred to prepaid accounts if either 
(1) the creditor is the same institution as or has a business 
relationship with the prepaid issuer; or (2) the creditor reasonably 
anticipates that a prepaid card will be used as an access device for 
the line of credit. Nonetheless, this commenter said that the final 
rule should not impact a completely unrelated credit account that has 
no connection to prepaid issuers or consumers identified as prepaid 
card users, even though the creditor allows credit to be transferred 
from the credit account through the ACH system.
    In the final rule, the Bureau is clarifying the circumstances in 
which a prepaid card is a credit card from the proposal to address 
circumstances in which credit can only be loaded or transferred from a 
separate credit feature to the prepaid account outside the course of 
completing a transaction conducted with the prepaid card. Under new 
Sec.  1026.61(a)(2)(ii), even if a separate credit feature is offered 
by the prepaid account issuer, its affiliate, or its business partner, 
a prepaid card is not a hybrid prepaid-credit card under

[[Page 84254]]

new Sec.  1026.61(a)(2) with respect to that separate credit feature if 
the feature cannot be accessed within the course of authorizing, 
settling, or otherwise completing transactions to obtain goods or 
services, obtain cash, or conduct P2P transfers. For example, assume 
that a consumer can only conduct a draw or transfer of credit, or 
authorization of either, from a separate credit feature to a prepaid 
account at the prepaid account issuer's Web site, and these draws, 
transfers, or authorizations of either, cannot occur in the course of 
authorizing, settling, or otherwise completing transactions at the Web 
site to obtain goods or services, obtain cash, or conduct P2P 
transfers. In this case, the separate credit feature is a non-covered 
separate credit feature under new Sec.  1026.61(a)(2)(ii), and the 
prepaid card is not a hybrid prepaid-credit card under new Sec.  
1026.61(a)(2) with respect to this non-covered separate credit feature.
    With respect to this type of non-covered separate credit feature, 
the separate credit feature cannot function as an overdraft credit 
feature with respect to the prepaid account. In addition, the prepaid 
card also cannot function as a traditional ``dual purpose'' card where 
the card can be used both to access the asset feature of a prepaid 
account and to draw on the separate credit feature in the course of 
authorizing, settling, or otherwise completing transactions conducted 
with the card to obtain goods or services, obtain cash, or conduct P2P 
transfers independent of whether there are sufficient or available 
funds in the asset feature to complete the transaction. Instead, the 
prepaid card can only be used to draw or transfer credit from the 
separate credit feature on an occasional and intentional basis, outside 
the course of authorizing, settling, or otherwise completing 
transactions conducted with the card to obtain goods or services, 
obtain cash, or conduct P2P transfers. The Bureau believes that this 
situation is somewhat less risky for consumers because consumers would 
be required to make a deliberate decision to access the credit outside 
the course of a transaction, and thus can separately evaluate the 
tradeoffs involved. The Bureau also believes that this clarification is 
consistent with the proposal's general focus on covering overdraft 
credit features offered in connection with prepaid accounts as credit 
card accounts under Regulation Z.
    In addition, in adopting this approach, the Bureau is drawing on 
the same logic and maintaining consistency with the existing credit 
card rules' treatment of overdraft lines of credit that can be accessed 
by debit cards. Under the existing rules as set forth in existing 
comments 2(a)(15)-2.i.B and 2(a)(15)-2.ii.A., debit cards are generally 
treated as credit cards under existing Sec.  1026.2(a)(15)(i) when they 
access overdraft lines of credit (where there is an agreement to extend 
credit). In addition, the term ``credit card'' also includes a deposit 
account number even when there is no physical debit card device when 
the account number can be used to access an open-end line of credit to 
purchase goods or services. Nonetheless, under the current definition 
of credit card as set forth in existing comment 2(a)(15)(i)-2.ii.C, a 
deposit account number is not a credit card if the account number can 
only be used as a destination for the transfer of money from a separate 
credit account.
Prepaid Card Can Access Multiple Separate Credit Features
    The Bureau recognizes that a prepaid card may access multiple 
separate credit features in a variety of circumstances. New Sec.  
1026.61(a)(2)(ii) and new comment 61(a)(2)-6 clarify coverage under new 
Sec.  1026.61(a)(2) when a prepaid card can access multiple separate 
credit features. New Sec.  1026.61(a)(2)(ii) and new comment 61(a)(2)-6 
provide that even if a prepaid card is a hybrid prepaid-credit card 
with respect to a covered separate credit feature, it is not a hybrid 
prepaid-credit card with respect to any non-covered separate credit 
features. New comment 61(a)(2)-6 provides the following example to 
illustrate: Assume that a prepaid card can access ``Separate Credit 
Feature A'' where the card can be used from time to time to access 
credit from a separate credit feature that is offered by the prepaid 
account issuer, its affiliate, or its business partner in the course of 
authorizing, settling, or otherwise completing transactions conducted 
with the card to obtain goods or services, obtain cash, or conduct P2P 
transfers. In addition, assume that the prepaid card also can access 
``Separate Credit Feature B,'' but that credit feature is offered by an 
unrelated third-party creditor that is not the prepaid account issuer, 
its affiliate, or its business partner. The prepaid card is a hybrid 
prepaid-credit card with respect to ``Separate Credit Feature A'' 
because it is a covered separate credit feature under new Sec.  
1026.61(a)(2)(i). The prepaid card, however, is not a hybrid prepaid-
credit card with respect to ``Separate Credit Feature B'' because it is 
a non-covered separate credit feature under new Sec.  
1026.61(a)(2)(ii).
61(a)(3) Prepaid Card Can Access Credit Extended Through a Negative 
Balance On the Asset Feature of the Prepaid Account
    Many industry commenters argued that the Bureau should not regulate 
overdraft credit features under Regulation Z except where there is an 
agreement to extend credit, consistent with how overdraft credit is 
treated with respect to checking accounts. These commenters said that 
the Bureau should instead subject overdraft credit programs where there 
is not an agreement to the opt-in regime in Regulation E Sec.  1005.17, 
which currently applies to overdraft services provided for ATM and one-
time debit card transactions. For the reasons discussed in the Overview 
of the Final Rule's Amendments to Regulation Z section, the Bureau 
continues to believe that it is appropriate generally to cover 
overdraft credit features offered by prepaid account issuers that are 
structured as a negative balance on the prepaid account as credit card 
accounts under Regulation Z, except as provided in new Sec.  
1026.61(a)(4).
    Accordingly, new Sec.  1026.61(a)(3)(i) provides that a prepaid 
card that can access credit extended through a negative balance on the 
asset balance of the prepaid card is a hybrid prepaid-credit card 
unless the card can only access incidental credit as described in new 
Sec.  1026.61(a)(4). Nonetheless, as discussed in more detail below, 
new Sec.  1026.61(a)(3) is intended to trigger coverage under the 
credit card rules with respect to such overdraft credit features. For 
purposes of coverage, a person offering such an overdraft credit 
feature is a ``card issuer'' under final Sec.  1026.2(a)(7) that is 
subject to Regulation Z, including new Sec.  1026.61(b). However, as 
discussed in more detail in the section-by-section analysis of Sec.  
1026.61(b) below, new Sec.  1026.61(b) prohibits card issuers from 
structuring an overdraft credit feature as a negative balance on the 
asset feature of the prepaid account, unless the program is structured 
to involve only incidental credit as provided in new Sec.  
1026.61(a)(4). The Bureau believes that this rule is necessary to 
promote transparency and compliance with the credit card requirements. 
Thus, under new Sec.  1026.61(b), a card issuer must structure an 
overdraft credit feature in connection with a prepaid account as a 
separate credit feature, such as a credit account or credit subaccount 
to the prepaid account that is separate from the asset feature of the 
prepaid account, except for overdraft credit features described in new 
Sec.  1026.61(a)(4). This

[[Page 84255]]

separate credit feature is a ``covered separate credit feature'' under 
new Sec.  1026.61(a)(2)(i). Thus, new Sec.  1026.61(a)(3)(ii) provides 
that notwithstanding that Sec.  1026.61(c)(3)(i) triggers coverage 
under Regulation Z, structuring a hybrid prepaid-credit card to access 
credit through a negative balance on the asset feature violates new 
Sec.  1026.61(b). A prepaid account issuer can use a negative asset 
balance structure to extend credit on an asset feature of a prepaid 
account only if the prepaid card is not a hybrid prepaid-credit card as 
described in new Sec.  1026.61(a)(4).
    In terms of providing guidance on the situations that trigger 
coverage under Sec.  1026.61(a)(3)(i), new comment 61(a)(3)(i)-1.i 
provides a cross-reference to new comment 2(a)(14)-3 for examples of 
when transactions authorized or paid on the asset feature of a prepaid 
account meet the definition of credit under final Sec.  1026.2(a)(14). 
New comment 61(a)(3)(i)-1.ii provides that except as provided in Sec.  
1026.61(a)(4), a prepaid card would trigger coverage as a hybrid 
prepaid-credit card if it is a single device that can be used from time 
to time to access credit that can be extended through a negative 
balance on the asset feature of the prepaid account. This comment 
clarifies, however, that unless the only credit offered meets the 
requirements of Sec.  1026.61(a)(4), such a product structure would 
violate the rules under Sec.  1026.61(b).
    New comment 61(a)(3)(i)-1.ii also explains that a credit extension 
through a negative balance on the asset feature of a prepaid account 
can occur during the authorization phase of the transaction or in later 
periods up to the settlement of the transaction. New comment 
61(a)(3)(i)-1.iii provides that, for example, credit is extended 
through a negative balance on the asset feature of a prepaid account 
where a transaction is initiated using a prepaid card when there are 
insufficient or unavailable funds in the asset feature of the prepaid 
account at the time the transaction is initiated, and credit is 
extended on the asset feature of the prepaid account when the 
transaction is authorized. New comment 61(a)(3)(i)-1.iv also provides, 
for example, that credit is extended through a negative balance on the 
asset feature of a prepaid account where a transaction occurs when 
there are sufficient or available funds in the asset feature of the 
prepaid account at the time of authorization to cover the amount of the 
transaction but where the consumer does not have sufficient or 
available funds in the asset feature to cover the transaction at the 
time of settlement. In this case, credit is extended on the asset 
feature at settlement to pay those transactions. Also, credit is 
extended through a negative balance on the asset feature of a prepaid 
account where a transaction settles even though it was not authorized 
in advance, and credit is extended through a negative balance on the 
asset feature at settlement to pay that transaction.
    As discussed above, new Sec.  1026.61(a)(3) is intended to trigger 
coverage under the credit card rules with respect to such overdraft 
credit features. New comment 61(a)(3)(ii)-1 explains that new Sec.  
1026.61(a)(3)(i) determines whether a prepaid card triggers coverage as 
a hybrid prepaid-credit card under new Sec.  1026.61(a), and thus, 
whether a prepaid account issuer is a card issuer under final Sec.  
1026.2(a)(7) subject to this regulation, including new Sec.  
1026.61(b). However, new Sec.  1026.61(b) requires that any credit 
feature accessible by a hybrid prepaid-credit card must be structured 
as a separate credit feature using either a credit subaccount of the 
prepaid account or a separate credit account. In that case, a card 
issuer would violate new Sec.  1026.61(b) if it structures the credit 
feature as a negative balance on the asset feature of the prepaid 
account, unless the only credit offered in connection with the prepaid 
account satisfies new Sec.  1026.61(a)(4). A prepaid account issuer can 
use a negative asset balance structure to extend credit on a prepaid 
account if the prepaid card is not a hybrid prepaid-credit card as 
described in new Sec.  1026.61(a)(4).
61(a)(4) Exception
    As discussed above, many industry commenters raised concerns 
regarding the breadth of fees that would be considered finance charges 
under the proposal. Many industry commenters were concerned that even 
though they were not intending to offer credit in connection with the 
prepaid account, credit could result in certain circumstances, such as 
forced pay-transactions as discussed in the section-by-section analysis 
of Sec.  1026.61(a) above. Because this credit could be extended, many 
commenters were concerned that fees that generally applied to the 
prepaid account, but were not specific to the overdraft credit, could 
be finance charges under the proposal and thus would subject the 
prepaid account issuer to the credit card rules under Regulation Z. 
These commenters were concerned that they could not charge certain fees 
on the prepaid account, or would have to waive certain fees, for the 
prepaid card not to be a credit card under the proposal.
    For example, one payment network indicated that a prepaid card 
should not be a credit card when it accesses credit extended through a 
negative balance on the asset balance of the prepaid account if the 
only fees charged on the prepaid account in connection with the 
extension of credit are the very same fees that would apply to the same 
transaction on the prepaid card without an extension of credit. 
Similarly, two industry trade associations urged that a prepaid card 
should be a credit card when it accesses credit extended through a 
negative balance on the asset balance of the prepaid account only if 
the prepaid account issuer charges fees directly correlated with the 
overdraft in question. These commenters argued that a prepaid card 
should not be a credit card when it accesses credit extended through a 
negative balance on the asset balance of the prepaid account if the 
prepaid account issuer only imposes on the prepaid account fees or 
charges that are wholly unrelated to an overdraft, such as a fee to 
make a balance inquiry at an ATM. These commenters also indicated that 
a prepaid card should not be a credit card when the prepaid account 
issuer only imposes unrelated fees or charges on the prepaid account, 
even when these unrelated fees or charges are imposed when the prepaid 
account balance is negative.
    Another industry trade association indicated that a monthly fee to 
hold the prepaid account should not cause a prepaid card to be a credit 
card simply because the fee may be imposed when the balance on the 
prepaid account is negative or because negative balances can occur on 
the prepaid account.
    A program manager indicated that the Bureau should clarify that a 
prepaid card is not a credit card simply because the prepaid account 
issuer charges reasonable debt collection costs (including attorney's 
fees) related to collecting the overdraft credit from a consumer.
    As discussed above, many industry commenters were particularly 
concerned that under the proposal, a prepaid account issuer would need 
to waive per transaction fees in certain circumstances to avoid 
triggering the credit card rules. The circumstances raised by industry 
commenters centered on (1) force pay transactions; (2) payment 
cushions; and (3) transactions that take the account negative when a 
load of funds from an asset account is pending, as discussed in more 
detail below and in the section-by-section analysis of Sec.  
1026.61(a).

[[Page 84256]]

    One consumer group commenter urged the Bureau to cover all prepaid 
cards as credit cards when the prepaid card accesses credit, regardless 
of whether a finance charge, as defined in Sec.  1026.4, or a fee 
described under Sec.  1026.4(c) is imposed for the credit. This 
commenter recognized, however, that exceptions for force pay 
transactions and payment cushions may be necessary. With respect to 
payment cushions, this commenter supported not triggering the credit 
card rules where a prepaid card can only access a de minimis amount of 
credit, using $10 as a safe harbor, if such credit is not promoted or 
disclosed. With respect to force pay transactions, this commenter 
supported requiring a prepaid account issuer to waive the per 
transaction fee that is imposed on a credit transaction where credit is 
extended through a negative balance on the asset feature of the prepaid 
account in order to avoid triggering the credit card rules under the 
proposal. Nonetheless, this commenter indicated that if the Bureau 
decides to make any exceptions with respect to force pay transactions, 
these exceptions should be limited to prepaid account issuers who do 
everything possible to prevent overdrafts, have overdrafts in only very 
rare and unpreventable situations, and do not charge penalty fees 
related to declined transactions, overdrafts, or negative balances.
    As discussed above, new Sec.  1026.61(a)(4) creates an exception to 
the general rule that credit structured as a negative balance feature 
on an prepaid asset account is subject to the credit card rules, in 
order to provide flexibility for the kinds of incidental credit that 
commenters raised concerns about. Specifically as described in new 
Sec.  1026.61(a)(4), an overdraft credit feature where credit is 
extended through a negative balance on the asset feature of the prepaid 
account is not accessible by a hybrid prepaid-credit card where: (1) 
The prepaid card cannot access a covered separate credit feature as 
defined in new Sec.  1026.61(a)(2)(i); (2) with respect to the prepaid 
account accessible by the prepaid card, the prepaid account issuer 
generally has a policy and practice of declining to authorize 
transactions made with the card when there are insufficient or 
unavailable funds in the asset feature of the prepaid account to cover 
the amount of the transactions, or the prepaid account issuer only 
authorizes those transactions in circumstances related to payment 
cushions and delayed load cushions discussed below; and (3) with 
respect to the prepaid account accessible by the prepaid card, the 
prepaid account issuer does not charge credit-related fees for any 
credit extended on the asset feature of the prepaid account, except for 
fees or charges for the actual costs of collecting the credit extended 
if otherwise permitted by law.\702\ Each of the three prongs of the 
limited exception is discussed in more detail below.
---------------------------------------------------------------------------

    \702\ An industry trade association and an issuing bank were 
concerned that all prepaid cards (and associated account numbers) 
could be credit cards or otherwise subject to Regulation Z solely 
due to the fact that the cardholder can incur an overdraft that he 
or she is contractually obligated to repay. These commenters asked 
the Bureau to clarify that ``credit'' under Regulation Z would not 
include the amount of an overdraft if the consumer is not 
contractually obligated to reimburse the card issuer for that 
overdraft (i.e., the consumer would not be incurring debt or 
deferring the payment of debt) and to clarify disclosure obligations 
if the consumer is not contractually obligated to repay the 
overdraft credit. The Bureau believes that it has addressed these 
concerns by providing the exception in Sec.  1026.61(a)(4) for how 
prepaid account issuers may provide incidental credit as a negative 
balance on the prepaid account without being subject to Regulation 
Z, even if the consumer is contractually obligated to pay these 
overdrafts.
---------------------------------------------------------------------------

    The Bureau believes that the exception in new Sec.  1026.61(a)(4) 
addresses many of the concerns raised by industry commenters and 
consumer group commenters. To address evasion risks and other concerns 
raised by consumer group commenters discussed above, the Bureau has 
carefully calibrated new Sec.  1026.61(a)(4). Specifically, under the 
final rule, a prepaid card is not a credit card under the regulation 
when it accesses credit through a negative balance on the asset feature 
of the prepaid account only in circumstances where, with respect to a 
prepaid account accessible by the prepaid card: (1) The prepaid account 
issuer generally declines to authorize transactions on the prepaid 
account that will create negative balances on the asset feature of the 
prepaid account (or allows those authorizations in limited 
circumstances related to payment cushions and delayed load cushions); 
and (2) the prepaid account issuer generally does not charge credit-
related fees for the credit extended on the asset feature of the 
prepaid account. Thus, for example, a prepaid card is a credit card 
under Regulation Z (i.e., a hybrid prepaid-credit card) when credit is 
extended through a negative balance on the asset feature of a prepaid 
account where, with respect to the prepaid account accessible by the 
prepaid card: (1) The prepaid account issuer has a policy and practice 
of authorizing transactions (outside of the payment cushion and delayed 
load circumstances described above) where there are insufficient or 
unavailable funds in the prepaid account to cover the amount of the 
transaction at authorization; or (2) a prepaid account issuer charges 
credit-related fees for credit extended through a negative balance on 
the asset feature of the prepaid account beyond fees or charges for the 
actual costs of collecting the credit extended if otherwise permitted 
by law.
    Thus, where new Sec.  1026.61(a)(4) has not been satisfied, the 
final rule prohibits a prepaid account issuer from offering an 
overdraft credit feature as a negative balance to the asset feature of 
the prepaid account and requires the prepaid account issuer to offer 
the overdraft credit feature as a ``covered separate credit feature'' 
under new Sec.  1026.61(a)(2)(i). Specifically, under new Sec.  
1026.61(a)(3), a prepaid card that can access credit extended through a 
negative balance on the asset feature of the prepaid card is a hybrid 
prepaid-credit card for purposes of coverage under the credit card 
rules unless the card can only access credit described in new Sec.  
1026.61(a)(4). A person offering such an overdraft credit feature is a 
``card issuer'' under final Sec.  1026.2(a)(7) and is subject to 
Regulation Z, including new Sec.  1026.61(b). However, to facilitate 
transparency and compliance with Regulation Z, the Bureau is 
prohibiting card issuers under new Sec.  1026.61(b) from structuring an 
overdraft credit feature as a negative balance on the asset feature of 
the prepaid account, except as provided in new Sec.  1026.61(a)(4). 
Instead, under new Sec.  1026.61(b), a card issuer must structure an 
overdraft credit feature in connection with a prepaid account as a 
separate credit feature, such as a credit account or credit subaccount 
to the prepaid account that is separate from the asset feature of the 
prepaid account, except for overdraft credit features described in new 
Sec.  1026.61(a)(4). This separate credit feature is a ``covered 
separate credit feature'' under new Sec.  1026.61(a)(2)(i).
    The Bureau believes that new Sec.  1026.61(a)(4) will allow prepaid 
account issuers who do not intend to offer substantive credit programs 
to provide incidental credit in circumstances that will benefit 
consumers, without opening the door to widespread evasion of the rule. 
First, with respect to force pay transactions, payment cushions, and 
delayed load cushions, under this exception, the final rule provides 
that credit card rules will not be triggered so long as the prepaid 
account issuer generally does not charge credit-related fees for the 
credit extended and has met the other requirements. Second, the final 
rule provides that a prepaid account issuer is not required under this 
exception to

[[Page 84257]]

waive per transaction fees imposed on the asset feature of the prepaid 
account if the amount of the per transaction fee imposed for 
transactions involving credit is not higher than the amount of the fee 
that is imposed for transactions that only access funds in the asset 
feature of the prepaid account. Rather, the final rule provides that 
under this exception, if a fee is not a credit-related fee as 
enumerated in new Sec.  1026.61(a)(4)(ii)(B), the prepaid account 
issuer may still debit these fees or charges from the asset feature 
when there are insufficient or unavailable funds in the asset feature 
to cover those fees or charges at the time they are imposed. Third, the 
final rule provides that under this exception, a prepaid account issuer 
may charge a fee to hold the prepaid account, so long as the amount of 
the fee or charge to hold the prepaid account imposed on the asset 
feature is not higher based on whether credit might be offered or has 
been accepted, whether or how much credit the consumer has accessed, or 
the amount of credit available. Fourth, the final rule provides that a 
prepaid account issuer may still qualify for the exception in new Sec.  
1026.61(a)(4) even if it charges fees or charges for the actual costs 
of collecting the credit extended if otherwise permitted by law, so 
long as the other conditions of the exception have been met.
    To the extent that a prepaid account issuer meets the conditions as 
described in new Sec.  1026.61(a)(4) with respect to a prepaid card, 
the prepaid card is not a hybrid prepaid-credit card and thus is not a 
credit card under the regulation. As discussed in more detail below, 
the final rule provides that in the case where a prepaid card is not a 
hybrid prepaid-credit card because the only credit it can access meets 
the conditions set forth in new Sec.  1026.61(a)(4), the prepaid 
account issuer is not a card issuer under final Sec.  1026.2(a)(7) with 
respect to the prepaid card. The prepaid account issuer also is not a 
creditor under final Sec.  1026.17(a)(iii) or (iv) because it is not a 
card issuer under final Sec.  1026.2(a)(7) with respect to the prepaid 
card. The prepaid account issuer also is not a creditor under final 
Sec.  1026.2(a)(17)(i) as a result of imposing fees on the prepaid 
account because those fees are not finance charges as described in new 
comment 4(b)(11)-1.iii. As discussed in the section-by-section analysis 
of Sec.  1026.61(a), in light of the very limited nature of the 
incidental credit, the Bureau believes that it is appropriate to 
exclude this incidental credit from coverage under Regulation Z.
    Prepaid card cannot access a covered separate credit feature under 
Sec.  1026.61(a)(2)(i). To qualify for the exception in new Sec.  
1026.61(a)(4), new Sec.  1026.61(a)(4)(i) provides that the prepaid 
card cannot access credit from a covered separate credit feature, as 
defined in new Sec.  1026.61(a)(2)(i). The Bureau believes that 
allowing a prepaid account issuer to take advantage of the exception in 
new Sec.  1026.61(a)(4) even though the card can access a covered 
separate credit feature, described in new Sec.  1026.61(a)(2)(i), would 
allow the prepaid account issuer to circumvent the rules in new Sec.  
1026.61(a)(2)(i).
    New comment 61(a)(4)-1.i and ii explain that Sec.  1026.61(a)(4)(i) 
is designed to limit the exception for when a prepaid card is not a 
credit card to circumstances in which (1) the card can only access 
credit extended through a negative balance on the asset feature of the 
prepaid account in accordance with both the conditions set forth in new 
Sec.  1026.61(a)(4)(ii)(A) and (B); and (2) the card can access credit 
from a non-covered separate credit feature, as defined in new Sec.  
1026.62(a)(2)(ii), but cannot access credit for a covered separate 
credit feature, as defined in new Sec.  1026.62(a)(2)(i).
    New comment 61(a)(4)-1.iii makes clear that a prepaid account 
issuer does not qualify for the exception in new Sec.  1026.61(a)(4) if 
the prepaid account issuer structures the arrangement such that when 
there are insufficient or unavailable funds in the asset feature of the 
prepaid account at the time a transaction is initiated, the card can 
draw, transfer, or authorize the draw or transfer of credit from a 
covered separate credit feature offered by the prepaid account issuer, 
its affiliate, or its business partner during the authorization phase 
to complete the transaction so that credit is not extended on the asset 
feature of the prepaid account.
    New comment 61(a)(4)-1.iv provides guidance on how the regulation 
applies in cases where the prepaid card is not a hybrid prepaid-credit 
card. Specifically, new comment 61(a)(4)-1.iv provides that in the case 
where a prepaid card is not a hybrid prepaid-credit card because the 
only credit it can access meets the conditions set forth in new Sec.  
1026.61(a)(4), the prepaid account issuer is not a card issuer under 
final Sec.  1026.2(a)(7) with respect to the prepaid card. The prepaid 
account issuer also is not a creditor under final Sec.  1026.17(a)(iii) 
or (iv) because it is not a card issuer under final Sec.  1026.2(a)(7) 
with respect to the prepaid card. The prepaid account issuer also is 
not a creditor under final Sec.  1026.2(a)(17)(i) as a result of 
imposing fees on the prepaid account because those fees are not finance 
charges, as described in new comment 4(b)(11)-1.iii.
    General policy and practice of declining transactions that will 
create a negative balance. To qualify for the exception in new Sec.  
1026.61(a)(4), new Sec.  1026.61(a)(4)(ii)(A) provides that with 
respect to any prepaid account that is accessible by the prepaid card, 
a prepaid account issuer also must have established a policy and 
practice of either declining to authorize any transaction for which it 
reasonably believes the consumer has insufficient or unavailable funds 
in the asset feature of the prepaid account at the time the transaction 
is authorized, or declining to authorize any such transactions except 
in two circumstances related to payment cushions and delayed load 
cushions as discussed below.
    This prong is designed to limit the exception under new Sec.  
1026.61(a)(4) to situations where the prepaid account issuer generally 
is not authorizing transactions that will take the asset feature of the 
prepaid account negative. The Bureau believes that this prong will help 
ensure that consumers do not develop a substantial negative balance on 
their prepaid asset accounts that most do not intend to use as a credit 
account, which could pose risks to consumers by compromising their 
ability to manage and control their finances. This prong is intended to 
address concerns raised by industry commenters that the proposed 
circumstances in which a prepaid card would be a credit card captured 
(1) ``force pay'' transactions, (2) payment cushions; and (3) delayed 
load cushions, while also balancing consumer group concerns that any 
such limited exceptions be cabined in a way that does not undermine the 
broader rule. Thus, the final rule does not cover overdraft credit 
features under Regulation Z where these three types of credit are 
extended through a negative balance on the asset feature of the prepaid 
account, so long as the prepaid account issuer generally does not 
charge credit-related fees for the credit.
    As discussed above, ``force pay'' transactions occur where the 
prepaid account issuer is required by card network rules to pay a 
transaction even though there are insufficient or unavailable funds in 
the asset feature of the prepaid account to cover the transaction at 
settlement. This can occur, for example, when a transaction is either 
not authorized in advance, or there were sufficient or available funds 
in the asset feature of the prepaid account at the time the transaction 
is

[[Page 84258]]

authorized, but there are insufficient or unavailable funds in the 
asset feature at the time the transaction is settled, and a negative 
balance results on the asset feature when the transaction is paid.
    New comment 61(a)(4)(ii)(A)-1 makes clear that a prepaid account 
issuer is not required to receive an authorization request for each 
transaction to comply with this requirement. Nonetheless, the prepaid 
account issuer generally must establish an authorization policy as 
described above and have reasonable practices in place to comply with 
its established policy with respect to the authorization requests it 
receives. In that case, a prepaid account issuer is deemed to satisfy 
the requirement set forth in new Sec.  1026.61(a)(4)(ii)(A) even if a 
negative balance results on the prepaid account when a transaction is 
settled.
    New comment 61(a)(4)(ii)(A)-2 also makes clear that a prepaid 
account issuer may still satisfy the requirements set forth in Sec.  
1026.61(a)(4)(ii)(A) even if a negative balance results on the asset 
feature of the prepaid account because the prepaid account issuer 
debits the amount of any provisional credit that was previously granted 
on the prepaid account, as specified in final Regulation E Sec.  
1005.11, so long as the prepaid account issuer otherwise complies with 
the conditions set forth in new Sec.  1026.61(a)(4). For example, under 
new Sec.  1026.61(a)(4), a prepaid account issuer may not impose a fee 
or charge enumerated under new Sec.  1026.61(a)(4)(ii)(B) with respect 
to such a negative balance.
    This exception also allows a prepaid account issuer to adopt a 
payment cushion where the issuer would authorize transactions that 
would take the account balance negative by no more than $10 at the time 
the transaction is authorized. The Bureau believes that this $10 
payment cushion will benefit consumers without allowing consumers to 
develop a substantial negative balance on their prepaid asset accounts, 
which could pose risks for consumers.
    As discussed above, one consumer group commenter suggested that 
prepaid account issuer should be prevented from advertising or 
disclosing this payment cushion in order to take advantage of any 
exception of this credit from coverage under Regulation Z. The final 
rule does not prevent a prepaid account issuer from advertising or 
disclosing this payment cushion to consumers in order to take advantage 
of the exception in new Sec.  1026.61(a)(4). The Bureau does not 
believe that it is necessary to restrict prepaid account issuers from 
advertising or disclosing this payment cushion to consumers, given the 
de minimis amount of credit ($10) that they may offer through the 
payment cushion. The Bureau believes that such a restriction may 
discourage prepaid account issuers from offering such a payment 
cushion, which could harm consumers.
    In addition, the exception allows a prepaid account issuer to adopt 
a delayed load cushion. Specifically, in cases where the prepaid 
account issuer has received an instruction or confirmation for an 
incoming EFT originated from a separate asset account to load funds to 
the prepaid account or where the prepaid account issuer has received a 
request from the consumer to load funds to the prepaid account from a 
separate asset account but in either case the funds from the separate 
asset account have not yet settled, a prepaid account issuer may still 
qualify for the exception in new Sec.  1026.61(a)(4) if the prepaid 
account authorizes transactions that take the prepaid account negative, 
so long as the transactions will not cause the account balance to 
become negative at the time of the authorization by more than the 
incoming or requested load amount, as applicable.
    The Bureau recognizes that, in some cases, a prepaid account issuer 
may receive instructions or confirmation with respect to incoming EFTs 
from a separate asset account to load funds to the prepaid account, 
such as in cases involving direct deposits of salaries or government 
benefits. In such cases, prepaid account issuers may provide access to 
these funds to prepaid cardholders based on the instructions or 
confirmations even though the prepaid account issuer's transfer of 
funds has not yet settled, and therefore the prepaid account issuer 
does not have the funds.
    In addition, the Bureau also recognizes that, in some cases, 
prepaid account issuers may receive a request from the consumer to load 
funds to the prepaid account from a separate asset account, including 
where the consumer, in the course of a transaction, requests a load 
from a deposit account or uses a debit card to cover the amount of the 
transaction. This can occur, for example, when a consumer authorizes a 
remittance through a mobile wallet which is linked to a checking 
account, the consumer requests that funds be taken from the consumer's 
checking account to pay for the remittance, and the remittance is sent 
before the incoming transfer of funds from the checking account is 
complete. In this case, the prepaid account issuer is extending credit 
through a negative balance on the asset feature of the prepaid account 
until the incoming transfer of funds from the checking account is 
complete.
    In these two situations, the Bureau believes that it would benefit 
consumers to receive access to the funds prior to settlement, so long 
as the consumer generally is not charged credit-related fees. The 
Bureau does not believe these situations raise the same concerns as 
overdraft credit features offered by prepaid account issuers in 
connection with prepaid accounts.
    To facilitate compliance, new comment 61(a)(4)(ii)(A)-3.i provides 
examples of cases where the prepaid account issuer may receive an 
instruction or confirmation for an incoming EFT originating from a 
separate asset account to load funds to the prepaid account. This 
comment describes that such instructions or confirmations may occur in 
relation to a direct deposit of salary from an employer and a direct 
deposit of government benefits. New comment 61(a)(4)(ii)(A)-3.ii also 
provides an example of a case where the prepaid account issuer may 
receive a request from the consumer to load funds to the prepaid 
account from a separate asset account. This comment describes an 
example where the consumer, in the course of a transaction, requests a 
load from a deposit account or uses a debit card to cover the amount of 
the transaction if there are insufficient funds in the asset feature of 
the prepaid account to pay for the transaction.
    New comment 61(a)(4)(ii)(A)-4 also makes clear that the two 
circumstances described above in which a prepaid account issuer can 
authorize transactions that create a negative balance on the asset 
feature of the prepaid account, namely payment cushions and delayed 
load cushions, are not mutually exclusive. For example, assume a 
prepaid account issuer has adopted the $10 payment cushion and the 
delayed load cushion. Also, assume the prepaid account issuer has 
received an instruction or confirmation for an incoming EFT originating 
from a separate asset account to load funds to the prepaid account, but 
the prepaid account issuer has not received the funds from the separate 
asset account. In this case, a prepaid account issuer satisfies this 
requirement if the amount of a transaction at authorization will not 
cause the prepaid account balance to become negative at the time of the 
authorization by more than the requested load amount plus the $10 
payment cushion.
    No credit-related fees except for fees or charges for the actual 
costs of the collecting the credit if otherwise permitted by law. To 
qualify for the

[[Page 84259]]

exception in new Sec.  1026.61(a)(4), new Sec.  1026.61(a)(4)(ii)(B) 
provides that with respect to prepaid accounts that are accessible by 
the prepaid card, the prepaid account issuer may generally not charge 
credit-related fees on the asset feature of the prepaid account. 
Specifically, the exception would only apply where the prepaid account 
issuer does not charge the following fees: (1) Any fees or charges for 
opening, issuing, or holding a negative balance on the asset feature, 
or for the availability of credit, whether imposed on a one-time or 
periodic basis. These fees do not include fees or charges to open, 
issue, or hold the prepaid account where the amount of the fee or 
charge imposed on the asset feature is not higher based on whether 
credit might be offered or has been accepted, whether or how much 
credit the consumer has accessed, or the amount of credit available; 
(2) any fees or charges that will be imposed only when credit is 
extended on the asset feature or when there is a negative balance on 
the asset feature, except that a prepaid account issuer may impose fees 
or charges for the actual costs of collecting the credit extended if 
otherwise permitted by law; or (3) any fees or charges where the amount 
of the fee or charge is higher when credit is extended on the asset 
feature or when there is a negative balance on the asset feature.
    Thus, this prong prevents a prepaid account issuer from charging 
credit-related fees for the credit extended through a negative balance 
on the prepaid account, except for fees or charges for the actual costs 
of collecting the credit extended if otherwise permitted by law. 
Because the credit extended through the exception in new Sec.  
1026.61(a)(4) is intended to be limited to inadvertent or de minimis 
credit, the Bureau believes that it is appropriate to limit the 
exception to instances in which the prepaid account issuer does not 
charge credit-related fees for the credit, except for fees or charges 
for the actual costs of collecting the credit extended if otherwise 
permitted by law. In addition, the Bureau believes that preventing 
prepaid account issuers from generally charging credit-related fees to 
take advantage of this exception will provide greater incentive to 
prepaid account issuers to limit the circumstances resulting in 
``forced pay'' transactions extended through this exception. For the 
reasons discussed in the Overview of the Final Rule's Amendments to 
Regulation Z section, the Bureau believes that it is appropriate to 
generally cover overdraft credit features offered by prepaid account 
issuers where, with respect to the prepaid account accessible by the 
prepaid card: (1) The prepaid account issuer has a policy and practice 
of authorizing transactions (outside of the payment cushion and delayed 
load circumstances described above) where there are insufficient or 
unavailable funds in the prepaid account to cover the amount of the 
transaction at authorization; or (2) a prepaid account issuer charges 
credit-related fees for credit extended through a negative balance on 
the asset feature of the prepaid account beyond fees or charges for the 
actual costs of collecting the credit extended if otherwise permitted 
by law.
    To facilitate compliance, new comment 61(a)(4)(ii)(B)-1 clarifies 
that new Sec.  1026.61(a)(4)(ii)(B) does not prohibit a prepaid account 
issuer from charging different terms on different prepaid account 
programs. For example, the terms may differ between a prepaid account 
program where a covered separate credit feature accessible by a hybrid 
prepaid-credit card is not offered in connection with any prepaid 
accounts within the prepaid account program and a prepaid account 
program where a covered separate credit feature accessible by a hybrid 
prepaid-credit card may be offered to some consumers in connection with 
their prepaid accounts. The Bureau recognizes that prepaid account 
issuer may offer prepaid programs for different purposes and offer 
different services on those prepaid account programs. Those service 
differences may impact the pricing on the prepaid programs. The Bureau 
believes that requiring prepaid account issuers to charge the same fees 
on all of its prepaid account programs to take advantage of this 
exception would make the exception generally unavailable for most 
prepaid account issuers.
    New Sec.  1026.61(a)(4)(ii)(B)(1) provides that to qualify for the 
exception in new Sec.  1026.61(a)(4), a prepaid account issuer may not 
charge on the prepaid account any fees or charges for opening, issuing, 
or holding a negative balance on the asset feature, or for the 
availability of credit, whether imposed on a one-time or periodic 
basis. These fees do not include fees or charges to open, issue, or 
hold the prepaid account where the amount of the fee or charge imposed 
on the asset feature is not higher based on whether credit might be 
offered or has been accepted, whether or how much credit the consumer 
has accessed, or the amount of credit available. New comment 
61(a)(4)(ii)(B)(1)-1 clarifies the types of fees or charges that are 
included and not included under new Sec.  1026.61(a)(4)(ii)(B)(1). New 
comment 61(a)(4)(ii)(B)(1)-1.i.A clarifies that the types of fees or 
charges described in new Sec.  1026.61(a)(4)(ii)(B)(1) include daily, 
weekly, monthly, or other periodic fees assessed each period that a 
prepaid account has a negative balance or is in ``overdraft'' status.
    New comment 61(a)(4)(ii)(B)(1)-1.i.B also clarifies that the types 
of fees or charges described in new Sec.  1026.61(a)(4)(ii)(B)(1) 
include daily, weekly, monthly, or other periodic fees where the amount 
of the fee that applies each period is higher if the consumer is 
enrolled in a purchase cushion as described in new Sec.  
1026.61(a)(4)(ii)(A)(1) or a delayed load cushion as described in new 
Sec.  1026.61(a)(4)(ii)(A)(2) during that period. For example, assume 
that a consumer will pay a fee of $10 to hold the prepaid account if 
the consumer is not enrolled in a purchase cushion or a delayed load 
cushion during that month, or alternatively, the consumer will pay a 
fee of $15 to hold the prepaid account if the consumer is enrolled in a 
purchase cushion or delayed load cushion during that period. The $15 
charge is a charge described in new Sec.  1026.61(a)(4)(ii)(B)(1) 
because the amount of the fee to hold the prepaid account is higher 
based on whether the consumer is participating in the payment cushion 
or delayed load cushion during that period.
    New comment 61(a)(4)(ii)(B)(1)-1.ii clarifies that new Sec.  
1026.61(a)(4)(ii)(B)(1) does not prohibit a daily, weekly, monthly, or 
other periodic fee to hold the prepaid account so long as the amount of 
the fee is not higher based on whether the consumer is enrolled in a 
purchase cushion or a delayed load cushion during that period, whether 
or how much credit has been extended during that period, or the amount 
of credit that is available during that period.
    New Sec.  1026.61(a)(4)(ii)(B)(2) provides that to qualify for the 
exception in new Sec.  1026.61(a)(4), the prepaid account issuer may 
not impose any fees or charges on the asset feature of the prepaid 
account that will be imposed only when credit is extended on the asset 
feature or when there is a negative balance on the asset feature. New 
comment 61(a)(4)(ii)(B)(2)-1 provides examples of fees that are and are 
not fees or charges that will be imposed only when credit is extended 
on the asset feature or when there is a negative balance on the asset 
feature. New comment 61(a)(4)(ii)(B)(2)-1.i provides that fees or 
charges that will be imposed only when credit is extended on the asset 
feature or when there is a negative

[[Page 84260]]

balance on the asset feature include: (1) A fee imposed because the 
balance on the prepaid account becomes negative; (2) interest charges 
attributable to a periodic rate that applies to the negative balance; 
(3) any fees for delinquency, default, or a similar occurrences that 
result from the prepaid account having a negative balance or being in 
``overdraft'' status, except that the actual costs to collect the 
credit may be imposed if otherwise permitted by law; and (4) late 
payment fees.
    Consistent with the proposal, a prepaid card is a credit card under 
the final rule if the prepaid account issuer charges a late fee with 
respect to the credit.\703\ With regard to late payment fees in 
particular, the Bureau is concerned that such fees could be structured 
to take the place of a per transaction fee for a credit extension on 
the prepaid account. For example, if a late fee were not included as a 
enumerated fee under new Sec.  1026.61(a)(4)(ii)(B), a prepaid account 
issuer could provide that payment of the overdraft is due immediately 
and charge a late fee each day that the overdraft balance remains 
outstanding. The Bureau believes such a late fee would function as a 
fee for a negative balance that is not permitted to be imposed on the 
prepaid account if the prepaid account issuer intends to qualify for 
the exception in new Sec.  1026.61(a)(4). Thus, the final rule provides 
that a late fee may not be imposed on the asset feature of a prepaid 
account if the prepaid account issuer intends to qualify for the 
exception in new Sec.  1026.61(a)(4). Nonetheless, new Sec.  
1026.61(a)(4)(ii)(B)(2) and new comment 61(a)(4)(ii)(B)(2)-1.ii.A 
provide that a prepaid account issuer may impose fees on the asset 
feature of the prepaid account for actual collection costs, including 
attorney's fees, and still qualify for the exception in new Sec.  
1026.61(a)(4) if those fees are otherwise permitted by law. The Bureau 
does not believe that allowing a prepaid account issuer to qualify for 
the exception in new Sec.  1026.61(a)(4), even if the prepaid account 
issuer imposes actual collection costs to collect the credit, poses the 
same evasion risks discussed above in regard to late fees because these 
costs must be the actual costs incurred by the prepaid account issuer 
to collect the credit, and those fees must be otherwise permitted by 
law.
---------------------------------------------------------------------------

    \703\ Under the proposal, a prepaid card would have been a 
credit card if it is a single device that may be used from time to 
time to access a credit plan, except if that prepaid card only 
accesses credit that is not subject to any finance charge, as 
defined in Sec.  1026.4 or any fee described in Sec.  1026.4(c) and 
is not payable by written agreement in more than four installments. 
A late fee is a fee described in Sec.  1026.4(c)(2) and thus under 
the proposal, a prepaid card would have been a credit card if a late 
fee was charged for the credit.
---------------------------------------------------------------------------

    New Sec.  1026.61(a)(4)(ii)(B)(3) provides that to qualify for the 
exception in new Sec.  1026.61(a)(4)(ii)(B), the prepaid account issuer 
may not impose any fees or charges on the asset feature of the prepaid 
account that are higher when credit is extended on the asset feature or 
when there is a negative balance on the asset feature. New comment 
61(a)(4)(ii)(B)(3)-1 provides examples of fees that are and are not 
fees or charges where the amount of the fee or charge is higher when 
credit is extended on the asset feature or when there is a negative 
balance on the asset feature.
    New comment 61(a)(4)(ii)(B)(3)-1.i.A provides that new Sec.  
1026.61(a)(4)(ii)(B)(3) includes transaction fees where the amount of 
the fee is higher based on whether the transaction accesses only asset 
funds in the asset feature or accesses credit. For example, a $15 
transaction charge is imposed on the asset feature each time a 
transaction is authorized or paid when there are insufficient or 
unavailable funds in the asset feature at the time of the authorization 
or settlement. A $1.50 fee is imposed each time a transaction is paid 
entirely from funds in the asset feature. The $15 charge is a charge 
where the amount of the fee or charge is higher when credit is extended 
on the asset feature or when there is a negative balance on the asset 
feature because the transaction fee is higher when the transaction 
accesses credit than when the transaction accesses only asset funds in 
the asset feature.
    New comment 61(a)(4)(ii)(B)(3)-1.i.B provides that new Sec.  
1026.61(a)(4)(ii)(B)(3) includes a fee for a service on the prepaid 
account where the amount of the fee is higher based on whether the 
service is requested when the asset feature has a negative balance. For 
example, if a prepaid account issuer charges a higher fee for an ATM 
balance inquiry requested on the prepaid account if the balance inquiry 
is requested when there is a negative balance on the asset feature than 
the amount of fee imposed when there is a positive balance on the asset 
feature, the balance inquiry fee is a fee described in new Sec.  
1026.61(a)(4)(ii)(B)(3) because the amount of the fee is higher based 
on whether it is imposed when there is a negative balance on the asset 
feature.
    Nonetheless, new comment 61(a)(4)(ii)(B)(3)-1.ii.A provides that 
new Sec.  1026.61(a)(4)(ii)(B)(3) does not include transaction fees on 
the prepaid account where the amount of the fee imposed when the 
transaction accesses credit does not exceed the amount of the fee 
imposed when the transaction only accesses asset funds in the prepaid 
account. For example, assume a $1.50 transaction charge is imposed on 
the prepaid account for each paid transaction that is made with the 
prepaid card, including transactions that only access asset funds, 
transactions that take the account balance negative, and transactions 
that occur when the account balance is already negative. The $1.50 
transaction charge imposed on the prepaid account is not prohibited 
under new Sec.  1026.61(a)(4)(ii)(B) because the fee or charge is not 
higher when credit is extended on the asset feature or when there is a 
negative balance on the asset feature. Thus, under the final rule, a 
prepaid account issuer would not need to waive per transaction fees for 
credit extensions where the per transaction fee is not higher when 
credit is extended on the asset feature or when there is a negative 
balance on the asset feature.
    New comment 61(a)(4)(ii)(B)(3)-1.ii.B provides that new Sec.  
1026.61(a)(4)(ii)(B)(3) does not include a fee for a service on the 
prepaid account where the amount of the fee is not higher based on 
whether the service is requested when the asset feature has a negative 
balance. For example, if a prepaid account issuer charges the same 
amount of fee for an ATM balance inquiry regardless of whether there is 
a positive or negative balance on the asset feature, the balance 
inquiry fee is not a fee described in new Sec.  1026.61(a)(4)(ii)(B).
    New Sec.  1026.61(a)(4)(ii)(C) also makes clear that a prepaid 
account issuer may still satisfy the exception in new Sec.  
1026.61(a)(4) even if it debits fees or charges from the asset feature 
when there are insufficient or unavailable funds in the asset feature 
to cover those fees or charges at the time they are imposed, so long as 
those fees or charges are not the type of fees or charges enumerated in 
new Sec.  1026.61(a)(4)(ii)(B), as discussed above. New comment 
61(a)(4)(ii)(C)-1 explains that a fee or charge not otherwise covered 
by new Sec.  1026.61(a)(4)(ii))(B) does not become covered by that 
provision simply because there are insufficient or unavailable funds in 
the asset feature of the prepaid account to pay the fee when it is 
imposed. For example, assume that a prepaid account issuer imposes a 
fee for an ATM balance inquiry and the amount of the fee is not higher 
based on whether credit is extended or whether there is a negative 
balance on the prepaid account. Also assume that when

[[Page 84261]]

the fee is imposed, there are insufficient or unavailable funds in the 
asset feature of the prepaid account to pay the fee. The ATM balance 
inquiry fee does not become a fee covered by new Sec.  
1026.61(a)(4)(ii)(B) because the fee is debited from the prepaid 
account balance when there are insufficient or unavailable funds in the 
asset feature of the prepaid account to cover the fee at the time it is 
imposed.
61(a)(5) Definitions
    New Sec.  1026.61(a)(5) sets forth definitions of the following 
terms that are used in new Sec.  1026.61 and throughout the regulation 
in relation to hybrid prepaid-credit cards: (1) Prepaid account; (2) 
prepaid card; (3) prepaid account issuer; (4) affiliate; (5) business 
partner; (6) asset feature; (7) credit feature; and (8) separate credit 
feature. Each of these definitions is discussed in more detail below.
Prepaid Account and Prepaid Card
    Although Regulation Z and its commentary use the term ``debit 
card,'' that term is not defined. Generally, under the existing 
regulation, this term refers to a card that accesses an asset account. 
Specifically, existing comment 2(a)(15)-2.i.B provides as an example of 
a credit card: ``A card that accesses both a credit and an asset 
account (that is, a debit-credit card).'' In addition, existing comment 
2(a)(15)-2.ii.A provides that the term credit card does not include a 
debit card with no credit feature or agreement, even if the creditor 
occasionally honors an inadvertent overdraft.
    Under the proposal, different rules generally would have applied in 
Regulation Z depending on whether credit is accessed by a card or 
device that accesses a prepaid account or a card or device that 
accesses another type of asset account. To assist compliance with the 
regulation, the proposal would have defined ``debit card'' for purposes 
of Regulation Z in proposed Sec.  1026.2(a)(15)(iv) to mean ``any card, 
plate, or other single device that may be used from time to time to 
access an asset account other than a prepaid account.'' The proposed 
definition of ``debit card'' would have specified that it does not 
include a prepaid card. Proposed Sec.  1026.2(a)(15)(v) would have 
defined ``prepaid card'' to mean ``any card, code, or other device that 
can be used to access a prepaid account.'' The proposal would have 
defined ``prepaid account'' in proposed Sec.  1026.2(a)(15)(vi) to mean 
a prepaid account as defined in proposed Regulation E Sec.  
1005.2(b)(3). Proposed comment 2(a)(15)-6 would have provided that the 
term ``prepaid card'' in proposed Sec.  1026.2(a)(15)(v) includes any 
card, code, or other device that can be used to access a prepaid 
account, including a prepaid account number or other code. That 
proposed comment also would have provided that the phrase ``credit 
accessed by a prepaid card'' means any credit that is accessed by any 
card, code, or other device that also can be used to access a prepaid 
account.
    The term ``prepaid account'' as defined in proposed Regulation E 
Sec.  1005.2(b)(3) would not have included gift cards, government 
benefit accounts that are excluded under Regulation E Sec.  
1005.15(a)(2), employee flex cards, and HSA and other medical expense 
cards. Under current Regulation Z and the proposal, these cards would 
not been credit cards unless they were subject to an agreement to 
extend credit.
    Nonetheless, the Bureau solicited comment on whether gift cards, 
government benefit accounts that are excluded under Regulation E Sec.  
1005.15(a)(2), employee flex cards, and HSA and other medical expense 
cards should be included within the definition of ``prepaid accounts'' 
for purposes of Regulation Z, even if those accounts would not been 
considered prepaid accounts for purposes of error resolution, 
disclosure, and other purposes under Regulation E. The Bureau solicited 
comment on current and potential credit features that may be offered on 
these types of cards, the nature of potential risks to consumers if 
credit features were offered on these types of cards, and incentives 
for the industry to offer credit features on these types of cards. The 
Bureau also solicited comment on any implications of treating these 
products as prepaid accounts under Regulation Z but not Regulation E.
    Several industry commenters, including programs managers and a 
payment network, indicated that these products should not be covered by 
Regulation Z if they are not prepaid accounts under Regulation E. One 
consumer group commenter indicated that these accounts should be 
covered by Regulation Z if they offer overdraft credit even if they are 
not prepaid accounts under Regulation E. This commenter indicated that 
while those types of accounts would rarely, if ever, have a credit or 
overdraft feature, the Bureau should to include prepaid cards in the 
Regulation Z definition of credit card if they access credit or 
overdraft features in connection with such accounts.
    One program manager also indicated that the Bureau should exempt 
student cards and payroll cards from the overdraft provisions in the 
proposal under Regulation Z even if these cards access prepaid accounts 
as defined in Regulation E.
    As discussed in the Overview of the Final Rule's Amendments to 
Regulation Z section, consistent with the proposal, the final rule 
generally applies different rules in Regulation Z depending on whether 
credit is accessible by a hybrid prepaid-credit card that can access 
both a covered separate credit feature and the asset feature of a 
prepaid account as defined in new Sec.  1026.61(a), or credit is 
accessed by a card or device that accesses another type of asset 
account.
    Consistent with the proposal, as discussed in more detail in the 
section-by-section analysis of Sec.  1026.2(a)(15)(iv) above, the term 
``debit card'' is defined in new Sec.  1026.2(a)(15)(iv) to mean any 
card, plate, or other single device that may be used from time to time 
to access an asset account other than a prepaid account, as defined in 
new Sec.  1026.61. Under the final rule, the term ``debit card'' does 
not include a prepaid card, as defined in Sec.  1026.61.
    The final rule moves the definition of ``prepaid card'' from 
proposed Sec.  1026.2(a)(15)(v) to new Sec.  1026.61(a)(5)(vii) and 
adopts this definition as proposed. New Sec.  1026.61(a)(5)(vii) 
defines ``prepaid card'' to mean any card, code, or other device that 
can be used to access a prepaid account. The final rule moves proposed 
comment 2(a)(15)-6 to new comment 61(a)(5)(vii)-1 and revises it. 
Consistent with proposed comment 2(a)(15)-6, new comment 61(a)(5)(vii)-
1 clarifies that the term ``prepaid card'' in new Sec.  
1026.61(a)(5)(vii) includes any card, code, or other device that can be 
used to access a prepaid account, including a prepaid account number or 
other code. Proposed comment 2(a)(15)-6 also would have provided that 
the phrase ``credit accessed by a prepaid card'' means any credit that 
is accessed by any card, code, or other device that also can be used to 
access a prepaid account. The Bureau has not adopted this part of 
proposed comment 2(a)(15)-6 because the final rule does not use the 
term ``credit accessed by a prepaid card.'' Instead, the final rule 
uses the term ``hybrid prepaid-credit card'' as defined in Sec.  
1026.61(a).
    The Bureau is not exempting categorically student cards and payroll 
cards from the provisions in the final rule under Regulation Z even if 
these cards access prepaid accounts as defined in Regulation E and meet 
the definition of ``hybrid prepaid-credit card'' under new Sec.  
1026.61(a). These cards would be ``prepaid cards'' under new Sec.  
1026.61(a)(15)(vii) to the extent

[[Page 84262]]

that they are cards, codes, or other devices that can be used to access 
a prepaid account, including a prepaid account number or other code. In 
addition, these cards would be hybrid prepaid-credit cards to the 
extent they meet the definition in new Sec.  1026.61(a). The Bureau 
does not believe that it is appropriate to categorically exclude these 
cards from the provisions in the final rule under Regulation Z to the 
extent these cards are ``hybrid prepaid-credit cards'' as defined in 
new Sec.  1026.61(a). The Bureau believes that consumers holding 
student prepaid cards and payroll cards would benefit from the 
protections provided by Regulation Z if those prepaid cards meet the 
definition of ``hybrid prepaid-credit cards'' under new Sec.  
1026.61(a). In addition, the Bureau believes that it is appropriate to 
maintain consistency between the definitions of ``prepaid account'' in 
Regulation E Sec.  1005.2(b)(3) and Regulation Z Sec.  
1026.61(a)(5)(v).
    The final rule moves the definition of ``prepaid account'' from 
proposed Sec.  1026.2(a)(15)(vi) to new Sec.  1026.61(a)(5)(v) and 
adopts this definition as proposed. As discussed in the section-by-
section analysis of Regulation E Sec.  1005.2(b)(3)(ii) above, the term 
``prepaid account,'' as defined in final Regulation E Sec.  
1005.2(b)(3)(ii), does not include, among other things, products such 
as gift cards, accounts established for distributing certain needs-
tested government benefits that are excluded under Regulation E Sec.  
1005.15(a)(2), and certain types of health care and employee benefit 
accounts. The provisions in the final rule that apply to covered 
separate credit features accessible by hybrid prepaid-credit cards do 
not apply to cards or access devices that access these types of 
accounts because they are not ``prepaid accounts'' under final 
Regulation E Sec.  1005.2(b)(3) or new Regulation Z Sec.  
1026.61(a)(5)(v). At this time, the Bureau does not believe that it is 
appropriate to include these accounts in the definition of ``prepaid 
account'' for purposes of new Sec.  1026.61(a)(5)(v), when these 
accounts are not ``prepaid accounts'' for purposes of final Sec.  
1005.2(b)(3). The Bureau is unaware of any credit features currently 
associated with cards that access these types of accounts. At this 
time, the Bureau believes that it is appropriate to maintain 
consistency between the definitions of ``prepaid account'' in 
Regulation E Sec.  1005.2(b)(3) and Regulation Z Sec.  
1026.61(a)(5)(v).
Prepaid Account Issuer, Affiliate, and Business Partner
    The proposal did not define the terms ``prepaid account issuer,'' 
``affiliate,'' or ``business partner.'' For the reasons discussed in 
the section-by-section analysis of Sec.  1026.61, the Bureau is 
revising the circumstances from the proposal for when a prepaid card is 
a credit card (i.e., hybrid prepaid-credit card) under Regulation Z. 
Under the final rule, new Sec.  1026.62(a)(2)(i) provides that a 
prepaid card is a hybrid prepaid-credit card with respect to a separate 
credit feature when it is a single device that can be used from time to 
time to access the separate credit feature where the following two 
conditions are satisfied: (1) The card can draw, transfer, or authorize 
the draw or transfer of credit from the separate credit feature in the 
course of authorizing, settling, or otherwise completing transactions 
conducted with the card to obtain goods or services, obtain cash, or 
conduct P2P transfers; and (2) the separate credit feature is offered 
by the prepaid account issuer, its affiliate, or its business partner.
    Definition of ``prepaid account issuer.'' New Sec.  
1026.61(a)(5)(vi) defines ``prepaid account issuer'' to mean a 
financial institution as defined in Regulation E Sec.  1005.2(i) with 
respect to a prepaid account.
    Definition of ``affiliate.'' New Sec.  1026.61(a)(5)(i) defines 
``affiliate'' to mean any company that controls, is controlled by, or 
is under common control with another company, as set forth in the Bank 
Holding Company Act of 1956.\704\ This definition is consistent with 
how affiliate is used in other provisions in Regulation Z.\705\
---------------------------------------------------------------------------

    \704\ 12 U.S.C. 1841 et seq.
    \705\ See, e.g., existing Sec.  1026.32(b)(5).
---------------------------------------------------------------------------

    Definition of ``business partner.'' New Sec.  1026.61(a)(5)(iii) 
defines the term ``business partner'' for purposes of new Sec.  1026.61 
and other provisions in Regulation Z related to hybrid prepaid-credit 
cards to mean a person (other than the prepaid account issuer or its 
affiliates) that can extend credit through a separate credit feature 
where the person or its affiliate has ``an arrangement'' with a prepaid 
account issuer or its affiliate. As explained in new comment 
61(a)(5)(iii)-1, a person that can extend credit or its affiliate has 
an arrangement with a prepaid account issuer or its affiliate for 
purposes of new Sec.  1026.61(a)(5)(iii) if the circumstances in either 
comment 61(a)(5)(iii)-1.i or comment 61(a)(5)(iii)-1.ii are met. First, 
new comment 61(a)(5)(iii)-1.i provides that an unaffiliated person that 
can extend credit is a business partner of the prepaid account issuer 
if the person that can extend credit or its affiliate has an agreement 
with the prepaid account issuer or its affiliate that allows a prepaid 
card from time to time to draw, transfer, or authorize a draw or 
transfer of credit from the separate credit feature in the course of 
authorizing, settling, or otherwise completing transactions conducted 
with the card to obtain goods or services, obtain cash, or conduct P2P 
transfers. New comment 61(a)(5)(iii)-1.i provides, however, that the 
parties are not considered to have such an agreement merely because the 
parties participate in a card network or payment network together.
    Second, new comment 61(a)(5)(iii)-1.ii provides that an 
unaffiliated person that can extend credit is a business partner of the 
prepaid account issuer if the person or its affiliate has a business, 
marketing, promotional agreement, or other arrangement with the prepaid 
account issuer or its affiliate where the agreement or arrangement 
provides that prepaid accounts offered by the prepaid account issuer 
will be marketed to the customers of the person that can extend credit; 
or the credit feature will be marketed to the holders of prepaid 
accounts offered by the prepaid account issuer (including any marketing 
to customers to link the separate credit feature to the prepaid account 
to be used as an overdraft credit feature); and (2) at the time of the 
marketing agreement or arrangement, or at any time afterwards, the 
prepaid card from time to time can draw, transfer, or authorize the 
draw or transfer of credit from the separate credit feature in the 
course of transactions conducted with the card to obtain goods or 
services, obtain cash, or conduct P2P transfers. In this case, this 
requirement is satisfied even if there is no specific agreement between 
the parties that the card can access the separate credit feature, as 
described above under new comment 61(a)(5)(iii)-1.i. For example, this 
requirement is satisfied even if the draw, transfer, or authorization 
of the draw or transfer, from the separate credit feature is 
effectuated through a card network or payment network.
    New comment 61(a)(5)(iii)-2 provides that a person (other than a 
prepaid account issuer or its affiliates) that can extend credit 
through a separate credit feature will be deemed to have an arrangement 
with the prepaid account issuer if the person that can extend credit, 
its service provider, or the person's affiliate has an arrangement with 
the prepaid account issuer, its service provider such as a program 
manager, or the issuer's affiliates. In that

[[Page 84263]]

case, the person that can extend credit will be a business partner of 
the prepaid account issuer. For example, if the affiliate of the person 
that can extend credit has an arrangement with the prepaid account 
issuer's affiliate, the person that can extend credit will be the 
business partner of the prepaid account issuer.
    To prevent evasion of the protections provided in the final rule 
related to hybrid prepaid-credit cards, the Bureau believes that it is 
important to include an unaffiliated third party that can extend credit 
through a separate credit feature as a ``business partner'' of the 
prepaid account issuer where the person that can extend credit, or its 
affiliate, has a marketing agreement or arrangement with the prepaid 
account issuer, or its affiliate, and where, whether or not by 
agreement, the prepaid card can access the separate credit feature in 
the course of a transaction. Otherwise, the Bureau is concerned that 
without including such arrangements, prepaid account issuers or their 
affiliates could structure an arrangement with an unaffiliated third 
party that can extend credit, or its affiliate, to avoid forming an 
``agreement,'' as discussed in new comment 61(a)(5)(iii)-1.i, that the 
card may be used to access the third party's credit feature as an 
overdraft credit feature when all the parties understand that this type 
of connection is occurring. Such a result could frustrate the operation 
of certain consumer protections provided in the final rule. The Bureau 
believes that when there is a marketing agreement or arrangement 
between the parties as described in new comment 61(a)(5)(iii)-1.ii.A, 
the parties have a sufficient connection such that the unaffiliated 
third party that can extend credit should understand when its credit 
feature is used as an overdraft credit feature with respect to a 
prepaid account, even if there is no specific agreement between the 
parties to that effect under new comment 61(a)(5)(iii)-1.i. Also, the 
Bureau believes that these types of links between the prepaid account 
issuer and the unaffiliated third party that can extend credit are 
likely to involve revenue sharing or payments between the two 
companies, and the pricing structure of the two accounts may be tied 
together. Thus, the Bureau believes that it is appropriate to consider 
these entities to be business partners in this context.
Asset Feature, Credit Feature, and Separate Credit Feature
    As discussed in more detail in the section-by-section analysis of 
Sec.  1026.61(b) below, the final rule requires that credit features 
that are accessible by a hybrid prepaid-credit card be structured as a 
separate credit feature--either a separate sub-account or account--
rather than as a negative balance on the asset feature of a prepaid 
account. While a negative balance structure would be permissible where 
an issuer only offers incidental credit pursuant to new Sec.  
1026.61(a)(4),\706\ an issuer that offers more extensive credit or 
charges credit-related fees using a negative balance structure would be 
subject to the credit card rules pursuant to new Sec.  1026.61(a)(3), 
and would be in violation of the rule on account structure specified in 
new Sec.  1026.61(b). Instead, under the final rule, a card issuer must 
structure the credit feature as a separate credit feature, either as a 
separate credit account or as a credit subaccount of a prepaid account 
that is separate from the asset feature of the prepaid account. The 
separate credit feature is a covered separate credit feature accessible 
by a hybrid prepaid-credit card under new Sec.  1026.61(a)(2)(i).
---------------------------------------------------------------------------

    \706\ If a prepaid account issuer complies with the exception in 
Sec.  1026.61(a)(4) with respect to a prepaid account that is 
accessed by a prepaid card, the prepaid card is not a hybrid 
prepaid-credit card under Regulation Z, and thus is not a credit 
card under Regulation Z. The prepaid account issuer is not a card 
issuer under Sec.  1026.2(a)(7) and thus Sec.  1026.61(b) does not 
apply to the overdraft credit feature accessed by the prepaid card.
---------------------------------------------------------------------------

    The Bureau defines the terms ``asset feature,'' ``credit feature,'' 
and ``separate credit feature'' to effectuate the provisions set forth 
in new Sec.  1026.61(b), as well as other provisions set forth in new 
Sec.  1026.61 and in Regulation Z generally that relate to hybrid 
prepaid-credit cards. These defined terms are discussed in more detail 
below.
    Definition of ``asset feature.'' Under the final rule, the term 
``asset feature'' in new Sec.  1026.61(a)(5)(vii) is defined to mean an 
asset account that is a prepaid account, or an asset subaccount of a 
prepaid account. As described above and in more detail below in the 
section-by-section analysis of Sec.  1026.61(b), a card issuer cannot 
structure a credit feature as a negative balance on the asset feature 
of a prepaid account, unless the conditions in new Sec.  1026.61(a)(4) 
are met.
    Definition of ``credit feature.'' The term ``credit feature'' is 
defined in new Sec.  1026.61(a)(5)(iv) to mean either: (1) A separate 
credit account or a credit subaccount of a prepaid account through 
which credit can be extended in connection with a prepaid card, or (2) 
a negative balance on an asset feature of a prepaid account through 
which credit can be extended in connection with a prepaid card. As 
discussed above, under new Sec.  1026.61(b), a card issuer may not 
structure a credit feature as a negative balance on the asset feature 
of the prepaid account, except as permitted under new Sec.  
1026.61(a)(4).
    New comment 61(a)(5)(iv)-1 provides that the definition of ``credit 
feature'' set forth in new Sec.  1026.61(a)(5)(iv) only defines that 
term for purposes of Regulation Z in relation to credit offered in 
connection with a prepaid account or prepaid card. This comment 
explains that this definition does not impact when an account, 
subaccount or negative balance is a credit feature under Regulation Z 
with respect to credit in relation to a checking account or other 
transaction account that is not a prepaid account, or a debit card. 
See, e.g., existing comment 2(a)(15)-2.ii.A and existing comment 
4(b)(2)-1 where the term credit feature is used in relation to a debit 
card or asset account other than a prepaid account.
    One issuing credit union indicated that the Bureau should clarify 
that where a prepaid account is loaded with funds using a deposit 
account where an overdraft protection program or overdraft line of 
credit is activated, the prepaid card does not become a credit card 
under the proposal because the overdraft protection program or 
overdraft line of credit was activated. New comment 61(a)(5)(iv)-2 
provides that a ``credit feature'' for purposes of Sec.  
1026.61(a)(5)(iv) does not include an asset account other than a 
prepaid account that has an attached overdraft feature. For example, 
assume that funds are loaded or transferred to a prepaid account from 
an asset account (other than a prepaid account) on which an overdraft 
feature is attached. The asset account is not a credit feature under 
new Sec.  1026.61(a)(5)(iv) even if the load or transfer of funds to 
the prepaid account triggers the overdraft feature that is attached to 
the asset account.
    Definition of ``separate credit feature.'' New Sec.  
1026.61(a)(5)(viii) defines ``separate credit feature'' to mean a 
credit account or a credit subaccount of a prepaid account through 
which credit can be extended in connection with a prepaid card that is 
separate from the asset feature of the prepaid account. This term does 
not include a negative balance on an asset feature of a prepaid 
account. As discussed above, under new Sec.  1026.61(b), a card issuer 
must structure an overdraft credit feature in connection with a prepaid 
account as a separate credit feature, such as a credit account or 
credit subaccount to the prepaid account that is separate from the 
asset feature of the prepaid account, except for overdraft credit 
features

[[Page 84264]]

described in new Sec.  1026.61(a)(4). This separate credit feature is a 
``covered separate credit feature'' under new Sec.  1026.61(a)(2)(i).
61(b) Structure of Credit Features Accessible by Hybrid Prepaid-Credit 
Cards
The Bureau's Proposal
    Under the proposal, credit plans, including overdraft services and 
overdraft lines of credit, that are directly accessed by certain 
prepaid cards would have been subject to the rules for credit cards 
under Regulation Z. In particular, proposed comment 2(a)(15)-2.i.F 
would have provided that the term ``credit card'' includes a prepaid 
card (including a prepaid card that is solely an account number) that 
is a single device that may be used from time to time to access a 
credit plan, except if that prepaid card only accesses credit that is 
not subject to any finance charge, as defined in Sec.  1026.4, or any 
fee described in Sec.  1026.4(c), and is not payable by written 
agreement in more than four installments.
    The proposal made clear that the Bureau intended that the credit 
card rules apply broadly to a range of product structures. In the 
proposal, for instance, the Bureau specifically stated that the 
proposal was intended to cover: (1) Transactions that are authorized 
where the consumer has insufficient or unavailable funds in the prepaid 
account at the time of authorization; and (2) transactions on a prepaid 
account where the consumer has insufficient or unavailable funds in the 
prepaid account at the time the transaction is paid. Such transactions 
would have been credit accessed by a prepaid card that is a credit card 
under the proposal, regardless of whether the person established a 
separate credit account to extend the credit or whether the credit was 
simply reflected as a negative balance on the prepaid account.
    In addition to proposing a broad scope of coverage, the Bureau 
sought to explore practical considerations regarding product structure 
and operations for credit that would be subject to the credit card 
rules. Specifically, in the proposal, the Bureau stated its belief that 
creditors would tend to establish separate credit accounts to extend 
credit accessed by the prepaid card that is a credit card, instead of 
having the credit balance be reflected as a negative balance on the 
prepaid account, because creditors generally would find that separate 
credit accounts aid compliance with the periodic statement requirements 
in proposed Sec. Sec.  1026.5(b)(2)(ii) and 1026.7(b)(11) and the 
offset provisions in proposed Sec.  1026.12(d)(3) that would apply to 
credit card accounts accessed by prepaid cards. The Bureau solicited 
comment on whether creditors would likely establish separate credit 
accounts, instead of reflecting the credit balance as a negative 
balance on the prepaid account. The Bureau also solicited comment on 
any implications for compliance depending on how the account is 
structured (i.e., whether a separate credit account is created or 
whether the credit balance is reflected as a negative balance on the 
prepaid account) and whether any differentiation in regulation or 
guidance would be useful.
Comments Received
    The commenters that responded to the Bureau's questions on this 
issue universally supported separate account structures. Specifically, 
one industry trade association stated that it believed a credit feature 
that is accessed by a prepaid card that is a credit card under the 
proposal should not be structured as a negative prepaid account 
balance. This commenter pointed out that, if an account is a ``dual'' 
account, the overdraft line of credit would only be accessed if a 
transaction amount were more than the amount in the prepaid account, 
and such a transaction would create two distinct balances. Similarly, 
one consumer group commenter stated with respect to credit accessed by 
a prepaid card that is a credit card, the Bureau should require the 
credit feature to be structured as a separate account, rather than 
reflected as a negative balance on the prepaid account. This commenter 
indicated that allowing credit to be reflected solely as a negative 
balance on the prepaid account would be confusing to consumers and 
would undercut the message that the consumer is being given credit, and 
being charged for credit.
The Final Rule
    After consideration of these comments and additional internal 
analysis regarding transparency and compliance concerns, in the final 
rule, the Bureau requires that credit features that are accessible by a 
hybrid prepaid-credit card be structured as a separate credit feature--
either a separate sub-account or account--rather than as a negative 
balance on the asset feature of a prepaid account. While a negative 
balance structure would be permissible where an issuer only offers 
incidental credit pursuant to new Sec.  1026.61(a)(4),\707\ an issuer 
that offers more extensive credit or charges credit-related fees using 
a negative balance structure would be subject to the credit card rules, 
pursuant to new Sec.  1026.61(a)(3), and would be in violation of the 
rule on account structure specified in new Sec.  1026.61(b). Instead, 
under the final rule, a card issuer must structure the credit feature 
as a separate credit feature, either as a separate credit account, or 
as a credit subaccount of a prepaid account that is separate from the 
asset feature of the prepaid account. The separate credit feature is a 
covered separate credit feature accessible by a hybrid prepaid-credit 
card under new Sec.  1026.61(a)(2)(i).
---------------------------------------------------------------------------

    \707\ If a prepaid account issuer complies with the exception in 
Sec.  1026.61(a)(4) with respect to a prepaid account that is 
accessed by a prepaid card, the prepaid card is not a hybrid 
prepaid-credit card under Regulation Z, and thus is not a credit 
card under Regulation Z. The prepaid account issuer is not a card 
issuer under Sec.  1026.2(a)(7) and thus, Sec.  1026.61(b) does not 
apply to the overdraft credit feature accessed by the prepaid card.
---------------------------------------------------------------------------

    The Bureau believes that this structural requirement will make it 
substantially easier for creditors and consumers alike to implement and 
understand credit accessible via a hybrid prepaid-credit card under a 
credit card regime. Regulation Z's open-end rules are generally drafted 
with the assumption that the product in question is a pure credit 
product, without substantial positive funds. For example, existing 
Sec.  1026.11(a) generally provides that creditors must refund any 
positive balances on the credit account to the consumer within six 
months. And, as discussed in more detail in the section-by-section 
analysis of Sec.  1026.4(a) above, the rules for defining finance 
charges in the credit card context generally treat all transaction 
charges as finance charges, which makes sense when all transactions are 
generally assumed to involve use of credit.
    But because hybrid prepaid-credit cards by their nature involve 
consumer assets as well as use of credit, bifurcating the asset feature 
from the credit feature makes application of the credit card rules more 
intuitive in a number of respects. For example, as discussed in more 
detail in the section-by-section analysis of Sec.  1026.4(b)(11)(ii) 
above, it provides a structure by which general transaction fees that 
are imposed in the same amount for any transaction conducted on the 
prepaid account--regardless of whether there are sufficient positive 
funds in the account--to be excluded from the finance charge. This both 
makes the program easier for the prepaid account issuer to operate and 
easier for the

[[Page 84265]]

consumer to understand, so that the finance charge reflects the costs 
associated with the use of credit. As discussed above, this 
implementation is also more generally consistent with comments received 
in response to the proposed rule that urged the Bureau to include only 
differentiated and unique fees imposed when credit is extended in the 
definition of finance charge, rather than also including fees that are 
the same for purely positive balance transactions.
    Bifurcating the two features also will make it easier to apply 
standard credit card requirements, such as periodic statements 
requirements and no-offset rules in the prepaid context. Specifically, 
the periodic statement requirements in Sec.  1026.7(b)(1) and (10) 
(which implement TILA section 127(b)(1) and (8) respectively) require 
card issuers to disclose for each billing cycle both the outstanding 
balance in the account at the beginning of statement period and the 
outstanding balance in the account at the end of the period.\708\ In 
addition, because of the offset restrictions in final Sec.  1026.12(d) 
(which implements TILA section 169) \709\ and the due date and 21-day 
timing requirements for periodic statements in final Sec.  
1026.7(b)(11)and in final Sec.  1026.5(b)(2)(ii)(A) (which implement 
TILA sections 127(b)(12) and (o) and TILA section 163 
respectively),\710\ incoming deposits to the asset feature of the 
prepaid account could not be applied automatically to repay the 
negative balance on the asset balance of the prepaid account when those 
incoming deposits are received. Instead, with respect to a covered 
separate credit feature accessible by hybrid prepaid-credit card, a 
card issuer (1) is required to adopt reasonable procedures designed to 
ensure that periodic statements for the covered separate credit 
features are mailed or delivered at least 21 days prior to the payment 
due date disclosed on the periodic statement, and the due date 
disclosed must be the same day of the month for each billing cycle; and 
(2) can move funds automatically from the asset account held by the 
card issuer to the covered separate credit feature held by the card 
issuer to pay some or all of the credit card debt on the covered 
separate credit feature no more frequently than once per month, such as 
on the payment due date (pursuant to the consumer's signed, written 
agreement that the issuer may do so). Even if card issuers were able to 
identify methods of satisfying those requirements that were technically 
compliant with the credit card rules using a negative balance account 
structure, the Bureau believes that consumers would have a harder time 
understanding the operation of their accounts and their rights under 
such a system.
---------------------------------------------------------------------------

    \708\ 15 U.S.C. 1637(b)(1) and (8).
    \709\ 15 U.S.C. 1666h(a).
    \710\ 15 U.S.C. 1637(b)(12), and (o) and 1666b.
---------------------------------------------------------------------------

    Accordingly, the Bureau believes that use of its authority under 
TILA section 105(a) to add the provisions in new Sec.  1026.61(b) is 
necessary and proper to effectuate the purposes of TILA to help ensure 
the informed use of the credit or charge card account. Specifically, 
TILA section 102 provides that one of the main purposes of TILA is to 
promote the informed use of credit by ensuring meaningful disclosure of 
credit terms so that consumers will be able to compare more readily the 
various credit terms available and avoid the uninformed use of 
credit.\711\ The Bureau believes that requiring credit features 
accessible by hybrid prepaid-credit cards to be structured as separate 
credit features will promote the purposes of TILA by ensuring that 
Regulation Z's periodic statement disclosures are clear to consumers 
and that card issuers are complying with the offset restrictions and 
due date requirements in TILA in a manner that is transparent to 
consumers.
---------------------------------------------------------------------------

    \711\ 15 U.S.C. 1601.
---------------------------------------------------------------------------

    The Bureau recognizes under this requirement, card issuers will be 
required after the final rule becomes effective to structure any 
overdraft credit feature offered by a prepaid account issuer, its 
affiliate, or its business partner as a separate credit feature, except 
to the extent that overdraft credit feature meets the conditions set 
forth in new Sec.  1026.61(a)(4). To the extent a prepaid account 
issuer has been offering overdraft credit as a negative balance on 
prepaid accounts prior to these rules becoming effective, the prepaid 
account issuer will need to restructure its overdraft credit feature as 
a separate credit feature if the overdraft credit feature does not meet 
the conditions set forth in new Sec.  1026.61(a)(4). Nonetheless, as 
discussed above, the Bureau believes that bifurcating the two accounts 
is likely to make it easier for card issuers to comply with the 
Regulation Z requirements, such as the periodic statement and offset 
provisions discussed above, that will apply to the overdraft credit 
feature once the final rule becomes effective and facilitate consumers' 
understanding of the operation of their accounts and their rights with 
respect to each account.
    To provide additional clarity on the provisions in new Sec.  
1026.61(b), new comment 61(b)-1 provides that if a credit feature that 
is accessible by a hybrid prepaid-credit card is structured as a 
subaccount of the prepaid account, the credit feature must be set up as 
a separate balance on the prepaid account such that there are at least 
two balances on the prepaid account--the asset account balance and the 
credit account balance.
    New comment 61(b)-2 provides guidance on how a card issuer may 
comply with the requirement in new Sec.  1026.61(b). New comment 61(b)-
2.i provides that if at the time a prepaid card transaction is 
initiated there are insufficient or unavailable funds in the asset 
feature of the prepaid account to complete the transaction, credit must 
be drawn, transferred, or authorized to be drawn or transferred from 
the covered separate credit feature at the time the transaction is 
authorized. The card issuer may not allow the asset feature on the 
prepaid account to become negative and draw or transfer the credit from 
the covered separate credit feature at a later time, such as at the end 
of the day. The card issuer must comply with the applicable provisions 
of this regulation with respect to the credit extension from the time 
the prepaid card transaction is authorized. Because of the offset 
prohibition set forth in final Sec.  1026.12(d) and the due date and 
21-day timing requirements for periodic statements in final Sec.  
1026.7(b)(11) and in final Sec.  1026.5(b)(2)(ii)(A) respectively, 
incoming deposits to the asset feature of the prepaid account could not 
be applied automatically to repay the negative balance on the asset 
balance of the prepaid account when those incoming deposits are 
received. Thus, new comment 61(b)-2.i makes clear that a card issuer 
may not allow the asset feature on the prepaid account to become 
negative and draw or transfer the credit from the covered separate 
credit feature at a later time, such as at the end of the day, to 
ensure that the card issuer is complying with these Regulation Z 
provisions in a manner that is clear to consumers.
    New comment 61(b)-2.ii provides that for transactions where there 
are insufficient or unavailable funds in the asset feature of the 
prepaid account to cover the transaction at the time it settles, and 
the prepaid transaction either was not authorized in advance or the 
transaction was authorized and there were sufficient or available funds 
in the prepaid account at the time of authorization to cover the 
transaction, credit must be drawn from the covered separate credit 
feature to settle these

[[Page 84266]]

transactions. The card issuer may not allow the asset feature on the 
prepaid account to become negative. The card issuer must comply with 
the applicable provisions of this regulation from the time the 
transaction is settled.
    New comment 61(b)-2.iii provides that if a negative balance would 
result on the asset feature in circumstances other than those described 
in new comment 61(b)-2.i and ii, credit must be drawn from the covered 
separate credit feature to avoid the negative balance. The card issuer 
may not allow the asset feature on the prepaid account to become 
negative. The card issuer must comply with the applicable provisions in 
this regulation from the time credit is drawn from the covered separate 
credit feature. For example, assume that a fee for an ATM balance 
inquiry is imposed on the prepaid account when there are insufficient 
or unavailable funds to cover the amount of the fee when it is imposed. 
Credit must be drawn from the covered separate credit feature to avoid 
a negative balance. The Bureau expects that the card issuer will make 
it clear to consumers in the credit arrangement that credit will be 
drawn from the covered separate credit feature to avoid a negative 
balance on the asset feature of the prepaid account, including if 
applicable for fees imposed on the prepaid account where there are 
insufficient or unavailable funds to cover the amount of the fee when 
it is imposed.
61(c) Timing Requirement for Credit Card Solicitation or Application 
With Respect to Hybrid Prepaid-Credit Cards
    As discussed in more detail in the section-by-section analysis of 
Sec.  1026.12(a) above, credit cards generally may not be issued on an 
unsolicited basis. Thus, TILA section 132 and existing Sec.  1026.12(a) 
prevent a card issuer from issuing on an unsolicited basis a prepaid 
card that also is a credit card at the time of issuance. For example, 
prepaid cards that are sold in retail locations could not access 
automatically an overdraft credit feature that would make the prepaid 
card into a credit card at the time the prepaid card is sold. Under 
TILA section 132 and existing Sec.  1026.12(a), a card issuer could add 
a credit card feature to a prepaid card only in response to a 
consumer's explicit request or application.
The Bureau's Proposal
    The Bureau proposed to use its authority in TILA section 105(a) and 
Dodd-Frank Act section 1032(a) to add new proposed Sec.  1026.12(h)(1) 
that would have required card issuers to wait at least 30 days after a 
prepaid account is registered before the card issuer may make a 
solicitation or provide an application to the holder of the prepaid 
account to open a credit or charge card account that would be accessed 
by a prepaid card. In addition, card issuers would have been required 
to wait until at least 30 days after registration to open a credit card 
account for the holder of a prepaid account that would be accessed by 
the prepaid card. Moreover, if a card issuer has established an 
existing credit or charge card account with a holder of a prepaid 
account that is accessed by a prepaid, the card issuer would have been 
prevented from allowing an additional prepaid card obtained by the 
consumer from the card issuer to access the credit or charge card 
account, until at least 30 days after the consumer has registered the 
additional prepaid account.
    Proposed Sec.  1026.12(h)(2) would have defined ``solicitation'' 
for purposes of Sec.  1026.12(h)(1) to mean an offer by the card issuer 
to open a credit or charge card account that does not require the 
consumer to complete an application. This proposed definition of 
``solicitation'' would have been the same as one used with respect to 
credit card disclosures set forth in existing Sec.  1026.60(a)(1) that 
must be provided on or with credit card applications and solicitations. 
See the section-by-section analysis of Sec.  1026.60 above. Consistent 
with existing Sec.  1026.60, proposed Sec.  1026.12(h)(2) also would 
have specified that a ``firm offer of credit,'' as defined in section 
603(l) of the Fair Credit Reporting Act \712\ for a credit or charge 
card, would be a solicitation for purposes of proposed Sec.  
1026.12(h).
---------------------------------------------------------------------------

    \712\ 15 U.S.C. 1681a(l).
---------------------------------------------------------------------------

    Proposed comment 12(h)-1 would have explained that a prepaid card 
or prepaid account is registered, such that the 30-day timing 
requirement required by proposed Sec.  1026.12(h) begins, when the 
issuer of the prepaid card or prepaid account successfully completes 
its collection of consumer identifying information and identity 
verification in accordance with the requirements of applicable Federal 
and State law. The beginning of the required 30-day timing requirement 
would have been triggered by successful completion of collection of 
consumer identifying information and identity verification, not by the 
consumer's mere purchase or obtaining of the card.
    Proposed comment 12(h)-2 would have provided a cross-reference to 
existing Sec.  1026.12(a)(1) and proposed comment 12(a)(1)-7 for 
additional rules that would apply to the addition of a credit or charge 
card account to a previously-issued prepaid account. As discussed in 
the section-by-section analysis of Sec.  1026.12(a)(1) above, proposed 
comment 12(a)(1)-7 would have provided that a credit card feature may 
be added to a previously issued prepaid card only upon the consumer's 
specific request and only in compliance with proposed Sec.  1026.12(h). 
Proposed comment 12(h)-2 also would have cross-referenced Sec.  1026.60 
and related commentary for disclosures that generally must be provided 
on or with applications or solicitations to open a credit or charge 
card account.
Comments Received
    Several consumer group commenters urged the Bureau to extend the 
30-day waiting period to 90 days. They noted that in 30 days, the 
consumer will only have completed one monthly cycle and will not have 
time to explore all the card's features. They believed that more time 
would help the consumer see whether she can manage her finances without 
resorting to credit at the end of the month. They also believed that a 
90 day waiting period would help creditors to determine whether the 
consumer has the ability to repay credit.
    Several commenters, including industry trade associations, an 
issuing bank, and a payment network, indicated that the Bureau should 
not adopt a waiting period. For example, one payment network said that 
this approach may create burdens and frustration for consumers who are 
explicitly seeking a prepaid account that has credit features. This 
commenter believed that the risks identified by the Bureau are more 
appropriately mitigated by requiring an affirmative consumer opt-in for 
any prepaid card to be linked with a credit feature, and that this opt-
in can be given only after disclosures about the credit have been 
provided.
    One digital wallet provider suggested that the Bureau clarify that 
this restriction does not apply to a digital wallet's funding sources. 
This commenter was concerned that applying the 30-day waiting period to 
digital wallets would effectively ban new consumers from linking a 
credit card as a funding source for their digital wallet.
The Final Rule
    After consideration of the comments, the Bureau is adopting the 30-
day waiting period largely as proposed. Specifically, the Bureau is 
moving proposed Sec.  1026.12(h) to new Sec.  1026.61(c) and is 
revising it to clarify the intent of the provision and to be

[[Page 84267]]

consistent with new Sec.  1026.61(a).\713\ Specifically, new Sec.  
1026.61(c)(1) provides that with respect to a covered separate credit 
feature that could be accessible by a hybrid prepaid-credit card at any 
point, a card issuer must not do any of the following until 30 days 
after the prepaid account has been registered: (1) Open a covered 
separate credit feature that could be accessible by the hybrid prepaid-
credit card; (2) make a solicitation or provide an application to open 
a covered separate credit feature that could be accessible by the 
hybrid prepaid-credit card; or (3) allow an existing credit feature 
that was opened prior to the consumer obtaining the prepaid account to 
become a covered separate credit feature accessible by the hybrid 
prepaid-credit card.
---------------------------------------------------------------------------

    \713\ The proposal would have provided that the term ``credit 
card'' includes an account number that is not a prepaid card that 
may be used from time to time to access a credit plan that allows 
deposits directly only into particular prepaid accounts specified by 
the creditor. The proposal also would have applied the provisions in 
proposed Sec.  1026.12(h) to credit card accounts accessed by such 
accounts numbers. For the reasons set forth in the section-by-
section analysis of Sec.  1026.2(a)(15)(i) above, the final rule 
does not adopt the provisions in proposed Sec.  1026.12(h) 
(renumbered as new Sec.  1026.61(c)) related to these account 
numbers.
---------------------------------------------------------------------------

    New Sec.  1026.61(c)(2) provides that for purposes of new Sec.  
1026.61(c), the term ``solicitation'' has the same meaning set forth in 
Sec.  1026.60(a)(1). The term ``solicitation'' in existing Sec.  
1026.60(a)(1) means an offer by the card issuer to open a credit or 
charge card account that does not require the consumer to complete an 
application. In addition, existing Sec.  1026.60(a)(1) provides that a 
``firm offer of credit'' as defined in section 603(l) of the Fair 
Credit Reporting Act \714\ for a credit or charge card is a 
solicitation for purposes of existing Sec.  1026.60(a)(1). The 
definition of ``solicitation'' in new Sec.  1026.61(c)(2) is the same 
as the proposed definition of ``solicitation'' in proposed Sec.  
1026.12(h). The final rule cross-references the definition of 
``solicitation'' in existing Sec.  1026.60(a)(1) rather than repeating 
the same definition in new Sec.  1026.61(c).
---------------------------------------------------------------------------

    \714\ 15 U.S.C. 1681a(l).
---------------------------------------------------------------------------

    The Bureau is moving proposed comment 12(h)-1 to comment 61(c)-1 
and is revising it to provide additional clarification. Consistent with 
the proposal, new comment 61(c)-1 provides that a prepaid card or 
prepaid account is registered, such that the 30-day timing requirement 
required by new Sec.  1026.61(c) begins, when the issuer of the prepaid 
card or prepaid account successfully completes its collection of 
consumer identifying information and identity verification in 
accordance with the requirements of applicable Federal and State law. 
The beginning of the required 30-day timing requirement is triggered by 
successful completion of collection of consumer identifying information 
and identity verification, not by the consumer's mere purchase or 
obtaining of the card. New comment 61(c)-1 is revised from the proposal 
to provide guidance on situations where customer identification and 
verification are completed on a prepaid account before the account is 
opened. In that case, new comment 61(c)(1)-1 provides that the 30-day 
timing requirement begins on the day the prepaid account is opened.
    The Bureau is moving proposed comment 12(h)-2 to new comment 61(c)-
2 and is adopting it as proposed. The Bureau also is adding new comment 
61(c)-3 to address situations where a hybrid prepaid-credit card is 
replaced or substituted for another hybrid prepaid-credit card. 
Specifically, new comment 61(c)-3 provides that a card issuer is not 
required to comply with new Sec.  1026.61(c) when a hybrid prepaid-
credit card is permitted to be replaced, or substituted, for another 
hybrid prepaid-credit card without a request or application under final 
Sec.  1026.12(a)(2) and related commentary. For example, new Sec.  
1026.61(c) does not apply to situations where a prepaid account or 
credit feature that is accessible by a hybrid prepaid-credit card is 
replaced because of security concerns, and a new hybrid prepaid-credit 
card is issued to access the new prepaid account or credit feature 
without a request or application under final Sec.  1026.12(a)(2).
    With regard to comments urging the Bureau to clarify that the 30-
day restriction does not apply to a digital wallet's funding sources, 
the Bureau is adding new comment 61(a)(1)-4 to provide guidance on the 
circumstances in which a prepaid account number for a digital wallet 
that is a prepaid account is a hybrid prepaid-credit card under new 
Sec.  1026.61(a).
    Specifically, new comment 61(a)(1)-4.i states that a digital wallet 
that is capable of being loaded with funds is a prepaid account under 
final Regulation E Sec.  1005.2(b)(3). See final Regulation E Sec.  
1005.2(b)(3) and comment 2(b)(3)(i)-6. The comment explains that a 
prepaid account number that can access such a digital wallet is a 
hybrid prepaid-credit card if it meets the conditions set forth in new 
Sec.  1026.61(a). See new comment 61(a)(1)-4 for illustrations of this 
rule.
    Thus, new Sec.  1026.61(c) applies to a digital wallet that is 
capable of being loaded with funds (and thus is a prepaid account under 
final Regulation E Sec.  1005.2(b)(3)), where the prepaid account 
number that can access such a digital wallet is a hybrid prepaid-credit 
card as defined in new Sec.  1026.61(a). The Bureau believes that this 
additional guidance will help relieve any concerns that the 30-day 
period would effectively ban new consumers from linking a credit card 
as a funding source for their digital wallet, except where the linked 
credit feature is a covered separate credit feature as defined in new 
Sec.  1026.61(a)(2)(i).
    With regard to the two conflicting sets of comments urging the 
Bureau to drop the 30-day waiting period entirely and conversely to 
expand it to 90 days, the Bureau has concluded based on additional 
consideration to adopt the 30-day waiting period as proposed. The 
Bureau continues to believe the 30-day waiting period would benefit 
consumers by separating the decisions to obtain and register the 
prepaid account from the decision to obtain a covered separate credit 
feature accessible by the hybrid prepaid-credit card. Nonetheless, the 
Bureau believes that extending the waiting period to 90 days seems 
unnecessary to ensure that a consumer can make an informed decision 
regarding whether to link the account to a covered separate credit 
feature. The Bureau believes that a longer waiting period may restrict 
consumers who are seeking prepaid accounts with covered separate credit 
features accessible by hybrid prepaid-credit cards.
    The Bureau notes that if the prepaid account issuer offers the 
covered separate credit feature accessible by the hybrid prepaid-credit 
card, the prepaid account issuer is the ``card issuer'' for purposes of 
Regulation Z, including new Sec.  1026.61(c). This is because the 
hybrid prepaid-credit card accessing the covered separate credit 
feature is a credit card, and existing Sec.  1026.2(a)(7) defines 
``card issuer'' as a person that issues a credit card or that person's 
agent with respect to the card. If the prepaid account issuer's 
affiliate or business partner offers the covered separate credit 
feature accessible by a hybrid prepaid-credit card, both the person 
offering the covered separate credit feature and the prepaid account 
issuer are card issuers for purposes of new Sec.  1026.61(c). In this 
case, under new comment 2(a)(7)-1.ii, the person offering the covered 
separate credit feature would be an agent of the prepaid account 
issuer.
    The Bureau believes that use of its authority under TILA section 
105(a) to add the provisions in new Sec.  1026.61(c) is necessary and 
proper to effectuate the purposes of TILA to help ensure the informed 
use of the credit or charge card

[[Page 84268]]

account when it is opened. Specifically, TILA section 102 provides that 
one of the main purposes of TILA is to promote the informed use of 
credit by ensuring meaningful disclosure of credit terms so that 
consumers will be able to compare more readily the various credit terms 
available and avoid the uninformed use of credit.\715\ Furthermore, 
TILA section 132 requires that no credit card shall be issued except in 
response to a request or application therefor.\716\ In addition, the 
Bureau believes that the waiting period will, consistent with Dodd-
Frank Act section 1032(a), ensure that the features of the covered 
separate credit feature offered in connection with the prepaid account 
are fully, accurately, and effectively disclosed to consumers in a 
manner that permits the consumers to understand the costs, benefits, 
and risks associated with the credit feature.
---------------------------------------------------------------------------

    \715\ 15 U.S.C. 1601.
    \716\ 15 U.S.C. 1642.
---------------------------------------------------------------------------

    The Bureau believes that the requirement in new Sec.  1026.61(c) of 
a 30-day waiting period for a prepaid card to access a covered separate 
credit feature will promote the informed and voluntary use of credit. 
Under new Sec.  1026.12(c)(1), a card issuer must not do any of the 
following until 30 days after the prepaid account has been registered: 
(1) Open a covered separate credit feature that could be accessible by 
the hybrid prepaid-credit card; (2) make a solicitation or provide an 
application to open a covered separate credit feature that could be 
accessible by the hybrid prepaid-credit card; or (3) allow an existing 
credit feature that was opened prior to the consumer obtaining the 
prepaid account to become a covered separate credit feature accessible 
by the hybrid prepaid-credit card. The Bureau believes that it would 
promote the informed use of the credit to separate the decision to 
purchase and register a prepaid account from the decision to accept an 
offer to add a covered separate credit feature accessible by a hybrid 
prepaid-credit card. The Bureau believes that consumers may be able to 
focus more effectively on the credit terms of the covered separate 
credit feature, and make a more informed decision whether to request 
such a credit feature, if the decision to accept the credit feature 
occurs apart from the process to register the card. Without these 
protections, card issuers may attempt to market the covered separate 
credit feature to prepaid cardholders at the time they purchase the 
prepaid card or at registration. The Bureau believes that without this 
provision, prepaid account issuers would be likely to provide 
solicitations or applications to the prepaid cardholder to open a 
covered separate credit feature accessible by a hybrid prepaid-credit 
card, or suggest that the prepaid cardholder allow an existing credit 
feature held by the prepaid cardholder to become a covered separate 
credit feature accessible by a hybrid prepaid-credit card, at the time 
the prepaid accounts are registered because prepaid account issuers 
will already be collecting information from the cardholders in order to 
register the prepaid accounts.
    Without the waiting period, consumers may feel pressured to decide 
whether to add the covered separate credit feature without having the 
opportunity to fully consider the terms of the credit feature and the 
consequences of obtaining the credit feature. Therefore, the Bureau 
believes that a consumer's decision to add a covered separate credit 
feature accessible by a hybrid prepaid-credit card to the prepaid 
account should be distinct from the decision to obtain or register the 
prepaid card.
    In addition, the Bureau believes that separating these decisions 
would better allow consumers to focus on the terms and conditions that 
apply to the prepaid account at the time of purchase and registration, 
which may enable the consumer to better understand those terms and 
conditions. This is consistent with EFTA section 905(a), which requires 
financial institutions to disclose the terms and conditions of EFTs 
involving a consumer's account. The Bureau also believes that requiring 
at least 30 days to elapse between the registration of a prepaid 
account and any offer of a covered separate credit feature accessible 
by a hybrid prepaid-credit card would enhance consumer understanding of 
the terms of the prepaid account and would help consumers to make more 
informed decisions regarding linking a covered separate credit feature 
accessible by a hybrid prepaid-credit card to the prepaid account.
    As discussed in the section-by-section analysis of Regulation E 
Sec.  1005.18(e)(3) above, existing customer identification 
requirements limit the functionality of most prepaid accounts prior to 
registration. In addition, the registration process is critical for 
application of full Regulation E protections under this final rule. For 
example, Regulation E Sec.  1005.18(e)(3) provides that for all prepaid 
accounts, other than payroll card accounts and government benefit 
accounts, with respect to which the financial institution has not 
completed its identification and verification process (or for which the 
financial institution has no process), the financial institution is not 
required to provisionally credit the consumer's account in the event 
the financial institution takes longer than 10 or 20 business days, as 
applicable, to investigate and determine whether an error 
occurred.\717\ If a card issuer were allowed to market covered separate 
credit features to consumers at the time of prepaid account 
registration, the Bureau is concerned that that consumers could believe 
that they are required to request that the covered separate credit 
feature accessible by a hybrid prepaid-credit card be linked to the 
prepaid account in order to register or access the prepaid account. 
This could cause some consumers to not register their prepaid accounts 
and lose important protections under Regulation E.
---------------------------------------------------------------------------

    \717\ See also new Regulation E Sec.  1005.18(c)(2), which 
provides a modified version of the periodic statement alternative 
for prepaid accounts that cannot be or have not been verified by the 
financial institution.
---------------------------------------------------------------------------

VI. Effective Date

    The Bureau is generally establishing that this rule take effect on 
October 1, 2017, which is approximately 12 months from the issuance of 
this final rule. However, the Bureau is adopting several specific 
accommodations related to the effective date as set forth in Sec.  
1005.18(h), and a delayed effective date for the requirement to submit 
prepaid account agreements to the Bureau as described in Sec.  
1005.19(f).
    As discussed in the section-by-section analysis of Sec.  1005.18(h) 
above, the 12-month implementation period is a change from the 
proposal, which would have required that the rule generally take effect 
nine months following the publication of the rule in the Federal 
Register, with three months' additional leeway for certain disclosure-
related requirements. The Bureau received many comments from industry, 
including trade associations, issuing banks, credit unions, program 
managers, payment networks, a payment processor, and a law firm writing 
on behalf of a coalition of prepaid issuers, arguing that the proposed 
nine- and 12-month compliance periods would be insufficient to 
implement the changes that would be required under the proposal. Upon 
consideration of the comments received, the Bureau believes that it is 
appropriate to provide a longer implementation period and to make a 
number of modifications and accommodations in the final rule to address 
particular concerns raised by commenters.

[[Page 84269]]

    For instance, final Sec.  1005.18(h)(2)(i) sets forth an exception 
to the October 1, 2017 effective date that states that the disclosure 
requirements of Regulation E subpart A as modified by final Sec.  
1005.18 shall not apply to any disclosures that are provided, or that 
would otherwise be required to be provided, on prepaid account access 
devices, or on, in, or with prepaid account access devices and 
packaging materials that were manufactured, printed, or otherwise 
produced in the normal course of business prior to October 1, 2017. 
Accordingly, unlike the proposed rule, the final rule does not require 
that financial institutions pull and replace existing access devices 
and packaging material after the rule takes effect. In return, final 
Sec.  1005.18(h)(2)(ii) requires that financial institutions provide 
notices of certain changes and updated initial disclosures to consumers 
who acquire prepaid accounts on or after October 1, 2017 via non-
compliant packaging materials printed prior to the effective date. 
Final Sec.  1005.18(h)(2)(iii) clarifies the requirements for providing 
notice of changes to consumers who acquired prepaid accounts before 
October 1, 2017. Final Sec.  1005.18(h)(2)(iv) facilitates the delivery 
of notices of certain changes and updated initial disclosures for 
prepaid accounts governed by Sec.  1005.18(h)(2)(ii) or (iii). Final 
Sec.  1005.18(h)(3) provides an accommodation to financial institutions 
that do not have sufficient data in a readily accessible form in order 
to comply fully with the requirements for providing electronic and 
written account transaction history pursuant to final Sec.  
1005.18(c)(1)(ii) and (iii), respectively, and the summary totals of 
fees pursuant to final Sec.  1005.18(c)(5) by October 1, 2017.
    As discussed in the section-by-section analysis of Sec.  1005.19(f) 
above, final Sec.  1005.19(f)(2) sets forth a delayed effective date of 
October 1, 2018 for the requirement to submit prepaid account 
agreements to the Bureau on a rolling basis pursuant to final Sec.  
1005.19(b). The Bureau believes that the effective dates discussed 
herein strike the appropriate balance between providing consumers with 
necessary protections while giving financial institutions adequate time 
to comply with all aspects of this final rule.

VII. Section 1022(b)(2)(A) of the Dodd-Frank Act

A. Overview

    In developing the final rule, the Bureau has considered the 
potential benefits, costs, and impacts required by section 1022(b)(2) 
of the Dodd-Frank Act. Specifically, section 1022(b)(2) calls for the 
Bureau to consider the potential benefits and costs of a regulation to 
consumers and covered persons (which in this case would be the 
providers subject to the proposed rule), including the potential 
reduction of access by consumers to consumer financial products or 
services, the impact on depository institutions and credit unions with 
$10 billion or less in total assets as described in section 1026 of the 
Dodd-Frank Act, and the impact on consumers in rural areas. In 
addition, 12 U.S.C. 5512(b)(2)(B) directs the Bureau to consult, before 
and during the rulemaking, with appropriate prudential regulators or 
other Federal agencies, regarding consistency with objectives those 
agencies administer. The Bureau has consulted, or offered to consult 
with, the prudential regulators, the Department of the Treasury, the 
Securities and Exchange Commission, and the Federal Trade Commission 
regarding consistency with any prudential, market, or systemic 
objectives administered by these agencies.
    As discussed above, the final rule amends both Regulation E, which 
implements EFTA, and Regulation Z, which implements TILA, as well as 
the official interpretation to those regulations. The final rule 
creates comprehensive consumer protections for prepaid financial 
products. It expressly brings such products within the ambit of 
Regulation E as prepaid accounts and creates new provisions specific to 
such accounts. It also modifies certain Regulation E provisions as they 
apply to prepaid accounts, including provisions that currently apply to 
government benefit accounts and payroll card accounts.\718\ 
Additionally, the final rule contains amendments to Regulations E and Z 
to regulate covered separate credit features accessible by a hybrid 
prepaid-credit card.
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    \718\ The definition of prepaid account in Sec.  1005.2(b)(3) 
includes government benefit accounts and payroll card accounts.
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    In applying the consumer protections in Regulation E to a broader 
set of consumer accounts, the Bureau furthers the statutory purposes of 
EFTA, which include providing a basic framework establishing the 
rights, liabilities, and responsibilities of participants in EFT 
systems and providing individual consumer rights. In addition, the 
Bureau believes that applying the consumer protections articulated in 
Regulation Z to covered separate credit features accessible by a hybrid 
prepaid-credit card conforms to TILA's statutory purposes, which 
include assuring a meaningful disclosure of credit terms, avoiding the 
uninformed use of credit, and protecting consumers against inaccurate 
and unfair billing and credit card practices.

B. Major Provisions Discussed

    Below, the Bureau considers the benefits, costs, and impacts of the 
following major provisions of the final rule:
    1. The establishment of certain disclosures that financial 
institutions are required to provide to consumers (or, in certain 
circumstances, provide consumers access to) prior to the acquisition of 
a prepaid account and modifications of initial disclosures that are 
provided at account acquisition;
    2. The application of Regulation E's periodic statement requirement 
to prepaid accounts and the establishment of an alternative that 
requires financial institutions to provide consumers access to certain 
types of account information;
    3. The extension of Regulation E's limited liability and error 
resolution regime to all prepaid accounts, including provisional credit 
requirements in most circumstances;
    4. The requirement that all issuers of prepaid accounts submit 
their prepaid account agreements to the Bureau on an ongoing basis, 
post publicly available prepaid account agreements on their own Web 
sites, and in limited circumstances, respond to consumers' requests for 
written copies of their account agreements; and
    5. The modification and application of particular Regulation E and 
Regulation Z provisions to covered separate credit features accessible 
by a hybrid prepaid-credit card.
    With respect to each major provision of the final rule, the Bureau 
considers the benefits, costs, and impacts to consumers and covered 
persons. In addition, the Bureau discusses certain alternative 
provisions that it considered, in addition to the major provisions 
ultimately adopted, and addresses comments received in response to the 
proposed rule's section 1022(b)(2)(A) treatment of these topics. Where 
comments discuss the benefits or costs of a provision of the proposed 
rule in the context of commenting on the merits of that provision, the 
Bureau has addressed those comments above in the relevant section-by-
section analysis. In this respect, the Bureau's section 1022(b)(2)(A) 
discussion is not limited to the discussion in this part of the final 
rule.
    In considering the relevant potential benefits, costs, and impacts, 
the Bureau

[[Page 84270]]

has consulted the available data discussed in this preamble and has 
applied its knowledge and expertise concerning consumer financial 
markets. Where available, the Bureau has used the economic analyses 
that it regards as most reliable and helpful to consider the relevant 
potential benefits, costs, and impacts of the final rule. However, the 
Bureau notes that, in some instances, there are limited data available 
to inform the quantification of the potential benefits, costs, and 
impacts. For example, financial institutions that currently apply 
Regulation E's limited liability and error resolution provisions, 
including provisional credit, do not generally publicize information 
regarding the incremental costs associated with these activities. 
Moreover, some potential benefits are difficult to quantify.
    General economic principles, coupled with available quantitative 
information, provide insight into the potential benefits, costs, and 
impacts arising from the final rule. Where possible, the Bureau makes 
quantitative estimates based on these principles as well as available 
data. However, where data are limited, the Bureau generally provides a 
qualitative discussion of the final rule's benefits, costs, and 
impacts.

C. Baseline for Consideration of Benefits and Costs

    The baseline for this discussion is the current market for prepaid 
accounts.\719\ This baseline considers both the existing regulatory 
structure as well as the economic attributes of the relevant 
market.\720\ Although the Bureau describes the current market in detail 
above, this section also describes certain features of the current 
market where particularly relevant. When informative, the Bureau also 
evaluates potential future impacts relative to how the market might 
have evolved absent the final rule. To ascertain the current state of 
the market, the Bureau performed industry outreach and conducted its 
Study of Prepaid Account Agreements in connection with the proposed 
rule. The Bureau also performed consumer testing to inform the proposed 
rule and conducted additional consumer testing in connection with the 
final rule.
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    \719\ The Bureau has discretion in future rulemakings to choose 
the relevant provisions to discuss and the most appropriate baseline 
for that particular rulemaking.
    \720\ As discussed above, several Federal regulatory regimes 
apply to some or all types of prepaid accounts or to transactions 
involving these accounts, including: Requirements set forth in 
current Regulation E; requirements regarding receipt of Federal 
payments onto prepaid cards and interchange fees; and requirements 
to prevent financial crimes such as money laundering and terrorist 
financing. Prudential regulators also have issued guidance 
pertaining to the application of their rules to prepaid cards, 
program managers, and issuing financial institutions. The benefits, 
costs, and impacts that arise from the final rule are attenuated if 
certain provisions are already required under State law.
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    The final rule both extends Regulation E to cover additional 
accounts and amends Regulation E to include new provisions for those 
accounts, such as the final rule's requirements relating to pre-
acquisition disclosures. With respect to the provisions addressing 
consumer access to account information, limited liability, and error 
resolution protections, the Bureau generally extends existing 
provisions of Regulation E, as they apply to payroll card accounts, to 
all prepaid accounts. For some prepaid accounts, such as GPR cards that 
do not receive Federal payments, these protections are newly required. 
However, certain other prepaid accounts, such as payroll card accounts 
and GPR cards that receive Federal payments, are currently subject to 
Regulation E's requirements (as they apply to payroll card accounts) 
directly or indirectly.\721\ Regulation E also contains provisions that 
currently apply to government benefit accounts, which the final rule 
amends to conform more closely to requirements for other types of 
prepaid accounts.\722\
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    \721\ As discussed above, the FMS Rule extends Regulation E's 
payroll card account protections to prepaid accounts that receive 
Federal payments.
    \722\ Current provisions governing consumer access to government 
benefit account information differ somewhat from those applicable to 
payroll card accounts. Specifically, the alternative to the periodic 
statement requirement, described in existing Sec.  1005.15(c), does 
not require that a financial institution make available an 
electronic history of account transactions to the consumer.
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    Current industry practice is consistent with the final rule's 
requirements in some cases. In such cases, the benefits, costs, and 
impacts of the final rule on both financial institutions and consumers 
are more modest than those that would result if industry practice 
deviated from the final rule's requirements. As discussed above, the 
Bureau's Study of Prepaid Account Agreements, performed in connection 
with the proposed rule, suggested that many financial institutions 
subject to the final rule already implement many of the final rule's 
requirements pertaining to consumer access to account information, 
limited liability, and error resolution. In addition to existing 
Federal regulatory requirements, the need for issuing financial 
institutions to comply with payment card associations' network rules 
may explain why some financial institutions currently fully or 
partially implement the final rule's requirements with respect to 
limited liability and error resolution.\723\
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    \723\ In certain circumstances, payment card associations' 
network rules provide some form of zero liability protections for 
prepaid cardholders. See, e.g., Visa Inc., Zero Liability, available 
at https://www.visa.com/chip//security/zero-liability.jsp (last 
visited Oct. 1, 2016); MasterCard Inc., Zero Liability Protection, 
available at https://www.mastercard.us/zero-liability.html (last 
visited Oct. 1, 2016).
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    The final rule also includes protections for consumers using 
prepaid cards to access covered separate credit features offered by 
prepaid account issuers, their affiliates, or their business partners 
(except as provided in new Sec.  1026.61(a)(4)). The Bureau understands 
that few providers currently offer prepaid accounts with overdraft 
services.\724\ However, one of the largest prepaid account program 
managers offers an overdraft service in connection with some of its 
prepaid account products (which include both GPR cards and payroll card 
accounts), so the number of prepaid accounts eligible for overdraft 
services is not negligible.\725\
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    \724\ As discussed in more detail below, the Bureau sometimes 
uses the generic term ``provider'' in this discussion to describe 
covered entities responsible for compliance with the final rule's 
provisions.
    \725\ NetSpend is a significant provider of prepaid accounts. 
See Total Sys. Serv., Inc., Annual Report (Form 10-K), at 2, 
available at https://www.sec.gov/Archives/edgar/data/721683/000119312516476239/d240097d10k.htm (for the year ended Dec. 31, 
2015) (``Through our NetSpend business, we believe that we are the 
largest prepaid program manager in the United States based on gross 
dollar volume.''). A news article reported that 6 percent of 
NetSpend's customers regularly use overdraft services. Suzanne 
Kapner, Prepaid Plastic is Creeping into Credit, Wall St. J. (Sept. 
5, 2012), available at https://online.wsj.com/news/articles/SB100008723963904436860045776334 (2012 NetSpend WSJ Article). In 
addition, a larger percentage of accounts would potentially be 
eligible for their overdraft program. A recent financial filing 
suggested that NetSpend had 3.6 million active cards as of Sept. 30, 
2015, and 49 percent of those active cards had direct deposit. Total 
Sys. Serv., Inc., Quarterly Report (Form 10-Q), at 27, available at 
https://www.sec.gov/Archives/edgar/data/721683/000119312515367677/d10q.htm (for the quarterly period ended Sept. 30, 2015).2'>
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    The Bureau believes that those few prepaid account providers 
offering overdraft services do not presently comply with requirements 
set forth in the final rule's credit provisions. The Bureau understands 
that those prepaid account providers offering overdraft services 
condition consumer eligibility on receipt of a regularly occurring 
direct deposit and require consumers to opt-in to the service.\726\ 
When funds are deposited into an overdraft-enabled prepaid account, the 
Bureau understands that these funds generally are applied automatically 
to any outstanding negative balance before the

[[Page 84271]]

consumer may access them.\727\ The Bureau understands that providers 
currently offering such services have adopted program rules designed to 
aid the population using these features, such as discouraging 
persistent use of the overdraft service by capping the number of fees 
that a consumer may incur in a specified period.\728\ However, there is 
currently no Federal regulatory requirement that providers offer such 
protections for all prepaid account products.
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    \726\ See, e.g., 2012 FRB Kansas City Study at 9.
    \727\ The Treasury FMS rule, described above, prohibits prepaid 
cards from having an attached line of credit if the credit agreement 
allows for the automatic repayment of the loan from a card account 
triggered by the delivery of the Federal payment into the account. 
31 CFR 210(b)(5)(i)(C). Certain State laws subject some government 
benefit accounts to similar provisions. See, e.g., CA AB 1280; CA AB 
2252.
    \728\ See, e.g., 2012 NetSpend WSJ Article; see also NetSpend 
Corp., Amended Terms for Your Cardholder Agreement, available at 
https://www.netspend.com/account/overdraftTerms.m (last visited Oct. 
1, 2016) (overdraft terms and conditions).
---------------------------------------------------------------------------

    The Bureau believes that additional prepaid account providers may 
be considering offering products that would be covered separate credit 
features accessible by a hybrid prepaid-credit card, suggesting the 
potential for increased consumer access to these products in the 
future.\729\ The final rule provides clarity regarding the terms on 
which a prepaid account issuer, its affiliate, or its business partner 
may offer covered separate credit features accessible by a hybrid 
prepaid-credit card to consumers. The final rule's credit provisions 
help ensure that prepaid account issuers, their affiliates, and their 
business partners offer covered separate credit features accessible by 
a hybrid prepaid-credit card to prepaid account consumers in a 
transparent manner and that consumers using these features receive 
certain important protections.
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    \729\ The Bureau understands from industry comments regarding 
the proposed rule that other financial institutions offering prepaid 
accounts would consider offering overdraft services in connection 
with their prepaid account products if the Bureau were to adopt a 
Regulation E opt-in regime, described in greater detail above.
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D. Coverage of the Final Rule

    The final rule applies to any prepaid product that meets the 
definition of prepaid account set forth in Sec.  1005.2(b)(3). With 
respect to the Regulation E provisions, covered persons include 
financial institutions that issue prepaid accounts. Financial 
institutions may work with program managers or other industry 
participants in marketing, establishing, or maintaining prepaid 
accounts.\730\ Given the variety of organizational forms used to offer 
prepaid programs, the Bureau does not allocate burdens among issuers, 
program managers, and other participants in this discussion of the 
benefits, costs, and impacts arising from the final rule. In addition 
to financial institutions, card issuers and creditors offering covered 
separate credit features accessible by a hybrid prepaid-credit card are 
also subject to the final rule's credit provisions. Depending on the 
facts and circumstances, these persons may or may not be the prepaid 
account issuer or program manager. For clarity, the Bureau sometimes 
uses the generic term ``provider'' in this discussion to describe 
covered entities responsible for compliance with the final rule's 
provisions and does not allocate burdens arising from these provisions 
among market participants.
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    \730\ Some financial institutions acting as prepaid account 
issuers choose to perform all of the functions required to manage a 
prepaid program, including marketing prepaid accounts directly to 
consumers. More commonly, however, prepaid account issuers leave 
program management to others. The scope of such roles may vary. 
However, the issuer typically enters into a contract with the 
program manager to provide the association bank identification 
number for the program and to monitor regulatory compliance in 
exchange for fee income and indemnification from risk. 2012 FRB 
Philadelphia Study at 10.
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E. Potential Benefits and Costs to Consumers and Covered Persons

    In applying the consumer protections in Regulations E and Z to a 
broader class of accounts, the Bureau intends to reduce consumer and 
industry uncertainty regarding responsibilities and liabilities among 
market participants. With the possible exception of the final rule's 
credit provisions, which apply to covered separate credit features 
accessible by a hybrid prepaid-credit card, the Bureau does not believe 
that the final rule will meaningfully reduce consumer access to 
consumer financial products and services. This is because, with the 
exception of the credit provisions, most financial institutions are 
already partially complying with many of the final rule's requirements 
(due to preexisting regulatory requirements or payment card association 
network rules), and the additional requirements of the final rule will 
result in relatively modest ongoing burden for these institutions.
    By adopting the final rule, the Bureau aims to lessen consumer risk 
associated with using those prepaid account products that currently do 
not offer the protections required by the final rule. In addition, the 
final rule lessens the potential risk incurred by consumers who would 
use prepaid account products in the future that, absent the final 
rule's requirements, would lack these protections. In particular, the 
Bureau is concerned that some prepaid account consumers may be unaware 
that certain prepaid account products currently on the market offer 
fewer protections than comparable products currently subject to 
Regulation E, and consumers may be unaware of the diversity of 
protections currently offered in connection with prepaid account 
products. In addition, because both prepaid cards and debit cards 
linked to checking accounts enable consumers to access their own funds 
and have similar functionalities and appearances, prepaid 
accountholders may believe that the accounts associated with these 
cards offer similar consumer protections. By bringing prepaid accounts 
within the ambit of Regulation E, the final rule ensures that prepaid 
accountholders receive consistent protections, regardless of the 
prepaid account held, and have the opportunity to enjoy the protections 
afforded to consumers of similar products.
    The final rule's disclosure requirements ensure that consumers 
generally have access to comparable, transparent, key, and 
comprehensive information prior to acquiring a prepaid account. 
Motivated by private incentives, financial institutions may choose to 
disclose a socially suboptimal amount of information to consumers.\731\ 
For example, firms may engage in strategies to frustrate consumer 
efforts to compare products.\732\ Consumers generally incur costs, in 
terms of time, money, or both, to determine the price and quality of a 
particular product before purchasing it. Consumers searching for a 
prepaid account have less incentive to compare various products when 
performing these comparisons is costly. When consumers are unwilling to 
incur these search costs, financial institutions may exercise market 
power. As a result, a sufficiently inexpensive reduction in these costs 
can benefit consumers and enhance

[[Page 84272]]

efficiency.\733\ By standardizing the information that consumers 
receive, the final rule's short form disclosure requirements reduce the 
search costs associated with finding, understanding, and comparing 
critical information. Further, because all consumers of the product 
potentially benefit when prices decrease due to search by some 
consumers, the benefits of lower search costs extend beyond those 
consumers who actually engage in comparison shopping before making a 
purchasing decision.
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    \731\ The socially optimal amount of information about a prepaid 
account depends on the cost to financial institutions (or third 
parties) of acquiring and providing product information and the 
benefit to consumers from improved understanding and choice. In 
general, at the social optimum, the benefit to consumers from 
additional or more transparent information would exactly equal the 
additional cost to financial institutions (or third parties) of 
providing that information.
    \732\ See, e.g., Glenn Ellison & Sara Fisher Ellison, Search, 
Obfuscation, and Price Elasticities on the Internet, 77 
Econometrica, 427 (2009).
    \733\ See, e.g., Dale O. Stahl II, Oligopolistic Pricing with 
Sequential Consumer Search, 79 a.m. Econ. Rev. 700 (1989). A 
commenter from a university regulatory studies center stated that 
this paper provides a poor model of the market for prepaid accounts 
because it assumes that consumers search for the best price for a 
homogeneous good while prepaid products vary in terms of both price 
and product features. The commenter recommended instead a paper by 
Bakos that similarly concludes that ``reducing the cost of price and 
product information typically will improve market efficiency but 
will reduce seller profits.'' J. Yannis Bakos, Reducing Buyer Search 
Costs: Implications for Electronic Marketplaces, 43 Mgmt. Sci. 1676, 
1677 (1997). See also Simon P. Anderson & Regis Renault, Pricing, 
Product Diversity, and Search Costs: A Bertrand-Chamberlin-Diamond 
Model, 30 Rand J. Econ. 719 (1999) (showing that product diversity 
does not change the conclusion in Stahl that lower search costs lead 
to lower equilibrium prices). These authors note that some (but not 
all) features of the market for credit cards can be explained by 
their framework. Id. at 731. This commenter also stated that the 
Bureau should consider ways to protect consumers who do not search. 
The Bureau notes that the final rule's general requirements with 
respect to limited liability and error resolution protect consumers 
regardless of whether they search.
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    In addition to reducing search costs by making information more 
comparable and transparent, the final rule's disclosure requirements 
ensure that consumers have access to comprehensive information 
regarding prepaid accounts. Financial institutions have strong 
incentives to make consumers aware of generally attractive product 
features, such as functionality offered without an additional fee. 
However, financial institutions have less incentive to identify and 
make transparent unattractive product features, such as high fees that 
may be associated with certain types of activities. In some cases, 
prepaid accountholders may utilize high-cost features frequently, and 
these consumers may have selected a different product were the fee 
information transparent when they acquired the account.\734\
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    \734\ Research covering prepaid programs that represented 
approximately 90 percent of the GPR card market (in terms of number 
of cards) shows that the majority of the market sampled (70 percent) 
provides explicit tips regarding how to avoid fees and minimize the 
costs associated with using the card. However, the authors identify 
marketing and communication to promote positive consumer use as an 
area for improvement. 2014 CFSI Scorecard at 11.
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    One commenter suggested that the Bureau analyze more recent data 
describing prepaid card consumer spending and behavior but did not 
point to particular spending or behavior studies that it deemed more 
informative than those discussed in the proposal. Commenters noted that 
various third-party sources aggregate information regarding prepaid 
cards and offer consumers evaluations of prepaid card fees and terms, 
including tailored recommendations in some cases. However, not all 
consumers rely on these evaluations in their search. Consumers may not 
access these evaluations due to lack of awareness, difficulty in 
accessing the evaluations, or skepticism regarding their objectivity. 
The Bureau believes that the final rule's content and formatting 
requirements increase transparency by ensuring that financial 
institutions disclose certain terms to consumers before they acquire 
prepaid accounts.
    In addition to depending on financial institutions to disclose 
information about account features to aid purchasing decisions, 
consumers rely on financial institutions to provide information 
regarding their account status, as well as other services such as error 
resolution, on an ongoing basis. Although the account terms and 
conditions may articulate the financial institution's commitments with 
respect to these features, many consumers may not review these 
documents or be able to anticipate their needs accurately before 
acquiring an account. Moreover, a financial institution's strength in 
performing these functions may be difficult to ascertain or impossible 
to observe in advance. While a financial institution's reputation would 
suffer if it consistently provided poor service, such long-term 
consequences may not protect all consumers sufficiently from the 
financial institution's incentives for short-term gain.\735\ The 
switching costs incurred by a consumer in changing prepaid accounts may 
serve as an additional friction that decreases a financial 
institution's incentive to provide high quality services on an ongoing 
basis.
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    \735\ The relationship between reputation and quality is highly 
complex, even under competition. See, e.g., Rachel Kranton, 
Competition and the Incentive to Produce High Quality, 70 Economica 
385 (2003). For a general survey of reputation and quality, see 
Heski Bar-Isaac & Steve Tadelis, Seller Reputation, 4 Founds. and 
Trends Microeconomics 273 (2008).
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    Although most prepaid account programs reviewed in the Bureau's 
Study of Prepaid Account Agreements offered many of the limited 
liability and error resolution protections set forth in the final rule, 
the Bureau is concerned that the total number of consumers at risk of 
an unexpected loss could increase in the future as more consumers adopt 
and use prepaid accounts. Prepaid accounts, which leverage the same 
large payment network rails as credit cards, are widely accepted by 
merchants and increasingly used by consumers. A survey conducted by the 
Board in 2013 (and published in 2014) found that 15 percent of 
respondents reported using a general purpose prepaid card in the past 
12 months.\736\ Among respondents to that survey who reported having a 
general purpose prepaid card or a payroll card, 38 percent reported 
that it was reloadable, and about half of those respondents who 
reported that they had a GPR or payroll card reported that they or 
someone else added money to their card in the past month.\737\ Another 
survey conducted in May 2014 found that 16 percent of respondents had 
used a ``prepaid card'' that was not a gift card in the last 12 
months.\738\ The 2013 FDIC Survey found that 12 percent of households 
had ever used prepaid cards, 7.9 percent had used prepaid cards in the 
last 12 months, and 3.9 percent had used prepaid cards in the last 30 
days; moreover, this survey found that prepaid card use was more

[[Page 84273]]

common among households that were unbanked or underbanked.\739\ Another 
survey found that 5 percent of adults had used prepaid cards at least 
once a month.\740\
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    \736\ Bd. of Governors of the Fed. Reserve Sys., Consumers and 
Mobile Financial Services 2014, at 8 (Mar. 2014), available at 
https://www.federalreserve.gov/econresdata/mobile-devices/files/consumers-and-mobile-financial-services-report-201403.pdf (2014 FRB 
Consumers and Mobile Financial Services Survey). General purpose 
prepaid cards are one type of product subsumed within the final 
rule's definition of prepaid account. As described above, payroll 
card accounts are already required to comply with Regulation E's 
limited liability and error resolution requirements. The subsequent 
wave of the survey found that 19.8 percent of respondents reported 
using a prepaid debit card in the past 12 months, suggesting that 
product use is proliferating. 2015 FRB Consumers and Mobile 
Financial Services Survey at 53 tbl.C.3.
    \737\ 2014 FRB Consumers and Mobile Financial Services Survey at 
48 tbls.C.9 & C.10. This implies that roughly 3 percent of 
respondents had a general purpose prepaid card or payroll card that 
they or someone else had (re)loaded in the past month. The 
subsequent survey wave did not include these questions. 2015 FRB 
Consumers and Mobile Financial Services Survey. The most recent wave 
of the survey found that 16.2 percent of respondents used a GPR card 
in the past 12 months, but the survey did not inquire regarding how 
frequently respondents reloaded the cards. 2016 FRB Consumers and 
Mobile Financial Services Survey at 61 tbl.C.3.
    \738\ GFK, GfK Prepaid Omnibus Research Findings, at 6 (2014), 
available at https://www.nbpca.org/~/media/
2519B8BADB1B4388BA5F11C511B3ACAE.ashx. The definition of prepaid 
card in this survey appears to have included products that are not 
included in the final rule's definition of prepaid account. Id. at 
7.
    \739\ 2013 FDIC Survey at 29-30.
    \740\ 2014 Pew Survey at 1. Survey respondents were told not to 
include gift cards, rebate cards, credit cards, or phone cards. Id. 
at 24.
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    Although consumers have different motivations for acquiring prepaid 
accounts, some financial institutions design and market these accounts 
to consumers as an alternative to traditional checking accounts. 
According to one survey, of the 5 percent of adults who reported using 
a prepaid card at least once a month, 41 percent did not simultaneously 
maintain a checking account.\741\ This implies that roughly 2 percent 
of the adult population uses a prepaid card monthly and does not have a 
checking account.\742\ According to a survey conducted by the Board in 
2012 (and published in 2013), 1.6 percent of respondents reported that 
either they or their partner had a reloadable prepaid card and did not 
have a checking, savings, or money market account.\743\ Prepaid 
accounts offer individuals who do not have access to traditional debit 
or credit card accounts a means to perform EFTs. These accounts also 
enable consumers, who may not otherwise have access to another 
electronic payment method, to make purchases from online merchants and 
others who do not accept cash. Additionally, prepaid accounts provide 
individuals lacking access to traditional checking accounts a means of 
storing funds that can be more secure than holding cash. Prepaid 
accounts also offer consumers the ability to accept payments of wages 
and benefits via direct deposit. For unbanked consumers, loading funds 
into a prepaid account may serve as an alternative to relying on a 
check-cashing provider.
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    \741\ 2014 Pew Survey at 1, 7.
    \742\ See id.
    \743\ Bd. of Governors of the Fed. Reserve Sys., Consumers and 
Mobile Financial Services 2013, at 5 (Mar. 2013), available at 
https://www.federalreserve.gov/econresdata/consumers-and-mobile-financial-services-report-201303.pdf. The following information was 
used to derive this statistic: ``In 2012, the share of unbanked 
consumers [meaning those who reported that neither they nor their 
spouse or partner had a checking, savings, or money market account] 
declined to 9.5 percent of the adult population. Adopting a more 
expansive definition of being banked that includes use of a 
reloadable prepaid card, the share of consumers who are unbanked 
declined . . . to 7.9 percent in 2012.'' The 2014 FRB Consumers and 
Mobile Financial Services Survey, which reported findings from a 
survey conducted in 2013, did not include information that enabled 
the Bureau to calculate a revised statistic.
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    Although consumers may hold funds in certain types of prepaid 
accounts that are currently subject to Regulation E, some consumers 
regularly deposit funds into prepaid accounts that are not currently 
subject to Regulation E's requirements.\744\ Consumers may hold their 
prepaid accounts for extended periods and load significant portions of 
their available funds into such accounts. Consumers who store funds in 
prepaid accounts without liability limitations and error resolution 
protections (including provisional credit) may be at risk of an 
unexpected loss of or a delay in access to funds in the event of an 
error or unauthorized transfer. The final rule reduces the risk borne 
by these consumers by requiring that financial institutions limit 
liability for unauthorized transfers and offer error resolution 
protections for all prepaid accounts, including provisional credit on 
accounts that have completed the customer identification and 
verification processes.
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    \744\ As discussed above, payroll card accounts and government 
benefit accounts are currently subject to Regulation E. The FMS Rule 
ensures that the protections that apply to payroll card accounts 
under Regulation E also apply to prepaid cards that receive Federal 
payments. Consistent with the Bureau's findings in its Study of 
Prepaid Account Agreements, one industry commenter stated that the 
FMS Rule has essentially forced any product accepting ACH credits to 
implement the protections that apply to payroll card accounts under 
Regulation E.
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    In addition, the final rule helps consumers assess the risks and 
costs associated with using prepaid accounts by requiring more 
comprehensive disclosure of account transaction history than currently 
required. These new requirements may help consumers to understand the 
financial costs associated with using prepaid accounts, to recognize 
errors, and to exercise error resolution rights. As discussed below, 
many financial institutions currently implement several of the final 
rule's provisions relating to communication of account information to 
accountholders, including providing consumers with electronic access to 
their transaction history.
    The final rule also modifies Regulations E and Z to impose new 
requirements in relation to covered separate credit features accessible 
by a hybrid prepaid-credit card. As described in greater detail above, 
in the final rule, the Bureau generally intends to cover under 
Regulation Z overdraft credit features offered in connection with 
prepaid accounts where the credit features are offered by the prepaid 
account issuer, its affiliate, or its business partner (except as 
described in new Sec.  1026.61(a)(4)). New Sec.  1026.61(b) generally 
requires that such overdraft credit features be structured as separate 
sub-accounts or accounts, distinct from the prepaid asset account, to 
facilitate transparency and compliance with various Regulation Z 
requirements. New Sec.  1026.61 refers to these overdraft credit 
features as ``covered separate credit features.'' In addition, under 
the final rule, a prepaid card that can access a covered separate 
credit feature is a ``credit card'' under Regulation Z with respect to 
that credit feature. The final rule defines such a prepaid card that is 
a credit card as a ``hybrid prepaid-credit card'' in new Sec.  1026.61.
    The Bureau anticipates that most covered separate credit features 
will meet the definition of ``open-end credit.'' Persons offering 
covered separate credit features accessible by a hybrid prepaid-credit 
card that are open-end (not home-secured) credit generally are required 
to comply with the disclosure provisions and credit card provisions in 
subparts B and G of Regulation Z, including certain fee and payment 
restrictions. Additionally, the final rule provides that card issuers 
must adhere to timing requirements regarding solicitation and 
application that generally prevent card issuers from doing any of the 
following within 30 days of prepaid account registration: (1) Opening a 
covered separate credit feature accessible by a hybrid prepaid-credit 
card; (2) making a solicitation or providing an application for such a 
feature; or (3) allowing an existing credit feature to become such a 
covered separate credit feature accessible by a hybrid prepaid-credit 
card. Moreover, for those prepaid account programs where consumers may 
be offered a covered separate credit feature accessible by a hybrid 
prepaid-credit card, the final rule requires that a financial 
institution generally provide to any prepaid account without an 
associated covered separate credit feature accessible by a hybrid 
prepaid-credit card the same account terms, conditions, and features 
that it provides on prepaid accounts in the same prepaid account 
program that have such a credit feature.\745\
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    \745\ The final rule permits a financial institution to charge 
the same or higher fees on the asset feature of a prepaid account 
with a covered separate credit feature accessible by a hybrid 
prepaid-credit card relative to the amount of a comparable fee it 
charges on prepaid accounts in the same prepaid account program 
without such a credit feature. However, a financial institution 
cannot charge a lower fee on the asset feature of a prepaid account 
with a covered separate credit feature accessible by a hybrid 
prepaid-credit card relative to the amount of a comparable fee it 
charges on prepaid accounts in the same prepaid account program 
without such a credit feature.

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[[Page 84274]]

    Although few providers currently offer overdraft services in 
connection with prepaid accounts, the Bureau believes that such 
offerings could become more prevalent in the future. Therefore, the 
Bureau believes that it is important to ensure that consumers using 
prepaid cards that access covered separate credit features receive 
appropriate protections. By adopting the requirements at this time, the 
Bureau hopes to mitigate harm to consumers arising from the absence of 
these protections and to lessen disruption that industry could 
experience if regulatory uncertainty were resolved after such products 
had become widespread.
    To assess the potential impacts of the final rule on consumers and 
covered persons, the Bureau separately discusses the benefits and costs 
associated with each major provision. For clarity, costs arising from 
compliance burdens that are imposed on financial institutions, card 
issuers, and creditors are discussed under the subheading ``Benefits 
and Costs to Covered Persons'' for each major provision. The final 
rule's provisions may impose one-time implementation costs and may 
affect ongoing operational costs, both of which may be fixed or 
variable.\746\ Economic theory predicts that providers will absorb 
fixed cost increases. However, such increases may restrict consumer 
choice if they cause current providers to exit the market or deter 
potential providers from entering the market. In some situations, a 
decrease in the number of market participants could facilitate the 
exercise of market power by remaining providers. This could result in 
higher prices for consumers, decreased product quality, or some 
combination thereof.
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    \746\ Fixed costs are those costs that do not depend on the 
number of prepaid accounts supplied by the financial institution or 
the number of credit card accounts supplied by the card issuer or 
creditor.
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    Providers' ability to recoup variable cost increases by raising 
prices depends on both the relative elasticities of supply and demand 
for the product and the extent of market competition.\747\ Both 
providers and consumers ultimately will bear these burdens, and the 
party that is less responsive to a price change will bear a larger 
share.
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    \747\ The relative elasticities of supply and demand for a 
product measure how responsive the quantity supplied by providers is 
to a price change relative to how responsive the quantity demanded 
by consumers is to a price change. The relative elasticities of 
supply and demand can vary across covered products. The availability 
of information, which affects the perceived availability of 
substitute products, as well as the presence of substitute products 
may influence these relative elasticities.
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1. Pre-Acquisition Disclosures and Initial Disclosures
    The final rule requires new pre-acquisition disclosures for prepaid 
accounts, extends existing Regulation E disclosure requirements to 
prepaid accounts, and requires new disclosures to be made on prepaid 
account access devices. Under the final rule, newly printed disclosures 
will need to be compliant beginning October 1, 2017. The final rule 
also modifies the initial disclosures of fees required by Regulation E. 
The final rule extends Sec.  1005.7 to prepaid accounts; and, in Sec.  
1005.18(f)(1), adds the requirement that the financial institution must 
disclose all fees imposed by the financial institution in connection 
with a prepaid account, not just fees related to EFTs. In addition, 
section Sec.  1005.18(f)(3) requires that financial institutions 
disclose on prepaid account access devices the financial institution's 
name, and both the URL of a Web site and a telephone number that a 
consumer can use to contact the financial institution about the prepaid 
account.
    Section 1005.18(b)(1) generally requires that a financial 
institution provide a short form disclosure and a long form disclosure 
before a consumer acquires a prepaid account.\748\ Sections 
1005.18(b)(2) through (5) establish the content of these disclosures. 
The long form disclosure includes all of the information required to be 
disclosed on the short form, with the exception of information related 
to fees or the availability of the long form. In addition, among other 
information, the long form sets forth all fees imposed in connection 
with a prepaid account and their qualifying conditions; contact 
information of the Consumer Financial Protection Bureau; and contact 
information for the financial institution.
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    \748\ For concision, in this section, the disclosure 
requirements of Sec.  1005.18(b)(5) are considered as part of the 
short form disclosure requirements.
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    The short form disclosure includes a ``static'' portion, an 
``additional fee types'' portion, and a portion for additional 
information. The static portion includes the seven fees or fee types 
that the Bureau believes to be the most important to consumers when 
shopping for a prepaid account. The ``additional fee types'' portion 
states the total number of fees that the prepaid account charges (not 
including finance charges, purchase price, or activation fees) \749\ 
but which are not disclosed in the static portion of the form, followed 
by a second statement explaining that what follows are examples of some 
of those additional fee types, followed by the two of these fee types 
that generated the most revenue for the prepaid product during the 
prior 24-month period. The final rule also introduces a 5 percent de 
minimis revenue threshold, whereby if a fee type resulted in less than 
5 percent of total fee revenue from consumers for that 24-month period 
then that fee type would not be required to be disclosed. The short 
form includes additional disclosures regarding FDIC deposit or NCUA 
share insurance and other account protections; the Web site of the 
Consumer Financial Protection Bureau; a statement directing the 
consumer to the location of the long form disclosure; and a statement 
regarding whether the product offers overdraft credit features. In 
addition to the information required on the short form disclosure, 
financial institutions must disclose outside of, but in close proximity 
to, the short form disclosure, the name of the financial institution; 
the name of the prepaid program; the purchase price for the prepaid 
account, if any; and the fee for activating the prepaid account, if 
any.
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    \749\ For concision, in this section, the number of additional 
fee types disclosure is considered without further discussion of the 
fact that finance charges, purchase price, and activation fees are 
excluded from its determination.
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    The final rule restricts the information that may be disclosed on, 
or with, the short form and long form disclosures. Section 
1005.18(b)(7) requires that when a short form or long form disclosure 
is presented in writing or electronically, it must be segregated from 
other information and contain only the information required or 
permitted by the final rule. Section 1005.18(b)(3) requires that if the 
amount of a fee associated with a fee type listed in the short form 
disclosure could vary, a financial institution must disclose the 
highest fee associated with the fee type, along with a symbol, such as 
an asterisk, linked to a statement that explains the fee could be lower 
depending on how and where the prepaid account is used. With the 
exception of a periodic fee, a financial institution must use the same 
symbol and explanatory statement for all fees that could be lower. In 
addition, Sec.  1005.18(b)(3) establishes, with the exception of cash 
reload fees, that short form disclosures must not include any third-
party fees; and it allows financial institutions to disclose any of the 
two-tiered disclosures required under Sec.  1005.18(b)(2) as a single 
fee disclosure, if the amount is the same for both fees.
    The final rule establishes certain aspects of the timing, form, and 
formatting of the short form and long form disclosures. Section 
1005.18(b)(6) requires financial institutions provide certain portions 
of these disclosures in

[[Page 84275]]

a tabular format, excepting disclosures that are provided orally. In 
addition, Sec.  1005.18(b)(7) provides specific formatting requirements 
on grouping, prominence, and size. It requires that all information 
must be presented in a single, easy-to-read typeface, in a single color 
against a contrasting background; specifies which information must be 
emphasized with bold typeface; and specifies minimum and relative type 
sizes. It establishes how fees and other information on the short form 
should be grouped, including a ``top-line'' component which presents 
the first four fee types at the top of the form in a relatively large, 
bold font. On the long form disclosure, it requires that fee 
information must generally be grouped together by the categories of 
function.
    The final rule also sets forth requirements for how and when the 
short form and long form disclosures must be provided to consumers. 
Section 1005.18(b)(1) requires financial institutions to provide 
consumers with the short form disclosure prior to acquisition of the 
prepaid account. It similarly requires that the long form disclosure be 
provided prior to acquisition of a prepaid account; however, it also 
provides exceptions if the account is acquired in a retail location or 
orally by telephone, as discussed below. Section 1005.18(b)(6) requires 
that the disclosures must be in writing, sets forth special rules that 
apply if they are provided in electronic form or orally, and provides 
that these disclosures must be in a retainable form (excepting 
disclosures that are provided orally).
    The final rule creates exceptions to the pre-acquisition disclosure 
regime if the prepaid account is acquired in a retail location or 
orally by telephone. In a retail location, financial institutions may 
provide the long form disclosure after the consumer acquires a prepaid 
account as long as the prepaid account access device is contained 
inside the product's packaging material, the short form disclosure is 
visible to consumers, and the short form includes information about how 
to access the long form disclosure by telephone and via a Web site, 
among other requirements.
    Before a consumer acquires a prepaid account orally by telephone, a 
financial institution must orally disclose the information required in 
the short form disclosure. However, the final rule allows a financial 
institution to provide the long form disclosure after the consumer 
acquires the prepaid account, provided that certain conditions are met 
before the consumer acquires the prepaid account, including that the 
financial institution informs the consumer orally that the information 
required to be disclosed on the long form disclosure is available both 
by telephone and on a Web site.
    Pursuant to Sec.  1005.18(b)(9), financial institutions must 
provide the short form and long form disclosures in a foreign language, 
if the financial institution uses that same foreign language in 
connection with the acquisition of a prepaid account in the following 
circumstances: (1) The financial institution principally uses a foreign 
language on prepaid account packaging material; (2) the financial 
institution principally uses a foreign language to advertise, solicit, 
or market a prepaid account and provides a means in the advertisement, 
solicitation, or marketing material that the consumer uses to acquire 
the prepaid account by telephone or electronically; or (3) the 
financial institution provides a means for the consumer to acquire a 
prepaid account by telephone or electronically principally in a foreign 
language. The financial institution must also provide the long form 
disclosure in English upon the consumer's request and on its Web site 
wherever it provides the long form disclosure in a foreign language.
    A short form disclosure for a payroll card account or government 
benefit account must also contain a statement that consumers do not 
have to accept such an account and which directs the consumer to ask 
about other ways to receive wages, salary, or benefits; or a statement 
that the consumer has several options to receive wages, salary, or 
benefits, followed by a list of options available to the consumer, and 
which directs the consumer to choose one.
    The final rule sets forth disclosure requirements when a financial 
institution offers multiple service plans within a particular prepaid 
account program. The financial institution may provide the standard 
short form disclosure (as described above) for the service plan in 
which the consumer is enrolled by default upon acquisition. 
Alternatively, the financial institution may simultaneously disclose 
the required information for all of its service plans in a short from 
substantially similar to Model Form A-10(e). The long form disclosure 
for a prepaid account program with multiple service plans must present 
the required information for all service plans in the form of a table.
    Finally, Sec.  1005.18(h)(1) provides that, except in certain 
circumstances, the requirements of subpart A of Regulation E, as 
modified by final Sec.  1005.18, apply to prepaid accounts, including 
government benefit accounts subject to Sec.  1005.15, beginning October 
1, 2017. If a financial institution has changed a prepaid account's 
terms and conditions as a result of Sec.  1005.18(h)(1) taking effect 
such that a change-in-terms notice would have been required under Sec.  
1005.8(a) or Sec.  1005.18(f)(2) for existing customers, the financial 
institution must provide certain disclosures to the consumer. Section 
1005.18(h)(2)(iii) requires that financial institutions notify 
consumers with accounts acquired before the effective date of any 
change to the prepaid account's terms and conditions as a result of 
Sec.  1005.18(h)(1) taking effect such that a change-in-terms notice 
would have been required under Sec.  1005.8(a) or Sec.  1005.18(f)(2) 
for existing customers, at least 21 days in advance of the change 
becoming effective.\750\ If a consumer acquires a prepaid account on or 
after the effective date, Sec.  1005.18(h)(2)(ii)(A) requires that 
financial institutions notify that consumer of any change to the 
prepaid account's terms and conditions as a result of Sec.  
1005.18(h)(1) taking effect such that a change-in-terms notice would 
have been required under Sec.  1005.8(a) or Sec.  1005.18(f)(2) for 
existing customers, within 30 days of acquiring the consumer's contact 
information. In addition, for accounts acquired after the effective 
date, Sec.  1005.18(h)(2)(ii)(B) requires that financial institutions 
mail or deliver to the con initial disclosures pursuant to Sec.  1005.7 
and Sec.  1005.18(f)(1) that have been updated as a result of Sec.  
1005.18(h)(1) taking effect, within 30 days of obtaining the consumer's 
contact information. Section 1005.18(h)(2)(iv) specifies the methods 
financial institutions may use to notify consumers of these changes and 
send updated initial disclosures.
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    \750\ If a financial institution obtains a consumer's contact 
information fewer than 30 days in advance of that change becoming 
effective or after it has become effective, the financial 
institution is permitted to provide notice of the change in 
accordance with the timing requirements set forth in Sec.  
1005.18(h)(2)(ii)(A).
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a. Benefits and Costs to Consumers
    The benefits and costs to consumers arising from the disclosure 
requirements for prepaid accounts are addressed in four parts: (i) A 
general discussion of the benefits to consumers of information; (ii) a 
discussion of the anticipated benefits of the disclosure requirements; 
(iii) a discussion of consumer engagement with disclosure; and (iv) a 
discussion of potential costs to consumers of the disclosure 
requirements.
i. Benefits of Information in General
    According to standard models of consumer choice, when consumers 
face

[[Page 84276]]

a choice among products in a given market, they consider the options 
available to them as well as the information they have about each of 
those options. In order for a consumer to make the best choice for her 
situation, her information must be accurate and descriptive of all 
available options.\751\ In reality, however, consumers may not be 
perfectly informed. As discussed above, among other reasons, this could 
transpire because firms perceive an advantage to withholding 
information, or because consumers perceive gathering information as 
overly burdensome.
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    \751\ Here, ``make the best choice'' is intended to be 
descriptive of the consumer's process of choice; to consciously 
optimize over her choice set and, through that process, select the 
best option. This is distinct from the possible interpretation of 
obtaining the best outcome, which could be achieved without 
optimizing; through random selection among known options, for 
example.
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    Information provision (e.g., mandated disclosure) can therefore 
facilitate consumer decision-making in at least three ways. First, 
information provision can inform consumers about the choices that are 
available to them. This provides a direct benefit of improving the 
likelihood that consumers find products that fit their 
preferences.\752\ In addition, as discussed above, informing consumers 
about their choices (or facilitating information gathering by 
consumers) may increase competition in the product market, which in 
turn could cause firms to offer consumers better terms. Second, 
information provision can inform consumers about the attributes of the 
products that are available to them. This provides the direct benefit 
of enabling consumers to consider the relative merits of each product 
and to select the best product from among their choices. In addition, 
revealing or highlighting certain attributes of a product type could 
induce firms to compete on those attributes, raising benefits to 
consumers or lowering costs. Third, information provision can inform 
consumers about the attributes of the products they have already 
chosen. This can both increase the benefits a consumer receives from a 
chosen product and reduce the costs associated with its use.
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    \752\ Increasing knowledge of the consumer's choice set may be 
particularly beneficial when products within a market are highly 
differentiated or in which consumers within a market have diverse 
tastes.
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ii. Benefits
    The Bureau believes that disclosures required by the final rule 
provide consumers with the additional information necessary to make 
informed choices regarding the prepaid account products available to 
them. The short form discloses key fees, key fee types, and other 
important information. So that the fees may be quickly located and 
compared, the fees and fee types that the Bureau believes are most 
important to consumers in shopping for prepaid accounts are listed at 
the top of the short form disclosure.\753\ Consumers seeking 
information not found on the short form disclosure can use the long 
form disclosure, which also is required to be made available to 
consumers before consumers acquire a prepaid account.\754\ As discussed 
in detail above, the long form disclosure lists all fees for a 
particular prepaid account program and the conditions, if any, under 
which they may be imposed, waived, or reduced. These disclosures will 
help consumers become more informed about the details of each prepaid 
account and could therefore improve consumer choice among available 
products.
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    \753\ The Bureau's beliefs about the fees most important to 
consumers were based on the results of consumer testing. See ICF 
Report II. In addition, examining payroll account usage data, 
Wilshusen el al. find that these same fees also constitute a large 
majority of the fees charged to consumers, both by incidence and 
total value. 2012 FRB Philadelphia Study at 59.
    \754\ In addition, Sec.  1005.18(f)(1) requires that a prepaid 
account's account agreement include all of the information required 
to be provided in the long form disclosure.
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    The Bureau designed the short form disclosure in part to help 
consumers who are shopping for prepaid accounts to find the most 
important information. The Bureau limited the information that is 
displayed in order to make the information that is presented more 
salient and easier to locate.\755\ As noted above, the fees that 
participants in the Bureau's testing identified as being most important 
to them are listed at the top of the short form disclosure, which the 
Bureau believes is a likely point for consumers' first engagement.\756\ 
This effect is reinforced by the display of top-line information, which 
is presented in a relatively large, bold font printed on a background 
that provides clear contrast. Other disclosed fees and additional 
information are presented in clear, concise language and printed on a 
background that provides clear contrast for ease of reading.
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    \755\ Reducing the size of the choice set for choices made under 
time pressure has been shown to increase both the percentage of the 
remaining items seen as well as the time of fixation on those items. 
See Elena Reutskaja et al., Search Dynamics in Consumer Choice under 
Time Pressure: An Eye-Tracking Study, 101 Am. Econ. Rev. 900 (2011).
    \756\ Andrew Caplin et al., Search and Satisficing, 101 a.m. 
Econ. Rev. 2899 (2011).
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    One potential outcome of the Bureau's emphasis on a limited amount 
of information on the short form disclosure is that consumers could 
begin to rely on this information to guide their purchase decisions 
more heavily than they do currently. If so, then financial institutions 
may in turn increase their competitive efforts on disclosed fees and 
information, which could result in a benefit for consumers, for 
example, in the form of a reduction in disclosed fees. The requirement 
that financial institutions disclose only the highest possible fee for 
each required fee disclosure on the short form could encourage 
financial institutions with varying fees to simplify their fee 
structure. Such a reduction in complexity could improve consumers' 
comprehension of the products they are considering prior to 
acquisition.
    Another benefit of the final rule will be to standardize prepaid 
account product disclosures. Currently, while providers generally 
disclose certain fees and information to consumers pre-acquisition, 
there is significant variation in the content and formatting of the 
disclosures offered to consumers before they acquire a prepaid 
account.\757\ The form of these disclosures varies significantly across 
products, variously utilizing bulleted lists, tables, plain text, and 
combinations of these methods. In some cases, fee inclusion, fee 
descriptions, and fee prominence are seemingly selected to highlight 
the relative strengths or to diminish the relative weaknesses of the 
particular product. As described above, the Bureau believes that 
standardization will reduce the cost to consumers associated with 
finding and understanding critical information about prepaid accounts 
and therefore increase consumers' knowledge of their available choices 
and facilitate comparison shopping among prepaid account products. The 
short form disclosure will standardize the summary disclosure of key 
fees and other important information. Similarly,

[[Page 84277]]

the long form disclosure will standardize the grouping of fees and make 
standard the disclosure of fees' qualifying conditions, making fees 
easier for consumers to locate and compare across products.
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    \757\ This variation is pronounced in both retail and non-retail 
channels. For example, Pew documented wide disparity in disclosures 
available on prepaid card Web sites. See The Pew Charitable Trusts, 
Loaded with Uncertainty: Are Prepaid Cards a Smart Alternative to 
Checking Accounts? (Sept. 2012), available at https://www.pewtrusts.org/en/and-analysis/reports/2012/09/06/loaded-with-uncertainty; see also 2014 Pew Study. Relatedly, CFSI and Pew cited 
the lack of current standards, among other things, as motivation for 
developing their own model forms. See Ctr. for Fin. Serv. 
Innovation, Thinking Inside the Box: Improving Consumer Outcomes 
Through Better Fee Disclosure for Prepaid Cards (Mar. 2012), 
available at https://policylinkcontent.s3.amazonaws.com/ThinkingInside_CFSI_0.pdf; see also The Pew Charitable Trusts, The 
Need for Improved Disclosures for General Purpose Reloadable Prepaid 
Cards (Feb. 2014), available at https://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2014/02/26/the-need-for-improved-disclosures-for-general-purpose-reloadable-prepaid-cards.
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    Consumers will also benefit from disclosed fees, terms, and 
conditions that are accurate pre-acquisition. Under the final rule, 
prepaid accounts are being brought within the ambit of Regulation E, 
which, among other things, requires that financial institutions provide 
consumers with written notice at least 21 days before implementing, 
generally, a change that would result in increased fees or liability 
for the consumer, or fewer types of EFTs or stricter limitations on 
EFTs. Therefore consumers can have confidence that the fees and 
features of the products that they purchase are accurately disclosed, 
and that certain changes to those products are properly disclosed to 
the consumer with advance notice.
    As discussed in detail above, under the final rule, financial 
institutions may offer consumers multiple service plans within a single 
prepaid account program. This provides consumers with the benefit of 
additional options from which to choose, which may therefore improve 
the quality of consumers' purchasing decisions or product use. However, 
multiple service plans may also present challenges to consumers. In 
particular, because financial institutions that disclose multiple plans 
on the short form will utilize a unique disclosure format, these 
disclosures may be relatively difficult to compare to other prepaid 
products. This could decrease the overall quality of consumers' 
purchasing decision. In addition, the multiple service plan option will 
result in a larger amount of information for consumers to process, 
somewhat lessening the above-discussed benefits of limited information 
on the short form disclosure.
    Also as discussed above, in certain situations, if a financial 
institution principally uses a foreign language on retail packaging, to 
market a prepaid account, or to communicate with a consumer during 
account acquisition, then the short form and long form must be provided 
in that same foreign language. A financial institution must also 
provide the long form disclosure in English upon a consumer's request 
and on any part of the Web site where it provides the long form 
disclosure in a foreign language. The Bureau believes that if a 
consumer relies on a foreign language in the acquisition of a prepaid 
account, then it is likely that that foreign language is the consumer's 
language of greatest proficiency. Furthermore, the Bureau believes that 
the ability to obtain the long form disclosure information in English 
will be beneficial to consumers in various situations, such as when a 
family member who only reads English is assisting a non-English 
speaking consumer to manage his prepaid account.
    The proposed rule would have required that if a financial 
institution primarily used a foreign language in-person with a consumer 
who was acquiring a prepaid account, then the financial institution 
would have to provide pre-acquisition disclosures in that foreign 
language. Two trade associations and one law firm commenting on behalf 
of a coalition of credit unions commented that the requirement that 
financial institutions provide disclosures in the foreign language that 
they use to converse to consumers in-person, as specified in the 
proposed rule, would be overly burdensome, create a potential 
compliance trap, and could result in a reduction in access to foreign 
language speakers. In response to these comments, the Bureau has 
removed this requirement for in-person interactions in this final rule. 
The Bureau has maintained the requirement that financial institutions 
provide disclosures in the foreign language if a financial institution 
principally uses a foreign language to market a prepaid account and 
provides a means there for a consumer to acquire the account by 
telephone or through a Web site; or provides a means for a consumer to 
acquire a prepaid account by telephone or through a Web site 
principally in a foreign language; or primarily uses a foreign language 
on packaging material. The Bureau believes that this approach ensures 
that the majority of consumers who acquire a prepaid account using a 
foreign language have the ability to receive disclosures in that 
language while not limiting the ability of financial institutions to 
interact with their customers in the language that the customer is most 
comfortable.
    The final rule also requires disclosure on the short form of 
whether the prepaid account might offer the consumer an overdraft 
credit feature at some time in the future.\758\ If an overdraft credit 
feature might be offered, then the financial institution must also 
disclose the time period after which it might be offered and that fees 
would apply. Because both the existence of, and the absence of, 
possible overdraft credit features are required to be similarly 
disclosed, consumers will be able to easily compare prepaid account 
products along this dimension. The Bureau's pre-proposal consumer 
testing, in addition to external studies,\759\ suggests that many 
consumers choose prepaid products specifically to avoid overdraft 
services. Requiring financial institutions to disclose when a prepaid 
account program does or does not offer overdraft credit features will 
therefore help those consumers make informed purchasing decisions if 
they want to avoid such features. Conversely, consumers who are seeking 
a prepaid account with the possibility of accessing an overdraft credit 
feature will be able to more easily identify products that offer such a 
feature.
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    \758\ See Sec.  1005.18(b)(2)(x).
    \759\ See, e.g., 2014 Pew Survey at 13.
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    Additionally, as discussed above, the final rule requires the short 
form disclosure for payroll card accounts and government benefit 
accounts to contain either a statement that the consumer does not have 
to accept the account and which directs the consumer to ask about other 
ways to receive wages, salary, or benefits; or a statement that the 
consumer has several options to receive wages, salary, or benefits, 
followed by a list of options available to the consumer, and which 
directs the consumer to choose one of the available options. The Bureau 
believes that these disclosures may prompt consumers to ask questions 
about alternative ways of receiving their wages or benefits and thereby 
facilitate consumer choice.
    Section 1005.18(b)(2)(viii) requires disclosure of the total number 
of fee types charged by the financial institution other than those 
disclosed on the short form disclosure. In the Bureau's consumer 
testing, this number became a focal point for participants. If this 
number becomes a focal point for consumers, then financial institutions 
may choose to compete on this metric, which could potentially reduce 
the number of fee types imposed in connection with prepaid accounts. As 
a result, consumers may benefit from fewer fees and simpler products, 
generally.
    Section 1005.18(b)(2)(ix) requires disclosure of up to two fee 
types, other than those disclosed on the static portion of the short 
form disclosure, that generated the highest total revenue from 
consumers of the prepaid account program over the prior 24-month 
period.\760\ The disclosure of these fees will serve at least two 
purposes. First,

[[Page 84278]]

it will help to alert consumers to account features for which they may 
end up incurring a significant cost. Second, it will help ensure that 
the disclosure regime set forth in the final rule adapts to new and 
varied products as services that each firm offers or introduces that 
generate sufficient revenue will appear in the additional fee types 
portion of the disclosure.
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    \760\ If a fee type resulted in less than 5 percent of total 
revenue from consumers for that 24-month period, then that fee type 
would not be required to be disclosed.
---------------------------------------------------------------------------

    As discussed in greater detail in the section-by-section analyses 
of Sec.  1005.18(b)(2) and (b)(2)(ix) above, the Bureau proposed to 
require financial institutions to disclose up to three incidence-based 
fees on the short form. Incidence-based fees would have been fees that 
were incurred most frequently in the prior 12-month period by consumers 
of a particular prepaid account product. A number of industry 
commenters, including trade associations, issuing banks, program 
managers, payment network providers, and a law firm commenting on 
behalf of a coalition of prepaid issuers, suggested that the incidence-
based fee disclosures should be eliminated because they would confuse 
consumers and restrict the ability of consumers to comparison 
shop.\761\
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    \761\ Due in part to public comments to the proposed rule, the 
Bureau shifted from additional fee types based on fee incidence in 
the proposed rule to additional fee types based on fee revenue in 
the final rule. As a result, there is an inconsistency between the 
public comments, which address fee incidence, and the disclosure 
requirements of the final rule, which address fee revenue. 
Nonetheless, the two approaches are similar, and therefore, unless 
stated otherwise, the Bureau addresses comments related to 
incidence-based fees as if those comments were about the final 
rule's revenue-based fees.
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    While the Bureau's pre-proposal and post-proposal consumer testing 
indicates that many individuals will understand the additional fee 
types portion of the short form disclosure, it is possible that some 
consumers will incorrectly interpret it. In Bureau's pre-proposal and 
post-proposal consumer testing, participants did not comprehend 
statements that were intended to explain what are now additional fee 
types in the final rule.\762\ In addition, some participants 
incorrectly concluded that the absence of a fee type implied the 
absence of the service related to that fee type. In order make the 
connection for consumers that the additional fee types disclosed 
pursuant to final Sec.  1005.18(b)(2)(ix) are a subset of the number of 
additional fee types disclosed pursuant to final Sec.  
1005.18(b)(2)(viii)(A), and that absence of any feature on the short 
form does not necessarily mean the prepaid account program does not 
offer that feature, the Bureau has added a new explanatory statement to 
precede the additional fee types that introduces the concept of 
additional fee types in a simple, succinct manner.
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    \762\ Pre-proposal testing of a statement intended to inform 
consumers that the fees listed were those that generated significant 
revenue for the financial institution resulted in minimal 
participant comprehension or notice. See ICF Report I at 35. 
(Certain prototype short form disclosures tested included the 
statement: ``The fees below generate significant revenue for this 
company.''). Post-proposal testing of a similar disclosure that, in 
addition to including an explanation of the criteria for disclosing 
such fees (i.e., that the two fees listed were the most commonly 
charged), also directed consumers where to find detail about all 
fees, similarly did not increase participant comprehension. See ICF 
Report II at 22-23. (Certain prototype short form disclosures tested 
included the statement: ``We charge [x] additional fees. Details on 
fees inside the package, at 800-234-5678 or at bit.ly/XYZprepaids. 
These are our most common:''.)
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iii. Consumer Engagement With Disclosure
    According to the standard social science models of consumer 
decision-making presented above, consumers must have relevant and 
accurate information in order to make good choices. However, recent 
research in social science, law, and design suggests that even if 
consumers were provided an unlimited amount of information, many 
consumers would not comprehend or utilize all of that information.\763\ 
This result highlights the importance of an initial step: 
``engagement,'' \764\ the immediate analysis of any new information 
encountered by a consumer in which the consumer assesses the costs and 
benefits of consumption of that information.\765\ If this calculation 
yields a high enough net expected benefit, then the consumer engages, 
and begins to further consume the information. This calculation 
incorporates the consumer's automatic emotional response to the design 
as well as the consumer's expected reward from engagement. Without an 
affirmative decision at this first step, neither utilization nor 
comprehension can occur.\766\
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    \763\ James Lacko & Janis Pappalardo, The Failure and Promise of 
Mandated Consumer Mortgage Disclosures: Evidence from Qualitative 
Interviews and a Controlled Experiment with Mortgage Borrowers, 100 
Am. Econ. Rev. 516 (2010); see also Kleimann Commc'n Group, Know 
Before You Owe: Evolution of the Integrated TILA RESPA Disclosures 
(July 2012), available at https://files.consumerfinance.gov/f/201207_cfpb_report_tila-respa-testing.pdf; Eric Johnson et al., Can 
Consumers Make Affordable Care Affordable? The Value of Choice 
Architecture, PLOS One (Dec. 2013), at 1, 2.
    \764\ Id. Throughout, this treatment describes the first moment 
of information consumption as ``engaging'' with the information 
provision. ``Engaging,'' as it is used here, is therefore distinct 
from ``reading'' or ``comprehending,'' both of which could imply 
sustained information consumption.
    \765\ A related decision-making framework is developed with 
accompanying case studies by Stephen Wendel. See Stephen Wendel, 
Designing for Behavior Change: Applying Psychology and Behavioral 
Economics (Mary Treseler ed., 2013).
    \766\ See, e.g., Ian Ayres & Alan Schwartz, The No-Reading 
Problem in Consumer Contract Law, 66 Stan. L. Rev. 545 (2014).
---------------------------------------------------------------------------

    The Bureau designed the model short form disclosure not only to 
provide relevant information to consumers, but also to increase 
consumer engagement. To appeal to consumers' emotional response, the 
Bureau designed the short form disclosure to be visually appealing. In 
addition, to reduce the perceived difficulty of learning about a 
prepaid product, the short form disclosure assigns terms a clear 
hierarchy through positioning, type-size, contrasting background, and 
bold-faced type; includes concise descriptions of fees and conditions; 
and limits the use of symbols and fine-print. Finally, as the perceived 
cost to a consumer of using a disclosure increases with the amount of 
information provided, the short form disclosure presents consumers with 
a reduced, manageable set of information about the product.\767\
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    \767\ The idea that consumers may decrease their engagement with 
information when more information is provided is somewhat supported 
by research on ``choice overload.'' This work demonstrates that when 
choice sets are large, some people opt to make no choice at all. 
See, e.g., Sheena Iyengar et al., How Much Choice is Too Much? 
Contributions to 401(k) Retirement Plans, in Pension Design and 
Structure: New Lessons from Behavioral Finance 83 (Oxford: Oxford 
University Press 2004).
---------------------------------------------------------------------------

    A number of industry commenters, including a trade association and 
an issuing credit union, stated that consumers generally do not read 
disclosures or comparison shop. One issuing credit union asserted that 
only one in 30,000 consumers actually read the provided disclosures. 
The Bureau disagrees with the claim that a minute number of consumers 
read disclosures for prepaid products. A recent survey of prepaid 
consumers reported that approximately one in three prepaid consumers 
comparison shopped before purchase, and, of those that did not, nearly 
one third stated that they would be more likely to comparison shop if 
disclosures were standardized across prepaid products.\768\ The 
disclosure regime designed by the Bureau is intended, in part, to 
engage consumers who may not otherwise read a disclosure of fees or 
comparison shop. Therefore the segment of consumers who are not 
currently reading prepaid disclosures is an opportunity for the Bureau 
to improve consumer engagement and promote a more active, competitive 
market in general. Further, if comparison shoppers drive the market

[[Page 84279]]

towards products with consumer-friendly features and costs, non-
shoppers could benefit from a better selection of available products as 
well.
---------------------------------------------------------------------------

    \768\ 2015 Pew Survey at 8.
---------------------------------------------------------------------------

    One academic institution questioned whether consumers would be able 
to make use of the disclosures because financial literacy is low in 
general and particularly low for the consumers whom the Bureau is 
attempting to assist. However, the fact that the majority of consumers 
who use prepaid products do so to avoid fees such as overdraft and 
check-cashing fees \769\ suggests that many prepaid consumers have a 
strong understanding of the potential benefits of prepaid accounts and 
the features that are important to them. Even if it were true that 
prepaid users have low financial literacy on average the Bureau does 
not believe that this would rationalize abandoning standardized 
disclosures. For the reasons stated above, the Bureau believes it is to 
consumers' benefit that they be informed about the products they 
purchase. A well-designed disclosure regime can engage consumers, help 
to educate consumers, and simplify the process of product comparison. 
Therefore the Bureau believes that the short form and long form 
disclosures will act as a corrective to confusion caused by a lack of 
financial literacy, if it exists.
---------------------------------------------------------------------------

    \769\ See 2014 Pew Survey at 13.
---------------------------------------------------------------------------

iv. Costs to Consumers
    The Bureau's effort to simplify pre-acquisition disclosures may 
generate costs as well as benefits for consumers. As discussed above, 
the Bureau's emphasis of a limited number of fees in the short form 
disclosure could result in a reduction in the amounts of those 
particular fees through competitive pressure. However, to the extent 
they exist, fees that would be relatively de-emphasized by the short 
form disclosure could, as a result, experience an easing of competitive 
pressure and thereby increases in the amounts charged. Such costs 
should be mitigated to some extent by the additional fee types portion 
of the short form disclosure. Likewise, the number of fees that could 
be added to a product due to a lack of emphasis by the disclosure 
regime should be mitigated to some extent by the requirement for 
financial institutions to disclose the number of additional fees not 
disclosed explicitly on the short form disclosure.
    Section 1005.18(b)(3)(i), which generally requires a financial 
institution to disclose the highest amount for any fee or fee type 
listed on the short form disclosure, may also generate costs for 
consumers. As discussed above, the Bureau believes that there is a 
clear benefit to consumers of providing a simple and concise short form 
disclosure, and the Bureau believes that this is achieved, in part, by 
limiting footnotes and fine print. However, in acquisition channels in 
which the short form disclosure is not necessarily provided with the 
long form disclosure, this provision could result in a consumer having 
less information about a particular prepaid product than they would 
have had in the current marketplace. In such circumstances, although 
the long form disclosure must always be made available (e.g., through a 
telephone number or a Web site), some consumers may consider the search 
cost too high to justify seeking out the long form. Therefore, Sec.  
1005.18(b)(3)(i) may create a distinct new cost to consumers if it 
results in them not having all the information they want or need to 
make their purchasing decision.
    One consumer advocacy group and a number of industry commenters, 
including trade associations, prepaid program managers, issuing banks, 
a law firm commenting on behalf of a coalition of prepaid issuers, and 
a payment network provider cautioned that requiring the disclosure of 
the highest potential fee could be misleading. One consumer advocacy 
group and a number of trade associations further cautioned that the 
disclosure of the highest potential fee could result in the elimination 
of useful fee waivers, such as a program that allows a number of free 
customer service calls per month before a fee is charged. Several 
industry commenters, including an issuing bank and a trade association 
specifically recommended permitting inclusion in the short form 
disclosure of the conditions under which the monthly fee could be 
waived, citing the importance of this fee and the prevalence of 
discounts and waivers applicable to this fee as crucial to consumer 
decisions in choosing a prepaid card. A consumer group said its 
research showed that 14 of 66 prepaid cards disclose that the monthly 
fee can be waived entirely if the consumer takes certain actions.
    The Bureau is requiring disclosure of the highest possible fee both 
because doing so significantly reduces the complexity of the short form 
disclosure, and because doing so significantly reduces the chances that 
a consumer will be caught off guard by an unexpected fee or an 
unexpectedly large fee. Financial institutions can bring the existence 
of potentially lower fees to consumers' attention through the use of an 
asterisk, and these beneficial fee waivers can be marketed to consumers 
elsewhere on the retail packaging, the firm's Web site, or over the 
phone. In addition, based on the prevalence of monthly fee waivers and 
recommendations from both industry and consumer group comments, the 
Bureau has included in the final rule a provision enabling financial 
institutions to disclose details regarding waivers to the periodic fee 
using a second symbol, such as a dagger. The final rule also permits 
inclusion in the short form disclosure for payroll card accounts and 
government benefits accounts of a statement directing the consumers to 
a location outside the short form for information on ways to access 
funds and balance information for free or for a reduced fee.
    One State government agency, and a number of industry commenters, 
including trade associations, prepaid program managers, issuing banks, 
a law firm commenting on behalf of a coalition of prepaid issuers, and 
a credit union service organization, questioned the benefit of 
requiring both short form and long form disclosures. These commenters 
essentially suggested that the Bureau is requiring redundant 
information and placing unnecessary burden on industry participants. 
Commenters further argued that multiple disclosures will add to 
consumer confusion. The Bureau used results from its consumer testing 
to design a tiered disclosure regime in order to provide consumers with 
a manageable amount of information when first engaging with a product, 
while not limiting consumers' ability to obtain additional information 
if they choose to do so. The information provided on the short form 
disclosure aligns with what the Bureau believes consumers value most in 
their shopping and decision-making processes. The long form disclosure 
guarantees that any consumer who wishes to search for additional fee 
information can do so easily. The combination of the short form and 
long form disclosures allows for an accurate depiction of a prepaid 
account's fee structure, enabling consumers to quickly comparison shop 
on key fees and terms, while ensuring that comprehensive information is 
available to them should they decide to use it.
    A trade association and several industry commenters, including 
prepaid program managers and an issuing bank, noted that in order to 
compete on the number of additional fee types metric, financial 
institutions may reduce the number of optional features that are 
beneficial to consumers but which carry a fee, such as the option to 
purchase

[[Page 84280]]

cashier's checks. The Bureau agrees that financial institutions will 
have to weigh the benefits of providing fee-based services with the 
potential costs of disclosing the existence of additional fees on the 
short form disclosure. However, the Bureau anticipates that the 
services that consumers care most about will remain marketable and 
therefore financially viable; and these services are therefore likely 
to remain available to consumers.
    This final rule also differs from the proposed rule in that it 
requires that the number of fee types is disclosed as opposed the 
number of to individual fees. This change allows for fee variation 
within fee types, such that different fees for a similar service, such 
as standard and expedited delivery of a replacement card, are 
considered a single fee type. This enables financial institutions to 
maintain the flexibility to offer useful services to consumers without 
it reflecting negatively on their products.
b. Benefits and Costs to Covered Persons
    This section primarily considers the benefits and costs to a 
covered person from developing, maintaining, and delivering the new 
pre-acquisition disclosures. Some of the content and the method of 
delivery (e.g., web, phone, or retail) depend on how the consumer 
acquires the prepaid account, and some of the disclosures are also 
generally available outside of account acquisition (e.g., on the web or 
by phone). To fully consider the costs of these disclosures, we address 
the costs that arise in four cases: (i) The development and maintenance 
of pre-acquisition disclosures, (ii) delivery of pre-acquisition 
disclosures outside of account acquisition; (iii) delivery of pre-
acquisition disclosures for accounts acquired outside the retail 
channel; \770\ and (iv) delivery of pre-acquisition disclosures for 
accounts acquired within the retail channel. We also consider (v) the 
benefits of these disclosures.
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    \770\ This treatment considers five significant acquisition 
channels for prepaid accounts: The retail channel (i.e., in-person, 
in a retail location); in-person, in a non-retail location, such as 
a bank or place of employment; orally, over the telephone; 
electronically, via a Web site or mobile application; and via direct 
mail.
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    Regarding the modified initial disclosure requirements, Sec.  
1005.7(b) currently requires financial institutions to provide certain 
initial disclosures for accounts subject to Regulation E, and this 
final rule extends this provision to prepaid accounts. Generally, the 
Bureau believes that financial institutions already disclose full terms 
and conditions for prepaid accounts in their account agreements, which 
include most or all of what is required by Sec.  1005.7(b). The 
disclosure requirements of Sec.  1005.7(b) (not considering the 
modifications in Sec.  1005.18(f)(1), which are considered below) will 
therefore entail very small cost to covered persons.
    The Bureau also recognizes that certain financial benefits to 
consumers from the disclosures may have an associated financial cost to 
covered persons. Covered persons generate revenue through consumers' 
use of their products. Therefore, when a consumer experiences a 
financial benefit, a financial institution may experience a financial 
cost of the same magnitude. Such costs could stem from each of the 
primary consumer benefit channels identified above: Bolstered consumer 
knowledge of alternative products; improved acquisition choices from 
among available products; lower-cost, higher-benefit usage of acquired 
products; and increased competitive pressures.
i. The Development and Maintenance of Pre-Acquisition Disclosures
    Sections 1005.18(b)(2) through (9) set forth the content and form 
requirements for the short form and long form disclosures. To satisfy 
these requirements, financial institutions will incur one-time costs of 
designing compliant disclosures. Based on pre-proposal industry 
outreach, the Bureau understands that the design process will require 
as many as 100 labor hours per prepaid account program, including time 
for design work and legal and financial institution review. However, 
the design costs should be offset somewhat by the Bureau's provision of 
model forms for the short form disclosure and a sample form for the 
long form disclosure.\771\ The Bureau is also providing native design 
files for print and source code for web-based disclosures for all of 
the model and sample disclosures forms included in the final rule to 
aid in their development.\772\
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    \771\ One trade association representing credit unions commented 
that the design costs would be $300 per form.
    \772\ These files are available at www.consumerfinance.gov/prepaid-disclosure-files.
---------------------------------------------------------------------------

    Financial institutions will incur ongoing costs of maintaining the 
short form and long form disclosures pursuant to Sec.  1005.18(b)(2) 
through (7). The magnitude of these costs will vary by financial 
institution and will depend on current practices and the acquisition 
channels used to sell prepaid accounts. Under the final rule, the long 
form and the static portion of the short form disclosure will require 
updating at most as often as a prepaid product's account agreement is 
updated; and based on industry outreach, the Bureau believes that 
financial institutions rarely change the prepaid account agreements of 
their prepaid products in a way that would require changes to the pre-
acquisition disclosures. When a change to the disclosures is required, 
financial institutions that sell prepaid accounts online and over the 
phone will incur small costs to update their Web sites and interactive 
voice response (IVR) systems. Financial institutions that sell prepaid 
accounts in a branch setting will incur small costs to update and print 
new disclosures.\773\ Financial institutions that sell prepaid accounts 
in retail stores may incur costs to update packaging. These acquisition 
channel-specific costs are discussed in detail in the sections below.
---------------------------------------------------------------------------

    \773\ Financial institutions that sell another financial 
institution's prepaid accounts in pre-printed packages are covered 
under the retail location exception and will incur costs similar to 
that of a typical retail store.
---------------------------------------------------------------------------

    Financial institutions will incur one-time and ongoing costs to 
comply with the short form disclosure's required statement regarding 
the number of additional fee types charged pursuant to Sec.  
1005.18(b)(2)(viii)(A) and disclosure of additional fee types pursuant 
to Sec.  1005.18(b)(2)(ix). As discussed in greater detail above, the 
additional fee types portion of the short form requires disclosure of 
the two fee types that generated the most revenue from consumers over 
the prior 24-month period for that particular prepaid account program 
that are (1) not already disclosed in the static portion of the short 
form disclosure and (2) not less than 5 percent of total revenue from 
consumers for that 24-month period. These fee types could vary over 
time for a given account program due to changes in how consumers use 
the card or due to changes in the program itself. In either case, 
financial institutions are responsible for updating the disclosure of 
additional fee types portion of their short form disclosures. The 
reassessment must occur at a minimum frequency of every 24 months and 
financial institutions will have 90 days from the end of the 24 month 
period to reassess and update the disclosure of additional fee types on 
their short form.
    Financial institutions are also required to reassess the statement 
regarding the number of additional fee types disclosure and the 
disclosure of additional fee types whenever a program's fee schedule is 
revised. In situations where a financial institution does not have data 
to calculate fee

[[Page 84281]]

revenue, such as the addition of a new fee or at the start of a new 
prepaid program, the financial institution must reasonably anticipate 
the fees that generate the most revenue over the next 24 months and 
determine if any fees must be disclosed in the additional fee types 
portion of the short form. Newly printed card stock must be accurate at 
the time the fee schedule change goes into effect.\774\
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    \774\ In rare cases where a fee schedule change is necessary to 
maintain or restore the security of an account or an EFT system as 
described in Sec.  1005.8(a)(2), the financial institution must 
complete its reassessment and update its disclosures, if applicable, 
within three months of the date it makes the fee schedule change 
permanent.
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    Regarding one-time costs, financial institutions may need to update 
their accounting systems or practices to evaluate fee revenue from all 
sources on a 24-month basis. Based on comments received from industry 
participants, and for reasons explained in the Alternatives section 
below, the Bureau believes that most financial institutions are already 
capable of tabulating fees in this manner, and thus it expects this 
cost to be small.
    Regarding ongoing costs, for a given prepaid account program, the 
burden of updating short form disclosures due to changes in the 
additional fee types portion will depend on the frequency with which 
the top two additional fee types change for that product and the 
channel through which that product is distributed. Similarly, if a 
financial institution changed its product, then it will be required to 
populate the additional fee types portion with a reasonable estimate of 
the fees that would match the additional fee types portion's criteria. 
The Bureau believes the costs of updating the additional fee types 
portion are very small for acquisition channels where disclosures are 
not printed on packaging material. As explained above, financial 
institutions would have 90 days to reassess and update the additional 
fee types portion on their short form disclosures.
    A number of industry commenters, including trade associations, an 
issuing bank, an issuing credit union, program managers, and payment 
network providers, suggested that the ongoing cost of updating the 
proposed incidence-based portion of the short form disclosure would 
have been overly burdensome. Some commenters, including a trade 
association, a law firm commenting behalf of a coalition of prepaid 
issuers, and a payment network provider, suggested that the annual 
reassessment would have resulted in changes from year to year of the 
most commonly-charged fees and therefore create costs to update 
disclosures, despite the fact that the prepaid product itself had not 
changed. However, the Bureau learned in comments from industry 
participants that the fee types that generate the highest revenue from 
consumers, which replaces the proposal's requirement of disclosing fees 
with the highest incidence, do not change regularly on an annual basis. 
In addition, the final rule created a 5 percent de minimis revenue 
threshold, below which an additional fee types would not need to be 
disclosed.\775\ This threshold eliminates the need to disclose low-
revenue fee types and therefore may reduce the frequency with which 
short form disclosures will need to be updated.\776\ In addition, final 
Sec.  1005.18(b)(2)(ix)(A) allows financial institution to consolidate 
the calculation of additional fee types across all prepaid account 
programs that share the same fee schedule, potentially limiting burden 
for issuers with many programs. The final rule also increases the 
amount of time between reassessments from 12 months to 24 months, which 
should lessen the probability of disclosed additional fee types 
differing from period to period while also lessening the amount of time 
that must be spent on reassessment. The Bureau believes that while 
there may be costs to financial institutions to update systems in order 
to track revenue and how different fee types contribute to revenue, 
once those systems are updated the burden on financial institutions due 
to the reassessment of fee types that generate the highest revenue from 
consumers will be small.
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    \775\ If a financial institution is required to disclose fewer 
than two additional fee types, it may still choose to disclose up to 
two fees in the space reserved for additional fee types. A financial 
institution could use this option to disclose fees that it believes 
may be required as additional fee types in future years due to 
fluctuations in consumers' use patterns. This would further reduce 
expected costs incurred due to updating the additional fee types 
portion of the short form disclosure.
    \776\ Some commenters claimed that while fees may not vary much 
in an absolute sense, very low incidence fees may be volatile 
relative to each other, and that the ranking of fees might therefore 
change relatively often. This provision ensures that low revenue 
fees are not considered for the additional fee types portion of the 
short form, and therefore, that this type of volatility will not 
create additional costs for financial institutions.
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ii. Delivery of Disclosures Outside of Account Acquisition
    A number of the provisions detailed above require financial 
institutions to provide or make available pre-acquisition disclosures 
orally via a telephone. The Bureau expects that compliance with these 
provisions may require implementation costs of updating an IVR system, 
training live customer service agents, or both. To the extent that the 
provisions increase usage of financial institutions' telephone systems, 
financial institutions may incur additional ongoing costs of utilizing 
or operating these systems. Financial institutions will also bear small 
ongoing costs of monitoring and updating their telephone systems to 
ensure that they provide accurate information.
    The Bureau learned in its pre-proposal industry outreach that 
utilizing an IVR system costs up to $0.12 per minute, while live agent 
customer service costs up to $0.90 per minute. The total burden of 
these costs for any single financial institution will depend on the 
financial institution's potential customers' demand for obtaining 
disclosures orally over the telephone, and may depend on the financial 
institution's negotiated rates for IVR, live agent customer service, or 
both. Based on a review of current prepaid account fee schedules and 
the long form disclosure requirements, the Bureau estimates that a long 
form disclosure could be provided orally, on average, in approximately 
4.5 minutes. Therefore, if a consumer calls for more information and 
listens to the entire long form disclosure, via an IVR system, then 
this would cost the financial institution approximately $0.54 per 
call.\777\ This estimate could increase if financial institutions offer 
consumers the option to speak to a live agent before or after the long 
form is disclosed by an IVR system. Based on pre-proposal outreach, the 
Bureau estimates that approximately 4.2 percent of callers to an IVR 
system with a live agent option get forwarded to a live agent, and the 
average service time for a live agent is approximately 5.1 minutes. 
Therefore, if all financial institutions offer a live agent option, 
then the cost to the industry would increase, on average, by $0.19 per 
call to approximately $0.73 per call.\778\ However, financial 
institutions have an incentive to get consumers the information they 
value most in the shortest amount of time to minimize costs. Financial 
institutions also have the flexibility to order the information in the 
long form disclosure while maintaining the grouping of fees by

[[Page 84282]]

categories of function. This will allow financial institutions to order 
the information presented orally in the long form disclosure by 
relative importance to consumers. Those consumers who call searching 
for a single piece, or small set, of information could shorten the 
length of time that they spend on the phone because they will acquire 
the information they need to make their decision before the entire long 
form is disclosed. Therefore the average call length of consumers in 
retail settings will likely be less than the Bureau's 4.5 minute 
estimate.\779\
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    \777\ The Bureau believes that financial institutions will use 
IVR systems to respond to customers who call for information that is 
on the long form. This belief is based on the cost of live agents 
relative to IVR systems and the repetition involved in disclosing 
the long form to customers.
    \778\ Here, $0.19 = 4.2% * 5.1 minutes * $0.90/minute; and $0.73 
= $0.54 + $0.19.
    \779\ If, for example, the average call length were instead half 
of the 4.5 minute estimate, then each call would cost, on average, 
approximately $0.27. If a financial institution includes the option 
to speak to a live agent, then each call would cost, on average, 
approximately $0.46.
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    A number of the provisions detailed above require financial 
institutions to provide, or may result in financial institutions 
providing, pre-acquisition disclosures electronically via a Web site. 
The Bureau believes that all current prepaid account providers already 
maintain a Web site, and therefore that implementation costs of 
complying with these provisions would not include the costs of 
obtaining and initializing a Web site. To the extent that the 
provisions increase usage of financial institutions' Web sites, 
financial institutions may bear additional ongoing costs of bandwidth 
usage. In addition, financial institutions will be required to design 
an electronic version of the relevant disclosures, and therefore will 
bear a one-time web-design cost. The Bureau believes this cost will be 
relatively small and also mitigated by the Bureau's provision of model 
forms, sample forms, and native design files for print and source code 
for web-based disclosures for all of the model and sample forms 
included in the final rule. The total burden of these costs for any 
single financial institution will depend on the financial institution's 
customers' demand for obtaining disclosures electronically, via a Web 
site, and may depend on the financial institution's negotiated web-
hosting rates. Finally, financial institutions will bear small ongoing 
costs of monitoring and updating their Web sites to ensure that they 
provide accurate information.
    In addition to providing pre-acquisition disclosures to consumers 
on an ongoing basis, financial institutions are required to provide 
notices of changes to consumers when certain changes are made to their 
accounts. Specifically, Sec.  1005.18(f)(2) provides that the change-
in-terms notice provisions in Sec.  1005.8(a) apply to any change in a 
term or condition that is required to be disclosed under Sec.  1005.7 
or Sec.  1005.18(f)(1). The Bureau does not believe that these 
requirements introduce a significant cost. Based on pre-proposal 
industry outreach, the Bureau believes that financial institutions 
rarely alter their fee structures, and when such a change does occur, 
financial institutions are generally already providing these notices to 
consumers due to the FMS Rule, State laws, or as a best practice.
    If a financial institution changes a prepaid account's terms and 
conditions as a result of Sec.  1005.18(h)(1) taking effect such that a 
change-in-terms notice would have been required under Sec.  1005.8(a) 
or Sec.  1005.18(f)(2) for existing customers, a financial institution 
must notify consumers with accounts acquired before October 1, 2017 at 
least 21 days in advance of the change becoming effective, provided the 
financial institution has the consumer's contact information. If the 
financial institution obtains the consumer's contact information fewer 
than 30 days in advance of the change becoming effective or after it 
has become effective, the financial institution is permitted instead to 
provide notice of the change within 30 days of obtaining the consumer's 
contact information.
    For prepaid accounts governed by Sec.  1005.18(h)(2)(ii) or (iii), 
if a financial institution has not obtained a consumer's consent to 
provide disclosures in electronic form pursuant to the E-Sign Act, or 
will not be mailing or delivering written account-related 
communications to the consumer within the time periods specified in 
Sec.  1005.18(h)(2)(ii) or (iii), then the financial institution will 
be able to provide to the consumer a notice of a change in terms and 
conditions or required or voluntary updated initial disclosures as a 
result of this final rule taking effect in electronic form without 
regard to the consumer notice and consent requirements of section 
101(c) of the E-Sign Act.
    Financial institutions with prepaid accounts that offer overdraft 
credit features are likely to trigger this requirement. For any 
consumer who has not consented to electronic communications and who 
will be receiving other physical mailings from the financial 
institution in the specified time period, that financial institution 
will incur a cost of printing the notice, which can be included in the 
envelope or package which was already scheduled to be delivered. It is 
unlikely that the financial institution will incur additional mailing 
costs to send these notices. The remaining notices of change may be 
sent to consumers electronically. Therefore, the Bureau believes that 
the cost associated with providing these notices is minimal.
iii. Delivery of Pre-Acquisition Disclosures for Accounts Acquired 
Outside the Retail Channel
    In-person (non-retail locations) and direct mail acquisitions will 
require the short form and long form disclosures to be provided on 
paper. The long form disclosure must be provided pre-acquisition, and 
all the fees and information required on the long form must also be 
included as part of the prepaid account agreement. For each prepaid 
account sold, this will entail additional costs of materials (e.g., 
printing, paper) and personnel training (e.g., training personnel to 
provide both forms in these settings).
    Acquisitions that do not occur in person, such as those that occur 
over the telephone, via direct mail, or electronically, may result in 
financial institutions sending consumers an account access device via 
the mail. Section 1005.18(f)(1) requires financial institutions to 
include all of the information required to be disclosed in the long 
form as part of the initial disclosures given pursuant to Sec.  1005.7. 
Accordingly, financial institutions that offer these methods of account 
acquisition may incur new ongoing costs in the form of increased 
shipping costs and increased materials costs. However, financial 
institutions typically include the prepaid account agreement with the 
access device they send to consumers. Therefore, the cost to include 
the long form disclosure in the mail will be minimal, likely at a cost 
of printing an additional sheet of paper.
    As discussed above, Sec.  1005.18(b)(1)(iii) requires a financial 
institution to orally disclose the short form disclosure before a 
consumer acquires a prepaid account orally by telephone. Financial 
institutions will be able to choose between disclosing the information 
required by the long form disclosure orally prior to acquisition, and 
communicating prior to acquisition that the information required by the 
long form is available both orally by telephone and electronically via 
a Web site. Both the costs of providing disclosures orally over the 
telephone and the costs of providing disclosures electronically via a 
Web site were considered in generality above. Because the labor and 
capital necessary to conduct business over the telephone may also be 
used to disclose the fees and other information required in the short 
form and long form disclosures, the Bureau believes that the costs of 
providing disclosures orally over the

[[Page 84283]]

telephone will be substantially mitigated for financial institutions 
that already transact over the telephone. The Bureau estimates that the 
short form disclosure can be disclosed orally, on average, in 
approximately one minute. This requirement will add a cost of 
approximately $0.12 per call if the financial institution uses an 
automated system to disclose the short form disclosure, plus an 
additional $0.54 if the consumer asks to hear the long form disclosure. 
If the disclosure regime prompts the consumer to ask questions, the 
financial institution would also incur costs for additional live agent 
time. The Bureau estimates that the cost to the prepaid industry to 
disclose the required information during sales calls is approximately 
$324,300 to $346,300 per year.\780\
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    \780\ See the discussion in the previous section for per call 
cost estimates. The Bureau estimates, using load amount and issuance 
forecasts from Mercator Advisory Group reports, that approximately 
102 million prepaid cards will be acquired in 2016. Mercator 
Advisory Group, Tenth Annual U.S. Prepaid Cards Market Forecasts, 
2013-2016, at 16-17 (Oct. 2013), and Mercator 12th Annual Market 
Forecasts. The Bureau estimates, using a share of 1 percent (2014 
Pew Survey at 5) that approximately 1 million of the 102 million 
prepaid cards will be acquired by telephone. If approximately 1 to 5 
percent of consumers ask to hear the long form disclosure when 
acquiring an account via telephone, then the cost to the prepaid 
industry to disclose the required information during sales calls is 
approximately $324,300 to $346,300 per year.
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    Pursuant to Sec.  1005.18(b)(6), prepaid account acquisitions 
conducted electronically (for example, via a Web site or a mobile 
application) will necessitate electronic disclosure of both the short 
form and long form disclosure prior to acquisition. Financial 
institutions may choose the manner of electronic disclosure. However, 
electronic disclosures must be provided in a manner which is reasonably 
expected to be accessible to the consumer given how the consumer is 
acquiring the prepaid account. The cost of this provision will depend 
on the manner in which the financial institution complies; however, 
given that the financial institution can generally provide disclosures 
in the same format in which the acquisition occurs, the Bureau expects 
that this provision will result in very little additional cost. For 
example, the costs of providing disclosures electronically, via a Web 
site, were considered above; however, because financial institutions 
that transact via a Web site must successfully operate a Web site, they 
also already bear most costs associated with disclosing information via 
a Web site, such as the cost of updating and maintaining a Web site. 
Similarly, because financial institutions that transact via a mobile 
application must successfully operate a mobile application, they also 
already bear most costs associated with disclosing information via a 
mobile application. Moreover, the Bureau believes that such financial 
institutions generally already disclose fees and account agreements 
electronically, further reducing the marginal burden of this provision.
    One industry commenter asserted that requiring the short form and 
long form disclosures during electronic acquisition will confuse 
consumers and increase the number of potential customers who abandon 
the sign-up process. The Bureau conducted multiple rounds of consumer 
testing to ensure that the disclosures that it designed were 
straightforward and provided consumers with useful information for 
their purchasing decisions. While the Bureau did not specifically test 
the disclosure regime in an electronic setting, the Bureau believes 
that a consumer who is shopping for a prepaid card online or through an 
app is likely familiar with electronic disclosures. Further, 
information and formatting requirements that the final rule imposes for 
disclosures provided electronically will ensure that those disclosures 
are comparable to the disclosures provided in the retail setting. 
Therefore, the Bureau disagrees with the assertion that electronic 
disclosure of the short form and long form will confuse consumers. If, 
instead, a consumer chooses not to purchase a prepaid product 
electronically because the disclosures make the consumer more informed, 
then there will be a cost to the financial institution but also a 
benefit to the consumer.
    Financial institutions that offer payroll card accounts or 
government benefit accounts could potentially incur additional costs to 
disclose in the short form the statement required by Sec.  
1005.18(b)(2)(xiv)(A) or Sec.  1005.15(c)(2)(i), as applicable, 
regarding alternate forms of accepting wages, salary, and benefits. 
Additional costs could accrue, for example, if the additional 
disclosure caused the short form disclosure to exceed the space 
constraints of current payroll card account packaging materials or 
government benefit account packaging materials. However, the Bureau 
believes that in these contexts, prepaid accounts are not usually 
distributed within space-constrained packaging, and that the short form 
disclosure requirements could be easily met if, for example, the 
financial institution provides the short form disclosure on an 8\1/2\ 
inch by 11 inch sheet of paper.\781\ If it is the case that the 
statements regarding a consumer's payment options both informs 
consumers and motivates them to consider other payment options, then 
the costs to some financial institutions could increase. In particular, 
a financial institution could experience a cost if consumers decline to 
acquire its prepaid account as a result of this disclosure. However, 
EFTA and current Regulation E already prohibit financial institutions 
and other persons, including employers, from requiring a consumer to 
establish an account with a particular institution as a condition of 
employment or receipt of a government benefit,\782\ and therefore it is 
possible that the cost of these provisions will be mitigated since some 
consumers may have already been informed that they had other options.
---------------------------------------------------------------------------

    \781\ The Bureau's industry outreach revealed that in some cases 
payroll card accounts and government benefit accounts are 
distributed in envelopes that also contain fee disclosures, the 
account agreement, and marketing materials. The model short form 
that includes this payroll card account notice easily fits within 
these constraints. See Model Form A-10(b).
    \782\ Sec.  1005.10(e)(2).
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    One member of Congress, several State government agencies, one 
county government agency, and a number of industry commenters, 
including trade associations, program managers, issuing banks, payment 
network providers, and employers, stated that the proposed notice 
regarding payment options would be seen as a warning and would dissuade 
consumers from accepting a payroll card account or government benefit 
account. The member of Congress and State government agencies further 
suggested that the proposed statement would impel consumers to ask to 
receive their government benefits through paper checks, which are more 
costly to government agencies than prepaid accounts. The member of 
Congress requested that the Bureau quantify the impact on taxpayers of 
requiring government agencies disclose the statement of payment 
options.
    As discussed in greater detail above in the section-by-section 
analysis of Sec.  1005.18(b)(2)(xiv)(A), the Bureau made changes to the 
statement of payment options in the final rule in response to comments 
that the proposed language would drive consumers away from prepaid 
accounts. Most participants in the Bureau's post-proposal consumer 
testing expressed essentially neutral feelings about both versions of 
the statement and appeared to be drawing on past experiences, rather 
than the language in the statement, to decide whether or not they would 
want to use the payroll card account or the

[[Page 84284]]

government benefit account.\783\ Under the final rule, financial 
institutions have the option to display a generic statement that 
consumers have options available to them to receive their payments, or 
to list the specific options that are available to the consumer. As 
discussed above, the Bureau believes that the required disclosure will 
impose a small impact on financial institutions that might experience a 
cost if a consumer declines to acquire a prepaid account. Further, for 
reasons discussed in the paragraphs that follow, the Bureau believes 
that the disclosure will impose a small impact on government agencies 
that might experience a cost if a consumer instead chooses to accept 
paper checks.
---------------------------------------------------------------------------

    \783\ ICF Report II at 16-17 and 27.
---------------------------------------------------------------------------

    In the Board's annual report to Congress on government-administered 
prepaid cards, it reported that of the $148 billion in government 
benefits disbursed through prepaid cards in 2015, five program types 
accounted for 97 percent of disbursed funds.\784\ The remaining program 
types each account for less than 1 percent of total funds disbursed. 
Two of the top five program types, SNAP and cash assistance programs, 
are needs-tested, State-administered programs and will therefore not be 
impacted by the final rule because they are excluded from coverage 
under EFTA and Regulation E. The remaining three program types, Social 
Security benefits, unemployment insurance payments, and child support 
payments, are subject to the disclosure requirements of the final rule 
and account for approximately 44 percent of all benefits disbursed 
through prepaid cards.
---------------------------------------------------------------------------

    \784\ 2015 FRB Government Prepaid Cards Report at 1 and 6.
---------------------------------------------------------------------------

    In 2010 the Treasury finalized a rule that requires that all 
recipients of Federal nontax benefits receive payment by EFT by May 1, 
2013.\785\ Only those born prior to May 1, 1921 who are already 
receiving paper checks may continue to receive paper checks without a 
waiver. Waivers can be issued for consumers for whom the EFT 
requirement creates a hardship due to a mental impairment, or due to a 
recipient living in a remote area without sufficient banking 
infrastructure. Social security payments are Federal nontax benefits 
and are therefore subject to this Treasury rule. The vast majority of 
Social Security recipients are therefore required to receive EFT 
payments and will not be given the option to receive paper checks. 
Therefore, this final rule will have virtually no impact on the cost to 
the Federal government of disbursing benefits.
---------------------------------------------------------------------------

    \785\ 75 FR 80315 (Dec. 22, 2010).
---------------------------------------------------------------------------

    The remaining two large government disbursement programs, 
unemployment insurance payments and child support payments, are State-
administered. State laws determine the methods by which benefits 
recipients can receive payments.\786\ If every benefits recipient under 
these two programs who is currently receiving payments to a prepaid 
card were instead to receive payments by paper check, the cost to 
States would be considerable. The Bureau estimates that each benefits 
recipient that chooses to receive paper checks instead of payments into 
a prepaid account or other electronic payment option would result in a 
cost to States of $11.10 to $24.05 per year.\787\ However, a number of 
State agencies no longer offer recipients the option to receive paper 
checks,\788\ and therefore, the number of consumers who would have the 
option to receive paper checks in lieu of payments to a prepaid card is 
a fraction of the total number of government benefit account 
recipients.
---------------------------------------------------------------------------

    \786\ State laws must not be inconsistent with Federal 
Regulation E requirements, including the requirement that consumers 
are given a choice among electronic methods of delivery.
    \787\ The increased cost for payments via paper check is 
determined by the difference in cost to the Treasury of a payment by 
paper check ($1.03) and an electronic payment ($0.105), for a cost 
increase of $0.925 per payment. Per payment cost increase is then 
multiplied by the expected number of payments per year based on the 
benefits program (assumed monthly for child support payments and 
biweekly for unemployment payments). See the Bureau of the Fiscal 
Service Web site, available at https://www.fiscal.treasury.gov/fsservices/gov/pmt/eft/eft_home.htm.
    \788\ Paper checks do not appear as an option for consumers to 
receive unemployment insurance on the Web sites of the five most 
populous States. This is also the case for child support recipient 
payments in in two of the five most populous States.
---------------------------------------------------------------------------

    The Bureau believes that this final rule will not impose a 
significant cost on States that disburse benefits to prepaid accounts. 
The rule will have virtually no impact in States that restrict payment 
methods to EFT because consumers will not have the option to receive 
paper checks. In addition, the Bureau believes, based on the neutral 
reaction of consumers to the statement of payment options during the 
Bureau's post-proposal consumer testing, that it is unlikely that a 
large proportion of consumers will not opt to receive benefits to a 
prepaid account due to a negative reaction to the statement of payment 
options, and therefore, any impact in States that still allow for paper 
checks will be small. Moreover, the statement of payment options is 
provided to consumers pre-acquisition. Therefore, current government 
benefits recipients that hold prepaid accounts should be unaffected, 
and any change to the number of payments made using prepaid accounts 
will only come due to the choices of new recipients. Accordingly, any 
impact the disclosures do have will take place gradually. If, for 
example, the disclosure requirements prompt consumers to ask about 
their options and 1 percent of consumers who would have accepted a 
prepaid account now ask for paper checks, then the rule will result in 
costs to the States of approximately $555,000 annually.\789\
---------------------------------------------------------------------------

    \789\ The Bureau estimates that the cost of all prepaid benefits 
recipients switching to paper checks would total approximately $60 
million per year. Therefore a 1 percent change from EFT options to 
paper checks would result in a cost of $555,000 nationwide. This 
estimate is based on the total number of parents receiving child 
support in 2013 (5,697,000), assumed to be paid monthly, and the 
total number of weeks of unemployment compensated in 2015 
(100,692,869), assumed to be paid biweekly, resulting in 68,364,000 
total child support payments and 50,346,435 total unemployment 
payments. The total number of payments to prepaid cards is 
determined by the percent of disbursements to prepaid accounts as a 
percentage of total disbursements for child support in 2013 (39.2 
percent) and unemployment in 2014 (66 percent). The cost of 
switching to paper checks is determined by multiplying the total 
number of payments to prepaid cards by the cost increase of $0.925 
per payment (see footnote 787).
    See U.S. Census Bureau, Custodial Mothers and Fathers and Their 
Child Support: 2013, at 2 tbl.1 (April 2014), available at https://www.census.gov/people/childsupport/data/files/chldsu13.pdf, for 
parents due child support; U.S. Dept. of Labor, Unemployment 
Insurance Data Summary, available at https://www.workforcesecurity.doleta.gov//content/data.asp, 2015 Quarterly 
Reports Summary Benefits Data, for weeks of unemployment 
compensated; Bd. of Governors of the Fed. Reserve Sys., Report to 
the Congress on Government-Administered General-Use Prepaid Cards, 
at 6 (July 2014), available at https://www.federalreserve.gov/publications/other-reports/files/government-prepaid-report-201407.pdf, for child support prepaid disbursement share; and the 
2015 FRB Government Prepaid Cards Report for unemployment prepaid 
disbursement share.
---------------------------------------------------------------------------

    Under Sec.  1005.18(b)(9), a financial institution must provide the 
short form and long form disclosures in a foreign language, if the 
financial institution uses that same foreign language in connection 
with the acquisition of a prepaid account in the following 
circumstances: (1) It principally uses a foreign language on prepaid 
account packaging material, (2) it principally uses a foreign language 
to advertise, solicit, or market a prepaid account and provides a means 
in the advertisement, solicitation, or marketing material that the 
consumer uses to acquire the prepaid account by telephone or 
electronically, or (3) it provides a means for the consumer to acquire 
a prepaid account by telephone or electronically principally in a 
foreign language. In addition, the financial institution is also 
required to provide the information required to be disclosed on the 
long

[[Page 84285]]

form in English upon a consumer's request and on any part of the Web 
site where it discloses this information in a foreign language. If a 
financial institution does not already maintain the practice of 
disclosing its fee schedules in both languages, then this requirement 
may entail a small fixed cost to have its disclosures translated, as 
well as additional ongoing translation costs whenever the financial 
institution introduces a new fee or changes the wording of any part of 
its prepaid account agreement. Because, in such cases, the long form 
disclosure will be required to be provided in two languages, this 
requirement could also result in additional ongoing material costs and 
increased shipping costs. The total burden of costs related to this 
requirement will depend on the amount that these requirements diverge 
from current practices and the number of languages that financial 
institutions use to market prepaid accounts. Based on industry 
outreach, the Bureau believes that most financial institutions that 
transact in foreign languages also provide disclosures in those foreign 
languages, and therefore this requirement is unlikely to generate 
significant additional costs.
    Final Sec.  1005.18(b)(2)(x) requires disclosure on the short form 
of whether the prepaid account might offer the consumer an overdraft 
credit feature at some time in the future. If an overdraft credit 
feature might be offered, then the financial institution must also 
disclose the time period after which it might be offered and that fees 
would apply. If consumers choose prepaid products in order to avoid 
overdraft credit features (see discussion in the Benefits and Costs to 
Consumers section above), then this requirement will generate direct 
costs for financial institutions that offer such features. However, 
based on its Study of Prepaid Account Agreements of existing prepaid 
account products, the Bureau believes that very few financial 
institutions currently offer such features.
iv. Delivery of Pre-Acquisition Disclosures for Accounts Acquired 
Within the Retail Channel
    Through industry outreach, the Bureau understands that the final 
rule could generate many costs unique to the retail acquisition 
channel. For this reason, the retail acquisition channel is considered 
separately here. Nonetheless, costs borne by financial institutions 
transacting in the retail acquisition channel are largely the same as 
those borne by the financial institutions described above. This 
treatment therefore takes the above treatment as a starting point and 
describes costs to covered persons only as they deviate from that 
treatment.
    In a retail location, the final rule requires a financial 
institution to provide the short form disclosure before a consumer 
acquires a prepaid account. Through pre-proposal discussions with 
industry participants, the Bureau learned that some financial 
institutions would not have been able to accommodate the short form 
disclosure on the exterior of their current packaging materials without 
making significant changes, such as redesigning of packages. As 
discussed above, the one-time costs associated with a package redesign 
are relatively small. However, some financial institutions currently 
use the exterior of their prepaid account packaging materials to 
facilitate retail transactions or to incorporate fraud prevention 
mechanisms (i.e., by providing bar codes or other information). In 
these cases, the Bureau has learned from pre-proposal discussions with 
industry participants that complying with the short form disclosure 
requirements in Sec.  1005.18(b) as proposed, while maintaining their 
programs' previous levels of functionality and fraud prevention, could 
as much as double the per unit cost of printing packaging 
materials.\790\
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    \790\ In pre-proposal discussions, the Bureau learned from 
industry participants that the per-package printing cost, including 
the card access device and the packaging materials, ranges from 
$0.75 to $2.00.
---------------------------------------------------------------------------

    As discussed in greater detail above, in a retail location, the 
financial institution is able to choose between two methods of 
providing the long form disclosure. As it is required to do in other 
acquisition channels, the financial institution could provide the long 
form disclosure before a consumer acquires a prepaid account. 
Alternatively, the financial institution could provide the long form 
disclosure after the consumer acquires a prepaid account, provided 
that, among other things, the short form disclosure includes both a 
telephone number and a URL of a Web site that the consumer could use to 
directly access the long form disclosure. Financial institutions that 
provide the long form disclosure prior to acquisition could potentially 
bear additional costs to train personnel to provide it in retail 
locations, as well as shipping and materials costs to provide physical 
copies of the long form to consumers. Financial institutions choosing 
to provide the long form after the consumer acquires a prepaid account 
may bear additional costs of shipping and materials. However, because 
the long form disclosure may be included with the product's terms and 
conditions in the prepaid account agreement, which is generally 
included in the prepaid account packaging, the Bureau believes these 
costs will be very small. These financial institutions will also bear 
the costs of making the long form available electronically via a Web 
site and orally over the telephone. These costs were considered in 
generality above. The Bureau estimates that if 1 percent to 5 percent 
of retail consumers call to access the long form then the cost to the 
prepaid industry of disclosing the long form disclosure orally by 
telephone would be approximately $148,600 to $1,532,700 per year.\791\
---------------------------------------------------------------------------

    \791\ The cost per call was considered above. The Bureau 
estimates that approximately 55 million to 66 million prepaid 
accounts will be acquired in retail locations in 2016. This estimate 
was derived by applying retail market shares of 54 percent (2014 Pew 
Survey at 5) and 65 percent (2013 Aite Group Report) to the estimate 
of total prepaid card acquisitions in 2016 (see footnote 780). The 
lower bound estimate is obtained by assuming the lower bound of 
retail acquisitions (55 million), the lower bound of consumers 
calling for additional information (1 percent), and the lower bound 
of the average cost per call ($0.27). The upper bound estimate is 
obtained by assuming the upper bound of retail acquisitions (66 
million), the upper bound of consumers calling for additional 
information (5 percent), and the upper bound of the average cost per 
call ($0.46).
    For 2013 Aite Group report, see Aite Group LLC, Prepaid Debit 
Card Realities: Cardholder Demographics and Revenue Models, at 22 
(Nov. 2013).
---------------------------------------------------------------------------

    Financial institutions are tasked with maintaining accurate 
disclosures and account agreements. If a financial institution makes 
changes to a prepaid account's fees or other terms, then that financial 
institution will make changes to the account agreements and 
disclosures, as appropriate, for newly printed cards and packaging. 
However, the financial institution may continue to sell stock that has 
already been printed as long as the financial institution honors the 
disclosed fees and terms, or, in some circumstances, follows Regulation 
E's system for notifying consumers of changes in terms to existing 
accounts, set forth in Sec.  1005.8(a).
    It is the current practice of some financial institutions, when 
changing the terms or conditions of a prepaid account agreement, to 
sell old card stock at retail and inform consumers who purchase old 
stock that the terms of their account have changed when they register 
their prepaid account. This final rule subjects prepaid accounts to the 
protections of Regulation E, which, among other things, requires that a 
financial institution provide written notice to the consumer, at least 
21 days before the effective date, of any change

[[Page 84286]]

in term or condition that would result in increased fees for the 
consumer, increased liability for the consumer, fewer types of 
available EFTs, or stricter limitations on the frequency or dollar 
amount of transfers. Moreover, as discussed in detail above, the final 
rule also requires pre-acquisition disclosures. Together, these two 
provisions implicitly prohibit the practice of making any change to 
disclosed terms, including changes made at the time of account 
registration, that would require prior notice to the consumer under 
Sec.  1005.8(a) or Sec.  1005.18(f)(2), without giving at least 21 days 
prior notice of the change.
    The Bureau understands financial institutions do not change the fee 
schedules for most prepaid accounts often, especially for prepaid 
products distributed in person, such as GPR cards and similar products 
sold at retail. When financial institutions do decide to make changes 
to their accounts sold at retail,\792\ they will generally have two 
options available to them: Remove old card stock from retail shelves 
and replace it with new card stock with accurate disclosures (commonly 
referred to as a ``pull and replace''); or honor the original terms for 
at least 21 days after providing written notice to consumers of the 
change in terms, as required under Regulation E, as amended. The Bureau 
believes that sending change-in-terms notices to consumers after they 
register their cards is generally more cost effective than conducting a 
pull and replace.\793\ However, financial institutions must also 
consider compliance with legal requirements under operative State 
consumer protection and contract laws, difficulties that may arise in 
attempting to provide notice of changed terms to consumers, as well as 
financial institutions' concerns about being accused of deceptive 
advertising practices by selling products with inaccurate disclosures. 
Therefore, the method which financial institutions choose to maintain 
accurate pre-acquisition disclosures and the associated costs will vary 
greatly by program size, system capabilities, proportion of cards sold 
at retail, the frequency and type of changes to terms and conditions, 
and how financial institutions judge the risks associated with each 
option.\794\
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    \792\ This discussion refers, specifically, to changes in terms 
or conditions that are required to be disclosed under Sec. Sec.  
1005.7 or 1005.18(f)(1).
    \793\ The Bureau estimates that pulling and replacing card stock 
will result in costs of $0.65 to $2.35 per card in retail. The 
Bureau estimates that sending change-in-terms notices will result in 
minimal costs for cardholders who can be contacted electronically 
and up to $0.50 per cardholder who cannot be contacted 
electronically and must receive a physical change-in-terms notice in 
the mail, plus the loss of any revenue which is lost while the 
financial institution must honor the original terms, and plus the 
cost of any system updates which must take place in order to track 
individual accounts in order to honor the original terms.
    \794\ If a financial institution chooses to remove a service 
from its accounts then it is possible that pulling and replacing 
product will be the only feasible way to comply with the disclosure 
requirements of the final rule. The Bureau believes that financial 
institutions removing services from accounts outside of the 
immediate situation described in existing Sec.  1005.8(a)(2) occurs 
rarely, if ever. If this were to occur, financial institutions would 
incur costs to send change-in-terms notices to existing customers, 
print new card stock, and reset stock on store shelves.
---------------------------------------------------------------------------

    Section 1005.18(h)(2)(ii) requires that financial institutions 
notify any consumer, who acquires a prepaid account on or after the 
effective date via packaging materials that were manufactured, printed, 
or otherwise produced prior to the effective date, of any changes to 
the prepaid account's terms and conditions as a result of Sec.  
1005.18(h)(1) taking effect such that a change-in-terms notice would 
have been required under Sec.  1005.8(a) or Sec.  1005.18(f)(2) for 
existing customers within 30 days of obtaining the customer's contact 
information. In addition, financial institutions must also mail or 
deliver updated initial disclosures pursuant to Sec.  1005.7 and Sec.  
1005.18(f)(1) within 30 days of obtaining the consumer's contact 
information. Those financial institutions that are affected should not 
incur significant costs to notify consumers and provide updated initial 
disclosures. Consumers who have consented to electronic communication 
may receive the notices and updated disclosures electronically, at a 
minimal cost to financial institutions. Those consumers who cannot be 
contacted electronically may receive the notices and updated initial 
disclosures with another scheduled mailing within the 30 day time 
period. Financial institutions will incur small costs to print these 
notices and disclosures, but it is unlikely that financial institutions 
will incur additional mailing costs. Any remaining consumers who are 
not scheduled to receive mailings may be notified without regard to the 
consumer notice and consent requirements of section 101(c) of the E-
Sign Act.
    The Bureau believes that the cost of monitoring and updating the 
additional fee types portion of the short form disclosure in the retail 
channel will be almost fully mitigated by two factors: First, because 
financial institutions will be able to phase out and replace old stock 
at the pace that it is sold (a strategy commonly referred to as ``sell-
through'') there should be no costs of product destruction or 
resetting; and second, because financial institutions could choose 
their reassessment dates to coincide with their natural product refresh 
cycle, there will be few additional costs to printing or shipping new 
prepaid cards.\795\
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    \795\ One prepaid issuer noted that the lead time required 
before a new production run can range between two and four months 
(not including the time taken by the production firm itself), and 
that the lead time grows as deviations from the previous production 
run increase (changing the packaging dimensions was given as an 
example of a change that might result in a longer lead time). The 
Bureau anticipates that changes in retail packaging due to changes 
in an account's additional fee types alone will constitute minor 
changes in the account's packaging, and therefore result in lead 
times at the lower end of this estimate. Given that financial 
institutions will experience short lead times and flexibility in the 
timing of additional fee types reassessment, it is likely that 
reassessments and updates can be scheduled to coincide with natural 
printing cycles.
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    Industry commenters, including one trade association and one 
issuing credit union, asserted that the potential adjustments to the 
proposed incidence-based portion of the short form disclosure would 
prevent financial institutions from purchasing card stock in bulk, 
which helps to keep the per unit cost low. However, in the final rule, 
the Bureau is only requiring that updates to the disclosure of 
additional fee types portion of the packaging material be made when new 
stock is printed. Moreover, as discussed above, financial institutions 
can sell stock printed prior to the reassessment date indefinitely. 
Accordingly, if smaller institutions purchase in bulk to minimize 
costs, those institutions would still be able to sell that stock until 
it is gone. Therefore, complying with the disclosure of additional fee 
types will not force institutions to alter their ongoing purchasing 
practices.
    Lastly, the final rule requires that prepaid account packaging 
printed on or after the effective date of October 1, 2017 must be 
accurate. However, it will allow financial institutions to sell-through 
prepaid account packaging or other preprinted materials that are 
prepared in the ordinary course of business prior to the effective date 
but which do not comply with the final rule's disclosure requirements. 
This approach to stock manufactured before the effective date in the 
ordinary course of business will minimize the costs to financial 
institutions that sell products in the retail setting, and is discussed 
further in the Alternatives section below.
v. Benefits
    Finally, the Bureau recognizes that when a consumer chooses one 
prepaid

[[Page 84287]]

product over another, one covered person incurs a cost but another 
receives a benefit. Because consumers use prepaid products in a variety 
of ways, it is currently unclear if the final rule will yield more such 
benefits for some financial institutions than for others. However, in 
line with the discussion of benefit to consumers above, the Bureau 
believes that the final rule may benefit financial institutions that 
offer products with low fees generally, low top-line fees (and other 
fees in the static portion of the short form disclosure) specifically, 
and fewer types of fees overall, the most.
c. Alternatives Considered
    The Bureau considered a number of alternatives to key provisions in 
the development of the final rule. Industry outreach, consumer testing, 
and public comments from industry, consumer groups, and others, 
influenced the evolution of the rule from its proposed form to its 
current, final form. Modifications to the disclosure requirements for 
the final rule from those that were included in the proposed rule are 
discussed in this section as alternatives.
    One such alternative would have been the exclusion of third-party 
fees from the short form, including the requirement to disclose the 
cash reload fee. This alternative would have required that financial 
institutions disclose the highest potential cash reload fee that a 
consumer could incur but without including any fee charged by a third 
party, such as by the retail location where funds are added. However, 
through industry comments, the Bureau learned that there is 
considerable variety in how financial institutions impose cash reload 
fees. Some firms charge cash reload fees to consumers directly, others 
do not charge consumers but allow third parties to charge consumers, 
and others implement some combination of the two methods. Therefore, 
this alternative could have resulted in poorer purchasing decisions by 
consumers because it would not have ensured that the cash reload fee 
disclosure is comparable across products. Moreover, if this alternative 
were adopted, consumers who purchase products that charge third-party 
fees might not fully understand that there is considerable variety in 
how financial institutions impose cash reload fees at the time of 
acquisition and thereby could have incurred unexpected, additional 
costs of use. Therefore, this alternative would have undermined the 
Bureau's stated goal of creating a disclosure regime that provides 
consumers with complete information so that they can make informed 
decisions.
    The final rule requires that the short form and long form 
disclosures include a statement regarding account registration and FDIC 
deposit insurance or NCUA share insurance, as applicable, regardless of 
whether or not such insurance coverage is available for a prepaid 
account. An alternative, as would have been required under the proposed 
rule, is to only require a statement when FDIC deposit insurance or 
NCUA share insurance is not available. This proposed statement was 
meant to inform consumers, who may assume otherwise, that their prepaid 
account is not insured. However, the Bureau found through its post-
proposal consumer testing that, while consumers understood there was 
insurance coverage when the disclosure included a statement to that 
effect, consumers were unsure about whether the prepaid account offered 
FDIC deposit insurance or NCUA share insurance when presented with 
disclosures where no statement was included.\796\ The final rule 
requires a statement regarding eligibility for FDIC deposit insurance 
and NCUA share insurance as well as instructions to register the 
prepaid account for other protections in programs where registration 
takes place after the account is opened. This has the benefit of 
informing consumers about what protections they may have in all 
circumstances. Since this requires only a concise statement added to 
the short form and long form disclosures, the burden on financial 
institutions is negligible. In cases where FDIC deposit insurance or 
NCUA share insurance is available, the statement could potentially 
benefit financial institutions by signaling to consumers that their 
product is safer than non-insured alternatives.
---------------------------------------------------------------------------

    \796\ ICF Report II at 15.
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    The proposed rule would have required that any prepaid account 
program which could offer an overdraft credit feature accessed by a 
prepaid card that would have been a credit card under the proposal must 
include in its long form disclosure certain fees related to the credit 
account. One issuing bank recommended that credit features and fees not 
be included on the long form disclosure because of the proposed 30-day 
waiting period that prevents financial institutions from offering 
credit features at or soon after acquisition. The commenter stated that 
certain charges, such as APR, could vary depending on the creditor or 
could otherwise change in the 30 day waiting period, and could 
therefore be inaccurate by the time a consumer consults them. The 
Bureau has modified the long form disclosure's content requirement 
regarding the disclosure of credit or other overdraft features in the 
final rule. Financial institutions will not be required to include all 
fees applicable to a covered separate credit feature accessible by a 
hybrid prepaid-credit card on the long form disclosure. This 
information must still be disclosed to the consumer when credit is 
offered after the 30-day waiting period (further discussion of the 
final rule's Regulation Z requirements that are extended to prepaid 
accounts can be found in the Requirements Applicable to Covered 
Separate Credit Features section below). Instead, financial 
institution's contact information must be provided so that a consumer 
that is interested in overdraft credit features has the ability to 
search for more information. Only credit-related fees that may be 
assessed against the prepaid account itself must be disclosed. This 
modification will allow consumers to acquire more information about 
credit products tied to their prepaid card without requiring that 
financial institutions disclose information related to credit products 
before they are ever offered, lessening the burden on covered entities 
who might offer overdraft credit features. This will create added 
search costs for consumers who would have otherwise had access to 
potential credit-related fees and features in the long form disclosure. 
However, given that the information needed to assess a credit product 
could vary by consumer or change between the time of acquisition and 
the time that credit is offered, requiring that financial institutions 
provide all applicable information to consumers only when an offer of 
credit is made results in a more accurate disclosure regime overall.
    As discussed above, the final rule provides a retail location 
exception to the requirement to provide the long form disclosure pre-
acquisition. The proposed commentary would have stated that a retail 
store that offers one financial institution's prepaid account products 
exclusively would have been considered an agent of the financial 
institution and would therefore have been required to provide both the 
short form and long form disclosures pre-acquisition. In other words, 
such a retail store would not have been able to rely on the retail 
location exception. Several industry commenters, including trade 
associations, program managers, and an issuing bank, suggested that the 
proposed definition of agent would have made it difficult for retailers 
with

[[Page 84288]]

limited retail space, such as gas stations, to sell prepaid products, 
because they may only have space for a single product or line of 
products, and would therefore not be covered under the long form retail 
exception. This would have unnecessarily burdened small retailers that 
may be selling a single product due to space constraints and not due to 
an arrangement with a financial institution. Accordingly, in the 
commentary to the final rule, the Bureau has expanded the range of 
entities that would be considered retail locations, including retailers 
that sell one financial institution's prepaid account products 
exclusively.
    The proposed rule would have required that financial institutions 
disclose on the short form disclosures, the three fees, not including 
those already disclosed in the static portion of the short form 
disclosures, that are incurred most often. As discussed above, the 
final rule replaces these incidence-based fee disclosures with the 
requirement that financial institutions disclose the two additional fee 
types that generate the highest revenue from consumers. The Bureau 
received comments from a number of industry participants, including 
trade associations, financial institutions, and program managers that 
cautioned that financial institutions would incur significant costs to 
update systems to calculate fee incidence. Industry commenters, 
including trade associations, an issuing bank, an issuing credit union, 
and a program manager stated that the data needed to calculate fee 
incidence is often housed with a third-party data processor, and 
therefore any calculation would require a transfer of data from the 
third party to the financial institution. Alternatively, the data 
processor could create a report for the financial institution (or its 
program manager, if any), but since the financial institution is 
ultimately responsible for the accuracy of its disclosures, any report 
or data provided would still need to be reviewed by the financial 
institution for accuracy. The commenters warned that these changes 
would increase costs for data processors and financial institutions, 
which would ultimately increase the cost of prepaid accounts for 
consumers.
    The Bureau also received comments from consumer groups that 
suggested that basing additional fee disclosures on revenue was 
superior to basing additional disclosures on how frequently fees are 
incurred because a fee's revenue is a direct measure of the impact of 
that fee on consumers. Incidence-based fee disclosures would have 
guaranteed that the most commonly charged fees are disclosed, but could 
result in high impact fees being left off of the short form disclosure 
if their costs are high but the frequency with which they are incurred 
is low. Further, a disclosure based on incidence could incent financial 
institutions to alter their fee structure such that the disclosed 
incidence-based fees are purposefully low while the undisclosed fees 
are exceedingly high.
    The Bureau believes that while many financial institutions would 
have incurred costs to calculate fee incidence, most financial 
institutions already maintain the ability to calculate fee revenue. The 
Bureau recognizes that some financial institutions will incur a one-
time cost to update their agreements with program managers or with 
third-party data processors in order to obtain the information 
necessary to tabulate fee revenue by fee type. However, analytics and 
reporting tools are features that financial institutions value and on 
which data processors compete; \797\ data processors are therefore 
likely to develop tools to fill this need and then compete to offer the 
best value to financial institutions, their customers. Moreover, since 
the requirement to calculate fee revenue is imposed industry-wide, 
costs passed through from data processors will be spread among all 
financial institutions, diminishing the cost of this requirement per 
financial institution. Therefore, while the Bureau recognizes that this 
requirement may generate new costs, the Bureau does not anticipate that 
the costs will be significantly burdensome over the long run, and the 
costs will be less burdensome than the costs would have been under the 
proposed rule's incidence-based disclosure requirement.
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    \797\ Javelin Strategy & Research, Choosing a Prepaid Processor 
in an Evolving Market: A Study on Issuer and Program Manager Needs, 
at 12 (Nov. 2008), available at https://visadps.com/download/Visa-DPS-prepaid-processing.pdf.
---------------------------------------------------------------------------

    Lastly, the proposed rule would have required that all disclosures 
of prepaid accounts sold in retail locations comply with the rule's 
pre-acquisition disclosure requirements within 12 months of the rule's 
effective date. If a financial institution had not sold all of its 
prepaid account products in packaging printed prior to the end of the 
12-month period, the proposed rule may have resulted in financial 
institutions destroying and replacing such stock (commonly referred to 
as a ``pull and replace''). The costs associated with a pull and 
replace includes the costs of creating new stock, removing and 
destroying old stock, confirming that no old stock remains in 
retailers' possession and/or is offered for sale, and replenishing 
retail inventory. Through pre-proposal industry outreach, post-proposal 
industry outreach during and after the comment period, and reviewing 
comments submitted by industry commenters, the Bureau has learned that 
the cost to a financial institution of conducting a pull and replace is 
high. In addition, coordinating with retailers adds a layer of 
complexity due to issues of timing with retailer product reset 
schedules, requirements of some retailers to source merchandising to 
third-party vendors, and general negotiations that must take place. 
Further, the cost of a pull and replace may have disproportionately 
affected small entities that might purchase card stock in bulk to keep 
the per-unit cost of printing low. As discussed in the proposal, based 
on pre-proposal industry outreach, the Bureau estimates that after 12 
months, 40 percent of total prepaid account stock will remain in 
distribution. Thus, the cost to the prepaid industry to conduct a 
large-scale pull and replace might have been significant.
    As discussed above, the final rule requires that newly printed 
retail prepaid account packaging materials must be accurate if printed 
on or after October 1, 2017, but allows financial institutions to sell 
through prepaid account packaging or other preprinted materials 
prepared in the ordinary course of business prior to October 1, 2017 
that do not comply with the final rule's disclosure requirements. This 
will enable financial institutions to phase out and replace old stock 
at the pace that it is sold. A sell-through strategy should prove to be 
significantly less expensive than a pull and replace for many financial 
instructions. This modification will come at a cost to consumers who 
may not fully realize the benefits of the prepaid disclosure regime 
immediately at retail locations because old packaging remains in 
commerce. For example, a consumer who is contemplating the purchase of 
a prepaid account in the retail setting may be provided with old 
disclosures that do not incorporate important fee information required 
by the final rule during a transition period. For this limited period 
of time, a consumer may have difficulty comparing multiple products 
with older disclosures, and to compare multiple products with a mix of 
older disclosures and updated disclosures. Over time, however, the 
eventual replacement of old stock will result in consumers having the 
full benefits of a thoughtfully designed and tested disclosure regime.

[[Page 84289]]

2. Applying Regulation E's Periodic Statement Requirement With 
Modification and Providing an Alternative Means of Compliance With the 
Requirement
    While expressly defining prepaid accounts as accounts subject to 
Regulation E, the final rule also provides an alternative means of 
compliance with Regulation E's periodic statement requirement. The 
alternative means of compliance is a modified version of the 
alternative means of compliance offered to payroll card account 
providers under current Sec.  1005.18(b)(1). Section 1005.15(d) of the 
final rule also modifies the alternative means of compliance with 
Regulation E's periodic statement requirement for government benefit 
accounts so that it is consistent with the alternative means of 
compliance for prepaid accounts.
    Under current Sec.  1005.18(b), a financial institution offering 
payroll card accounts need not furnish periodic statements if the 
financial institution makes available to the consumer his or her 
account balance through a readily available telephone line, an 
electronic history of the consumer's account transactions that covers 
at least 60 days preceding the date that the consumer electronically 
accesses the account, and, upon oral or written request, a written 
transaction history that covers at least 60 days. Similarly, under 
current Sec.  1005.15(c), government agencies offering government 
benefit accounts need not comply with the periodic statement 
requirement if they make available to the consumer the account balance, 
through a readily available telephone line and at a terminal, and 
promptly provide at least 60 days of written history of the consumer's 
account transactions in response to an oral or written request.
    The final rule requires that financial institutions wishing to 
avail themselves of this alternative means of complying with the 
Regulation E periodic statement requirement make available to the 
consumer at no charge his or her account balance through a readily 
available telephone line, provide the consumer with access to at least 
12 months of transaction history electronically, and, if requested by 
the consumer, provide at least 24 months of transaction history in 
writing. For those payroll card account providers and providers of 
prepaid accounts that receive Federal payments that are currently 
required to comply with the Regulation E periodic statement requirement 
and are meeting their compliance obligations by relying on the 
alternative means of compliance, this provision extends the present 
requirement to provide 60 days of transaction history to 12 months when 
provided electronically and 24 months when provided in writing. For 
government agencies that are currently required to comply with the 
Regulation E periodic statement requirement, this provision 
additionally requires electronic access to government benefit account 
history information as part of the alternative means of compliance, 
which current Regulation E does not require.
    Regardless of how a financial institution chooses to comply, the 
final rule also requires that the financial institution disclose to the 
consumer a summary total of the amount of all fees assessed against the 
consumer's prepaid account for both the prior month as well as the 
calendar year to date. This information must be disclosed on any 
periodic statement and any electronic or written history of account 
transactions provided.\798\ Finally, for financial institutions 
following the alternative means of complying with the periodic 
statement requirement, the final rule extends to prepaid accounts 
modified requirements for initial disclosures regarding access to 
account information and error resolution, as well as annual error 
resolution notices.\799\
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    \798\ For periodic statements, the monthly summary may be for 
the statement period or for the prior calendar month; for other 
transaction histories, it must be for the prior calendar month.
    \799\ Current Sec.  1005.18(c)(1) and (2) for payroll card 
accounts, Sec.  1005.18(d) for prepaid accounts, and current Sec.  
1005.15(d)(1) and (2) for government benefit accounts, revised as 
Sec.  1005.15(d)(1) and (2).
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a. Benefits and Costs to Consumers
    Extending Regulation E's periodic statement requirement to all 
prepaid accounts will help to ensure that consumers receive the 
benefits associated with increased information regarding their prepaid 
accounts. These benefits include having the ability to monitor account 
transactions for both budgeting and the identification of errors.
    The final rule requires that financial institutions disclose to the 
consumer summary totals of the amount of all fees assessed against the 
consumer's prepaid account on any periodic statement, any written 
history of account transactions, and any electronic history of account 
transactions.\800\ This disclosure will make the cumulative costs 
associated with the use of the prepaid account accessible and 
transparent to consumers.
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    \800\ Sec.  1005.18(c)(5). With respect to government benefit 
accounts, Sec.  1005.15(d)(2) provides that for government benefit 
accounts, a government agency must comply with the account 
information requirements applicable to prepaid accounts as set forth 
inSec.  1005.18(c)(3) through (5).
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    The final rule also requires that those financial institutions 
relying on the alternative means of complying with the periodic 
statement requirement make accessible at least 12 months of transaction 
history electronically and, if requested, at least 24 months of 
transaction history in writing. Consumers, especially those who rely on 
a prepaid account as their primary transaction account, may need to 
consult more extensive account history in connection with, for example, 
housing and employment applications or tax filings; in these 
situations, they may benefit from having up to 24 months of account 
history available. Additionally, transaction histories may help 
consumers to discover unauthorized transfers or other errors. For 
instance, in certain circumstances, consumers have up to 120 days from 
the date of the unauthorized transfer to assert an error. In order to 
fully exercise these protections, consumers must be able to access at 
least 120 days of transaction history.
    The final rule requires that at least 12 months of transaction 
history provided as part of the alternative means of compliance with 
the periodic statement requirement be provided electronically. As 
discussed further below, the Bureau's understanding is that, while 
prepaid accounts generally are not subject to this requirement at 
present, most financial institutions offer electronic access to prepaid 
accounts' transaction histories and a substantial number of them 
maintain 12 months of transaction data in some electronic format.
    In developing the proposed rule, the Bureau considered how 
consumers prefer to obtain information about their transaction history. 
In focus group research, the Bureau generally found that consumers were 
satisfied with the amount of information they receive regarding their 
transaction history (either online, through text message, or over the 
telephone) under existing industry practice, and they generally did not 
express a desire to receive a paper statement.\801\ Several industry 
participants the Bureau spoke with during its pre-proposal outreach, as 
well as several participants in the Bureau's consumer testing, noted 
that the time lag between receipt of a paper statement and the 
transactions covered by the statement decreased its utility for 
tracking account balance information relative to other means, such as 
real-

[[Page 84290]]

time text message alerts, which provide consumers with more timely 
access. According to one program manager, when it provided electronic 
periodic statements to all of its customers, its customers only 
infrequently accessed those statements.\802\
---------------------------------------------------------------------------

    \801\ ICF Report I at 10.
    \802\ The program manager reported that consumers viewed the 
statements for just over 1 percent of active accounts, and consumers 
downloaded the statements for slightly less than 1 percent of active 
accounts.
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    Many consumers participating in the Bureau's focus groups also 
stated that they monitor their account balance using the internet and 
mobile devices.\803\ This is consistent with the findings of various 
industry surveys, which suggest that many consumers currently have 
multiple methods through which they can access information regarding 
their prepaid accounts. One survey of consumers with prepaid accounts 
asked consumers how they check their balances, and found that more than 
half sometimes use a phone call, more than half sometimes check online, 
and text message alerts, email alerts, and smartphone apps were each 
used by more than a third of respondents.\804\ According to one survey 
of 66 GPR card programs, almost three-quarters offer text alerts and 
more than half offer email alerts regarding account balances and 
transactions.\805\ Another organization reviewed the terms and 
conditions associated with 18 GPR card programs that they estimated 
collectively represented 90 percent of the total GPR card marketplace 
(based on number of active cards in circulation). It found that all of 
the reviewed cards allowed cardholders to check balances online, via 
text message, by calling customer service, or on a mobile app or a 
mobile-enabled Web site.\806\
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    \803\ According to a survey conducted by the Board, roughly 87 
percent of respondents owned or had regular access to a mobile 
phone, and roughly 77 percent of those with a mobile phone had a 
smartphone as of November 2015. Additionally, 89 percent had regular 
access to the internet, either at home or outside of the home. 2016 
FRB Consumers and Mobile Financial Services Survey at 8, 64 
tbls.C.21 & C.22. A survey of prepaid card users found that 88 
percent use the internet. 2014 Pew Survey at 5 ex.2.
    \804\ 2015 Pew Survey at 13.
    \805\ 2014 Pew Study at 17.
    \806\ Additionally, it found that all of the cards reviewed 
provided consumers with accessible customer service assistance and 
IVR systems. 2014 CFSI Scorecard at 12 (Mar. 2014).
---------------------------------------------------------------------------

    Although consumers generally have access to written transaction 
history information at present, many financial institutions currently 
charge fees for written account information, and in these cases the 
final rule will lower the cost to consumers of accessing account 
information in this way. Of the 66 GPR card programs reviewed by one 
organization, 68 percent disclosed a fee for paper account statements 
ranging from 99 cents to $10 (median $2.95).\807\ As discussed below, 
the Bureau's discussions with industry participants suggest that few 
consumers currently request paper transaction histories or statements. 
It is worth noting, however, that if financial institutions are 
unwilling to comply with the new rule by providing paper transaction 
histories or statements to consumers for free, they may decide to 
require all consumers to provide E-Sign consent in order to have access 
to the product so that they could provide statements electronically. 
This could mean that consumers who cannot or choose not to provide E-
Sign consent will have access to a more limited range of prepaid 
accounts.
---------------------------------------------------------------------------

    \807\ Of the GPR card programs reviewed by that organization, 21 
percent of programs did not disclose a paper statement fee, and 11 
percent disclosed that paper statements are free. The study did not 
distinguish between periodic statements and other forms of written 
account history. 2014 Pew Study at 19.
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b. Benefits and Costs to Covered Persons
    The benefits and costs to covered persons arising from the 
application of Regulation E's periodic statement requirement to all 
prepaid accounts will depend on the financial institution's current 
business practices and whether the financial institution chooses to 
avail itself of the alternative means of complying with the periodic 
statement requirement. Specifically, financial institutions may comply 
with the requirement by providing periodic statements, either in paper 
form or in electronic form having obtained E-Sign consent from the 
consumer, or they may choose to implement the alternative means of 
complying with the periodic statement requirement.
    As discussed above, financial institutions are already required to 
comply with the Regulation E periodic statement requirement, or the 
specified alternative, for payroll card accounts and for accounts that 
receive Federal payments (pursuant to the FMS Rule). Government 
agencies that offer government benefit accounts are similarly required 
to comply with this requirement (without the requirement to provide 
electronic access to account history under the periodic statement 
alternative). Based on pre-proposal outreach to industry participants, 
the Study of Prepaid Account Agreements, and review of various industry 
studies, the Bureau understands that financial institutions generally 
provide consumers with electronic access to transaction histories or 
electronic periodic statements and generally provide telephone access 
to account information similar to what is required by the final 
rule.\808\ In many instances, electronic transaction histories 
currently provided extend well beyond the 60 days currently required 
for certain prepaid accounts.\809\ The Bureau's understanding based on 
outreach to industry is that few, if any, financial institutions 
provide paper periodic statements or paper transaction histories to 
consumers with prepaid accounts other than on an ad hoc basis.
---------------------------------------------------------------------------

    \808\ One review of 66 GPR card programs found that almost every 
card provided free online access to account information. It also 
found that most card programs offered email and text alerts free of 
charge and that most programs provided the customer with at least a 
limited number of free interactive voice-recognition customer 
service calls through which consumers could access account 
information. 2014 Pew Study at 36. Another review of 18 GPR card 
programs, comprising an estimated 90 percent of active GPR cards in 
circulation, found that all of the cards reviewed allowed 
cardholders ``to check their balance online, via text message, by 
calling customer service, or on a mobile app or a mobile-enabled Web 
site.'' 2014 CFSI Report at 12.
    \809\ One survey found that ``[e]leven of the fifteen cards for 
which information is available . . . allow cardholders to access at 
least two years of transactional data online, which can be important 
for tax-filing and budgeting purposes. Three of the four cards that 
offer less than two years of transactional data provide one year of 
data, while one card offers six months of data.'' 2014 CFSI Report 
at 12.
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    The Bureau expects that most financial institutions will continue 
to offer account history information to consumers electronically 
(except for those cases where a written transaction history is required 
in response to an ad hoc consumer request) and will continue to use an 
automated telephone line to provide 24-hour access to account balance 
information. Therefore, the Bureau believes that the majority of costs 
to covered persons of the final rule will arise from two sources.
    First, periodic statements or transaction histories must display a 
summary total of the amount of all fees assessed against the consumer's 
prepaid account for the prior month and for the calendar year to date. 
Financial institutions will need to modify existing statements or 
electronic transaction histories to include these totals. Second, those 
financial institutions that do not currently make at least 12 months of 
transaction history available to consumers electronically or do not 
maintain access to at least 24 months of transaction history would 
potentially incur additional data storage costs and may need to 
implement system changes if they choose to avail themselves of the 
alternative means of complying with

[[Page 84291]]

Regulation E's periodic statement requirement.\810\
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    \810\ As a result of the final rule, financial institutions that 
do not provide consumers with 24 months of transaction history may 
incur additional costs in the future when migrating information 
across information technology platforms since additional data must 
be retained.
---------------------------------------------------------------------------

    The structure of the costs associated with these changes depends on 
whether the financial institution relies on vendors to format or host 
online periodic statements or transaction histories or whether it 
performs these functions in-house. Those financial institutions that 
format their own periodic statements or transaction histories will 
incur a one-time implementation cost to capture and summarize fee 
information and modify their disclosures to display this 
information.\811\ Those financial institutions that currently do not 
make available 12 months of account history will incur costs associated 
with obtaining additional electronic storage media to expand existing 
capacity.
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    \811\ In response to the Bureau's pre-proposal outreach, one 
program manager estimated that it would cost approximately $15,000 
to modify its Web site to provide the summary total of fees as well 
as a summary of the total amount of deposits to the account and the 
total amount of all debits made to the prepaid account. This should 
be an upper bound on the estimated cost to this program manager of 
modifying its Web site to display only the required summary total of 
fees.
---------------------------------------------------------------------------

    The proposal would have required financial institutions to make 
available 18 months of account history, and according to discussions 
with industry participants prior to issuing the proposed rule, the 
costs associated with such an expansion would have been minimal. In 
response to the proposal, however, several industry commenters said 
that they do not currently make available 18 months of account history 
and that the cost of doing so would be significant. Of these, several 
commenters noted that they currently provide 12 months of electronic 
transaction history or that their systems maintain at least 12 months 
of transaction history in readily accessible electronic format. 
Industry commenters also noted that older account history information 
is typically archived and is less readily accessible, but can be 
retrieved in response to specific requests. One commenter that 
currently archives account information after six months estimated that 
it would cost an additional $1.00 per account to keep account 
information in active, rather than archived, status for 18 months. 
Because the final rule requires 12 rather than 18 months of transaction 
history to be made electronically available, and because it permits 
financial institutions that, as of the effective date, do not have 
readily accessible the data necessary to provide at least 12 months of 
electronic account history to gradually increase the number of months 
of account data that they provide until they have enough account 
information to fully comply with the requirement, the Bureau believes 
that the requirement to provide electronic account history information 
will have a minimal burden for most financial institutions.
    Many providers of prepaid accounts rely on processors to provide 
online portals that give consumers access to account history 
information. Based on pre-proposal discussions with industry 
participants, the Bureau understands that program managers typically 
pay processors a flat fee per account that may be a function of both 
the extent of the account history provided and the number of accounts 
that are being serviced.\812\ The Bureau expects that these covered 
entities will generally rely on their processor to modify periodic 
statements or electronic transaction histories to display the required 
summary totals. However, one program manager predicted that if such a 
fee disclosure were a regulatory requirement, the processor would offer 
it as part of a standard package of services at no additional 
cost.\813\
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    \812\ One program manager that relies on a processor for this 
function told the Bureau that fees for data storage are charged on a 
per account basis one time at activation. According to the program 
manager, costs were generally increasing from $0.08 per account for 
three months of transaction history to $0.19 per account for one 
year of transaction history. This program manager also suggested 
that processor prices decrease with scale, and that because it was 
operating at low scale it was consequently paying among the highest 
prices.
    \813\ One program manager stated that its processor quoted a 
one-time cost of $65,000 for providing this functionality on its 
processor-hosted Web site (in response to an ad-hoc request). This 
potentially represents an upper bound for the true development cost 
since this number likely includes a mark-up over the true cost of 
providing the service. Actual development costs will be borne 
jointly by the processor and the financial institutions relying on 
the processor for hosting services.
---------------------------------------------------------------------------

    In formulating its proposal, the Bureau conducted outreach to 
prepaid issuers and program managers regarding the utilization of paper 
account statements by consumers and the cost to financial institutions 
of providing such statements. Based on these discussions and 
information provided by commenters, the Bureau's understanding is that 
consumer requests for written account histories for GPR cards are 
infrequent, generally well under 1 percent of active cardholder-months, 
regardless of whether the consumer is charged a fee for the statement. 
One commenter stated that it serves over 2 million cardholders and that 
it receives 750 requests per month for written transaction histories, 
equivalent to approximately 0.04 percent of all cardholder 
accounts.\814\ The Bureau notes that some financial institutions 
currently charge consumers fees if they wish to receive paper 
statements or transaction histories, and in some cases, financial 
institutions may charge consumers fees that exceed the cost to provide 
these statements.\815\ However, given the infrequent nature of such 
requests (regardless of whether a fee is charged for the statement), 
the Bureau believes that the revenue impact of the final rule's 
requirement to provide paper statements or account histories free of 
charge is likely de minimis. Since a financial institution may require 
that consumers provide E-Sign consent in order to receive a prepaid 
account, and thus provide statements or account histories 
electronically instead of following the periodic statement alternative, 
any revenue impact could be further mitigated.
---------------------------------------------------------------------------

    \814\ In pre-proposal outreach, one program manager told the 
Bureau that when it eliminated a $2.50 fee for receiving a paper 
statement, there was no change in the frequency with which 
statements were requested.
    \815\ Estimates quoted to the Bureau by financial institutions 
varied somewhat but generally were approximately $1 per statement to 
respond to ad hoc requests once the costs associated with fielding 
the incoming call, postage, and producing the statement were 
considered. Financial institutions generally noted that postage is a 
large driver of this cost. One financial institution noted that, 
given the sensitivity associated with the information, such 
statements need to be sent via first class mail. Another financial 
institution that relied on its processor to provide ad hoc paper 
statements to consumers pays its processor $2 for each paper 
statement delivered.
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    Some commenters said that the requirement in the proposal to mail 
18 months of transaction history upon request would impose a 
substantial burden on financial institutions. The commenter, mentioned 
above, which stated that it receives 750 requests per month for written 
transaction histories noted that the increase from 60 days to 18 months 
of transaction history is a 900 percent increase in the volume of 
history that would have to be provided. Another commenter estimated 
that extending the timeline to 18 months would increase the cost of 
mailing statements by three to four times. Additionally, some 
commenters explained that transaction data is generally moved to 
archived status after 12 months, and that once the data is archived, a 
financial institution may incur costs for retrieving information on a 
one-off basis in order to respond to consumers' requests for written 
histories.

[[Page 84292]]

    The Bureau acknowledges that it may cost substantially more to 
provide a 24 month written transaction history than to provide a 60 day 
written transaction history. The Bureau notes, however, that the final 
rule further clarifies that a financial institution may send less than 
24 months of written transaction history if the consumer requests a 
shorter timeframe. The Bureau anticipates that many consumers 
requesting written transaction histories will not need access to a full 
24 months of transaction history and that therefore in many cases 
financial institutions will be able to send a significantly shorter 
transaction history. The Bureau also notes that, given the small 
fraction of consumers that request written transaction histories, the 
overall burden of the requirement to send written transaction histories 
is small, even if the cost of each mailing is substantially higher than 
it would be if sending a 60-day history.
    If the final rule expands consumer access to account information, 
financial institutions could benefit from receiving more timely notice 
of unauthorized transfers by consumers and potentially fewer inquiries 
by telephone or email. For example, in the event that a consumer 
identifies an unauthorized transfer, the financial institution may be 
able to place the appropriate holds on the account to prevent further 
unauthorized use. Timely notification could also decrease the costs 
associated with investigations of alleged errors. In addition, if 
timely notification by some consumers were to provide an early warning 
of a widespread or systemic set of unauthorized transfer attempts, the 
financial institution could benefit from cutting off the avenue for the 
unauthorized transfers before the issue becomes more widespread. 
However, to the extent that consumers are able to identify unauthorized 
transfers and other errors that they would not have identified in the 
absence of these disclosures, financial institutions may incur 
additional costs.
3. Applying Regulation E's Limited Liability and Error Resolution 
Regime
    The final rule extends Regulation E's limited liability and error 
resolution regime to all prepaid accounts; provisional credit is also 
required for all prepaid accounts that have successfully completed the 
financial institution's customer identification and verification 
processes.\816\ For prepaid accounts that have not been through the 
financial institution's customer identification and verification 
process, have not completed the process, have failed the process, or 
for which the financial institution has no such process for that 
particular prepaid program, the financial institution must comply with 
Regulation E's limited liability and error resolution regimes, but not 
with the provisional credit requirements. Under Sec.  1005.6(a), a 
consumer may be held liable for an unauthorized EFT resulting from the 
loss or theft of an access device only if the financial institution has 
provided certain required disclosures and other conditions are met. In 
addition, Sec.  1005.6(b) limits the amount of liability a consumer may 
assume.
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    \816\ Payroll card accounts and government benefit accounts are 
required to follow Regulation E's limited liability and error 
resolution regime regardless of whether the account had been through 
the customer identification and verification process. As described 
above, the FMS Rule requires that a prepaid card that receives a 
Federal payment comply with these provisions.
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    For accounts subject to the Regulation E error resolution 
provisions, EFTA places the burden of proof on the financial 
institution to show that an alleged unauthorized transfer was, in fact, 
authorized.\817\ More specifically, after receiving notice that a 
consumer believes that an EFT was unauthorized, the financial 
institution must promptly perform an investigation to determine whether 
an error occurred. Although the investigation must generally be 
completed within 10 business days (20 business days if the EFT occurred 
within 30 days of the first deposit to the account), the financial 
institution may take up to 45 days to complete the investigation if it 
provisionally credits the consumer's account for the amount of the 
alleged error within 10 business days of receiving the error 
notice.\818\ Upon completion of the investigation, Sec.  1005.11(c)(1) 
requires the financial institution to report the investigation's 
results to the consumer within three business days and correct an error 
within one business day after determining that an error occurred. In 
cases where the financial institution ultimately can establish that no 
error (or a different error) occurred, Sec.  1005.11(d)(2) permits the 
financial institution to reverse the provisional credit. If the 
financial institution cannot establish that the transfer in question 
was authorized, the financial institution must credit the consumer's 
account (or finalize the provisional credit).
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    \817\ See EFTA section 909(b).
    \818\ Sec.  1005.11(c)(2). The financial institution has 90 days 
(instead of 45) if the claimed unauthorized EFT was not initiated in 
a State, resulted from a point-of-sale debit card transaction, or 
occurred within 30 days after the first deposit to the account was 
made. Sec.  1005.11(c)(3). Provisional credit is not required if the 
financial institution requires, but does not receive, written 
confirmation within 10 business days of an oral notice by the 
consumer. Sec.  1005.11(c)(2)(i)(A).
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    Prepaid accounts that are payroll card accounts, government benefit 
accounts, and those that receive Federal payments are currently 
required to provide Regulation E's limited liability and error 
resolution protections. Other types of prepaid accounts, such as GPR 
cards that do not receive Federal payments, currently are not required 
to provide these protections, although some do so by contract. One 
study reviewed 18 GPR card programs, estimated to represent 90 percent 
of the number of active GPR cards in circulation, and found that all of 
the programs reviewed had adopted the consumer liability protections 
outlined by Regulation E as it applies to payroll cards.\819\ The 
Bureau's Study of Prepaid Account Agreements found that roughly 89 
percent of all programs, and all of the largest GPR card programs, 
offered limited liability protections to consumers. The Bureau's Study 
of Prepaid Account Agreements also found that over two-thirds of 
prepaid programs (excluding government benefit accounts and payroll 
card accounts) appeared to follow Regulation E's error resolution 
regime, including provisional credit requirements, with roughly 80 
percent of the largest GPR card programs offering such protections.
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    \819\ 2014 CFSI Report at 12. Another study asserts that only 
two-fifths of 66 GPR card programs reviewed included all of the 
protections, but most of this appears to be the lack of disclosure 
of mandatory extensions of time frames to submit claims for good 
cause. Regulation E, as applied to payroll card programs, does not 
require the disclosure of this information, so it is unclear whether 
it can be inferred that lack of disclosure of this information in 
the terms and conditions implies lack of protection for consumers. 
2014 Pew Study at 20.
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    To the extent that financial institutions already follow policies 
consistent with Regulation E's limited liability and error resolution 
regime, the potential impacts on most consumers and covered persons 
arising from these provisions are limited. Additionally, prepaid 
accounts are typically subject to payment card association network 
rules that provide zero-liability protection and chargeback rights in 
some circumstances that, unless changed by the networks, apply 
regardless of what Regulation E requires.\820\ In certain cases, 
business practices may differ from those guaranteed by the terms and 
conditions associated with the prepaid account, and consumers may, in 
practice, have additional protections

[[Page 84293]]

beyond those articulated in the account agreement.
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    \820\ See, e.g., Network Branded Prepaid Card Ass'n, Cardholder 
Protections--NBPCA Position, available at https://www.nbpca.org/en/Government-Affairs/Policy-Positions/Cardholder-Protections.aspx 
(last visited Oct. 1, 2016).
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a. Benefits and Costs to Consumers
    In general, the potential benefits to consumers arising from the 
final rule's requirements include reduced risk (relative to a baseline 
where some programs do not offer the protections of the final rule) and 
reduced uncertainty regarding responsibilities and liabilities among 
market participants. With respect to consumer uncertainty, the Bureau 
does not have information that would permit it to quantify the extent 
to which some consumers may overestimate the risks associated with 
using prepaid accounts (and so may underutilize them) or the extent to 
which other consumers may underestimate the risks (and therefore may 
fail to take certain precautions if they use them). Both groups will 
benefit from the reduced uncertainty regarding limited liability and 
error resolution protections that will result from the final rule.
    Consumers using prepaid accounts will further benefit from any 
reduction in expected financial losses incurred due to unauthorized 
EFTs or other errors that will result from the final rule. Although 
financial institutions typically offer limited liability and error 
resolution protections in connection with prepaid accounts, the final 
rule will reduce consumer losses from unauthorized transfers in cases 
where such protections were not offered as well as ensure that errors 
are investigated expeditiously and that consumers regain access to 
funds more quickly. This potential benefit to consumers will depend on 
the following: (a) The number of consumers with prepaid accounts that 
do not currently follow the limited liability and error resolution 
regime, including access to provisional credit, that is described in 
the final rule; (b) the average magnitude of the financial losses 
consumers would experience from unauthorized transfers or other errors 
absent the final rule; and (c) the probability that these unauthorized 
transfers or other errors would occur absent the final rule. The Bureau 
notes that these benefits could be concentrated among certain segments 
of the population.\821\
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    \821\ The Final Rule may also provide additional benefits to 
consumers. First, the requirements may reduce the frequency with 
which unauthorized transfers or other errors occur by creating an 
additional incentive for financial institutions to prevent these 
adverse events in the first place. This change could benefit 
consumers in non-monetary ways if adverse events nevertheless impose 
meaningful costs (including inconvenience). Second, even if no 
unauthorized transfer or other error has occurred, the requirement 
to offer provisional credit provides consumers with a zero-interest 
loan and a timely investigation. Third, as discussed further below, 
consumers with prepaid accounts from financial institutions that 
currently voluntarily offer the Final Rule's protections receive 
some benefit from the Final Rule's requirements since, absent the 
Final Rule, financial institutions currently offering these 
protections could change their terms and conditions and stop 
providing these protections in the future.
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    In order to quantify the potential benefits to consumers from the 
final rule's requirements, the Bureau would need the quantities in (a), 
(b), and (c) or a database of representative market information that 
can be used to estimate these quantities. To the Bureau's knowledge, 
neither these quantities nor such a database currently exists. However, 
industry studies provide some insight into the magnitude and 
distribution of these determinants of the potential benefits from these 
provisions.
    The Bureau first considers the number of consumers with prepaid 
accounts that currently do not offer the limited liability and error 
resolution protections, including access to provisional credit, which 
the final rule requires for prepaid accounts that have completed a 
financial institution's customer identification and verification 
process (and continues to require for all payroll card accounts and 
government benefit accounts). As described above, surveys suggest that 
between 8 and 16 percent of consumers have used a general purpose 
prepaid card in the past 12 months.\822\ At present, Federal law does 
not require providers of these products to offer any of the limited 
liability and error resolution protections required by the final rule 
to consumers, except for those consumers with prepaid accounts that 
receive Federal payments (and therefore are covered by the FMS Rule), 
or are payroll cards or non-needs tested government benefit cards.
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    \822\ 2014 FRB Consumers and Mobile Financial Services Survey at 
48 tbl.C.8a. See also 2014 Pew Survey at 1. For the purpose of this 
survey, respondents were explicitly told not to include gift cards, 
rebate cards, credit cards, or phone cards. Five percent of adults 
reported using a prepaid card at least once a month. See also 2013 
FDIC Survey at 29-30 (which reports that 12 percent of households 
surveyed had ever used prepaid cards, 7.9 percent have used a 
prepaid card in the last 12 months, and 3.9 percent have used a 
prepaid card in the last 30 days). See also Mercator Advisory Group, 
Prepaid 2013: U.S. Consumers Buying More Cards For Own Use, at 9 
(Oct. 2013) (which reports that 7 percent of households surveyed in 
2013 currently use a GPR card). See also id. at 11 (which reports 
that 14 percent of households surveyed in 2013 purchased a GPR card 
in the last year). See also GFK, GfK Prepaid Omnibus Research 
Findings, at 6 (2014), available at https://www.nbpca.org/~/media/
2519B8BADB1B4388BAF11C511B3ACAE.ashx. The definition of prepaid card 
in this survey appears to have included some products that would not 
be covered by the final rule's definition of prepaid account. This 
survey found that 16 percent of respondents had used a ``prepaid 
card'' that was not a gift card in the last 12 months.
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    However, financial institutions offering prepaid accounts may (and 
often do) voluntarily offer these protections, in many cases because 
similar protections are required by payment card association network 
rules. As discussed above, the Bureau's Study of Prepaid Account 
Agreements found that the vast majority of programs reviewed followed 
Regulation E's limited liability protections. In addition, most prepaid 
programs appeared to follow Regulation E's error resolution regime, 
including provisional credit requirements. Excluding payroll card 
account programs and government benefit account programs (which are 
currently required to comply), over two-thirds of included programs 
provided error resolution protections, with provisional credit, 
consistent with Regulation E. The majority of the remainder offered 
some form of error resolution, albeit with limitations on the 
conditions under which provisional credit is offered. Among the 
programs reviewed that were offered by the largest GPR providers, the 
Study of Prepaid Account Agreements found that roughly 80 percent 
offered error resolution with provisional credit and all offered 
limited liability protections. Most remaining programs offered full 
error resolution with provisional credit in limited circumstances.
    For the foregoing reasons, the Bureau believes that the number of 
consumers with prepaid accounts that do not currently offer the limited 
liability and error resolution protections (including provisional 
credit) that are required by the final rule is small.\823\ However, the 
final rule will provide consumers whose prepaid accounts lack these 
protections with important benefits. Further, since financial 
institutions that voluntarily offer these protections could change 
their terms and conditions at any time, the final rule removes the risk 
to consumers that these protections could be discontinued.
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    \823\ One study which asserts that it covers programs accounting 
for 90 percent of active GPR cards in circulation found that all 
financial institutions offered liability and error resolution 
provisions consistent with those in Regulation E. 2014 CFSI 
Scorecard at 12 (Mar. 2014).
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    The Bureau has been unable to obtain data describing the average 
size of the financial losses consumers currently experience from 
unauthorized transfers or other errors that are covered by the final 
rule or the frequency with which these events occur. However, these 
quantities may be associated with certain observable factors. The 
average size of a transaction is likely correlated

[[Page 84294]]

with the loss to the consumer if the consumer is fully liable for the 
loss. For example, if a consumer were charged for a given purchase 
twice instead of once or were charged for a transaction that should 
have been cancelled, the loss would be correlated with the typical size 
of those transactions.\824\ Similarly, the balance typically held in a 
prepaid account should be correlated with the loss to the consumer if 
account access is compromised and the consumer is fully liable. 
Finally, the frequency of transactions is likely correlated with the 
probability of a loss since transacting with a prepaid account creates 
exposure to transaction-related errors.
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    \824\ The Bureau recognizes that the risk of loss is likely 
different for different types of transactions. For example, one 
study using data from a large program manager's GPR card portfolio 
shows that fraud rates differ by transaction type. 2012 FRB Kansas 
City Study at 72 tbl.6.1. Thus, the size of a typical transaction 
need not be similar to the size of a typical loss on a transaction 
(conditional on a loss occurring) since the types of transactions 
most susceptible to fraud may be relatively high-value or low-value.
---------------------------------------------------------------------------

    Although data that would permit the Bureau to quantify the typical 
balances and transaction sizes of prepaid accounts are limited, recent 
research can provide some information. One study analyzed prepaid 
accounts from one large program manager's GPR card program and reports 
whether the prepaid accounts receive periodic government direct 
deposits (and therefore are subject to the FMS Rule if it is a Federal 
payment), periodic non-government direct deposits, periodic self-funded 
loads, occasional reloads, or are never reloaded.\825\ It found that 46 
percent of GPR cards analyzed have periodic self-funded reloads and 
cumulative monthly purchases of $266.\826\ The average lifespan of the 
cards that have periodic self-funded reloads was 256 days; the median, 
however, was only 60 days.\827\ An additional 13 percent of GPR cards 
analyzed had occasional reloads, cumulative monthly purchases of $94, 
an average life of 489 days, and a median life of 330 days; and 18 
percent of GPR cards analyzed had periodic non-government direct 
deposit, cumulative monthly purchases of $660, an average life of 925 
days, and a median life of 570 days. To the extent that these figures 
are representative of other prepaid programs, they suggest that 
approximately three-quarters of GPR cards may be used for significant 
purchases and are likely not within the current scope of Regulation E 
(or the FMS Rule). Other researchers have also identified programs that 
offer GPR cards that consumers regularly load with funds, but are not 
payroll cards, are active for at least a year and are used for many 
thousands of dollars in purchases, loads, and cash withdrawals.\828\
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    \825\ Id. at 43 tbl.2.1. It is worth noting that the shares of 
load types reported in table 2.1 of this study add up to 102 
percent.
    \826\ Id. at 43 tbl.2.1, 59 tbl.4.9.
    \827\ Id. at 47 tbl.4.1.
    \828\ 2012 FRB Philadelphia Study at 67.
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    Only limited data describing the frequency of transactions is 
available, and while these frequencies should correlate with the 
probability of a loss, the Bureau would require additional information 
to convert these frequencies into probabilities.\829\ There is, 
however, some suggestive information about the risk of loss in data 
describing the incidence of fraud with GPR cards offered by one large 
program manager. According to one study using this data, approximately 
six out of every 10,000 transactions with GPR cards involve fraud, with 
a loss of $9.60 for every $10,000 transacted.\830\ To the extent 
consumers are the victims of these frauds, and to the extent these 
average figures are similar for all types of prepaid accounts, these 
numbers provide some information about one particular risk that 
consumers encounter in using GPR cards and one benefit of the final 
rule.
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    \829\ GPR cards with periodic self-funded reloads average 5.7 
purchases and 6.5 debits per month. GPR cards with occasional 
reloads average 2.0 purchases and 2.3 debits per month, and GPR 
cards with periodic non-government direct deposits have 18.1 
purchases and 21 debits per month, on average. 2012 FRB Kansas City 
Study at 50 tbl.4.3, 59 tbl.4.9.
    \830\ Id. at 72 tbl.6.1.
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    The Bureau believes that some consumers with prepaid accounts could 
receive important benefits in certain circumstances from the additional 
protections that are required by the final rule. Further, the share of 
consumers with prepaid accounts who could potentially receive these 
benefits may grow over time. One group of industry analysts predicts 
that the GPR segment of prepaid accounts will grow on average 10 
percent each year from 2014 to 2018, and there appears to be sustained 
interest among consumers in using GPR cards as transaction 
accounts.\831\ While the voluntary provision of limited liability and 
error resolution protections (including provisional credit) might keep 
pace with this expansion, it is also possible that growth could lead to 
new forms of product differentiation, including variation in consumer 
protections.
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    \831\ Mercator 12th Annual Market Forecasts at 12-13. The report 
addresses the growth rate in the aggregate amount loaded onto cards. 
This growth rate approximates the growth rate in the number of 
accounts as long as the amount loaded per account remains fairly 
stable, but it would overstate the growth rate in the number of 
accounts if the amount loaded per account is increasing.
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    To the extent that financial institutions sustain increased losses 
from the requirement to extend Regulation E's limited liability and 
error resolution regime, including provisional credit, to all prepaid 
accounts, the final rule's limited liability and error resolution 
provisions may result in decreased access to these products if 
financial institutions are more apt to close accounts that have 
repeated or unusual error claims or to limit who can open accounts in 
the first place. The requirement to provide limited liability and error 
resolution protection for transactions taking place prior to customer 
identification and verification could also lead financial institutions 
to prevent prepaid accounts from being used until after such 
identification and verification or to limit accounts' functionality 
prior to identification and verification, reducing access for consumers 
who wish to use accounts before they have been registered or who are 
unable or unwilling to complete the identification and verification 
process.\832\ Additionally, the final rule's requirements may result in 
decreased access to prepaid accounts for some consumers if financial 
institutions implement more rigorous screening requirements. That is, 
financial institutions may have an increased incentive to identify 
customers who would be likely to make fraudulent error claims and deny 
them access to these accounts. This screening may, however, also cause 
some consumers who would not make such claims to be denied access to 
these accounts. Further, to the extent that the screening technology 
correctly identifies those individuals who are likely to make 
fraudulent error claims, negative externalities arising from these 
individuals' fraudulent claims activities (which benefit these 
consumers while imposing costs on other consumers and market 
participants) are reduced.
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    \832\ Financial institutions may already limit account 
functionality before customer identification and verification in 
order to comply with existing Federal requirements to perform 
customer identification prior to establishing prepaid accounts with 
particular characteristics. The consumer impacts described would 
take place to the extent the final rule causes financial 
institutions to further restrict account functionality prior to 
consumer identification and verification.
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b. Benefits and Costs to Covered Persons
    In general, the costs to financial institutions arising from the 
final rule's requirements will depend on their current business 
practices, the number and types of errors that their consumers claim, 
and any potential future changes

[[Page 84295]]

that would affect the number and types of errors claimed, separate and 
apart from the final rule. Implementation of the final rule's 
requirements would be simplified by the fact that financial 
institutions offering prepaid accounts generally keep a central record 
of transactions and track authorized users.
    The final rule requires that those financial institutions that do 
not currently offer their consumers limited liability and error 
resolution protections in accordance with Regulation E establish 
procedures for complying with the requirements or modify existing 
procedures (depending on their current practices). Specifically, 
financial institutions that do not currently offer these protections 
will need to develop the capacity to give the required disclosures to 
consumers, receive oral or written error claims, investigate error 
claims, provide consumers with investigation results in writing, 
respond to any consumer request for copies of the documents that the 
institution relied on in making its determination, and correct any 
errors discovered under the required timeframes.\833\ If unable to 
complete their investigation within the required timeframe (generally 
10 business days), financial institutions will be compelled to extend 
provisional credit (where applicable) and, in the case that a 
provisionally credited amount is subsequently reversed, notify the 
consumer.
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    \833\ Financial institutions often rely on industry partners to 
perform some or all of these functions.
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    For those financial institutions that do not currently offer 
limited liability and error resolution protections in the manner 
required by the final rule, the extension of these protections will 
require the establishment or modification of practices and procedures, 
as well as employee training. The establishment or modification of 
these practices and procedures will constitute a one-time 
implementation cost for those financial institutions that do not 
currently offer limited liability and error resolution in the manner 
required by Regulation E, and implementing these procedures will 
constitute an ongoing cost for financial institutions.\834\ The costs 
associated with implementing these procedures would be a function of 
the number and types of errors that consumers claim which, in turn, may 
be affected by the composition of the customer base and how those 
customers use their prepaid accounts.
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    \834\ It is possible that those institutions that currently 
offer Regulation E compliant error resolution on a voluntary basis 
will choose to rely on higher-skilled staff or perform additional 
reviews to assess compliance in light of the Final Rule. CFPB, 
Understanding the Effects of Certain Deposit Regulations on 
Financial Institutions' Operations, Findings on Relative Costs for 
Systems, Personnel, and Processes at Seven Institutions, at 96 (Nov. 
2013), available at https://files.consumerfinance.gov/f/201311_cfpb_report_findings-relative-costs.pdf.
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    Errors may vary on many dimensions that affect the cost associated 
with their investigation.\835\ In pre-proposal outreach, the Bureau 
spoke with several financial institutions that immediately resolve 
disputes involving amounts below a certain de minimis threshold since 
the amount of funds at issue does not justify the likely cost 
associated with conducting the investigation. Separately, when an 
investigation is conducted, resolution times may be affected by the 
responsiveness of third parties, including merchants and ATM owners, 
and may be subject to timeframes established by networks or other 
standard setting bodies.\836\ Additionally, the amount of information 
provided by the consumer and the timeliness of the report can affect 
the duration of the investigation.\837\ For instance, ATM error claims 
may result from an ATM malfunction that causes the consumer to receive 
the wrong amount of funds or from unauthorized use. Error claims that 
occur when an ATM dispenses the incorrect amount of funds are generally 
resolved when the ATM is balanced; however, in cases involving 
unauthorized ATM use, it is possible that the investigation may include 
obtaining and consulting video evidence.
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    \835\ In addition, with the Final Rule's requirement to extend 
provisional credit, there could be additional monetary costs 
associated with errors that require an extended timeline for 
investigation aside from the cost associated with the investigation 
itself.
    \836\ Payment card network rules may require the merchant 
acquirer to reply within a specified timeline in certain instances 
and may, in turn, require merchants to follow the acquirer's time 
frame for responding to such requests. See Visa Inc., Chargeback 
Management Guidelines for Visa Merchants at 24 (2014), available at 
https://usa.visa.com/download/merchants/chargeback-management-guidelines-for-visa-merchants.pdf.
    \837\ One program manager reported to the Bureau that, in 85 
percent of cases, there were 15 or fewer days between the 
transaction date and the initial notification date. Another program 
manager reported that in 76 percent of cases, there were 10 or fewer 
days between the transaction date and the dispute notification date.
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    Errors may also vary in terms of their legitimacy. Consumers may 
assert that an error occurred when one did not occur either to attempt 
to defraud the financial institution or due to a misunderstanding. 
Since, under EFTA, the burden is on the financial institution to 
establish that the transaction in question was not an error, it is 
possible that the financial institution would be liable for errors that 
may not be legitimate. Because the financial institution is liable for 
an asserted error unless it can determine the error is not legitimate, 
a financial institution may incur a cost whether or not the error 
actually occurred. The Bureau therefore finds it more helpful to 
classify alleged errors as either accepted or denied, as explained 
below, when considering the various cases in which a financial 
institution may incur a cost.
    Accepted disputes include situations in which the financial 
institution credits the consumer's account, either because an error 
occurred or, where an error did not occur, because an error was 
asserted and the financial institution could not establish that the 
transaction was authorized.\838\ In the case of accepted disputes, 
financial institutions that do not currently offer limited liability 
and error resolution rights consistent with Regulation E will incur 
one-time and ongoing costs associated with training personnel, as well 
as one-time and ongoing costs associated with information technology 
support to track reported disputes, investigations, resolutions, and to 
produce reports for internal audit and potential supervisory review. 
Ongoing costs associated with conducting investigations include 
compensating personnel tasked with dispute intake, obtaining receipts 
and other documentation from merchants or ATM owners, and communicating 
investigation findings to the consumer. When the financial institution 
can neither establish that the EFT was authorized nor receive a credit 
from the merchant or ATM owner, financial institutions also will incur 
costs associated with paying funds to consumers.\839\ While the Bureau 
does not have data that permit it to estimate the magnitude of such 
costs, the amount paid to consumers may be related to typical balances 
held in prepaid accounts, discussed above in the context of benefits to 
consumers.
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    \838\ Note that in some limited situations, payment card network 
rules permit the issuer to perform a merchant chargeback and be 
reimbursed. See Visa Inc., Chargeback Management Guidelines for Visa 
Merchants, at 43-88 (2014), available at https://usa.visa.com/download/merchants/chargeback-management-guidelines-for-visa-merchants.pdf.
    \839\ In pre-proposal outreach, the Bureau spoke with several 
financial institutions regarding error resolution, and the rate at 
which error claims were paid out varied greatly. One program manager 
paid out roughly half of the claims made (including those credited 
by the merchant), with under 30 percent of all claims paid by the 
program manager.
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    Additionally, the final rule requires financial institutions to 
extend provisional credit to consumers asserting an error claim when 
the length of the investigation exceeds 10 business days, so long as 
the prepaid account has

[[Page 84296]]

been through the customer identification and verification processes. In 
cases where the claim is ultimately accepted, offering provisional 
credit represents little additional cost to the financial institution 
over and above any costs associated with error resolution because the 
amount credited is ultimately due to the consumer following the 
investigation. Since the financial institution would be required to pay 
the claim under the error resolution provision, the only cost to the 
financial institution associated with expediting the availability of 
funds is the opportunity cost of those funds as applied to another 
investment for the applicable period. The Bureau expects that this cost 
is generally negligible.
    In contrast, denied disputes occur when the financial institution 
is able to establish that a transfer was authorized and, therefore, the 
institution is not ultimately required to return funds to the consumer. 
In the case of denied disputes, financial institutions that do not 
currently offer error resolution rights will incur costs associated 
with conducting investigations, and financial institutions that do not 
currently offer provisional credit will incur costs associated with 
crediting accounts when the length of the investigation exceeds 10 
business days. Although a financial institution extending provisional 
credit can subsequently reverse the credit when it is able to establish 
that the transfer was authorized, the consumer may draw down the funds 
in the interim or intentionally close the account and abscond with the 
funds.\840\ In such cases, extending provisional credit results in the 
financial institution losing all or some of the funds that were 
extended. For provisional credit that can be reclaimed, the financial 
institution will incur a small opportunity cost of those funds as 
applied to another investment for the period spanning when the funds 
were granted and when they could be reclaimed. The Bureau expects that 
this opportunity cost generally will be negligible.
---------------------------------------------------------------------------

    \840\ One program manager told the Bureau that it was unable to 
reclaim provisional credit extended in roughly 65 percent of the 
cases in which a merchant could provide proof that the EFT was 
authorized.
---------------------------------------------------------------------------

    The Bureau believes that, to a certain extent, financial 
institutions are able to limit losses associated with error claims. In 
pre-proposal discussions with financial institutions that provide 
prepaid accounts, the Bureau learned that financial institutions often 
close (or could close) accounts that have repeated error claims, 
thereby limiting their exposure to potential losses, and may add 
individuals to a watch list. Additionally, industry partners sometimes 
share information regarding individuals who appear to be instigating 
fraudulent activity, and one payment card network has plans to create a 
centralized database to better detect fraud on prepaid cards.\841\ 
Financial institutions can limit account access prior to customer 
identification and verification and use information provided in the 
identification and verification process to help limit the risk of 
fraud. The presence or absence of direct deposit, customer tenure, and 
card use patterns--including the type of merchant and the existence of 
prior activity at the merchant or ATM--can all be used to predict the 
likelihood that fraud occurs. The limited liability and error 
resolution protections required by the final rule may encourage 
financial institutions to invest in more robust systems to prevent 
unauthorized transfers.
---------------------------------------------------------------------------

    \841\ All U.S. Visa prepaid issuing financial institutions and 
their program managers have been required to report into Visa's 
Prepaid Clearinghouse Service since June 2015. See Press Release, 
Visa Inc., Visa Prepaid Clearinghouse Service Creates Centralized 
Database to Better Detect and Prevent Fraud Schemes on Prepaid Cards 
(Feb. 27, 2014), available at https://investor.visa.com/news/news-details/2014/Visa-Enhances-Industry-Fraud-Detection-on-Prepaid-Cards/default.aspx. While the Bureau supports industry efforts to 
reduce fraud, the Bureau cautions that any entities that maintain or 
furnish watch lists, screening programs, or other similar services 
should consider whether and how the Fair Credit Reporting Act or 
other statutes may apply to its activities.
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    Several industry commenters said that the application of limited 
liability and error resolution provisions, and in particular the 
provisional credit requirements, to prepaid accounts under certain 
circumstances could increase financial institutions' fraud losses 
associated with prepaid accounts. Some commenters claimed that fraud 
risk is especially high for transactions taking place before an account 
has been registered or in the period shortly after a prepaid account 
has been opened. One commenter that processes prepaid transactions 
estimated that providing limited liability and error resolution rights 
for transactions taking place before a prepaid account is registered 
would lead to an increase in fraud exposure of one additional basis 
point, compared to a baseline fraud exposure of between four and five 
basis points.
    The Bureau acknowledges that extending limited liability and error 
resolution protections, including provisional credit, to prepaid 
accounts that do not already offer these protections prior to customer 
identification and verification could increase the fraud exposure of 
financial institutions. Partly in response to these concerns, the 
Bureau has determined not to require provisional credit for prepaid 
accounts that have not successfully completed the financial 
institution's customer identification and verification process. To the 
extent that financial institutions nonetheless face increased fraud 
risk because limited liability and error resolution requirements apply 
before customer identification and verification, the Bureau notes that 
financial institutions can limit this risk by restricting a prepaid 
account's functionality before the identification and verification 
process is complete. The Bureau understands that currently many prepaid 
accounts cannot be used prior to customer identification and 
verification, or are subject to restrictions on how they can be used or 
the amount of funds they can hold. To the extent that the requirement 
to provide limited liability and error resolution protections increases 
fraud exposure related to transactions prior to identification and 
verification or early in the account's history, such restrictions may 
permit financial institutions to reduce fraud exposure.
    Although most programs reviewed as part of the Bureau's Study of 
Prepaid Account Agreements provided error resolution with provisional 
credit, there was some heterogeneity across programs with respect to 
the error resolution and provisional credit policies. To the extent 
that concern regarding the absence of a comprehensive Federal 
regulatory regime governing error resolution is currently limiting 
consumer adoption of prepaid accounts, providing for Regulation E 
limited liability and error resolution coverage, with provisional 
credit, for prepaid accounts--which include P2P transfer products--may 
help to facilitate wider adoption of these accounts and could benefit 
financial institutions. Additionally, since the costs associated with 
complying with the final rule vary across financial institutions, those 
that are already offering these protections may benefit if competitors 
need to raise prices or reduce the quality of their products to cover 
the costs associated with extending these protections to consumers. 
However, those financial institutions that currently offer these 
protections on a voluntary basis will lose the option of ceasing to 
offer such protections to consumers in the future.
4. Requiring the Posting and Provision of Prepaid Account Agreements
    Section 1005.19 of the final rule requires issuers to submit 
agreements governing prepaid accounts that they

[[Page 84297]]

offer to the Bureau on a rolling basis. The Bureau intends to post 
these agreements on a publicly available Web site established and 
maintained by the Bureau in the future.\842\ Issuers are not required 
to submit agreements to the Bureau if they qualify for one of two 
exceptions: (1) A de minimis exception for those issuers that had fewer 
than 3,000 open prepaid accounts as of the last day of the calendar 
quarter; \843\ and (2) a product testing exception for those prepaid 
accounts offered to a limited group of consumers and otherwise meeting 
the requirements specified in Sec.  1005.19(b)(5). Under Sec.  
1005.19(c), issuers also must post and maintain on their publicly 
available Web site any prepaid account agreements that the issuer 
offers to the general public (unless the issuer qualifies for the de 
minimis or product testing exceptions); this requirement does not apply 
to accounts, such as payroll card accounts or government benefit 
accounts, that are not offered to the general public.
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    \842\ Only those agreements offered as of the last business day 
of the preceding calendar quarter that have not been previously 
submitted as well as those agreements that have been amended must be 
submitted. Sec.  1005.19 (b)(1)(ii) and (iii). In addition, the 
issuer must notify the Bureau of any prepaid account agreement 
previously submitted that the issuer is withdrawing. Sec.  1005.19 
(b)(1)(iv).
    \843\ Sec.  1005.19(b)(4).
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    In addition to these requirements, Sec.  1009.19(d) requires that 
issuers provide access to individual account agreements to any consumer 
holding an open prepaid account, unless such agreements are required to 
be posted on the issuer's Web site pursuant to Sec.  1005.19(c). An 
issuer may fulfill this requirement by posting and maintaining the 
consumer's agreement on its Web site or by promptly providing a copy of 
the agreement in response to a consumer's request.\844\
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    \844\ If the issuer chooses to comply with this requirement by 
providing a copy of the agreement in response to a consumer request, 
the issuer must provide the consumer with the ability to request a 
copy of the agreement by calling a readily available telephone line. 
The issuer is required to send to the consumer or otherwise make the 
copy of the consumer's agreement available no later than five 
business days after the issuer receives the consumer's request.
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a. Benefits and Costs to Consumers
    The final rule will generally increase the amount of information 
available to consumers regarding prepaid accounts both when shopping 
for a prepaid account and after acquisition of the prepaid account. 
Having online access to account agreements (both on the Bureau's Web 
site and on the issuer's Web site) will enable suitably motivated 
consumers to more easily compare the fees, as well as other terms and 
conditions, of various prepaid account products. Entities may use the 
information in the repository to develop more competitive products or 
extract information that they could sell or otherwise provide to 
consumers or third parties, for example in the form of tools that 
consumer can use to compare the terms of different prepaid accounts. As 
discussed in more detail above with respect to the final rule's pre-
acquisition disclosure requirements, consumers benefit from having more 
information about available products and their terms because it helps 
them to make better choices and because it can lead to additional 
competition in the market for prepaid accounts. Increased competition 
could benefit consumers through lower prices, higher quality products, 
or both.
    For those consumers who have already acquired a prepaid account, 
access to their own account's terms and conditions, regardless of 
whether the account is currently offered to the public, could be 
helpful should a question arise regarding the terms of the account. 
Given that some accounts are held for a period of years,\845\ it is 
possible that consumers might misplace the initial disclosures provided 
with their prepaid accounts. Having the terms and conditions available 
post-acquisition could be helpful if a consumer wishes to assert an 
error or if other questions arise regarding the account.
---------------------------------------------------------------------------

    \845\ See, e.g., 2012 FRB Kansas City Study at 47 chart 4.1 
(finding mean life spans of multiple years for some categories of 
prepaid accounts).
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    Actual and potential consumer holders of prepaid accounts could 
also benefit from the requirement that issuers provide prepaid account 
agreements to the Bureau on a rolling basis. Provision of agreements to 
the Bureau will facilitate the Bureau's market monitoring, helping to 
ensure that prepaid accounts comply with regulatory requirements. 
Knowing that agreements must be provided to the Bureau and posted on 
the issuer's Web site could serve as an impetus for prepaid account 
issuers to ensure that they are complying with applicable regulatory 
requirements because public posting will make it more likely that 
agreement terms or disclosures that do not comply with such 
requirements are discovered.
b. Benefits and Costs to Covered Persons
    Under the final rule, issuers of prepaid accounts offered to the 
public that do not qualify for the de minimis or testing exceptions 
will be required to establish procedures that ensure they provide 
agreements to the Bureau when required by the final rule and notify the 
Bureau when they withdraw an agreement. In addition, issuers will need 
to ensure that any submission includes the elements described in Sec.  
1005.19(b)(1). The Bureau expects that the burden imposed by this 
reporting requirement will be minimal, as issuers are required to 
maintain current account agreements for other purposes.
    In addition, issuers of prepaid accounts that are offered to the 
public are also required to post prepaid account agreements on their 
publicly available Web site. Many issuers of prepaid accounts currently 
make account agreements available on their Web sites, but the final 
rule requires that issuers that do not qualify for the de minimis 
exception post and maintain any agreements currently offered to the 
public that do not qualify for the product testing exception. 
Therefore, issuers will need to ensure that their Web sites include 
current agreements. The Bureau anticipates that some issuers will incur 
costs to make required agreements publicly available on their Web 
sites.
    The final rule also requires that all issuers provide consumers 
with access to the agreement for their own prepaid account, unless such 
agreements are required to be posted on the issuer's Web site pursuant 
to Sec.  1005.19(c). For those issuers choosing to comply with this 
requirement by posting the relevant agreements online, the issuer must 
ensure that its Web site includes all agreements for open accounts and 
ensure that the agreements posted online are complete and up-to-date 
should product offerings evolve. For those issuers choosing to comply 
with the requirement by mailing a paper copy of the agreement or 
otherwise making a copy of the agreement available in response to a 
consumer request, the cost associated with this provision will depend 
on the frequency with which consumers make requests for such 
information. Costs associated with fulfilling such requests could 
consist of customer service agent time spent receiving and responding 
to a request made via telephone, as well as postage or other materials 
should the issuer respond to the inquiry with a paper copy of the 
agreement. Those issuers choosing to comply in this manner may also 
incur implementation costs associated with training customer service 
agents to handle such requests and/or changing existing IVR menu 
options.
    Greater availability of information about the terms of available 
prepaid accounts could increase competition by making it easier for 
consumers to

[[Page 84298]]

compare account costs and features across different prepaid accounts. 
This reduction in consumer search costs could result in lower prices, 
which could reduce profits for issuers of prepaid accounts.
    The proposed rule would have required agreements for all prepaid 
accounts that do not qualify for the product testing exception, 
including payroll card accounts and other accounts not offered to the 
general public, to be posted to the issuer's publicly available Web 
site. Several commenters noted that issuers of payroll card accounts in 
particular may have different account agreements for potentially 
thousands of different employers, and that the burden of maintaining a 
public Web site making such a large number of agreements available 
could be especially high. Because the final rule does not require 
issuers to post publicly available versions of agreements for prepaid 
accounts that are not offered to the general public, issuers will not 
bear the burden of making such agreements available on their Web sites, 
while consumers will still have access to their own agreements pursuant 
to Sec.  1009.19(d), and such agreements will be available to the 
public through the Bureau's future Web site.
5. Requirements Applicable to Covered Separate Credit Features
    The final rule provides new protections for consumers with respect 
to certain overdraft credit features offered in connection with prepaid 
accounts. As described in greater detail above, in the final rule, the 
Bureau generally intends to cover under Regulation Z overdraft credit 
features offered in connection with prepaid accounts where the credit 
features are offered by the prepaid account issuer, its affiliate, or 
its business partner (except as described in new Sec.  1026.61(a)(4)). 
New Sec.  1026.61(b) generally requires that such overdraft credit 
features be structured as separate sub-accounts or accounts, distinct 
from the prepaid asset account, to facilitate transparency and 
compliance with various Regulation Z requirements. Under final Sec.  
1026.2(a)(15)(i), a prepaid card is a credit card under Regulation Z 
when it is a ``hybrid prepaid-credit card.'' New Sec.  1026.61(a)(2)(i) 
provides that a prepaid card is a ``hybrid prepaid-credit card'' with 
respect to a separate credit feature if the card meets the following 
two conditions: (1) The card can be used from time to time to access 
credit from the separate credit feature in the course of authorizing, 
settling, or otherwise completing transactions conducted with the card 
to obtain goods or services, obtain cash, or conduct P2P transfers; and 
(2) the separate credit feature is offered by the prepaid account 
issuer, its affiliate, or its business partner. A ``covered separate 
credit feature'' is defined in new Sec.  1026.61(a)(2) to mean a 
separate credit feature accessible by a hybrid prepaid-credit card.
    Certain provisions in Regulation Z apply to ``creditors'' and other 
provisions apply to ``card issuers.'' Under the final rule, a person 
that offers a covered separate credit feature accessible by a hybrid 
prepaid-credit card is both a ``card issuer'' and a ``creditor'' under 
Regulation Z. As discussed in the section-by-section analysis of Sec.  
1026.2(a)(20) above, the Bureau anticipates that most covered separate 
credit features accessible by hybrid prepaid-credit cards will meet the 
definition of ``open-end credit'' and that credit will not be home-
secured. A card issuer of a hybrid prepaid-credit card that extends 
open-end credit (and thus charges a finance charge for the credit) that 
is not home-secured in connection with the covered separate credit 
feature is a ``creditor'' for purposes of the rules governing open-end 
(not home-secured) credit plans in subpart B in connection with the 
covered separate credit feature. The card issuer also must comply with 
the credit card rules set forth in subparts B and G with respect to the 
covered separate credit feature and the hybrid prepaid-credit 
card.\846\ In addition, the final rule includes modifications to 
Regulation E that provide new consumer protections for prepaid accounts 
accessible by a hybrid prepaid-credit card. These changes subject 
providers to a number of new requirements, which are summarized below.
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    \846\ As discussed in more detail above in the section-by-
section analysis of Sec.  1026.2(a)(17), a person who offers a 
covered separate credit feature accessible by a hybrid prepaid-
credit card and does not impose a finance charge is not offering 
open-end credit. Nonetheless, as discussed in the section-by-section 
analysis of Sec.  1026.2(a)(17), such a person would still be 
subject to certain Regulation Z requirements under certain 
circumstances.
---------------------------------------------------------------------------

    The final rule excludes prepaid cards from coverage as credit cards 
under Regulation Z when they access certain specified types of credit. 
First, new Sec.  1026.61(a)(2)(ii) provides that a prepaid card is not 
a hybrid prepaid-credit card when it accesses a ``non-covered separate 
credit feature.'' A non-covered separate credit feature is a separate 
credit feature that either: (1) Cannot be accessed in the course of a 
prepaid card transaction to obtain goods or services, obtain cash, or 
conduct P2P transfers; or (2) is offered by an unrelated third party 
that is not the prepaid account issuer, its affiliate, or its business 
partner. Although prepaid cards that access non-covered separate credit 
features are not considered hybrid prepaid-credit cards, the non-
covered separate credit feature is often subject to Regulation Z in its 
own right, depending on its terms and conditions. Second, under new 
Sec.  1026.61(a)(4), a prepaid card also is not a credit card when the 
prepaid card accesses incidental credit in the form of a negative 
balance on the asset account where the prepaid account issuer generally 
does not charge credit-related fees. Under the final rule, this 
incidental credit is generally subject to Regulation E, instead of 
Regulation Z.
    By generally classifying prepaid cards that access covered separate 
credit features as credit cards, the final rule makes existing credit 
card provisions in Regulation Z that restrict the structure and types 
of fees that providers may impose applicable to covered separate credit 
features accessible by a hybrid prepaid-credit card that are open-end 
(not home-secured) consumer credit plans. As discussed above, the 
Bureau anticipates that most covered separate credit features will meet 
the definition of ``open-end credit'' and these credit plans will not 
be home-secured. Accordingly, the provisions applicable to open-end 
consumer credit plans are of particular importance in considering the 
potential impacts of the final rule. For example, existing Regulation Z 
Sec.  1026.52(a) generally prohibits card issuers from imposing fees in 
excess of 25 percent of the credit limit during the first year 
following the opening of a credit card account under an open-end (not 
home-secured) consumer credit plan. Under the final rule, this 
restriction applies to credit-related fees assessed in connection with 
covered separate credit features accessible by a hybrid prepaid-credit 
card that are open-end (not home-secured) consumer credit plans. In 
addition, Sec.  1026.52(b) limits penalty fees, and Sec.  1026.56 
prohibits over-the-limit fees unless the consumer consents by opting-in 
to such fees, with respect to covered separate credit features 
accessible by a hybrid prepaid-credit card that are open-end (not home-
secured) consumer credit plans.
    The final rule also modifies Regulation E to specify in Sec.  
1005.18(g)(1) that a financial institution generally must provide to 
any prepaid account without a covered separate credit feature the same 
account terms, conditions, and features that it provides on prepaid 
accounts in the same prepaid account program that have

[[Page 84299]]

such a credit feature. The final rule permits a financial institution 
to charge the same or higher fees on the asset feature of a prepaid 
account with a covered separate credit feature accessible by a hybrid 
prepaid-credit card relative to the amount of a comparable fee it 
charges on prepaid accounts in the same prepaid account program without 
such a credit feature. However, Sec.  1005.18(g)(1) prohibits a 
financial institution from charging a lower fee on the asset feature of 
a prepaid account with a covered separate credit feature accessible by 
a hybrid prepaid-credit card relative to the amount of a comparable fee 
it charges on prepaid accounts in the same prepaid account program 
without such a credit feature.
    In addition to these restrictions on fee structure and type, 
certain newly applicable provisions of Regulations E and Z restrict how 
a financial institution may obtain repayment of a balance incurred on a 
covered separate credit feature accessible by a hybrid prepaid-credit 
card. The final rule, in Sec.  1005.10(e)(1), applies the EFTA 
compulsory use prohibition to covered separate credit features 
accessible by a hybrid prepaid-credit card. Accordingly, creditors are 
prohibited from requiring the electronic repayment of credit extended 
through a covered separate credit feature accessible by a hybrid 
prepaid-credit card on a preauthorized, recurring basis.\847\ In 
particular, creditors are required to offer prepaid account consumers 
an alternative to the automatic repayment of credit balances, such as a 
consumer-initiated transfer of funds from an asset account to the 
credit account. While consumers may voluntarily agree to an automatic 
repayment plan for their convenience, such voluntary plans are subject 
to certain restrictions.
---------------------------------------------------------------------------

    \847\ However, a creditor may offer an incentive to consumers 
for agreeing to repayment by preauthorized, recurring EFTs.
---------------------------------------------------------------------------

    In particular, the final rule's provisions ensure a minimum period 
of time between when a debt is incurred and when the debt is due to be 
repaid for covered separate credit features accessible by a hybrid 
prepaid-credit card that are open-end (not home-secured) consumer 
credit plans. Specifically, with regard to such plans, the final rule 
requires card issuers to adopt reasonable procedures designed to ensure 
that periodic statements are mailed or delivered at least 21 days prior 
to the fixed monthly payment due date.\848\ In addition to requiring 
card issuers to obtain the consumer's written, signed agreement to any 
automatic repayment with respect to a deposit account held with the 
card issuer, Regulation Z Sec.  1026.12(d) prevents card issuers from 
deducting a payment more frequently than once per calendar month under 
any such automatic repayment plan.
---------------------------------------------------------------------------

    \848\ See the section-by-section analyses of Sec. Sec.  
1026.5(b)(2)(ii) and 1026.7(b)(11) above.
---------------------------------------------------------------------------

    Pursuant to Regulation Z as amended by the final rule, card issuers 
offering hybrid prepaid-credit cards must comply with a number of 
requirements governing solicitation and application. During the 30 days 
following prepaid account registration, Sec.  1026.61(c) prohibits a 
card issuer from opening a covered separate credit feature accessible 
by a hybrid prepaid-credit card, providing a solicitation or 
application to open such a credit feature, or allowing an existing 
credit feature to become a covered separate credit feature accessible 
by a hybrid prepaid-credit card. Currently, Sec.  1026.12(a)(1) 
prohibits unsolicited issuance of credit cards. Under the final rule, 
Sec.  1026.12(a)(1) applies to hybrid prepaid-credit cards, and a card 
issuer may only attach a covered separate credit feature to a prepaid 
card in response to an oral or written request or application for the 
card. Any credit card applications or solicitations offered to 
consumers for a covered separate credit feature must comply with the 
requirements specified in Sec.  1026.60. In evaluating an application, 
a card issuer is required by current Sec.  1026.51(a) to establish and 
maintain reasonable written policies and procedures to consider the 
consumer's income or assets and current obligations in evaluating the 
consumer's ability to make the required minimum periodic payments under 
the terms of the plan. The final rule applies this ability to pay 
requirement to covered separate credit features accessible by a hybrid 
prepaid-credit card that are open-end (not home-secured) consumer 
credit plans.
    Current Regulation Z also includes a number of additional 
disclosure requirements that the final rule applies to covered separate 
credit features accessible by a hybrid prepaid-credit card. Before the 
consumer makes a transaction using a covered separate credit feature 
accessible by a hybrid prepaid-credit card, creditors are required to 
provide the account-opening disclosures required by Sec.  1026.6(b). 
Moreover, the final rule requires creditors to comply with Sec.  1026.7 
and provide a periodic statement for each billing cycle in which the 
account has a debit or credit balance of more than $1 or in which a 
finance charge has been imposed. This periodic statement requirement 
supplements the prepaid account periodic statement that is required by 
Regulation E.\849\ In addition, creditors generally are obligated to 
provide the disclosures described in Sec.  1026.9(c)(2) when changing 
the terms of the covered separate credit feature.
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    \849\ Instead of providing a prepaid account periodic statement 
as required under Regulation E, final Regulation E Sec.  1005.18(c) 
provides that a financial institution is not required to provide 
periodic statements if it makes available to the consumer balance 
information by telephone, 12 months of electronic account 
transaction history, and upon the consumer's request, 24 months of 
written account transaction history. As mentioned above, Sec.  
1026.5(b)(2) specifies that for credit card accounts under an open-
end (not home-secured) consumer credit plan, card issuers must adopt 
reasonable procedures designed to ensure that periodic statements 
are mailed or delivered at least 21 days prior to the fixed monthly 
payment due date.
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    Because of statutory differences, transactions performed using a 
covered separate credit feature accessible by a hybrid prepaid-credit 
card may, in some circumstances, be afforded liability and error 
resolution protections that exceed those applicable to transactions 
exclusively involving funds drawn from the prepaid asset account. For 
those credit card transactions subject to Regulation Z's liability 
limitations, current Sec.  1026.12(b) restricts cardholder liability to 
$50 in the event of unauthorized use. By contrast, Regulation E, in 
current Sec.  1005.6(b), permits a financial institution to hold a 
consumer liable in the event of unauthorized use for up to $500 if the 
consumer does not report the loss in a timely manner.\850\ In addition, 
current Regulation Z's definition of billing error is more expansive 
than Regulation E's definition of error and includes an extension of 
credit for property or services not accepted by the consumer (or the 
consumer's designee) or not delivered as agreed. Compare Sec.  
1026.13(a), with Sec.  1005.11(a).
---------------------------------------------------------------------------

    \850\ Irrespective of whether a transaction is subject to a 
liability limitation specified by Regulation E or Z, payment card 
networks' ``zero liability'' policies may further limit consumers' 
liability for unauthorized transactions.
---------------------------------------------------------------------------

    Because Regulation Z and Regulation E provide for different 
liability limitations and error resolution procedures, the final rule 
specifies in Regulation E Sec.  1026.12(a)(1)(iv)(B) and Regulation Z 
Sec.  1026.13(i)(2) which limitations and error resolution procedures 
apply to transactions made with a hybrid prepaid-credit card.\851\ For 
those transactions that exclusively draw on a covered separate credit

[[Page 84300]]

feature, the final rule specifies that Regulation Z's liability 
limitations and error resolution procedures apply. For those 
transactions that solely debit a prepaid asset account and do not draw 
on a covered separate credit feature, the final rule specifies that 
Regulation E's liability limitations and error resolution procedures 
apply. Finally, for those transactions that both debit a prepaid asset 
account and draw on a covered separate credit feature, Regulation E's 
liability limitations and error resolution procedures generally apply, 
with the exception of the error resolution provisions of Sec.  
1026.13(d) and (g) of Regulation Z, which apply to the credit portion 
of the transaction.
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    \851\ See also existing Regulation Z Sec.  1026.12(g), which 
cross-references Regulation E Sec.  1005.12(a), for guidance on 
whether Regulation Z or Regulation E applies regarding issuance and 
liability for unauthorized use, in instances involving both credit 
and EFT aspects.
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    The baseline for the Bureau's consideration of the benefits, costs, 
and impacts arising from the final rule is the current market for 
prepaid accounts. However, to inform the rulemaking, the Bureau also 
considers the potential future impacts of the final rule by comparing 
the likely future development of the market for these products to how 
the market might have evolved in the absence of the final rule. 
Consistent with the baseline used for discussion of the other final 
rule provisions, this baseline incorporates both the existing 
regulatory structure and economic attributes of the relevant market. 
Most notably, this baseline includes underlying consumer preferences 
and the current set of incumbent firms and potential entrants.
    Although a number of financial institutions offer prepaid accounts 
to consumers, the vast majority do not currently offer overdraft 
services in connection with these accounts and thus their current 
products are not directly impacted by the various credit provisions of 
the final rule.\852\ However, one of the largest prepaid account 
program managers offers an overdraft service in connection with its 
prepaid accounts, which include both GPR cards and payroll card 
accounts. The Bureau's understanding is that the credit limits extended 
to consumers using these overdraft services are typically smaller than 
credit limits offered by credit card accounts, and consumers typically 
pay a per transaction fee, which does not vary with the size of the 
overdraft, to use the feature.\853\ The Bureau understands that 
providers voluntarily choose to limit the number of fees that a 
consumer may incur during a specified period, and providers may waive 
fees for consumers who repay the overdraft within 24 hours or who 
overdraft by a de minimis amount. Further, the Bureau understands that 
providers require consumers to opt-in to the service and only offer the 
service to consumers who meet certain eligibility criteria.
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    \852\ One source suggests that government benefit card program 
revenue from overdraft fees ``virtually disappeared'' in 2014. 2015 
FRB Government Prepaid Cards Report at 1. In 2015, overdraft fees 
accounted for less than 0.1 percent of total cardholder fee revenue 
for government benefit card programs. 2016 FRB Government Prepaid 
Cards Report at 8.
    \853\ See, e.g., 2012 NetSpend WSJ Article.
---------------------------------------------------------------------------

    Financial institutions currently offering prepaid accounts subject 
to a negative balance fee that wish to continue to charge such fees 
will need to restructure these accounts to comply with the final rule's 
credit provisions. There is little evidence regarding how common such 
fees are in practice. In the Study of Prepaid Account Agreements 
conducted in connection with the proposed rule, the Bureau found that 
roughly 7 percent of reviewed agreements noted a negative balance fee 
in their terms and conditions.\854\ In response to the proposal, one 
credit union league commenter stated that 91 percent of member credit 
union survey respondents stated that they do not charge a sustained 
negative balance fee. One office of a State Attorney General commented 
that one-third of 38 employers it surveyed used payroll card programs 
that included overdraft or negative balance fees, though it is unclear 
how many distinct prepaid account providers this figure represents. 
Rather than trigger coverage under the final rule's credit provisions, 
the Bureau believes that most financial institutions that currently 
reserve the right to impose negative balance fees will no longer do so.
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    \854\ Study of Prepaid Account Agreements at 25-26. This 
percentage excludes those agreements designated as offering opt-in 
overdraft services (24 of 325 reviewed agreements). Including those 
agreements with formal opt-in overdraft services, roughly 10 percent 
noted a negative balance fee. Id. at 26.
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    Although there are few prepaid providers currently offering 
overdraft services, the final rule's restrictions will affect a 
significant portion of the fee-based revenue generated by those prepaid 
programs offering overdraft. According to the office of a State 
Attorney General, overdraft fees and declined balance fees may comprise 
a substantial portion of the fee-based revenue for financial 
institutions offering payroll card programs, stating that, in its 
survey of 38 employers' payroll card programs, overdraft fees comprised 
over 40 percent of the fees assessed by those vendors that charge them.
    Consumers regularly using overdraft services offered in connection 
with prepaid accounts represent only a small minority of all prepaid 
account consumers. The Bureau understands that the small number of 
prepaid account providers that currently offer overdraft services 
condition consumer eligibility on receipt of a regularly occurring 
direct deposit exceeding a predetermined threshold. Additionally, 
consumers must affirmatively choose to activate, or opt-in to, the 
service. Therefore, only those consumers who both meet the eligibility 
requirements and affirmatively choose to use the service are able to 
overdraft. A reasonable estimate of current market activity suggests 
that less than 1 percent of prepaid accountholders regularly use 
overdraft features offered in connection with their prepaid 
accounts.\855\ Thus, the benefits, costs, and impacts arising from the 
final rule's overdraft credit provisions will have a limited effect on 
prepaid account consumers generally, as described more fully below, 
even though those consumers currently relying on overdraft services may 
be affected by changed product features, altered eligibility 
requirements, or loss of access.\856\
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    \855\ Although NetSpend is a significant prepaid account program 
manager and offers overdraft services in connection with some of its 
GPR and payroll card products, a news article reported that only 6 
percent of NetSpend's customers regularly use overdraft. 2012 
NetSpend WSJ Article. In addition, a larger percentage of accounts 
would potentially be eligible for their overdraft program. A 
financial filing suggested that NetSpend had 3.6 million active 
cards as of Sept. 30, 2015, and 49 percent of those active cards had 
direct deposit. Total Sys. Serv., Inc., Quarterly Report (Form 10-
Q), at 27, available at https://www.sec.gov/Archives/edgar/data/721683/000119312515367677/d97203d10q.htm (for the quarterly period 
ended Sept. 30, 2015).
    Focusing attention only on GPR card and payroll card accounts, 
which excludes other prepaid account products and therefore 
underestimates the market size, one projection estimated that there 
would be 22.4 million active prepaid debit and payroll cards in the 
United States as of 2014. Aite Group LLC, The Contenders: Prepaid 
Debit and Payroll Cards Reach Ubiquity, at 13 fig.5 (Nov. 2012). 
Recent reports are largely consistent with this projection. One 
recent report estimated that there were 6.0 million active payroll 
cards as of 2014. Aite Group LLC, Checkmate: U.S. Payroll Card 
Programs Trump Paper Checks, at 8 fig.4 (Apr. 2015). A second recent 
study estimated that there were 16.1 million GPR cards in 
circulation. Bob Rohr, First Annapolis, Chase Enhances Competitive 
Positioning of Liquid, Navigator: Thought Leadership on the Global 
Payments Industry, at 5 fig.2 (Sept. 2015), available at https://www.firstannapolis.com/wp-content/uploads/2015/09/September-2015_First-Annapolis-Navigator1.pdf.
    \856\ For example, changes in pricing structure or other 
protections may make covered separate credit features accessible by 
a hybrid prepaid-credit card either more or less desirable to a 
consumer relative to current overdraft services offered in 
connection with prepaid accounts. It is also possible that changes 
in the profitability of offering this product could lead those few 
current providers to change business models and, in so doing, 
potentially impact both those consumers using covered separate 
credit features accessible by a hybrid prepaid-credit card as well 
as prepaid accountholders not using such features.

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[[Page 84301]]

    In response to the proposal, a few industry commenters stated that 
the Bureau's treatment of overdraft services as credit subject to 
Regulation Z did not appear to be supported by any data, and they cited 
a lack of Bureau complaint data regarding overdraft on prepaid cards. 
Because relatively few consumers use overdraft services in connection 
with their prepaid accounts, the Bureau does not consider the volume of 
complaints to be informative regarding the benefits and costs of the 
final rule's treatment of overdraft services as credit. Further, 
because prepaid account providers offer overdraft services to consumers 
in a relatively uniform manner, there is neither an accessible 
counterfactual nor a natural experiment available that would enable the 
Bureau to evaluate alternative credit regulatory regimes.
    Industry commenters also suggested that the Bureau's consumer 
testing did not support the Bureau's approach to regulating overdraft 
credit features offered in connection with prepaid accounts, stating 
that the testing supported a disclosure-based approach. The Bureau 
notes that, while consumer testing may inform the composition of a 
disclosure, it was not designed to evaluate behavioral responses to 
alternative credit regulatory regimes and, in any event, cannot capture 
strategic responses by industry to new regulatory requirements.

a. Benefits and Costs to Consumers

    The Bureau believes that the final rule's requirements concerning 
disclosures, liability limitations, and error resolution procedures for 
covered separate credit features accessible by a hybrid prepaid-credit 
card provide a number of consumer benefits, aligning with those 
conferred by Congress on credit card accountholders under TILA. In some 
cases, the final rule strengthens consumer protections relative to 
those protections offered by current industry practices. In other 
cases, the final rule codifies requirements that, though largely 
consistent with current practices, are not mandatory under Federal law.
    The Bureau believes that the final rule's requirements concerning 
credit-related disclosures, liability limitations, and error resolution 
procedures will have a minimal impact on which consumers have access to 
covered separate credit features accessible by a hybrid prepaid-credit 
card and the amount of credit offered. Although the credit-related 
disclosures provided to consumers seeking to add a covered separate 
credit feature accessible by a hybrid prepaid-credit card may motivate 
some consumers to choose not to apply for such a feature, the 
incremental cost associated with producing and distributing such 
disclosures, considering that providers must give various other 
disclosures to consumers acquiring a prepaid account, is modest. In 
addition, providers may further mitigate costs by obtaining E-Sign 
consent from the consumer and delivering subsequent credit-related 
disclosures in electronic form. The credit limits that providers 
currently offer consumers in connection with overdraft services offered 
in connection with prepaid accounts already serve to limit liability, 
so the additional requirements with respect to error resolution and 
liability limitations for covered separate features accessible by a 
hybrid prepaid-credit card should not prompt providers to engage in 
additional screening behaviors. These costs should not meaningfully 
affect which consumers are given the option to add a covered separate 
credit feature or the cost of that credit.
    In contrast, certain other credit-related provisions of the final 
rule, including provisions that restrict the type and structure of 
certain fees and the timing of repayment, will likely have a 
significant impact on which consumers have access to covered separate 
credit features accessible by a hybrid prepaid-credit card, the amount 
of credit offered, and the payment terms associated with the credit. As 
will be discussed below, these impacts likely will occur because 
providers choosing to offer covered separate credit features accessible 
by a hybrid prepaid-credit card likely will modify their current fee 
structures to comply with the rule. In addition, providers likely will 
change eligibility criteria for covered separate credit features 
accessible by a hybrid prepaid-credit card due to the increased credit 
risk resulting from the final rule's provisions addressing the timing 
of repayment.
    The benefits, costs, and impacts arising from the final rule's 
credit-related provisions likely will vary with the consumer's current 
intensity and intentionality of use of overdraft services. As described 
above, most consumers do not currently use overdraft services in 
connection with their prepaid accounts. Consumers use prepaid accounts 
for varied reasons. Some consumers rely on these accounts to aid in 
controlling spending or to facilitate budgeting.\857\ Such consumers 
are unlikely to choose to use covered separate credit features 
accessible by a hybrid prepaid-credit card. By contrast, consumers with 
different motivations for using prepaid accounts may desire access to 
covered separate credit features and may rely on such features provided 
they meet the program's eligibility requirements.\858\
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    \857\ Several studies, as well as the Bureau's focus group 
research, indicate that some consumers view spending control or 
budgeting as a benefit offered by prepaid accounts. See, e.g., 2014 
Pew Survey; The Pew Charitable Trusts, Key Focus Group Findings on 
Prepaid Debit Cards (Apr. 2012), available at https://
www.pewtrusts.org/~/media/legacy/uploadedfiles/pcs_assets/2012/
FSP1201420Pew20DebitCardsR10A4512pdf.pdf; see also ICF Report I at 
5.
    \858\ These requirements generally include receipt of a 
regularly occurring direct deposit in excess of a specified 
threshold.
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    Consumers who currently use prepaid accounts that offer overdraft 
services will experience the impacts of the final rule's credit-related 
provisions most directly. Some consumers who currently knowingly use 
overdraft services in connection with their prepaid accounts rely on 
such services only occasionally while others choose to rely on such 
services as a source of credit with regularity. The Bureau received 
extensive consumer comment in response to the proposed rule, including 
comments that were coordinated as part of a letter-writing campaign 
organized by a program manager that offers overdraft services in 
connection with some of its prepaid account products. These comments 
stated, among other things, that consumers benefit from having access 
to overdraft services to make emergency or otherwise unexpected 
purchases. Some consumer commenters stated that the overdraft services 
offered by their prepaid provider were cheaper and less risky than 
alternatives, such as payday loans. In addition to this intentional 
reliance on overdraft services as source of credit, eligible consumers 
who have opted-in to an overdraft service may also unintentionally 
overdraw their prepaid accounts if they do not monitor their prepaid 
account balances.\859\
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    \859\ Some providers currently mitigate this possibility by 
requiring overdraft users to sign up for text or email alerts or by 
other mechanisms, even though they are not required by Federal law 
to do so.
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    The Bureau expects that the final rule's restrictions on certain 
fees potentially charged to covered separate credit features accessible 
by a hybrid prepaid-credit card will incentivize, and in some cases 
require, those providers offering covered separate credit features 
accessible by a hybrid prepaid-credit card to change their pricing 
structures.

[[Page 84302]]

Most notably, the final rule subjects most fees charged during the 
first year following the opening of a covered separate credit feature 
accessible by a hybrid prepaid-credit card that is an open-end (not 
home-secured) consumer credit plan, other than periodic interest rates, 
to a cap of 25 percent of the initial credit line.\860\ Currently, 
consumers who rely on an overdraft service offered in connection with 
their prepaid account generally pay a per transaction fee, which does 
not vary with the size of the overdraft, to use the feature.\861\ This 
is similar to the fee structure typically used for checking account 
overdraft products, and these fees can be high relative to the amount 
of credit extended. Therefore, the final rule's restriction on the 
amount of fees that may be collected in the first year will be a 
binding constraint on the card issuer for all but infrequent users of 
covered separate credit features accessible by a hybrid prepaid-credit 
card. Considering the current pricing structure of prepaid account 
programs that offer overdraft services, the final rule's requirement 
could translate directly into lower transaction-based fees, at least 
during the first year of the covered separate credit feature accessible 
by a hybrid prepaid-credit card, for consumers using such 
features.\862\
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    \860\ This cap already applies to credit card accounts under an 
open-end (not home-secured) consumer credit plan pursuant to the 
CARD Act.
    \861\ For example, consumers may pay $15 per overdrawn 
transaction to access a credit line of $100. See, e.g., 2012 
NetSpend WSJ Article. Although providers may limit the number of 
fees that a consumer may incur during a specified period or opt not 
to charge for overdrafts that cause an account to go negative by a 
de minimis amount, this choice is voluntary.
    \862\ It is possible that some providers could choose to issue a 
change-in-terms notice to consumers after the first year of the 
covered separate credit feature accessible by a hybrid prepaid-
credit card and restore the present fee structure for consumers who 
have held their card for at least one year. However, the Bureau 
believes that such an approach is not likely to be adopted because: 
(1) A provider engaging in such a strategy risks losing non-
overdraft related fee revenue, which may be substantial, should 
consumers respond to such a strategy by choosing a different 
product; and (2) a provider would potentially bear additional 
administrative costs associated with maintaining multiple fee 
structures within the same program. See Fumiko Hayashi & Emily 
Cuddy, Recurrent Overdrafts: A Deliberate Decision by Some Prepaid 
Cardholders?, at 32 tbl.4 (Fed. Reserve Bank of Kan. City, Working 
Paper No. RWP 14-08, 2015), available at https://www.kansascityfed.org/publicat/reswkpap/pdf/rwp14-08.pdf (showing 
that non-overdraft related fees comprise well over half of fees 
collected from overdrafters on average for one provider).
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    Because this provision restricts the level of certain fees and not 
others, it is likely that providers that currently offer overdraft 
services in connection with their prepaid accounts will change prepaid 
account pricing structures and raise fees not subject to the 
restriction (or create new fees).\863\ Issuers of hybrid prepaid-credit 
cards could respond to the final rule's fee provisions by either 
raising fees charged in connection with the prepaid account that do not 
relate to the covered separate credit feature for all prepaid 
accountholders, assessing an application fee for the covered separate 
credit feature to those prepaid accountholders who apply for such 
credit, or shifting to a pricing structure based on a periodic interest 
rate.\864\ However, each of these options is likely to decrease demand 
relative to the present for either prepaid accounts or covered separate 
credit features. The quantity of prepaid accounts demanded from 
providers that offer covered separate credit features accessible by a 
hybrid prepaid-credit card could decrease if these providers respond to 
the final rule's credit pricing restrictions by generally raising 
prepaid account fees that are unrelated to the covered separate credit 
feature.\865\ Alternatively, if providers respond by imposing or 
raising an application fee, the number of consumers demanding credit 
could decrease. This could occur because an up-front application fee is 
more salient for consumers than the current add-on pricing model, which 
relies on back-end transaction-based fees, or because consumers are 
less likely to have available funds to pay a larger, up-front fee. 
Similarly, shifting to a pricing structure based on a periodic interest 
rate would require that card issuers disclose to consumers a 
comparatively large, and therefore potentially salient, interest rate 
(if current credit limits and repayment intervals are retained). It is 
also possible that providers may choose not to offer covered separate 
credit features accessible by a hybrid prepaid-credit card or to offer 
these products to a more select set of consumers, relative to the 
baseline.
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    \863\ If providers are profit-maximizing firms, their current 
choice not to offer an alternative fee structure compliant with the 
final rule's provisions suggests that their profits would decrease 
under such an alternative fee arrangement given the present industry 
structure.
    \864\ Like an application fee, periodic interest would not be 
subject to the restriction.
    \865\ Because the terms and conditions for transactions 
accessing the prepaid account cannot vary based on whether the 
prepaid accountholder accepts a covered separate credit feature 
accessible by a hybrid prepaid-credit card, providers are unable to 
target an increased prepaid account fee solely on those prepaid 
accountholders who accept the credit feature. Therefore, providers 
likely will target fees that are positively correlated with a 
consumer's demand for the covered separate credit feature, such as 
an application fee, for potential increases. This follows because a 
prepaid accountholder who desires a covered separate credit feature 
is less likely to switch to a substitute product in response to a 
fee increase than a prepaid accountholder who does not desire a 
covered separate credit feature (and therefore has more available 
substitute prepaid products from which to choose).
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    Provider responses to the final rule's provisions may cause those 
consumers who use overdraft services infrequently to pay higher prices 
for the covered separate credit feature or to choose to use less 
credit. For example, if providers respond to the pricing restrictions 
by charging consumers a high application fee to access credit, those 
consumers who anticipate occasional use may choose not to apply for 
credit because they may not be willing to pay a salient and transparent 
up-front fee (unless they highly value the possibility of having this 
credit readily available). This could benefit some consumers by 
preventing them from inadvertently accessing a credit feature (after 
having opted-in) and incurring the attendant fees. However, if an 
unanticipated need for funds were to arise, some of these consumers may 
need to adapt their household budgets in other ways, which may include 
relying on other credit sources that are potentially higher cost or 
less convenient.\866\ If a consumer needs to rely on another credit 
source, managing a relationship with an additional financial services 
provider could also result in efficiency losses, and the consumer may 
find understanding a second provider's terms and conditions and 
tracking account balances and due dates more costly than relying on one 
provider for both the prepaid account and credit feature.
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    \866\ Consumers may not have the funds to pay an application fee 
at the point when they need credit.
    The fees charged currently for overdraft services in connection 
with prepaid accounts, which generally range from $15 to $35 per 
transaction, are typically lower than checking account overdraft 
fees. According to data obtained from one research firm, the Bureau 
found that the median overdraft fee among the 33 institutions 
monitored by the research firm was $34 in 2012, and the median 
overdraft fee across nearly 800 smaller banks and credit unions was 
$30 in 2012. CFPB Overdraft White Paper at 52.
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    As noted above, some consumers who frequently use overdraft 
services may not have developed account management skills.\867\ Other 
such consumers may accurately anticipate their use of overdraft 
services but still prefer to use overdraft because they perceive 
overdraft services to be their best available source of short-term 
credit. As described above, providers will not be able to maintain the 
current

[[Page 84303]]

per transaction fee structure for those consumers who use the covered 
separate credit feature accessible by a hybrid prepaid-credit card more 
than occasionally in the first year following account opening (assuming 
that the credit limit remains unchanged).\868\ Providers may respond to 
the final rule's fee restrictions by raising other prepaid account fees 
not related to the covered separate credit feature or by relying on an 
up-front fee, such as an application fee, or periodic interest rate. 
However, consumers may find the payment of an up-front fee or the 
disclosure of a periodic interest rate highly salient. Many prepaid 
accountholders may not be willing to pay a one-time application fee or 
periodic interest rate of the magnitude that providers would need to 
charge to rationalize offering the credit feature. Given this response, 
the profit generated from an up-front fee or a periodic interest rate 
may not be sufficient to rationalize offering a covered separate credit 
feature.
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    \867\ According to one study, 41 percent of prepaid users (who 
currently or previously had a checking account) had either closed a 
checking account themselves or had an account closed by an 
institution because of overdraft or bounced check fees. 2014 Pew 
Survey at 8.
    \868\ As discussed above, consumers who opt-in to overdraft 
services generally pay a flat fee per overdraft. At present, there 
is generally no fee associated with opting-in to overdraft services 
offered in connection with a prepaid account.
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    Consumers who currently use overdraft features frequently will pay 
lower fees to access covered separate credit features under the final 
rule to the extent that they are able to access such services and 
choose to do so despite a salient up-front fee.\869\ Furthermore, those 
consumers choosing to obtain a covered separate credit feature 
accessible by a hybrid prepaid-credit card despite a high up-front fee 
will have increased incentive to utilize it once purchased because the 
marginal cost associated with accessing the credit will be lower than 
under the current per transaction pricing structure.
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    \869\ As described above, those consumers who are no longer able 
to access such services will potentially pay higher fees if they 
choose to rely on other types of consumer credit.
---------------------------------------------------------------------------

    The final rule also likely will affect which prepaid account 
consumers are eligible for covered separate credit features accessible 
by a hybrid prepaid-credit card. The final rule requires that card 
issuers establish and maintain reasonable written policies and 
procedures for considering the consumer's ability to make required 
minimum payments in deciding whether to offer the consumer a covered 
separate credit feature accessible by a hybrid prepaid-credit card that 
is an open-end (not home-secured) consumer credit plan. Furthermore, to 
attempt to mitigate the effects on profitability of the additional 
credit risk borne in complying with the final rule's credit-related 
provisions, it is likely that providers offering covered separate 
credit features accessible by a hybrid prepaid-credit card (or 
considering doing so) will alter the eligibility criteria. As a result, 
some consumers who are currently eligible (or would otherwise become 
eligible in the future) may lose (or not obtain) eligibility, and these 
consumers would either need to decrease consumption or rely upon 
alternative (and potentially higher cost) fund sources.
    Other provisions of the final rule provide consumers with 
additional control over their funds by ensuring that there is a minimum 
period of time between when debts are incurred and when they are due to 
be repaid. The final rule requires that for covered separate credit 
features accessible by a hybrid prepaid-credit card that are open-end 
(not home-secured) consumer credit plans, card issuers adopt reasonable 
procedures designed to ensure that periodic statements are mailed or 
delivered at least 21 days prior to the fixed monthly payment due 
date.\870\ Therefore, card issuers may not require that debts be repaid 
immediately from the next deposit into the consumer's asset account. In 
addition, the Regulation Z prohibition on offsets gives consumers 
discretion to decide whether to use funds deposited into their prepaid 
accounts to pay off debts incurred in connection with a covered 
separate credit feature accessible by a hybrid prepaid-credit card or 
for another use that they deem a higher priority. Although this no-
offset provision increases the onus on the consumer to budget for the 
debt and to remember to pay it to avoid additional fees or other 
adverse effects, consumers would still have the option of setting up an 
automatic payment around the fixed monthly payment due date to avoid 
this result if the creditor chooses to offer this capability. Moreover, 
under the final rule, a card issuer may sweep funds only periodically 
(and no more than once per calendar month) from the prepaid asset 
account to repay a debt, so long as it has the consumer's written 
authorization to do so. This restriction on the frequency of sweeps and 
the required delay that results from the requirement relating to the 
timing of periodic statements allow consumers to benefit from 
additional control of their funds.
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    \870\ See the section-by-section analyses of Sec. Sec.  
1026.5(b)(2)(ii) and 1026.7(b)(11) above.
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    These restrictions on the ability of a card issuer to apply prepaid 
account funds to outstanding debts incurred through the use of the 
covered separate credit feature will increase the credit risk 
associated with offering covered separate credit features accessible by 
a hybrid prepaid-credit card and, all else equal, will decrease their 
profitability. To compensate for this risk, providers may respond by 
offering less credit to consumers, charging higher fees for credit 
extended, or increasing collections activity.\871\ One industry 
commenter noted that the cost for consumers to access credit will 
increase if it becomes more difficult for creditors to recover debts 
and stated that providers may resort to the use of debt collectors if 
they are unable to exercise offset rights. The commenter predicted that 
the Bureau's proposal would increase the cost of borrowing, and 
consumers would be more likely to have delinquent accounts. The Bureau 
recognizes that the cost for some consumers to access this credit may 
increase, but the protections required by the final rule decrease the 
risk faced by consumers in using these features. Another industry 
commenter stated that a decision to remove or reduce an overdraft 
credit line could have an adverse impact on a consumer's credit score 
should creditors share consumer credit limits and utilization with 
reporting agencies. The Bureau's understanding is that providers do not 
currently share credit limits or utilization with reporting agencies 
for overdraft services, and the Bureau notes that if creditors were to 
decide to share consumer credit limits and utilization with reporting 
agencies, the impact on a consumer's credit score of such reporting may 
be positive as well as negative, depending on the consumer's 
utilization and payment behavior.
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    \871\ The final rule limits the magnitude of certain fees 
charged in connection with covered separate credit features 
accessible by a hybrid prepaid-credit card so any change in fee 
levels must comply with these restrictions.
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    Other provisions of the final rule provide potential benefits to 
consumers. The final rule requires providers offering covered separate 
credit features accessible by a hybrid prepaid-credit card to adhere to 
certain requirements that restrict when they may offer these features 
to consumers. By temporally separating the option to add a covered 
separate credit feature from the choice to acquire a prepaid account, 
these restrictions provide the prepaid accountholder with additional 
transparency and ensure that the consumer has the opportunity to become 
informed and consider options

[[Page 84304]]

when applying for credit.\872\ Periodic statements and other 
disclosures required by the final rule, as well as the requirement that 
the covered separate credit feature be structured as a separate account 
or sub-account, will aid transparency and better enable consumers to 
monitor their accounts. Consumers potentially will receive separate 
periodic statements for their prepaid account (or an electronic history 
of transactions for the prepaid account) and their covered separate 
credit feature accessible by a hybrid prepaid-credit card, though the 
two periodic statements may be combined if the combined statement meets 
the requirements of both Regulations E and Z. The periodic statement 
requirement ensures that consumers receive important information 
regarding transactions performed and fees incurred using their covered 
separate credit feature. Absent this requirement, creditors may choose 
not to disclose all such information pertaining to the covered separate 
credit feature. In addition, for statutory reasons, transactions solely 
accessing the covered separate credit feature are subject to stronger 
liability limitations and error resolution protections than those 
transactions that do not access the credit feature.\873\ The Bureau 
anticipates that these particular requirements will have a modest 
incremental impact on consumer access to credit beyond the impacts 
arising from the other new provisions, as discussed above.
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    \872\ The final rule provides that card issuers must adhere to 
timing requirements regarding solicitation and application that 
generally prevent card issuers from doing any of the following 
within 30 days of prepaid account registration: (1) Opening a 
covered separate credit feature accessible by a hybrid prepaid-
credit card; (2) making a solicitation or providing an application 
for such a feature; or (3) allowing an existing credit feature to 
become such a covered separate credit feature accessible by a hybrid 
prepaid-credit card.
    \873\ Those transactions that access both the prepaid asset 
account and the covered separate credit feature generally are 
subject to Regulation E's liability limitations and error resolution 
procedures, as well as some of Regulation Z's error resolution 
procedures, described in existing Sec.  1026.13(d) and (g).
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    The Bureau also considered, among other options, extending the 
Regulation E overdraft opt-in regime, described in Sec.  1005.17, to 
prepaid accounts. Industry commenters advocated this approach, as well 
as variations that included additional protections (such as a cap on 
the number of overdraft fees). One industry commenter noted that 
consumers may want optional overdraft services provided under 
Regulation E but may not want credit card services under Regulation Z. 
The commenter stated that consumers use overdraft services in a manner 
indicating conscientious use of the service and that a Regulation E 
disclosure and opt-in approach is sufficient to protect consumers who 
do not want overdraft services and to ensure that consumers who want 
overdraft services understand the terms of the service. Commenters also 
asserted that consumer confusion could result from treating prepaid 
overdraft services differently from deposit account overdraft 
services.\874\ The Bureau believes that the disclosure requirements of 
the final rule, including the restrictions on the timing of 
solicitation and application for covered separate credit features, 
should mitigate potential consumer confusion and distinguish the 
prepaid card account from any optional covered separate credit feature 
that may subsequently be accessed using a hybrid prepaid-credit card.
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    \874\ For example, one industry trade association commenter 
noted that subjecting overdraft services to Regulation Z could 
result in consumer confusion and that consumers may mistakenly 
purchase prepaid cards believing that they are credit cards.
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    The few financial institutions that currently provide overdraft 
services in connection with prepaid accounts generally act consistently 
with the Regulation E opt-in regime. However, the Bureau learned 
through comments that many additional financial institutions would 
offer overdraft services in connection with their prepaid accounts if 
it were to adopt a Regulation E opt-in approach. Relative to the 
approach taken in the final rule, the Regulation E opt-in approach 
could potentially result in more widespread consumer use of overdraft 
services in connection with prepaid accounts. This could result from 
additional entry by providers due to the resolution of the regulatory 
uncertainty that currently deters their entry and from increased 
marketing activities by both incumbents and entrants aimed at growing 
demand for overdraft services offered in connection with prepaid 
accounts. However, under a Regulation E opt-in approach, consumers 
using services that would be considered covered separate credit 
features accessible by a hybrid prepaid-credit card under the final 
rule would not enjoy the protections required by Regulation Z and other 
benefits, as discussed above.\875\
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    \875\ As discussed above, the Bureau is engaged in research and 
other activity in anticipation of a separate rulemaking regarding 
checking account overdraft products and practices. The Bureau 
expects that the rulemaking will consider whether additional 
regulatory protections are warranted for those products and 
practices.
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    The Bureau believes that industry pricing could evolve to a 
structure that approximates the checking account overdraft pricing 
structure, which is heavily reliant on back-end pricing via overdraft 
fees, under a Regulation E opt-in approach.\876\ This could result in 
some consumers potentially paying higher fees for overdraft services 
than they do at present (or than they would under the final rule), but 
it also could result in other consumers paying less for their prepaid 
accounts if growth in demand for overdraft services or competitive 
pressures prompt providers to adopt alternative fee schedules. Relative 
to the final rule, adopting a Regulation E opt-in approach could result 
in higher prices for overdraft services for consumers who can obtain 
these services because the final rule's restrictions on the pricing of 
covered separate credit features accessible by a hybrid prepaid-credit 
card would not apply.
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    \876\ In a study of several large banks' checking account 
overdraft programs, the Bureau found that, for opted-in consumers, 
overdraft and NSF fees accounted for about 75 percent of their total 
checking account fees and averaged over $250 per year. CFPB, Data 
Point: Checking Account Overdraft, at 5 (July 2014), available at 
https://files.consumerfinance.gov/f/201407_cfpb_report_data-point_overdrafts.pdf.
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    In the proposed rule, the Bureau also considered an alternative 
variant of the Regulation Z approach that subjected a broader set of 
transactions to coverage, including incidental credit extended in the 
form of a negative balance on a prepaid account in most 
situations.\877\ Under the proposal, all per transaction fees for 
credit transactions were finance charges, even if they were the same 
amount as the fee charged for transactions paid entirely with funds 
available in the prepaid account. The Bureau received extensive comment 
addressing the proposed rule's definition of finance charge. Commenters 
noted that a negative balance could result from force pay and other 
situations where the issuer does not authorize the transaction and 
explained that the proposed rule's definition of finance charge could 
consider prepaid cards to be credit cards if the financial institution 
charged per transaction fees for these overdrafts, even if the per 
transaction fee were the same as the per transaction fee charged to 
access prepaid account funds. Many industry commenters were concerned 
that because of the breadth of the fees that would be considered 
finance charges under the proposal, a prepaid account issuer either 
could not charge

[[Page 84305]]

general transaction fees on the prepaid account or would have to waive 
certain fees on any transaction that happened to involve credit, as 
defined under the proposal, to avoid triggering the credit card rules. 
One industry commenter estimated that such transactions, which can 
occur in connection with gasoline purchases, hotel stays, and other 
common consumer transactions, account for 10 percent of all prepaid 
card transactions.
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    \877\ Under the proposal, Regulation Z did not apply when the 
prepaid card only accessed credit not subject to any finance charge, 
as defined in proposed Sec.  1026.4, or any fee described in 
proposed Sec.  1026.4(c), and any credit accessed was not payable by 
written agreement in more than four installments.
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    Commenters discussed burdens to both industry and consumers arising 
from the application of the proposed rule's credit provisions in these 
situations. Commenters stated that the proposed rule's approach would 
have the consequence of causing financial institutions issuing prepaid 
cards that do not have credit features to eliminate per transaction 
(``pay-as-you-go'') pricing plans and prepaid card use outside of the 
United States, impose stricter authorization rules, hold authorizations 
for longer periods than they do currently, or freeze cardholder funds, 
thereby inconveniencing consumers. Further, commenters argued that 
providers would need to implement new fee logic patterns, among other 
adjustments.
    The final rule's approach to these issues mitigates these concerns. 
Under new Sec.  1026.61(a)(4), a prepaid card is not a hybrid prepaid-
credit card when the prepaid card accesses incidental credit in the 
form of a negative balance on the asset account where the provider 
generally does not charge credit-related fees for the credit. This 
exception is intended to exempt three types of credit so long as the 
provider generally does not charge credit-related fees for the credit: 
(1) incidental credit related to ``force pay'' transactions; (2) a de 
minimis $10 payment cushion; and (3) a delayed load cushion where 
credit is extended while a load of funds from an asset account is 
pending. New Sec.  1026.61(a)(4)(ii)(B) allows a provider to qualify 
for the exception in new Sec.  1026.61(a)(4) even if it charges 
transaction fees on the asset feature of the prepaid account for 
overdrafts so long as the amount of the per transaction fee does not 
exceed the amount of the per transaction fee imposed for transactions 
conducted entirely with funds available in the asset feature of a 
prepaid account.
    The final rule's approach of not subjecting incidental credit to 
the Regulation Z requirements will avoid the costs associated with 
subjecting products to coverage due to force pay transactions and 
delayed load situations. Further, the de minimis payment cushion 
exemption will encourage providers to extend small amounts of credit to 
consumers (at no additional cost) relative to the approach in the 
proposed rule. The Bureau believes that, in general, these provisions 
will benefit consumers and providers alike.
b. Benefits and Costs to Covered Persons
    This discussion covers many of the same issues already addressed in 
the preceding section. The final rule introduces additional 
requirements for prepaid account providers that offer covered separate 
credit features accessible by a hybrid prepaid-credit card.\878\ As 
discussed above, the Bureau's understanding is that few financial 
institutions currently offer prepaid accounts with overdraft services. 
By restricting how providers may offer overdraft services to prepaid 
accountholders, the final rule's provisions may limit the economic 
viability of some current business practices. Because overdraft 
services currently offered in the market do not conform to the final 
rule's requirements, providers offering covered separate credit 
features accessible by a hybrid prepaid-credit card will need to 
restructure existing programs if they wish to continue offering the 
product. The final rule's requirements could adversely affect the 
profitability of existing overdraft programs and may lead some current 
providers to discontinue offering such services.\879\
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    \878\ These obligations fall on the financial institution, card 
issuer, or creditor depending on the provision. In some cases, the 
same entity may fulfill multiple roles.
    \879\ The final rule's additional restrictions constrain 
provider choice regarding fee schedules relative to the present and, 
at best, will have a neutral impact on profitability, all else 
equal.
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    The Bureau also understands that other firms currently might be 
considering offering covered separate credit features accessible by a 
hybrid prepaid-credit card in the future. The final rule's requirements 
decrease the likelihood that such entry will occur. For example, the 
final rule's provision subjecting most fees charged during the first 
year (other than periodic interest rates) of the covered separate 
credit feature accessible by a hybrid prepaid-credit card that is an 
open-end (not home-secured) consumer credit plan to a cap of 25 percent 
of the initial credit line prevents providers from implementing certain 
pricing structures. These additional constraints likely will reduce the 
potential profitability of offering covered separate credit features 
accessible by a hybrid prepaid-credit card.
    Several industry commenters stated that the additional costs 
imposed by the final rule's credit-related requirements will motivate 
those few prepaid account providers offering overdraft services to stop 
doing so or to offer it in a form that is more costly and less 
convenient to consumers. By contrast, one consumer advocate commenter 
suggested that by providing additional regulatory clarity, the final 
rule's provisions may lead more financial institutions offering prepaid 
accounts to choose to offer related credit features. While the Bureau 
recognizes that regulatory uncertainty has likely discouraged the 
widespread availability of related credit features, the Bureau 
considers it unlikely that greater regulatory clarity alone could 
offset the costs of the new regulatory requirements sufficiently so 
that more financial institutions would offer prepaid accounts with 
related credit features.
    The final rule limits the types of fees that card issuers may 
charge during the first year after a consumer holder of a prepaid 
account opens a covered separate credit feature accessible by a hybrid 
prepaid-credit card that is an open-end (not home-secured) consumer 
credit plan. Among other restrictions, the final rule subjects most 
fees charged during the first year of the covered separate credit 
feature (other than periodic interest rates) to a cap of 25 percent of 
the initial credit line. Given the pricing structure and size of the 
lines of credit offered in conjunction with current prepaid overdraft 
offerings, the Bureau believes the final rule's fee cap requirement 
generally will be binding for any consumer incurring more than one 
overdraft fee in the first year after the opening of the covered 
separate credit feature accessible by a hybrid prepaid-credit 
card.\880\ Because this restriction could mean that some consumers pay 
fewer fees subject to the cap, providers will experience a reduction in 
revenues.
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    \880\ The Bureau believes that current transaction-based charges 
for overdrafts range from $15 to $35. Assuming a credit line of 
$100, the new restriction implies that the card issuer may collect, 
at most, one overdraft fee (or $25) in the first year of the covered 
separate credit feature accessible by a hybrid prepaid-credit card. 
It is possible that card issuers would be willing to extend larger 
credit lines to consumers than they do at present. However, issuers 
would incur more risk in doing so and likely would need to develop 
more robust underwriting procedures, both to ensure a sufficient 
return and to comply with Regulation Z's ability-to-pay requirement.
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    Providers may respond to this revenue reduction by adopting an 
alternative pricing structure that is less reliant on transaction-based 
fees to access covered separate credit features, but adoption of such 
an alternative

[[Page 84306]]

pricing structure is likely to result in decreased demand for covered 
separate credit features or prepaid accounts generally. For example, 
providers may choose to adopt a pricing structure that includes higher 
fees for non-credit related features of the prepaid account. However, 
adopting such a pricing strategy would potentially put these providers 
at a competitive disadvantage because it would mean raising the price 
of holding a prepaid account for any consumer relying on the non-credit 
related features targeted for the price increase, including consumers 
who do not use covered separate credit features accessible by a hybrid 
prepaid-credit card. In response to such a price increase, consumers 
not seeking a covered separate credit feature accessible by a hybrid 
prepaid-credit card may turn to prepaid accounts offered by other 
financial institutions.
    Alternatively, providers may adopt a pricing structure in which a 
fee is collected during the application process prior to the opening of 
the covered separate credit feature (and thus is not subject to the 
cap), or they may choose to charge a periodic interest rate. However, 
when faced with the option of pre-paying for overdraft services, 
consumers may be less willing to incur up-front charges for the service 
than they are under the current per transaction pricing structure, 
which relies on back-end fees. In addition, consumers may find 
disclosure of the periodic interest rate to be a salient deterrent to 
opening a covered separate credit feature accessible by a hybrid 
prepaid-credit card, especially at rate that providers may need to 
charge to rationalize offering the feature. Regardless of the 
alternative fee schedule adopted, the small group of prepaid account 
providers that offer covered separate credit features accessible by a 
hybrid prepaid-credit card will earn lower profits than they do at 
present (all else equal).
    Other provisions of the final rule also decrease the profitability 
of offering covered separate credit features accessible by a hybrid 
prepaid-credit card. The final rule restricts a creditor's ability to 
access assets held in a consumer's prepaid account, permitting 
creditors to sweep funds from the prepaid account only monthly to repay 
a debt incurred by an associated covered separate credit feature.\881\ 
As noted by commenters, creditors that do not obtain the consumer's 
written consent to sweep funds will need to offer consumers an 
alternative means of repaying the balance, which could require updating 
current systems or adopting new systems. Commenters also noted that 
credit cards and prepaid cards rely on different payment processing 
systems, so changing to a Regulation Z compliant system would likely 
imply substantial implementation costs.\882\
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    \881\ Creditors must obtain the consumer's consent to sweep 
funds. Because they may sweep funds only monthly, creditors will 
maintain debts on their books for a longer period, relative to the 
present where sweeps occur with the next incoming deposit, and will 
incur a small opportunity cost in connection with decreased access 
to funds so long as they do not charge consumers a periodic interest 
rate.
    \882\ One commenter estimated that most small financial 
institutions would incur a total approximate cost of $95,000 to 
implement the Regulation Z requirements. However, the basis for this 
estimate is unclear.
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    Aside from these implementation costs, the final rule's restriction 
on sweeps raises the ongoing cost to creditors associated with offering 
these accounts by increasing the risk of default.\883\ In addition, the 
final rule's requirement that with respect to covered separate credit 
features accessible by a hybrid prepaid-credit card that are open-end 
(not home-secured) consumer credit plans, card issuers adopt reasonable 
procedures designed to ensure that periodic statements are mailed or 
delivered at least 21 days prior to the fixed monthly payment due date 
ensures a time gap between when a debt is incurred and when it must be 
repaid. To manage this additional credit risk, card issuers may choose 
to offer less credit to consumers or to charge higher fees (or a 
periodic interest rate) for credit extended.
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    \883\ Providers may pass on some of these increased costs to 
consumers by increasing prices for the prepaid account and the 
covered separate credit feature.
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    To comply with the final rule's provisions, the few prepaid 
providers that currently offer overdraft services will incur 
implementation costs associated with educating consumers about any 
product changes, developing new disclosures, and designing and 
executing new procedures. Industry commenters noted that credit card 
regulatory expertise may not currently exist in-house and that 
providers wishing to offer covered separate credit features accessible 
by a hybrid prepaid-credit card may need to acquire such expertise. In 
addition, one provider that currently offers overdraft services in 
connection with some of its prepaid products commented that modifying 
its business to apply Regulation Z would cause it to incur costs 
associated with developing a billing system and accepting alternative 
forms of payment, among other costs. Providers wishing to offer covered 
separate credit features accessible by a hybrid prepaid-credit card 
will need to ensure that any solicitation and application materials 
conform to Regulation Z's requirements. This may require providers to 
produce new disclosures or modify existing disclosures. Providers 
wishing to offer covered separate credit features accessible by a 
hybrid prepaid-credit card additionally are required to comply with the 
final rule's timing requirements with respect to the solicitation of 
consumer holders of prepaid accounts, application, and account opening.
    Card issuers are also required to establish and maintain reasonable 
written policies and procedures to consider the consumer's ability to 
make required minimum payments when deciding to offer a covered 
separate credit feature accessible by a hybrid prepaid-credit card that 
is an open-end (not home-secured) consumer credit plan. As noted above, 
card issuers should incur minimal additional burden from these 
provisions because they can assess the consumer's ability-to-pay at low 
cost. Given providers' increased incentive to screen applicants due to 
their inability to sweep incoming funds immediately from the prepaid 
asset account to pay a debt incurred on the covered separate credit 
feature, the incremental impact of this provision on operational costs 
is minimal.\884\
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    \884\ If fewer consumers qualify for the product as a result of 
the final rule's requirement to assess the consumer's ability to 
make the required minimum payments, provider revenues could 
decrease.
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    Providers will also incur ongoing costs in adhering to other 
provisions of the final rule. These costs include those associated with 
providing periodic statements for covered separate credit features 
accessible by a hybrid prepaid-credit card as well as additional 
disclosures in certain circumstances, such as when certain account 
terms change. Specifically, providers will incur costs designing these 
disclosures and ensuring that they comply with Regulation Z. In some 
cases, providers will also incur costs associated with printing and 
distributing these disclosures.\885\ Finally, to the extent that 
Regulation Z's liability limitations and error resolution provisions 
apply, providers may incur additional costs due to Regulation Z's more 
restrictive limitations on consumer liability and expanded definition 
of error. However, these costs should be minimal if credit lines do not 
increase relative to the present.
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    \885\ Providers could mitigate some of these costs by obtaining 
E-Sign consent from the consumer.
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    Because the final rule's provisions could affect consumer choice, 
the small number of prepaid providers that

[[Page 84307]]

currently offer overdraft services may experience changes in the size 
or composition of the customer base seeking this product. Adjustments 
in aggregate market demand or consumer substitution to or from other 
providers within the market could affect these providers' profits. For 
example, if financial institutions currently offering prepaid accounts 
with overdraft services make their products less desirable to consumers 
who value credit by not offering covered separate credit features or by 
charging higher fees to hold prepaid accounts, those financial 
institutions offering prepaid accounts without covered separate credit 
features could benefit as consumers substitute away from products 
offering covered separate credit features.
    In terms of alternatives, the Bureau also considered extending the 
Regulation E opt-in regime to prepaid accounts. Several industry 
commenters urged the Bureau to adopt a Regulation E opt-in approach, 
stating that it would provide consumers sufficient protection and would 
be less costly to implement than covering overdraft services under 
Regulation Z. Those few providers that currently offer overdraft 
services in connection with their prepaid accounts largely adhere to 
the Regulation E opt-in requirements, and therefore they would incur 
minimal additional costs in implementing such an approach, relative to 
the baseline of the current market. Based on comments received in 
response to the proposal, the Bureau believes that resolving the 
regulatory uncertainty that currently deters some providers from 
offering overdraft services by adopting a Regulation E opt-in approach 
would lead many more prepaid providers to offer overdraft services in 
connection with their prepaid accounts than offer such products 
currently. In addition, given the additional costs imposed by the 
Regulation Z approach relative to the Regulation E opt-in approach, 
more financial institutions offering prepaid accounts may have found it 
economically viable to offer overdraft services in the future under a 
Regulation E opt-in regime relative to the approach adopted by the 
final rule.
    The Bureau also considered an alternative variant of the Regulation 
Z approach in the proposed rule that subjected a broader set of 
transactions to coverage, including those transactions accessing credit 
outside the course of a transaction; credit offered by parties 
unrelated to the prepaid account issuer, its affiliates, or its 
business partners; and credit extended as a negative balance on a 
prepaid account that would have been subject to a per transaction fee 
(even if the amount of the fee were the same as the amount charged for 
transactions paid entirely with funds available in the prepaid 
account). As discussed above, commenters suggested that this approach 
would impose a number of costs on industry, including: (1) potential 
compliance issues when the consumer attaches an unrelated credit 
feature to the prepaid account without the knowledge of the unrelated 
third-party creditor; and (2) interruptions to the flow of funds in 
contexts, such as force pay transactions, where an account balance may 
become negative and a transaction-related fee (that is the same as the 
fee charged for transactions paid entirely with funds available in the 
prepaid account) may be imposed, even though the prepaid account issuer 
does not authorize the credit extension.
    The final rule's approach mitigates these concerns by excluding 
prepaid cards from coverage as credit cards under Regulation Z when 
they access certain specified types of credit. First, under new Sec.  
1026.61(a)(2)(ii), a prepaid card is not a hybrid prepaid-credit card 
with respect to ``non-covered separate credit features,'' which means 
that the separate credit feature either: (1) cannot be accessed in the 
course of a prepaid card transaction to obtain goods or services, 
obtain cash, or conduct P2P transfers; or (2) is offered by an 
unrelated third party that is not the prepaid account issuer, its 
affiliate, or its business partner. Second, under new Sec.  
1026.61(a)(4), a prepaid card also is not a hybrid prepaid-credit card 
when the prepaid card accesses incidental credit in the form of a 
negative balance on the asset account where the prepaid account issuer 
generally does not charge credit-related fees for the credit. New Sec.  
1026.61(a)(4)(ii)(B) allows a provider to qualify for the exception in 
new Sec.  1026.61(a)(4) even if it charges transaction fees on the 
asset feature of the prepaid account for overdrafts so long as the 
amount of the per transaction fee does not exceed the amount of the per 
transaction fee imposed for transactions conducted entirely with funds 
available in the asset feature of a prepaid account.
F. Potential Specific Impacts of the Final Rule
1. Depository Institutions and Credit Unions with $10 Billion or Less 
in Total Assets, as Described in Section 1026
    The final rule's requirements apply uniformly across covered 
financial institutions without regard for their asset size.\886\ Among 
those depository institutions and credit unions that the Bureau 
believes are directly affected by the final rule, roughly 67 percent 
have $10 billion or less in total assets.\887\ The impact of the final 
rule on depository institutions and credit unions will depend on a 
number of factors, including: (1) whether the institution offers 
prepaid accounts; (2) the relative contribution of prepaid account 
earnings to overall firm profits; and (3) the cost of complying with 
the final rule (which depends on both present prepaid account offerings 
and the regulations to which those accounts are currently subject).
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    \886\ The de minimis exception for providing prepaid account 
agreements to the Bureau and posting them to a Web site is a 
function of the number of open accounts, not the asset size of the 
issuer.
    \887\ These figures reflect asset sizes reported as of December 
2015 in the Federal Financial Institutions Examination Council 041 
Call Report and the NCUA 5300 Call Report. Depository institutions 
and credit unions offering white label programs or programs through 
certain agent relationships were not included in arriving at this 
statistic.
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    With respect to most provisions, the Bureau does not expect that 
the final rule will have a unique impact on depository institutions and 
credit unions with $10 billion or less in total assets, as described in 
section 1026. One exception pertains to the provisions addressing 
covered separate credit features accessible by a hybrid prepaid-credit 
card. Issuers with consolidated assets of less than $10 billion are 
exempt from the Board's Regulation II restrictions on debit card 
interchange fees.\888\ Additionally, for issuers with over $10 billion 
in assets, Regulation II's interchange fee restrictions do not apply to 
electronic debit transactions made using debit cards provided pursuant 
to certain government-administered payment programs or using certain 
reloadable, general-use prepaid cards.\889\ However, these exemptions 
for issuers with over $10 billion in assets do not apply if a 
cardholder may incur a fee or charge for an overdraft \890\ (unless the 
fee or charge is imposed for transferring funds from another asset 
account to cover a shortfall in the account accessible by the 
card).\891\ Because they would be subject to Regulation II's 
restrictions on debit interchange fees if they offered overdraft 
services in connection with prepaid accounts, financial institutions 
with greater than $10 billion in assets presently have less incentive 
to offer overdraft services than

[[Page 84308]]

similarly situated depository institutions with less than $10 billion 
in assets. Therefore, the new consumer protections applicable to 
covered separate credit features accessible by a hybrid prepaid-credit 
card may be more likely to have an impact on those institutions with 
less than $10 billion in assets. One credit union commenter agreed with 
this conclusion but did not provide specific rationale for why the 
impact on those institutions with less than $10 billion in assets would 
differ from the impact on institutions with greater than $10 billion in 
assets.
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    \888\ 12 CFR 235.5(a).
    \889\ 12 CFR 235.5(b) and (c).
    \890\ Here, an overdraft includes a shortage of funds or a 
transaction processed for an amount exceeding the account balance.
    \891\ 12 CFR 235.5(d)(1).
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2. Impact of the Final Rule's Provisions on Consumers in Rural Areas
    Consumers in rural areas may derive benefits from the final rule 
that are different in certain respects from the benefits experienced by 
consumers in general. Consumers in rural areas may differ from other 
consumers in terms of their reliance on prepaid accounts as well as 
their ability to use online disclosures for shopping by accessing the 
internet.\892\ The Bureau is not aware of evidence that states whether 
consumers in rural areas are more likely to acquire prepaid accounts, 
to use prepaid accounts that do not currently follow Regulation E's 
limited liability and error resolution regime, or to use covered 
separate credit features accessible by a hybrid prepaid-credit 
card.\893\
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    \892\ Broadband availability may be more limited in rural areas. 
See Nat'l Telecomm. and Info. Admin., U.S. Broadband Availability: 
June 2010--June 2012, at 10 (May 2013), available at https://www.ntia.doc.gov/files/ntia/publications/usbb_avail_report_05102013.pdf.
    \893\ One study found that consumers living in rural areas were 
more likely to deposit tax refunds onto a prepaid card than 
consumers living in urban areas. Caroline Ratcliff et al., Urban 
Inst., Prepaid Cards at Tax Time and Beyond, at 26 (Mar. 2014), 
available at https://www.urban.org/UploadedPDF/413082-prepaid-cards-at-tax-time-report.pdf. Another study reports prepaid debit card use 
by metropolitan status and did not find a robust relationship 
between whether a household was in a metropolitan area and prepaid 
debit card use. 2013 FDIC Survey at 41.
---------------------------------------------------------------------------

VIII. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA),\894\ as amended by the Small 
Business Regulatory Enforcement Fairness Act of 1996,\895\ requires 
each agency to consider the potential impact of its regulations on 
small entities, including small businesses, small governmental units, 
and small not-for-profit organizations.\896\ The RFA defines a ``small 
business'' as a business that meets the size standard developed by the 
Small Business Administration (SBA) pursuant to the Small Business 
Act.\897\
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    \894\ Public Law 96-354, 94 Stat. 1164 (1980).
    \895\ Public Law 104-21, section 241, 110 Stat. 847, 864-65 
(1996).
    \896\ 5 U.S.C. 601-612. The term ```small organization' means 
any not-for-profit enterprise which is independently owned and 
operated and is not dominant in its field, unless an agency 
establishes [an alternative definition after notice and comment].'' 
5 U.S.C. 601(4). The term ```small governmental jurisdiction' means 
governments of cities, counties, towns, townships, villages, school 
districts, or special districts, with a population of less than 
fifty thousand, unless an agency establishes [an alternative 
definition after notice and comment].'' 5 U.S.C. 601(5). Aside from 
credit unions, the Bureau does not believe that any small not-for-
profit organizations are regulated by the final rule for RFA 
purposes. In its Study of Prepaid Account Agreements, the Bureau did 
not locate any small governmental jurisdictions regulated by the 
final rule for RFA purposes.
    \897\ 5 U.S.C. 601(3). The Bureau may establish an alternative 
definition after consulting with the SBA and providing an 
opportunity for public comment. Id.
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    The RFA generally requires an agency to conduct an initial 
regulatory flexibility analysis (IRFA) and a final regulatory 
flexibility analysis (FRFA) of any rule subject to notice-and-comment 
rulemaking requirements, unless the agency certifies that the rule 
would not have a significant economic impact on a substantial number of 
small entities.\898\ The Bureau also is subject to certain additional 
procedures under the RFA involving the convening of a panel to consult 
with small entity representatives prior to proposing a rule for which 
an IRFA is required.\899\
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    \898\ 5 U.S.C. 601 et seq.
    \899\ 5 U.S.C. 609.
---------------------------------------------------------------------------

    The undersigned certified that the proposed rule would not have a 
significant economic impact on a substantial number of small entities 
and that an IRFA was therefore not required. In the proposed rule, the 
Bureau requested comment regarding its methodology for estimating 
burden on small entities as well as relevant data. The Bureau received 
little comment with respect to these issues. However, the Bureau 
addresses the comments received and integrates additional information 
provided by commenters into its analysis of these issues when available 
and informative. Upon considering relevant comments as well as the 
modifications to the proposed rule that were made in developing the 
final rule, the conclusion that the rule will not have a significant 
economic impact on a substantial number of small entities is unchanged. 
Therefore, a FRFA is not required.\900\
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    \900\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------

A. Overview of Analysis

    The analysis below evaluates the economic impact of the final rule 
on directly affected small entities as defined by the RFA. The Bureau 
considers an entity to be ``directly affected'' by the final rule for 
RFA purposes if it issues prepaid accounts, manages a prepaid account 
program, or offers covered separate credit features accessible by a 
hybrid prepaid-credit card.\901\ This analysis establishes that 
directly affected small banks and credit unions each represent a 
fraction of 1 percent of all small banks and credit unions. Further, 
the analysis also establishes that directly affected small or 
potentially small non-bank entities comprise roughly 4 percent of all 
small entities within the relevant North American Industry 
Classification System (NAICS) code.\902\ These percentages do not 
comprise a substantial number of small entities for purposes of the 
RFA.
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    \901\ The final rule directly regulates financial institutions, 
card issuers, and creditors. In many cases, entities other than 
financial institutions perform program management functions. To 
inform the rulemaking, the Bureau additionally considers the impact 
of the final rule on such entities even though the final rule does 
not directly regulate these entities for RFA purposes.
    \902\ The North American Industry Classification System (NAICS) 
is the standard used by the SBA to match small business size 
standards to industries. For this analysis, the Bureau considers 
directly affected non-bank entities to fall within NAICS code 522320 
(Financial transactions processing, reserve, and clearinghouse 
activities).
---------------------------------------------------------------------------

    Further, this analysis also establishes that the only small non-
bank entities likely to experience a significant economic impact from 
the final rule are those that currently: (1) Do not provide limited 
liability protections to consumers; (2) do not provide error resolution 
protections to consumers; or (3) offer products that would be 
considered covered separate credit features accessible by a hybrid 
prepaid-credit card.\903\ The Bureau concludes that less than 1 percent 
of all small non-bank entities within the relevant NAICS code will 
experience a significant economic impact from the final rule. This does 
not comprise a significant economic impact on a substantial number of 
small entities for purposes of the RFA.
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    \903\ A few commenters noted that the proposal's approach of 
limiting the exemption to the requirement to provide the long-form 
disclosure pre-acquisition to those retailers selling products from 
at least two different issuing financial institutions would 
potentially have a disproportionate impact on small retailers. The 
final rule mitigates this concern by broadening the type of entity 
that qualifies for the alternative timing regime. Further, such 
retailers are not ``directly affected'' by the final rule for RFA 
purposes, and even if they were, limiting the exemption would not 
cause these retailers to experience a significant economic impact.

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[[Page 84309]]

B. Number and Classes of Directly Affected Entities

    The provisions of the final rule apply to any account meeting the 
criteria described in Sec.  1005.2(b)(3). Providers of these accounts 
include issuers and program managers. Prepaid account issuers are 
typically banks and credit unions, and program managers are typically 
non-banks.\904\ Some issuers also act as the program manager for some 
or all of the prepaid accounts that they issue. While most of the final 
rule does not directly regulate prepaid program managers for RFA 
purposes if they are not financial institutions, the Bureau exercises 
its discretion to take a comprehensive approach that considers both 
prepaid account issuers and program managers in determining whether the 
final rule will have a significant economic impact on a substantial 
number of small entities.\905\ Financial institutions, creditors, and 
card issuers must also comply with the final rule's requirements 
pertaining to credit.\906\
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    \904\ P2P payment products and other non-Visa or non-MasterCard 
branded prepaid products are sometimes issued by non-bank entities.
    \905\ To determine whether the economic impact is significant, 
the Bureau compares the total revenues earned by both the program 
manager and the issuer to the total costs incurred by these entities 
resulting from the final rule. In some cases, the same entity 
performs both the issuing and program management functions, and in 
other cases, different entities perform these functions.
    \906\ Currently, the non-bank program manager fulfills these 
roles for those prepaid products that offer overdraft services 
although the creditor may be an entity distinct from the program 
manager or issuer.
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    Because the Bureau is not aware of a comprehensive list of entities 
that actively issue or manage prepaid accounts or a comprehensive list 
of prepaid account programs, the Bureau compiled its own list of known 
prepaid account issuers and program managers in connection with the 
proposed rule.\907\ Table 1 reports estimated counts of banks, credit 
unions, and non-bank entities identified by the Bureau as likely 
directly affected by the final rule. Table 1 also reports the total 
number of entities, as well as the total number of small or potentially 
small entities, within each relevant NAICS code to provide context for 
those counts.\908\
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    \907\ This list was compiled using information gathered from the 
Bureau's review of publicly available information and industry 
outreach. This compilation includes all issuers and program managers 
whose prepaid account agreements were included in the Study of 
Prepaid Account Agreements. The Bureau also included other issuers 
and program managers identified in its pre-proposal review of 
publicly available information even though account agreements for 
their prepaid programs were not located. The Bureau does not believe 
that modifications made to the proposed rule to arrive at the final 
rule will increase the number of directly affected entities and 
therefore retains the estimates of total entity counts obtained in 
connection with the proposed rule.
    \908\ Because many of the directly affected non-bank entities 
are privately held firms, information regarding their size was 
difficult to obtain, so a reliable size classification could not be 
made. In addition, one bank's size could not be classified because 
multiple banks shared the same name. Therefore, out of an abundance 
of caution, the Bureau considered any entity for which a size 
classification could not be made to be ``potentially small.''
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    Banks and credit unions. Based on its Study of Prepaid Account 
Agreements, outreach to interested stakeholders and other regulatory 
agencies, review of industry studies, and consideration of comments 
received in response to the proposed rule, the Bureau has determined 
that the final rule will directly affect very few small banks or credit 
unions.
    Several commenters to the proposed rule suggested that the Bureau 
undercounted the number of small banks or credit unions directly 
affected by the proposed rule's provisions. However, those commenters 
appeared to include banks or credit unions that offer prepaid cards 
through a vendor or bankers' bank in concluding that the Bureau 
undercounted the number of directly affected small banks or credit 
unions. As described in the proposed rule, the Bureau does not consider 
those entities directly affected by the final rule and therefore does 
not include such entities in its counts (to the extent that they could 
be identified).\909\
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    \909\ 79 FR 77102, 77284 n.536 (Dec. 23, 2014).
---------------------------------------------------------------------------

    In such relationships, a distinct vendor or banker's bank generally 
handles most compliance duties. The Bureau considered such entities, 
which generally perform these duties on behalf of program participants, 
to be directly affected by the final rule for RFA purposes but did not 
include program participants (to the extent that they could be 
identified as such by the Bureau). Program participants that rely on 
white-label providers or other agent-based relationships generally 
include small banks or credit unions that offer prepaid products as a 
convenience to their customers. One trade association commenter stated 
that small banks participating in these programs may retain certain 
responsibilities, including retrieving and replacing disclosures and 
verifying vendor compliance. The Bureau believes that these costs would 
not comprise a significant economic impact for such entities. Further, 
the Bureau understands that prepaid accounts offered through these 
arrangements generally provide limited liability and error resolution 
protections and do not provide overdraft services. Therefore, the 
concern raised by commenters does not affect the Bureau's conclusion 
for RFA purposes because such entities would not experience a 
significant economic impact, as discussed below, even if they were 
included in the Bureau's counts.
    A few industry commenters also suggested that the rule would affect 
entities that do not currently offer prepaid products but may wish to 
do so in the future. For purposes of the RFA, the Bureau uses the set 
of current market participants as the baseline and therefore considers 
the impact of the final rule only on entities that currently offer 
products that meet the final rule's criteria for a prepaid account.
    For this analysis, the Bureau considered small those banks and 
credit unions averaging less than $550 million in assets across the 
institution's four quarterly Call Report entries for 2012.\910\ As 
shown in Table 1, the Bureau identified 19 directly affected small or 
potentially small banks and six directly affected small credit 
unions.\911\ These entities constitute less than 1 percent of small 
banks and credit unions. This fraction does not comprise a substantial 
number of small entities under the RFA. Because the number of directly 
affected small or potentially small banks and credit unions was so 
small, the Bureau did not evaluate whether the economic impact of the 
final rule on small banks and credit unions is significant.\912\
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    \910\ The Bureau obtained similar classifications using assets 
reported in later year Call Reports. The SBA considers small those 
banks and credit unions with less than $550 million in assets. U.S. 
Small Bus. Admin., Table of Small Business Size Standards Matched to 
North American Industry Classification System Codes (Feb. 2016), 
available at https://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf.
    \911\ Using asset sizes for 2013 and 2014 to assign a size 
classification yielded 17 small or potentially small banks and five 
small credit unions. Using asset sizes for 2015 yielded 16 small or 
potentially small banks and five small credit unions.
    \912\ As discussed below, the Bureau found that there was not a 
significant economic impact on a substantial number of small non-
bank entities, and the Bureau has no reason to believe that the 
impact would be meaningfully greater for banks and credit unions.
---------------------------------------------------------------------------

    Non-bank entities. As described above, directly affected non-bank 
entities are primarily prepaid program managers but also include 
issuers of P2P payment products and other non-Visa or non-MasterCard 
branded prepaid products. For this analysis, the Bureau considered 
directly affected non-bank entities to fall within NAICS code 522320 
(Financial transactions processing, reserve, and clearinghouse 
activities).\913\ The SBA considers small

[[Page 84310]]

those non-bank entities within NAICS code 522320 with average annual 
receipts less than $38.5 million.\914\ The Bureau used revenue 
estimates obtained by reviewing publicly available information as a 
proxy for receipts in evaluating the entity's size. The Bureau 
considered small those entities estimated to have less than $38.5 
million in annual revenues.\915\
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    \913\ According to the Census Bureau, NAICS code 522320 
corresponds to ``establishments primarily engaged in providing one 
or more of the following: (1) Financial transaction processing 
(except central bank); (2) reserve and liquidity services (except 
central bank); and/or (3) check or other financial instrument 
clearinghouse services (except central bank).'' One illustrative 
example given by the Census Bureau is ``electronic funds [sic] 
transfer services.'' U.S. Census Bureau, 2007 NAICS Definition, 
available at https://www.census.gov/cgi-bin/sssd/naics/naicsrch?code=522320&search=2007. FinCEN relied on NAICS code 522320 
in its Prepaid Access Rule. See 76 FR 45403, 45414 (July 29, 2011).
    \914\ U.S. Small Bus. Admin., Table of Small Business Size 
Standards Matched to North American Industry Classification System 
Codes (Feb. 2016), available at https://www.sba.gov/sites/default/files/files/_Standards_Table.pdf.
    \915\ When available, the Bureau used publicly available revenue 
estimates for 2012, which coincides with the most recent Economic 
Census. When revenue estimates from 2012 were not available, the 
Bureau used available information from recent years.
---------------------------------------------------------------------------

    The Bureau identified 127 non-bank entities that the final rule 
will directly affect. The Bureau could classify the size of 44 such 
entities, and approximately 30 percent of these entities (13 entities) 
were classified as small. It is likely, however, that many of the 
remaining 83 non-bank entities that the Bureau was unable to classify 
are small as well. Therefore, the Bureau classified these entities as 
potentially small. Applying these classifications, the number of 
directly affected small or potentially small non-bank entities is a 
modest percentage of all small entities within the relevant NAICS code 
(4 percent).\916\ This does not comprise a substantial number of small 
entities under the RFA. Nonetheless, the Bureau evaluated the impacts 
of the final rule's provisions on these entities to inform the 
rulemaking more fully.
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    \916\ In its Regulatory Flexibility Act analysis for its Prepaid 
Access Rulemaking, FinCEN relied on commercial database information 
(Dun and Bradstreet, D&B Duns Market Identifiers Plus (US)) and 
narrowed its count to those entities within NAICS code 522320 that 
perform either EFTs or electronic financial payment services. FinCEN 
estimated that 700 entities met this classification. Using the SBA 
threshold of $7 million in average annual receipts that was in 
effect at the time, FinCEN estimated that 93 percent (or 651) of 
these entities were small. See 76 FR 45403, 45414-15 (July 29, 
2011).
    Currently, the SBA considers entities within NAICS code 522320 
with less than $38.5 million in average annual receipts to be small. 
It follows that at least 651 entities meeting FinCEN's narrower 
classification would be considered small so long as the total number 
of entities meeting the narrower classification is unchanged. The 
Bureau concludes that under the narrower classification used by 
FinCEN, directly affected small or potentially small non-bank 
entities comprise, at most, 15 percent (96/651) of all small 
entities.
[GRAPHIC] [TIFF OMITTED] TR22NO16.000

C. Impacts of Provisions on Directly Affected Non-Bank Entities
    The following discussion summarizes the economic impacts arising 
from the major provisions of the final rule on directly affected small 
non-bank entities. Most of the final rule does not directly regulate 
these entities for RFA purposes if they are not financial

[[Page 84311]]

institutions.\917\ However, prepaid account issuers may work with small 
non-bank entities (generally program managers) to comply with the final 
rule. Aside from the credit-related provisions and the extension of 
Regulation E's limited liability and error resolution regime, other 
than provisional credit requirements, to all prepaid accounts,\918\ 
most provisions of the final rule will result in minimal burden for 
small non-bank entities. The Bureau discusses these impacts in detail 
below, using the current market as the baseline. In addition, the 
Bureau briefly discusses other provisions that potentially affect small 
non-bank entities.
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    \917\ With regard to the final rule's credit provisions, 
however, non-bank entities may be directly regulated if they are 
creditors or card issuers.
    \918\ The final rule only extends the Regulation E provisional 
credit requirements to prepaid accounts for which the financial 
institution has completed the customer identification and 
verification process. These protections are currently required for 
payroll card accounts and government benefit accounts. The exception 
for unverified accounts does not extend to payroll card accounts or 
government benefit accounts.
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1. Credit-Related Requirements
    The final rule's provisions relating to credit could cause those 
entities that currently offer overdraft services in connection with 
prepaid accounts to experience a significant economic impact in 
complying with the final rule's requirements. These impacts are 
discussed in more detail in the section 1022(b)(2)(A) consideration of 
benefits, costs, and impacts above. However, the Bureau's understanding 
is that two small or potentially small non-bank entities, at most, 
offer products that would be considered covered separate credit 
features accessible by a hybrid prepaid-credit card.\919\
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    \919\ In addition, those entities currently charging negative 
balance fees must restructure accounts to comply with the final 
rule's credit-related provisions if they wish to continue to charge 
these fees. As discussed above, the Bureau found in its Study of 
Prepaid Account Agreements that some prepaid programs may impose a 
fee if a prepaid account has a negative balance. Evaluated on a 
program level (and not an entity/provider level) and excluding those 
agreements for those programs designated as offering opt-in 
overdraft services, the Study found that roughly 7 percent of 
reviewed agreements noted such a fee in their terms and conditions. 
To avoid triggering coverage under the credit provisions of the 
final rule, the Bureau believes that most providers will choose not 
to impose negative balance fees.
    There is little evidence regarding how common such fees are in 
practice. One credit union league commenter stated that 91 percent 
of member credit union survey respondents stated that they do not 
charge a sustained negative balance fee, but they did not clarify if 
survey respondents were addressing negative balance fees assessed on 
prepaid accounts in particular. Even if 9 percent of credit unions 
offering prepaid accounts charge such fees, there is not a 
substantial number of credit unions directly affected by this 
provision. Another commenter stated that one-third of 38 employers 
surveyed used payroll card vendors with programs that included 
overdraft or negative balance fees. However, it is unclear how many 
distinct program managers this data included because the study 
reported statistics in terms of employer respondents and not in 
terms of the number of entities offering payroll card programs
---------------------------------------------------------------------------

2. Limited Liability and Error Resolution Requirements
    The final rule requires financial institutions offering prepaid 
accounts to comply with Regulation E's limited liability and error 
resolution regime, with some modification to the requirement to extend 
provisional credit. For accounts subject to Regulation E's limited 
liability and error resolution provisions, EFTA places the burden of 
proof on the financial institution to show that an alleged unauthorized 
transfer was authorized.\920\ Specifically, after receiving notice that 
a consumer believes that an EFT was unauthorized, the financial 
institution must promptly perform an investigation to determine whether 
an error occurred. EFTA and Regulation E further state that if the 
financial institution is unable to complete the investigation within 10 
business days, the institution may take up to 45 days to complete the 
investigation if it provisionally re-credits the consumer's account for 
the amount of the alleged error.\921\ If the financial institution 
ultimately can establish that the transfer in question was not an 
error, it can reverse the provisional credit.
---------------------------------------------------------------------------

    \920\ EFTA section 909(b).
    \921\ The timeline is somewhat different for certain types of 
transactions and for new accounts.
---------------------------------------------------------------------------

    Under EFTA and Regulation E,\922\ a consumer may be held liable for 
an unauthorized EFT resulting from the loss or theft of an access 
device only if the financial institution has provided certain required 
disclosures and other conditions are met. If the consumer provides 
notice to the financial institution within two business days of 
learning of the loss or theft, the consumer's liability is the lesser 
of $50 or the amount of any unauthorized transfers made before giving 
notice. If notice is not given within two business days, the consumer's 
liability is the lesser of $500 or the sum of (1) the lesser of $50 or 
the amount of unauthorized transfers occurring within two business days 
of learning of the loss or theft and (2) the amount of unauthorized 
transfers that occur after two business days but before notice is given 
to the financial institution.\923\ If a consumer's periodic statement 
shows an unauthorized transfer, the consumer must notify the financial 
institution within 60 calendar days after the periodic statement was 
sent or face unlimited liability for all unauthorized transfers made 
after the 60-day period.
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    \922\ EFTA section 909; Sec.  1005.6.
    \923\ Section 1005.6(b)(3) provides, in part, that a consumer 
must report an unauthorized transfer that appears on a periodic 
statement within 60 days of the financial institution's transmittal 
of the statement in order to avoid liability for subsequent 
transfers.
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    Current Regulation E applies to some prepaid products that are 
included in the final rule's definition of prepaid account--namely 
payroll card accounts and certain accounts used for distribution of 
government benefits.\924\ Further, many financial institutions 
currently provide prepaid products, which are considered prepaid 
accounts under the final rule, that offer limited liability and error 
resolution protections even though the financial institution is not 
directly required to do so by Regulation E at present. There are many 
factors influencing current business practices with respect to these 
protections. First, as discussed in greater detail above, the FMS Rule 
extends Regulation E's payroll card account protections to prepaid 
cards that receive Federal payments. Because it may be difficult to 
distinguish prepaid accounts that receive Federal payments from those 
that do not receive such payments, financial institutions may choose to 
extend these protections to all prepaid accounts. Second, as discussed 
in more detail below, the Bureau's market research suggests that many 
financial institutions choose to provide these protections to consumers 
by contract as part of their customer service offerings. Finally, 
payment card network associations' rules require that financial 
institutions limit consumers' liability for unauthorized charges and 
remedy certain errors related to transactions that occur over their 
networks and may require that financial institutions extend provisional 
credit within a shorter timeframe than required by EFTA and Regulation 
E for losses from unauthorized card use.\925\
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    \924\ Under current Regulation E, covered government benefit 
programs do not need to provide periodic statements or online access 
to account information so long as they provide balance information 
to benefits recipients via telephone and electronic terminals and at 
least 60 days of written account history upon request. Needs-tested 
EBT programs established or administered under State or local law 
are exempt from Regulation E. Sec.  1005.15(a).
    \925\ See, e.g., Visa Inc., Zero Liability, available at https://www.visa.com/chip/personal/security/zero-liability.jsp (last 
visited Oct. 1, 2016); MasterCard Inc., Zero Liability Protection, 
available at https://www.mastercard.us/zero-liability.html (last 
visited Oct. 1, 2016).

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[[Page 84312]]

    Limited liability protections. The Bureau's market research 
conducted in connection with the proposed rule, including its Study of 
Prepaid Account Agreements, strongly suggested that the vast majority 
of directly affected small or potentially small non-bank entities 
extend some form of limited liability protections to consumers. Table 2 
summarizes the Bureau's findings from its Study of Prepaid Account 
Agreements regarding industry practice with respect to limited 
liability. Of the 96 directly affected small or potentially small non-
bank entities identified by the Bureau, 15 entities only offered 
payroll card accounts, to the Bureau's knowledge, and therefore were 
required to provide Regulation E's limited liability protections to 
consumers. The Bureau was able to locate an agreement for at least one 
prepaid account program for all but 14 of the remaining 81 entities.
    In its Study of Prepaid Account Agreements, the Bureau examined the 
language in prepaid account agreements that addressed limitations on 
consumers' liability for unauthorized transfers to assess whether each 
program contractually provided the limited liability protections that 
Regulation E requires for covered accounts. For each entity with at 
least one available prepaid account agreement (and offering at least 
one non-payroll card program),\926\ the Bureau classified the entity's 
limited liability protections as belonging to one of three categories: 
(1) Liability limitations consistent with Regulation E's requirements 
or better for all reviewed agreements; (2) some liability limitations 
but less than what is required by Regulation E; and (3) no limited 
liability protections.\927\
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    \926\ The Bureau did not identify any directly affected small or 
potentially small non-bank entities that exclusively offered 
government benefit programs.
    \927\ The Bureau reviewed available prepaid account agreements, 
as described in its Study of Prepaid Account Agreements. In some 
instances, a small or potentially small non-bank entity offered 
multiple programs that appeared to provide different levels of 
limited liability protection. When a non-bank entity offered 
multiple programs with different levels of protection, the Bureau 
classified the entity according to the program providing the lowest 
level of protection for consumers. The Bureau classified error 
resolution policies similarly.
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    Table 2 reports the results of this review. The Bureau determined 
that approximately 75 percent (16 percent + 59 percent) of all small or 
potentially small non-bank entities likely to be directly affected by 
the final rule provided protections at least as comprehensive as those 
required by Regulation E. The Bureau found that 4 percent of small or 
potentially small non-bank entities provided some liability limitations 
(but less than what Regulation E requires for at least one program). 
Six percent of small or potentially small non-bank entities had at 
least one agreement that did not mention any liability 
limitations.\928\ The Bureau was unable to locate any account 
agreements for the remaining 15 percent of small or potentially small 
non-bank entities.
---------------------------------------------------------------------------

    \928\ One of these six entities also did not provide error 
resolution protections (see below).
---------------------------------------------------------------------------

    The final column of Table 2 reports the relative frequency of 
limited liability protections offered by directly affected small or 
potentially small non-bank entities with at least one available 
agreement (or which only offer payroll card accounts). Within this 
narrower group of entities, 88 percent (18 percent + 70 percent) 
provided liability limitations at least as comprehensive as Regulation 
E's requirements for all reviewed programs, and thus, will not need to 
change their practices to comply with the final rule. An additional 5 
percent provided some liability limitations for at least one of their 
programs and thus will incur only a portion of the total burden arising 
from the final rule's requirement to extend Regulation E's limited 
liability protections.\929\
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    \929\ The Bureau repeated this analysis restricting attention to 
just those 13 non-bank entities that it could classify as small. Of 
these entities, 12 provided liability limitations consistent with 
Regulation E (or only offered payroll card accounts). The one 
remaining entity did not have an available account agreement.

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[[Page 84313]]

[GRAPHIC] [TIFF OMITTED] TR22NO16.001

    Error resolution protections. The Bureau's market research 
performed in connection with the proposed rule, including its Study of 
Prepaid Account Agreements, strongly suggested that the majority of 
directly affected small or potentially small non-bank entities extended 
some form of error resolution protections to consumers. Table 3 
summarizes the Study's findings regarding industry practice with 
respect to error resolution and provisional credit for the 96 directly 
affected small or potentially small non-bank entities identified by the 
Bureau.
    In its Study of Prepaid Account Agreements, the Bureau examined 
relevant language in prepaid account agreements addressing error 
resolution to assess whether each program contractually provided the 
same error resolution protections that Regulation E requires for 
covered accounts. For each small or potentially small non-bank entity 
with at least one available prepaid account agreement, the Bureau 
classified the entity's error resolution protections as belonging to 
one of four categories: (1) Full error resolution, consistent with 
Regulation E, with provisional credit for all consumers when the error 
is not resolved within a defined period of time (for all reviewed 
agreements); (2) error resolution with limitations on provisional 
credit; (3) error resolution with no mention of provisional credit; and 
(4) no error resolution.
    Table 3 reports the results of that review. The Bureau determined 
that approximately 58 percent (16 percent + 42 percent) of all small or 
potentially small non-bank entities directly affected by the final rule 
provided full error resolution with provisional credit for all reviewed 
programs.\930\ Therefore, over half of small or potentially small non-
bank entities will not need to change their error resolution or 
provisional credit practices to comply with the final rule. Further, an 
additional 18 percent of entities provided error resolution protections 
but only offered provisional credit in limited circumstances. These 
non-bank entities will experience only a portion of the total increase 
in burden associated with the final rule's requirement that a financial 
institution extend provisional credit to all consumers whose prepaid 
accounts have been verified when an error is not resolved within a 
defined period. An additional 8 percent of entities offered error 
resolution to consumers but will potentially incur the entire increase 
in burden associated with extending provisional credit because they do 
not currently offer it. Only 2 percent of small or potentially small 
non-bank entities (two entities) provided no error resolution 
protections for at least one of

[[Page 84314]]

their prepaid programs and, therefore, will incur the entire burden 
associated with providing error resolution and provisional credit for 
at least one program.
---------------------------------------------------------------------------

    \930\ The percentages cited in this paragraph may not add up to 
100 percent due to rounding.
---------------------------------------------------------------------------

    The final column of Table 3 reports the relative frequency of the 
error resolution policies for those directly affected small or 
potentially small non-bank entities for which the Bureau could locate 
at least one program's agreement (or that only offer payroll card 
accounts). Within this group of directly affected entities, 67 percent 
(18 percent + 49 percent) provided full error resolution with 
provisional credit for all reviewed programs and thus will not need to 
change their policies. An additional 21 percent will incur only a 
portion of the total burden arising from the final rule's provisional 
credit requirements.\931\
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    \931\ The Bureau repeated this analysis restricting attention to 
the 13 non-bank entities that could be classified as small. The 
distribution of policies was as follows: 31 percent of entities 
complied with Regulation E because they only offered payroll card 
accounts; 46 percent provided full error resolution with provisional 
credit for all reviewed agreements (excluding payroll only 
providers); 8 percent provided error resolution with limitations on 
provisional credit for at least some reviewed agreements; 8 percent 
provided error resolution with no mention of provisional credit for 
at least some reviewed agreements; and 0 percent did not provide 
error resolution protections. Prepaid account agreements could not 
be located for 8 percent of the small non-bank entities.
[GRAPHIC] [TIFF OMITTED] TR22NO16.002

    Costs associated with limited liability and error resolution 
protections. Those few directly affected small or potentially small 
non-bank entities that do not provide limited liability or error 
resolution protections to consumers will incur costs associated with 
providing these protections. As described in the section 1022(b)(2)(A) 
discussion, these entities will incur one-time implementation costs 
associated with the establishment or modification of

[[Page 84315]]

policies and procedures to extend these protections (in addition to 
increased ongoing operational costs). This includes costs associated 
with developing the capacity to: (1) Give required error resolution 
notices to consumers; (2) receive oral or written error claims; (3) 
investigate error claims; (4) provide consumers with investigation 
results in writing; (5) respond to any consumer requests for copies of 
the documents that the institution relied upon in making its 
determination of whether the transaction was authorized; and (6) 
correct any errors discovered within the required timeframes. The 
establishment of these policies and procedures will constitute a one-
time cost for those few small or potentially small non-bank entities 
that do not offer limited liability or error resolution protections to 
consumers. Implementing these procedures and paying out claims and 
provisional credit will create ongoing costs.\932\
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    \932\ This discussion assumes that the burdens associated with 
the requirements to provide liability and error resolution 
protections are borne by a non-bank program manager. However, in 
practice, some banks or credit unions may perform these functions 
themselves, rather than rely on a non-bank program manager. Further, 
non-bank program managers tasked with the functions associated with 
resolving errors by issuing banks may in turn rely on industry 
partners, including processors. The Bureau's understanding from 
discussion with industry participants in developing the proposed 
rule is that processors may charge a fixed fee per dispute as well 
as a variable fee component that depends on the complexity of the 
dispute and investigation.
---------------------------------------------------------------------------

    Both those directly affected small or potentially small non-bank 
entities that offer limited liability and error resolution protections 
to consumers but do not provide provisional credit and those entities 
that provide liability protections or provisional credit in a more 
limited form than required by the final rule will incur costs arising 
from the final rule. The costs associated with paying out claims will 
increase for those directly affected entities offering less 
comprehensive liability protections than required by the final rule. 
Further, directly affected entities that do not offer provisional 
credit (or that offer it in a more limited form) will be unable to use 
funds extended as provisional credit during the investigation period 
for other uses and will therefore incur a small opportunity cost. 
Finally, an entity that extends provisional credit and subsequently 
determines that an alleged error was, in fact, an authorized transfer 
could incur additional costs if it is unable to reclaim provisional 
credit previously extended.
    The costs associated with providing these consumer protections may 
vary across covered entities for several reasons. For example, an 
entity's customer base may influence both the type of errors reported 
(and therefore the costs associated with investigations) as well as the 
likelihood of reclaiming provisional credit previously extended. The 
initial screening procedures used by a prepaid account provider to 
determine account eligibility, as well as ongoing monitoring of 
accounts, likely affect realized losses. Although small entities could 
be at a disadvantage with respect to fraud screening relative to larger 
entities that may have access to more information or more sophisticated 
screening technologies, small entities are sometimes able to rely on 
industry partners to screen for and to investigate potential 
fraud.\933\ Small entities may choose to limit fraud liability by 
closing accounts that have repeated error claims or by not offering 
accounts to individuals who previously engaged in potentially 
fraudulent activity.
---------------------------------------------------------------------------

    \933\ In pre-proposal outreach, one potentially small program 
manager told the Bureau that it receives information from its 
processor regarding whether a consumer had filed unsubstantiated 
disputes with other prepaid programs serviced by the processor.
---------------------------------------------------------------------------

    As discussed in the proposed rule, the Bureau conducted pre-
proposal industry outreach to attempt to determine the costs borne by 
prepaid account providers to implement Regulation E compliant error 
resolution, including provisional credit. Estimates of the ongoing 
costs associated with providing error resolution with provisional 
credit varied. During this outreach, one program manager, which 
provided limited liability and error resolution protections with 
provisional credit consistent with Regulation E to all consumers, 
stated that it reserved $0.35 per active cardholder per month for fraud 
losses (including both losses related to Regulation E error claims as 
well as other types of fraud). During pre-proposal outreach, another 
program manager, which also provided limited liability and error 
resolution with provisional credit consistent with Regulation E, stated 
that it incurred total fraud losses related to Regulation E that 
translated to roughly $0.22 per cardholder per month. One commenter to 
the proposed rule that processes prepaid transactions estimated that 
the prepaid industry generally experiences fraud losses of between four 
and five basis points when the cardholder's identity is known. The 
commenter estimated that providing limited liability and error 
resolution rights for transactions taking place before a prepaid 
account is registered would lead to an increase in fraud exposure of 
one additional basis point. However, the Bureau notes that the final 
rule does not require that financial institutions offer provisional 
credit to holders of unverified prepaid accounts.
    Those small or potentially small non-bank entities that provide 
limited liability and error resolution protections to consumers but 
give provisional credit only in limited circumstances (or not at all) 
will sustain increased ongoing operational costs. The Bureau did not 
receive comment explicitly addressing the incremental cost associated 
with extending provisional credit incurred by those entities that 
otherwise provide error resolution protections. However, estimates 
derived from available information suggest that the magnitude of the 
ongoing cost of providing these protections is roughly one-third of the 
total ongoing cost associated with fraud losses (including those 
specifically related to provisional credit).\934\ If the upper bound of 
overall fraud losses, including losses associated with providing 
provisional credit, is assumed to be $0.22 to $0.35 per active 
cardholder per month (based on the information above), it follows that 
the cost to extend provisional credit to all consumers is roughly $0.08 
to $0.12 per active cardholder per month. Because many financial 
institutions currently provide provisional credit (albeit in

[[Page 84316]]

limited circumstances), the impact of this provision is further 
mitigated.
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    \934\ During pre-proposal outreach, one program manager told the 
Bureau that when extended provisional credit to all accounts (having 
previously only provided provisional credit to those accounts 
receiving Federal payments), its losses from providing provisional 
credit increased by four to six times the previous level, and 
overall fraud losses increased 40 percent (including the increased 
losses arising from extending provisional credit). Assuming that 
there was no change in fraud losses not relating to provisional 
credit, this implies that provisional credit accounted for between 7 
and 10 percent of the initial level of fraud losses and just over a 
third of the final fraud losses. This is shown as follows. Let E = 
fraud losses not relating to provisional credit, P = fraud losses 
relating to provisional credit, and L = total fraud losses prior to 
the expansion of provisional credit coverage to all consumers. 
Therefore, L = P + E prior to the expansion of provisional credit 
coverage to all consumers. After the expansion of provisional credit 
coverage to all consumers (and assuming no change in E), it follows 
that (i.) 1.4L = 5P + E if losses increase by four times the 
previous level and (ii.) 1.4L = 7P + E if losses increase by six 
times the previous level. The percentage of initial fraud losses 
accounted for by provisional credit is represented by P/L. 
Rearranging (i.) gives P/L = 0.4/4 = 10 percent, and rearranging 
(ii.) gives P/L = 0.4/6 = 6.7 percent. In the scenario described by 
(i.), a four time increase, fraud losses not relating to provisional 
credit (E) account for 90 percent of the total fraud losses before 
the increase. In the scenario described by (ii.), a six time 
increase, (E) accounts for 93.3 percent of the total fraud losses 
before the increase. Assuming that E does not change, the percentage 
of final fraud losses accounted for by provisional credit once 
extended to all accounts in scenario (i.) is 5(.10)/[5(.10) + .90] = 
36 percent and 7(.067)/[7(.067) + .933] = 34 percent in scenario 
(ii.).
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3. Other Major Provisions Potentially Affecting Small Entities
    The final rule includes a number of additional requirements that 
are fully applicable to small entities. The final rule requires 
financial institutions to comply with the following provisions. For the 
reasons stated below, the cumulative burdens arising from these 
provisions, which are more extensively described in the section 
1022(b)(2)(A) discussion above, are expected to be minimal for small 
non-bank entities.
    Pre-acquisition disclosure requirements. The final rule requires 
that financial institutions disclose fees to consumers in a 
specifically described disclosure form (the ``short form''). The short 
form disclosure includes a ``static'' portion containing specified 
subset of fees, an ``additional fee types'' portion that states the 
total number of fee types that are charged for the prepaid account but 
which are not disclosed in the static portion of the form, the two fee 
types that generated the most revenue from consumers during the prior 
24-month period that are not disclosed in the static portion of the 
form, and certain other information.\935\ In addition to the short form 
disclosure, financial institutions are required to provide a disclosure 
that includes a full listing of fees and related conditions, together 
with certain other information, in accordance with certain formatting 
requirements (the ``long form'').
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    \935\ Additionally, a short form disclosure for a payroll card 
account or government benefit account must include either (1) a 
statement that consumers are not required to accept such an account 
that directs the consumer to ask about other ways to receive wages, 
salary, or benefits, or (2) a statement that the consumer has 
several options to receive wages, salary, or benefits, followed by a 
list of options available to the consumer, and a statement that 
directs the consumer to choose one.
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    Financial institutions will need to review and revise existing 
disclosures to ensure that they conform to the new requirements and 
will incur one-time implementation costs to do so. Because certain 
disclosure requirements depend on the channel through which the prepaid 
account is distributed, the magnitude of the burden associated these 
requirements will depend on how the prepaid account is 
distributed.\936\ For those prepaid accounts distributed in a retail 
location, the final rule requires that the product's packaging material 
include the short form disclosure and that the long form disclosure be 
accessible by telephone and online. Financial institutions distributing 
prepaid accounts online are required to provide the short form and long 
form disclosures online, and those financial institutions distributing 
prepaid accounts in person (other than in a retail location) are 
required to provide both forms in print. For transactions conducted by 
telephone, financial institutions are required to provide the short 
form disclosure information orally, to inform consumers of the 
existence of the long form disclosure and its availability by telephone 
and on a Web site, and to provide the information in the long form 
disclosure to the consumer upon request.
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    \936\ These channels include retail distribution, online 
distribution, and in-person distribution (other than in a retail 
location), among others. The impacts on financial institutions 
relying on each of these channels to distribute prepaid accounts are 
described in the section 1022(b)(2)(A) discussion.
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    From industry outreach conducted in connection with the proposed 
rule, the Bureau learned that small non-bank entities typically do not 
distribute prepaid accounts through the retail channel.\937\ To the 
extent that they distribute accounts through the retail channel, small 
non-bank entities generally rely on this channel for a limited 
proportion of their overall portfolio. Small non-bank entities 
distributing accounts through non-retail channels will incur a one-time 
cost to review and edit existing disclosures to ensure that they 
include all applicable fees and follow the specified formatting 
requirements. This may include acquiring the capability to determine 
which fees must be disclosed in the revenue-based fee portion of the 
short form disclosure if such information is not already readily 
accessible. Small non-bank entities will need to revise the disclosures 
they currently provide to comply with the final rule's requirements. 
This will require small non-bank entities distributing prepaid accounts 
online to update Web sites. Those small non-bank entities distributing 
prepaid accounts orally by telephone may need to update interactive 
voice response (IVR) systems, scripts, and training for live customer 
service agents.
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    \937\ This is, in part, due to the potentially high fixed costs 
associated with distributing prepaid accounts through this channel. 
If a small, non-bank entity performs program management functions to 
offer a white label solution in a retail environment, it could incur 
some implementation costs depending on the terms of the contract. 
The Bureau's understanding is that few such small, non-bank entities 
exist.
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    As described in the section 1022(b)(2)(A) discussion, the pre-
acquisition disclosure requirements also impose ongoing operational 
costs. To determine the composition of the short form disclosure, small 
non-bank entities will need to review revenue data on an annual 
biennial basis to ascertain which fees should be included in the 
revenue-based part of the short form disclosure. Absent a need to 
revise the short form disclosure, reviewing the information necessary 
to make these determinations should comprise minimal ongoing cost. If a 
revision to the disclosure is necessary, small non-bank entities will 
incur costs associated with these revisions. Small non-bank entities 
will incur costs, believed to be minimal, to update Web sites and phone 
systems to include the revised disclosures, if applicable. The Bureau 
believes that the costs associated with updates to written and 
electronic disclosures are minimal.
    Requirements pertaining to consumer access to account information. 
Other key provisions of the final rule potentially triggering burden 
include expansions to requirements to provide consumer access to 
account information (largely extending the current payroll card account 
periodic statement alternative to all prepaid accounts with certain 
modifications) and the establishment of certain additional disclosures 
related to consumer access to account information. Financial 
institutions offering prepaid accounts are required to comply with 
Regulation E's periodic statement requirement, but the final rule also 
provides an alternative means of compliance with this requirement. 
Specifically, financial institutions are not required to furnish 
periodic statements to consumers so long as they provide the following 
at no cost to the consumer: (1) Access to the prepaid account balance 
through a readily available telephone line; (2) access to at least 12 
months of account transaction history online; and (3) at least 24 
months of written account transaction history upon the consumer's 
request. Regardless of whether the financial institution chooses to 
provide periodic statements or implement the alternative, the financial 
institution must disclose to the consumer a summary total of the amount 
of all fees it assessed against the consumer's prepaid account, for 
both the prior calendar month as well as the calendar year to date.
    Although not all covered financial institutions are required to 
make transaction history available to consumers under current 
Regulation E, current industry practice is to provide consumers with 
electronic access to at least 60 days of transaction history. 
Regulation E requires financial institutions to provide payroll card 
accountholders with electronic access to at least 60 days of account 
history if they do not furnish periodic statements.

[[Page 84317]]

Additionally, the FMS Rule requires that consumers holding accounts 
that receive Federal payments have access to at least 60 days of 
account history. In addition, the Bureau understands from industry 
outreach conducted in connection with the proposed rule that some 
financial institutions make available online more than 60 days of 
transaction history, ranging from six months to the entire life of the 
prepaid account. The final rule requires that those financial 
institutions relying on the alternative means of complying with 
Regulation E's periodic statement requirement provide 12 months of 
electronic history as well as 24 months of written account history on 
request. Additionally, financial institutions offering prepaid accounts 
will need to modify existing transaction history reporting or periodic 
statements to include the required summary total of fees.
    The costs associated with implementing these provisions depend on 
the extent to which the financial institution relies on outside vendors 
to perform information technology functions. For those covered entities 
maintaining in-house information technology platforms, the cost 
associated with updating systems to maintain this information and 
providing additional electronic storage media should be limited. Those 
covered entities that format their own periodic statements or 
transaction histories, and do not currently display the required 
summary total of fees on their periodic statements or transaction 
histories, will incur a one-time implementation cost to modify these 
disclosures.\938\
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    \938\ During outreach conducted in connection with the proposed 
rule, one program manager estimated that it would cost approximately 
$15,000 to modify its Web site to provide the summary total of fees 
as well as a summary total of the total amount of deposits to the 
account and the total amount of all debits made to the prepaid 
account. Because the proposed rule's approach required additional 
modifications, this should be an upper bound on the estimated cost 
to this program manager of modifying its Web site to display only 
the summary total of fees required by the final rule.
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    Many small non-bank entities rely on processors to provide online 
hosting of consumer account histories. The Bureau's understanding from 
outreach conducted in connection with the proposed rule is that 
entities outsourcing this function pay processors a fee per prepaid 
account. This fee may depend on the extent of account history provided 
to consumers as well as the total number of accounts hosted by the 
processor.\939\ These entities generally rely on their processor to 
modify periodic statements or electronic transaction histories to 
display the required summary total of fees.\940\ However, one non-bank 
program manager predicted that its processor would offer such a 
modification as part of its standard package of services at no 
additional cost if such summary totals were a regulatory requirement.
---------------------------------------------------------------------------

    \939\ During outreach conducted in connection with the proposed 
rule, one non-bank program manager that relies on a processor for 
this function stated that its processor charged fees for data 
storage on a per-account basis at activation. Costs were generally 
increasing from $0.08 per account for three months of transaction 
history to $0.19 per account for one year of transaction history. 
This program manager also suggested that, because processor prices 
decrease with scale, it paid among the highest prices charged by the 
processor because it was operating at low scale.
    \940\ During outreach conducted in connection with the proposed 
rule, one non-bank program manager stated that its processor quoted 
a one-time cost of $65,000 associated with providing the summary 
totals required by the proposed rule on its processor-hosted Web 
site (in response to an ad-hoc request). In all probability, this 
represents an upper bound for the true development cost because this 
number likely includes a mark-up over the true cost of providing the 
service, and the final rule does not require all of the summary 
totals included in the proposed rule.
---------------------------------------------------------------------------

    As discussed in the section 1022(b)(2)(A) consideration of 
benefits, costs, and impacts, the Bureau's understanding from industry 
outreach is that most covered financial institutions provide consumers 
with telephone access to balance information. Therefore, the Bureau 
regards the potential burdens associated with these provisions to be de 
minimis and not likely, considered separately or cumulatively, to 
result in a significant economic impact.
    Submission and posting of account agreements. The final rule also 
requires prepaid account issuers to submit copies of their agreements 
to the Bureau on a rolling basis and to post the agreements that they 
offer to the general public on their publicly available Web sites. For 
any issuer that is not required by Sec.  1005.19(c) to post agreements 
on its own publicly available Web site, the final rule requires that 
the issuer provide access to individual account agreements to any 
consumer holding an open prepaid account. An issuer may fulfill this 
requirement by posting and maintaining the consumer's agreement on its 
Web site or by promptly providing a copy of the agreement in response 
to a consumer's request.\941\
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    \941\ If the issuer chooses to comply with this requirement by 
providing a copy of the agreement in response to a consumer request, 
the issuer must provide the consumer with the ability to request a 
copy of the agreement by calling a readily available telephone line. 
The issuer is required to send to the consumer or otherwise make the 
copy of the consumer's agreement available no later than five 
business days after the issuer receives the consumer's request.
---------------------------------------------------------------------------

    The Bureau believes that the costs associated with submitting new 
and updated agreements to the Bureau (and withdrawing old agreements) 
and responding to consumer requests will be minimal because, in most 
cases, entities will comply with the requirement through electronic 
submission of the agreement to the Bureau and by posting copies of 
their agreement on a preexisting publicly available Web site. For those 
entities that choose not to post agreements online, the cost associated 
with responding to ad hoc consumer requests for copies of account 
agreements would include the one-time cost of training customer service 
agents and ongoing costs for postage.

D. Conclusion

    To determine whether the economic impact of the final rule will be 
significant, the Bureau compared estimates of the cumulative costs 
imposed by the provisions on directly affected small or potentially 
small non-bank entities to estimates of revenues earned by these 
entities.\942\ To determine whether the final rule is likely to have a 
significant economic impact on directly affected small non-bank 
entities, the Bureau compares an estimate of revenues earned by the 
entities to an estimate of the aggregate potential costs incurred by 
these entities to comply with the final rule's provisions.\943\
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    \942\ The Bureau did not separately consider the costs borne by 
small banks and credit unions because the final rule will not 
directly affect a substantial number of such entities, as shown 
above. However, it is worth noting that issuers (typically banks and 
credit unions) and program managers (frequently non-banks) jointly 
earn revenues and bear costs. The current policies of small non-bank 
entities are considered in determining if the economic impact of the 
final rule will be significant.
    \943\ The revenue split between the issuer and the program 
manager varies across prepaid programs that rely on distinct firms 
to perform these functions. In this analysis, the Bureau does not 
take a position as to whether the prepaid account issuer or the 
program manager assumes the burdens imposed by the final rule's 
provisions. However, it is worth noting, for purposes of considering 
the economic impact of the final rule's requirements with respect to 
error resolution and limited liability, that a program manager that 
assumes fraud risk likely has the ability to determine the fees 
charged to consumers, to control screening procedures, or to take 
other actions to mitigate fraud losses.
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    Revenues. Because both revenue information and metrics describing 
the number of active prepaid accounts were not generally available (at 
the entity level) for directly affected small or potentially small non-
bank entities, the Bureau relied on findings from industry studies 
(which may cover programs offered by entities that are not small or 
potentially small) to derive an estimate

[[Page 84318]]

of the likely fee and interchange revenue earned per cardholder per 
month for certain types of prepaid accounts.\944\ Although entities 
offering prepaid accounts may derive revenue from many sources, 
including other lines of business, the Bureau conservatively assumed 
that small entities only derive revenues from fees paid by cardholders 
and interchange fees. The Bureau obtained revenue estimates $9.98 per 
active cardholder per month for GPR accounts distributed online and 
$6.77 per active cardholder per month for payroll card accounts.\945\
---------------------------------------------------------------------------

    \944\ See 2012 FRB Philadelphia Study; see also 2012 FRB Kansas 
City Study. One credit union commenter estimated that average annual 
prepaid profits were $5,000 per small financial institution, but it 
did not provide revenue information nor did it clarify whether these 
were profits earned by financial institutions that offer prepaid 
cards through a vendor. Another commenter suggested that the data 
relied upon by the Bureau was old and that prices in the industry 
have decreased, but the commenter did not provide an alternative 
preferred source of data nor did the commenter argue that revenues 
per cardholder have decreased.
    \945\ Using this approach, the Bureau obtained a revenue 
estimate of $9.14 per active cardholder per month for GPR accounts 
distributed in a retail setting, but the Bureau notes that its 
understanding from pre-proposal industry outreach is that small non-
bank entities typically do not distribute prepaid accounts in a 
retail setting. The Bureau obtained revenue estimates by combining 
information from tables 5.7 and 5.8 from the 2012 FRB Philadelphia 
Study. For example, the Bureau estimated revenues earned from GPR 
accounts distributed online in the following manner. First, using 
information in table 5.7, the difference between the interchange 
received and the interchange paid ($23.35-$6.41 = $16.94) determined 
the net interchange. Next, the ratio of total revenues (assuming 
that these are composed of only cardholder fees and net interchange 
earned) to cardholder fees was obtained (($76.00 + $16.94)/$76.00 = 
1.223). This inflator was applied to cardholder fees reported in 
table 5.8 (1.223*$8.16 = $9.98).
---------------------------------------------------------------------------

    Costs. The Bureau does not derive a cost per active cardholder per 
month incurred by small non-bank entities arising from the rule's 
provisions relating to credit. One credit union service organization 
commenter estimated that it would take most small financial 
institutions $95,000 to comply with the credit-related provisions of 
the final rule. However, the Bureau assumes that final rule's 
provisions regarding credit will constitute a significant economic 
impact on those small non-bank entities that currently offer overdraft 
services in connection with their prepaid products.
    As described above, the Bureau estimates that those entities that 
do not offer any form of limited liability or error resolution 
protections to consumers will sustain an increase in ongoing costs of 
$0.22 to $0.35 per active cardholder per month. In addition, these 
entities will incur costs associated with implementing Regulation E 
compliant limited liability and error resolution protections.
    The Bureau estimates that those entities that currently provide 
limited liability and error resolution protections without provisional 
credit will experience an increase in ongoing costs of roughly $0.08 to 
$0.12 per active cardholder per month (or up to one-third of the 
ongoing costs incurred by those entities that do not provide any form 
of limited liability or error resolution protections). In addition, 
these entities will incur costs associated with implementing the 
administration of provisional credit. The one-time implementation costs 
for these activities should be minimal for those entities already 
otherwise providing error resolution.
    The Bureau does not have information that would enable it to 
isolate the ongoing cost associated with extending Regulation E's 
limited liability protections from the ongoing cost of providing error 
resolution generally. However, to the extent that ongoing fraud loss 
estimates provided to the Bureau during pre-proposal outreach include 
the cost associated with providing liability limitations, these costs 
may be, at most, $0.23 per cardholder per month.\946\ Given this 
uncertainty, the Bureau conservatively assumes that the absence of 
either limited liability protections or error resolution protections 
could cause an entity to experience a significant economic impact.
---------------------------------------------------------------------------

    \946\ If the ongoing cost of providing limited liability, error 
resolution, and provisional credit protections is $0.35 per active 
cardholder per month, and provisional credit represents $0.12 of 
that total, then the ongoing cost associated with providing limited 
liability protections could be, at most, $0.23 per active cardholder 
per month.
---------------------------------------------------------------------------

    With respect to other costs, those small or potentially small 
entities offering prepaid accounts typically do not provide these 
accounts through the retail channel. Therefore, the costs associated 
with the pre-acquisition disclosure requirements, expressed on a per 
active cardholder per month basis, are minimal.\947\ As discussed 
above, the ongoing operational and one-time implementation costs 
associated with the final rule's requirements regarding access to 
account information will vary depending on whether the entity performs 
these functions in-house or relies on an external processor. Some 
entities will incur costs associated with making available additional 
transaction history. From the Study of Prepaid Account Agreements, the 
industry standard appears to be to provide at least 60 days of 
transaction history information online. Pre-proposal outreach suggested 
that those entities that rely on a processor may expect an upper bound 
cost of $0.01 per active cardholder per month to make additional 
transaction history information available.\948\ In addition, the Bureau 
estimates the upper bound of the cost associated with modifying 
transaction histories or statements to include the required fee totals 
to be less than $0.01 per active cardholder per month for those 
performing the software modification in-house and $0.02 per active 
cardholder per month for those relying on a processor to perform the 
modification.\949\ The cost associated with submitting agreements to 
the Bureau and with responding to consumer requests for agreements is 
minimal, as described above in the

[[Page 84319]]

section 1022(b)(2)(A) consideration of benefits, costs, and impacts.
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    \947\ For those entities distributing prepaid accounts via the 
telephone, the costs associated with the pre-acquisition disclosure 
requirements, which are considered more extensively in the section 
1022(b)(2)(A) discussion, are estimated to be $0.03 per active 
cardholder per month (assuming that 5 percent of consumers acquiring 
an account via the telephone request that the long form be read to 
them and an average card life of 11 months). According to the 2012 
FRB Kansas City Study, the mean lifespan for prepaid cards included 
in its analysis was 347 days. 2012 FRB Kansas City Study at 47 
tbl.4.1.
    The costs associated with providing the pre-acquisition 
disclosure for accounts distributed online are minimal because they 
consist largely of a Web site update. According to one survey, 
online distribution is nine times as common as phone distribution. 
2014 Pew Survey at 5. Therefore, accounting for the relative 
frequency of the distribution channel, the costs associated with the 
pre-acquisition disclosure requirements, expressed on an active 
cardholder per month basis, are de minimis.
    \948\ One program manager operating at small scale reported that 
its costs were $0.08 per account for three months of transaction 
history and $0.19 per account for one year of transaction history. 
The processor charged these costs at activation (one time). Given an 
average GPR card account life of 11 months, this translates to an 
increase in costs of $0.01 per active cardholder per month.
    \949\ To derive these estimates, the Bureau assumes that a small 
non-bank program manager earns $3 million in annual revenues. This 
was the median revenue estimate identified by the Bureau for those 
small non-bank program managers for which a revenue estimate was 
located in publicly available information. Using the estimate of 
$9.98 in revenues per active cardholder per month cited above for 
GPR card revenues, this translates to roughly 300,601($3,000,000/
$9.98) active cardholder-months on an annual basis. The Bureau 
assumes that these fixed implementation costs are spread out over a 
five year period (or over 1,503,005 active cardholder-months). 
Therefore, the upper bound of the cost associated with modifying 
transaction histories or statements to include the required fee 
totals is estimated to be $0.01 per active cardholder per month, 
using the cost estimate of $15,000 quoted above, ($15,000/1,503,005) 
for those entities performing the software modification in-house and 
$0.02 per active cardholder per month, taking the average of the two 
cost estimates ($65,000 and $0) quoted above, (($65,000 + $0)/
(2*1,503,005)) for those entities relying on a processor to perform 
the modification.
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    Further, the Bureau believes that non-compliance related economic 
costs, such as potential future changes in market share arising from 
the new disclosure requirements, are minimal for all provisions except 
for those concerning covered separate credit features accessible by a 
hybrid prepaid-credit card. Such non-compliance related economic costs, 
including potential costs relating to disclosure, are difficult to 
predict, and the Bureau does not have reason to believe that they would 
cause small entities to experience a significant economic impact. In 
the aggregate, the costs not related to credit, error resolution, and 
limited liability are estimated to comprise at most $0.06 per active 
cardholder per month.
    Entities experiencing a significant economic impact. Considering 
the revenue estimates described above, the Bureau concludes that those 
few small or potentially small non-bank entities that provide prepaid 
accounts that lack either limited liability or error resolution 
protections will likely experience a significant economic impact.\950\ 
In addition, the Bureau assumes that those entities currently offering 
overdraft services in connection with prepaid accounts may experience a 
significant economic impact from the final rule's provisions.
---------------------------------------------------------------------------

    \950\ It is worth noting that this approach does not take into 
account the likely cost and revenue structure of P2P payment 
programs that may offer prepaid accounts to consumers. However, the 
Bureau identified only four small or potentially small non-bank 
entities offering P2P payment programs. One of these entities does 
not provide error resolution protections for consumers so the Bureau 
assumes that it will incur a significant economic impact. Therefore, 
this information omission, at most, could result in failing to 
attribute a significant economic impact to three small or 
potentially small non-bank entities.
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    In sum, the Bureau believes that there are approximately 14 
directly affected small or potentially small non-bank entities are 
likely to experience a significant economic impact from the final 
rule's provisions. In arriving at this conclusion, the Bureau used the 
observed distribution of error resolution and limited liability 
protections to impute likely levels of protection for those entities 
for which no account agreement is available.\951\ The Bureau assumes 
that the two directly affected small or potentially small non-bank 
entities that offer covered separate credit features accessible by a 
hybrid prepaid-credit card will experience a significant economic 
impact from the final rule's provisions. In addition, the Bureau 
conservatively assumes that all 12 entities that currently provide 
liability limitations less than provided by Regulation E will incur a 
significant economic impact.\952\ Two of these entities also do not 
provide error resolution protections.
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    \951\ The Bureau excludes payroll only providers from the 
observed distribution when imputing the likely protections for those 
14 small or potentially small non-bank entities for which the Bureau 
could not locate account agreements. With respect to limited 
liability, 12 entities are imputed to provide liability limitations 
consistent with Regulation E, one entity is imputed to provide 
liability limitations that are less comprehensive than what 
Regulation E provides, and one entity is imputed to not provide 
liability limitations. With respect to error resolution, eight 
entities are imputed to provide error resolution consistently with 
Regulation E (including provisional credit), four entities are 
imputed to provide error resolution consistently with Regulation E 
but with limitations on provisional credit, and two entities are 
imputed to provide error resolution consistently with Regulation E 
but no provisional credit.
    \952\ These 12 entities include six entities that do not provide 
liability limitations, four entities that provide liability 
limitations that are not as comprehensive as required by Regulation 
E, one entity imputed to not provide liability limitations, and one 
entity imputed to provide liability limitations that are not as 
comprehensive as those required by Regulation E.
---------------------------------------------------------------------------

    These 14 entities comprise less than 1 percent of the 2,325 small 
non-bank entities in the relevant NAICS code. The Bureau also believes 
that roughly 2 percent of all small non-bank entities in the relevant 
NAICS code that perform either EFTs or electronic payment services will 
experience a significant economic impact.\953\
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    \953\ To derive this estimate, the Bureau assumes that 700 
entities are within the NAICS code 522320 and perform either EFTs or 
electronic payment services. This is consistent with the number 
relied upon in FinCEN's Prepaid Access Rule. See 76 FR 45403 (July 
29, 2011). Using a threshold of $7 million in annual receipts (the 
SBA threshold at the time), FinCEN estimated that 93 percent, or 
651, of these entities were small. At present, the SBA considers 
entities within NAICS code 522320 with under $38.5 million in annual 
receipts to be small. Therefore, the Bureau further assumes that at 
least 651 of these entities are small. The Bureau conservatively 
uses a denominator of 651 to obtain this estimate.
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E. Certification

    Accordingly, the undersigned certifies that the final rule will not 
have a significant economic impact on a substantial number of small 
entities.

IX. Paperwork Reduction Act

    Under the Paperwork Reduction Act of 1995 (PRA),\954\ Federal 
agencies are generally required to seek approval from the Office of 
Management and Budget (OMB) for information collection requirements 
prior to implementation. Further, the Bureau may not conduct or sponsor 
a collection of information unless OMB approves the collection under 
the PRA and displays a currently valid OMB control number. 
Notwithstanding any other provision of law, no person is required to 
comply with, or is subject to penalty for failure to comply with, a 
collection of information if the collection instrument does not display 
a currently valid OMB control number.
---------------------------------------------------------------------------

    \954\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

    On December 23, 2014, notice of the proposed rule was published in 
the Federal Register. The Bureau invited comment on the burden 
estimates and any other aspect of the proposed collections of 
information, including suggestions for reducing the burden. The comment 
period for the proposal expired on March 23, 2015.
    The Bureau received one comment specifically addressing the PRA 
notice. A commenter from a university research center summarized the 
quantitative information presented in the PRA notice and asked why the 
analysis of regulatory costs did not include an estimate of how the 
proposal would affect prepaid account users and sellers beyond initial 
regulatory compliance. The Bureau considered the benefits and costs to 
consumers of the proposed rule, as well as the impact on access to 
credit, in the discussion pursuant to Dodd-Frank Act section 1022(b). 
Regarding PRA burden specifically, however, there is no impact on 
consumers from this rulemaking since only business entities are 
respondents with respect to the information collections that are 
materially affected. Regarding program managers and issuers, the Bureau 
used current market information about costs and other data as well as 
data on the numbers of users to estimate both the one-time and the 
ongoing PRA burden of the information collections in the rule. Ongoing 
PRA burden accounts for burden from the information collections beyond 
initial regulatory compliance.
    The final rule amends 12 CFR part 1005, Electronic Fund Transfers 
(Regulation E) and 12 CFR part 1026, Truth in Lending (Regulation Z). 
Regulation E and Regulation Z currently contain collections of 
information approved by OMB. The Bureau's OMB control number for 
Regulation E is 3170-0014 (Electronic Fund Transfer Act (Regulation E) 
12 CFR part 1005). The Bureau's OMB control number for Regulation Z is 
3170-0015 (Truth in Lending Act (Regulation Z) 12 CFR part 1026). As 
described below, the final rule amends the collections of information 
currently in Regulation E and Regulation Z subparts B and G. The 
frequency of response is on occasion. These information collections are 
required to provide benefits for consumers and are mandatory. The only 
information the Bureau collects under the final rule are the account 
agreements

[[Page 84320]]

for prepaid account programs, so no issue of confidentiality arises. 
The affected public includes businesses, government agencies and other 
for-profit and not-for-profit organizations. The Bureau is not aware of 
any small not-for-profit organizations, aside from credit unions, that 
are directly affected by the final rule.
    The Bureau generally accounts for the paperwork burden associated 
with Regulation E and Regulation Z for the following respondents 
pursuant to its administrative enforcement authority: insured 
depository financial institutions and insured credit unions with more 
than $10 billion in total assets, their depository institution 
affiliates (together, the Bureau depository respondents), and certain 
non-depository financial institutions (the Bureau non-depository 
respondents), such as prepaid account program managers. The Bureau and 
the FTC generally both have enforcement authority over non-depository 
financial institutions under Regulation E and Regulation Z. 
Accordingly, the Bureau has allocated to itself half of the estimated 
burden on Bureau non-depository respondents. Other Federal agencies, 
including the FTC, are responsible for estimating and reporting to OMB 
the total paperwork burden for the financial institutions for which 
they have administrative enforcement authority. They may, but are not 
required to, use the Bureau's burden estimation methodology.
    For Regulation E, using the Bureau's burden estimation methodology 
discussed below, the estimated burden for the approximately 181 prepaid 
account providers likely subject to the final rule, including Bureau 
respondents, is one-time burden of 155,347 hours and ongoing burden of 
14,304 hours. The Bureau allocates to itself 76,343 hours of one-time 
burden: Bureau depository respondents account for 15,504 hours while 
Bureau non-depository respondents account for 121,678 hours, half of 
which the Bureau allocates to itself and half to the FTC. The remaining 
one-time burden (155,347-15,504-121,678 = 18,165 hours) is allocated to 
the other Federal agencies that have administrative enforcement 
authority over banks and credit unions not subject to the Bureau's 
administrative enforcement authority. Similarly, the Bureau allocates 
to itself 7,207 hours of ongoing burden: Bureau depository respondents 
account for 1,410 hours while Bureau non-depository respondents account 
for 11,595 hours, half of which the Bureau allocates to itself and half 
to the FTC. The remaining ongoing burden (14,304-1,410-11,595 = 1,299 
hours) is allocated to the other Federal agencies that have 
administrative enforcement authority over banks and credit unions not 
subject to the Bureau's administrative enforcement authority.
    For Regulation Z, using the Bureau's burden estimation methodology 
discussed below, the estimated burden for three non-depository 
institutions subject to the final rule would be one-time burden of 460 
hours and ongoing burden of 6,491 hours. The Bureau allocates to itself 
half of both these burden estimates (230 hours and 3,245 hours, 
respectively) and half to the FTC.
    The aggregate estimates of total burdens presented in this part are 
based on estimated burden hours that are averages across respondents. 
The Bureau expects that the amount of time required to implement each 
of the changes for a given institution may vary based on the size, 
complexity, and practices of the respondent. The Bureau used existing 
burden estimates, information obtained through industry research and 
outreach, and information provided in comments on the proposed rule to 
develop the figures presented below.
    Most prepaid account programs already comply with the current 
requirements of Regulation E, as they apply to payroll card accounts. 
The additional requirements in the final rule would, with a few 
exceptions, require small extensions or revisions to existing practices 
after the initial costs. There are several participants in the prepaid 
account supply chain and the activities of the participants may vary 
across prepaid account programs. The Bureau understands that, in 
general, the respondents for purposes of PRA are program managers, 
except for the collection required by Sec.  1005.19 (internet posting 
of prepaid account agreements and submission to the Bureau), where the 
respondents will likely be prepaid account issuers.\955\
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    \955\ An issuer may also be a program manager and issuers can 
delegate to program managers the submission of prepaid account 
agreements to the Bureau. These practices would not affect any of 
the Bureau's estimates of total burden but may affect how the burden 
is divided among depository institutions and non-depository 
institutions.
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    Regarding the new requirements in Regulation E, the Bureau's PRA 
burden estimation methodology assumes that one-time burden from the 
short form and long form disclosure requirements and the access to 
account information requirement depends on the number of fee schedules. 
The number of responses-per-respondent for these information 
collections is the number of fee schedules per program manager. The 
one-time burden from the error resolution requirements arises from the 
relatively few programs that do not already meet the requirements. The 
number of responses-per-respondent for this information collection is 
the number of non-compliant programs per program manager. We assume 
that the one-time burden from the rolling submission of account 
agreements, which includes fee schedules, depends primarily on the fee 
schedule, and therefore the number of responses-per-respondent for this 
information collection is the number of fee schedules per issuer. 
Ongoing burden may increase with the above factors as well as with the 
number of customers.

A. Regulation E

    As discussed further below, the final rule requires financial 
institutions to make available to consumers disclosures before a 
consumer acquires a prepaid account. These disclosures take two forms: 
A short form disclosure highlighting key fees and information that the 
Bureau believes are most important for consumers to know about prior to 
acquisition and a long form disclosure that sets forth all of the 
prepaid account's fees and the conditions under which those fees could 
be imposed as well as certain other information. Second, the final rule 
extends, with certain modifications, existing error resolution and 
limited liability provisions for payroll card accounts and certain 
government benefit accounts to all prepaid accounts.\956\ Third, the 
final rule adopts provisions requiring prepaid account issuers to 
submit agreements to the Bureau for posting on a publicly-available Web 
site established and maintained by the Bureau and to post prepaid 
account agreements offered to the public on the issuers' own Web sites. 
Finally, the final rule, as applicable, revises and clarifies subparts 
A and B of Regulation E in various places to reflect the new provisions 
adopted for prepaid accounts. These revisions and clarifications 
include, among other

[[Page 84321]]

things, revisions to provisions currently applicable to payroll card 
accounts and certain government benefit accounts.
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    \956\ All prepaid cards used to distribute Federally-
administered benefits (such as Social Security and SSI) and State 
and local non-needs tested benefits (such as unemployment, child 
support, and pension payments) are currently covered by Regulation 
E. However, government agencies are currently not required to 
provide periodic statements or online access to account information 
for cards distributing State and local non-needs tested benefits, as 
long as balance information is made available to benefits recipients 
via telephone and electronic terminals and a written account history 
of at least 60 days is given upon request. Needs-tested EBT programs 
established or administered under State or local law are not 
currently subject to Regulation E pursuant to existing Sec.  
1005.15(a). The final rule does not change this.
---------------------------------------------------------------------------

    The Bureau's Study of Prepaid Account Agreements and review of 
industry research found that most programs of GPR prepaid accounts and 
government benefit accounts currently comply with the major provisions 
of the payroll card requirements of Regulation E. Thus, on an ongoing 
basis, these accounts will be affected mostly by the modifications 
adopted in the final rule to the current provisions for payroll card 
accounts and which will now also hold for GPR prepaid accounts and 
government benefits accounts.
    Providers of prepaid accounts generally provide account opening 
disclosures, change-in-terms notices, and annual error resolution 
notices that meet the current requirements of Regulation E. Final Sec.  
1005.18(f)(1) expands the account opening requirements of Sec.  
1005.7(b)(5) as applied to prepaid accounts to require the disclosure 
of all fees, not just fees for EFTs. However, the Bureau understands 
that most fees are currently generally disclosed at account opening. 
Thus, the one-time and ongoing burden from this requirement should be 
minimal.
    Providers offering certain EFT services for prepaid accounts would 
also need to provide transaction disclosures. For example, a disclosure 
would be required for transactions conducted at an ATM. The Bureau 
believes that most or all providers currently give these disclosures. 
In the alternative, however, these disclosures impose minimal burden as 
they are machine-generated and do not involve an employee of the 
institution. For preauthorized transfers to the consumer's account 
occurring at least once every 60 days, such as direct deposit, the 
institution would be required to provide notice as to whether the 
transfer occurred unless positive notice was provided by the payor. In 
lieu of sending a notice of deposit, the institution may provide a 
readily available telephone number that the consumer can call to verify 
receipt of the deposit. Thus, the burden of this requirement is also 
minimal. For preauthorized transfers from the account, either the 
institution or the payee would need to notify the consumer of payment 
variations. Because in the vast majority of instances the payee, rather 
than the account provider, would satisfy this obligation, the burden on 
providers is minimal.
    Under final Sec.  1005.18(b)(2) and (4), a financial institution is 
required to make available a short form and a long form disclosure 
before the consumer acquires the prepaid account, subject to certain 
exceptions provided in Sec.  1005.18(b)(1). The Bureau estimates that 
providers, including Bureau respondents, will take 40 hours per prepaid 
account fee schedule, on average, to develop the short form disclosure 
and to update systems. Providers will take eight hours every 24 months 
for each prepaid account fee schedule to evaluate, and if necessary, 
update the information on the short form disclosure regarding 
additional fee types. Providers will incur no other ongoing costs for 
the short form disclosure since they already offer consumers a pre-
acquisition disclosure. The Bureau estimates that providers, including 
Bureau respondents, will take on average 8 hours per prepaid account 
fee schedule to develop the long form disclosure and update systems. 
Most of the content of the long form disclosure is already provided in 
prepaid account agreements.\957\
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    \957\ Final Sec.  1005.18(b)(4)(vii) requires that the long form 
disclosure include the disclosures described in Sec.  1026.60(e)(1) 
or (2)(ii) if at any point a covered separate credit feature 
accessible by a hybrid prepaid-card (as defined in Sec.  1026.61) 
may be offered in connection with the prepaid account. This burden 
is minimal given the Bureau's burden estimation methodology for 
Regulation Z, as explained below. Final Sec.  1005.18(b)(9) provides 
that if a financial institution principally uses a foreign language 
in certain circumstances then it must provide both the short and 
long form in that same foreign language. The Bureau believes that 
current industry practice regarding pre-acquisition disclosures in 
foreign languages is generally consistent with this requirement. The 
long form disclosure also needs to be provided in English upon 
request, but this is a minimal one-time and ongoing expense.
---------------------------------------------------------------------------

    Final Sec.  1005.18(f)(3) requires that certain disclosures be made 
on the actual prepaid account access device. These include the name of 
the financial institution and the URL of a Web site and a telephone 
number that the consumer can use to contact the financial institution 
about the prepaid account. The Bureau believes that currently all 
prepaid account access devices provide these disclosures.
    Final Sec.  1005.18(c)(1) requires financial institutions to 
furnish periodic statements unless the provider uses the alternative 
method of compliance, which requires the financial institution to make 
available to the consumer the following information: The consumer's 
account balance, through a readily available telephone line, at least 
12 months of transaction history electronically, and written 
transaction history in response to an oral or written request that 
covers the 24 months preceding the date the financial institution 
receives the request. The Bureau expects that most providers will use 
the alternative method of compliance. The Study of Prepaid Account 
Agreements found that most prepaid account programs provided electronic 
access to account information; and while few agreements stated that the 
program provided at least 12 months of prepaid account transaction 
history, many programs provided access to account information for much 
longer time frames than what was listed in the account agreements. In 
addition, several commenters stated that they provided 12 months of 
electronic transaction history. Regarding the requirement to provide a 
transaction history in writing pursuant to Sec.  1005.18(c)(1)(iii), 
few consumers ever request a written transaction history.
    Regardless of how a financial institution chooses to comply, final 
Sec.  1005.18(c)(5) requires that the financial institution disclose to 
the consumer a summary total of the amount of all fees assessed against 
the consumer's prepaid account for both the prior month as well as the 
calendar year to date. This information must be disclosed on any 
periodic statement and any electronic or written history of account 
transactions provided.\958\ Prepaid account programs generally do not 
currently provide these summary totals. The Bureau estimates that 
providers will take on average 24 hours per prepaid account fee 
schedule to implement these changes.
---------------------------------------------------------------------------

    \958\ For periodic statements, the monthly summary may be for 
the statement period or for the prior calendar month; for other 
transaction histories, it must be for the prior calendar month.
---------------------------------------------------------------------------

    The final rule extends to all prepaid accounts the limited 
liability and error resolution provisions of Regulation E, as they 
currently apply to payroll card accounts.\959\ See Sec.  1005.18(e)(1) 
and (2). As discussed above, the Study of Prepaid Account Agreements 
and its industry research found that most providers of prepaid accounts 
provide limited liability and error resolution protections (including 
provisional credit) generally consistent with the Regulation E 
requirements for payroll card accounts. The Bureau estimates that 
providers (including Bureau respondents) that do not fully comply with 
the payroll card rule's limited liability and error resolution 
provisions will require 8 hours per non-compliant program to develop 
fully compliant

[[Page 84322]]

limited liability and error resolution procedures. Regarding ongoing 
costs, Bureau outreach indicates that providers receive perhaps one 
call per month per customer who actively uses a card and that 95 
percent of those calls are resolved without requiring time from a 
customer service agent. Of the remaining 5 percent, very few calls 
involve assertions of error, but escalated calls are time consuming and 
respondents incur an ongoing burden.
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    \959\ The Bureau is finalizing an exception from the requirement 
to provide provisional credit for prepaid accounts (other than 
payroll card accounts and government benefit accounts) for which the 
financial institution has not completed its consumer identification 
and verification process with respect to that prepaid account. Sec.  
1005.18(e)(3).
---------------------------------------------------------------------------

    If a financial institution changes a prepaid account's terms and 
conditions as a result of Sec.  1005.18(h)(1) taking effect such that a 
change-in-terms notice would have been required under Sec.  1005.8(a) 
or Sec.  1005.18(f)(2) for existing customers, a financial institution 
must notify consumers with accounts acquired before October 1, 2017 at 
least 21 days in advance of the change becoming effective, provided the 
financial institution has the consumer's contact information. If the 
financial institution obtains the consumer's contact information fewer 
than 30 days in advance of the change becoming effective, the financial 
institution is permitted instead to provide notice of the change within 
30 days of obtaining the consumer's contact information.
    If a financial institution has received E-Sign consent from the 
consumer, then the financial institution may notify the consumer 
electronically. Otherwise, if a financial institution is mailing or 
delivering written communications to the consumer within the applicable 
time period, then that financial institution must send a notice in 
physical form. If the financial institution will not be mailing or 
delivering communications to the consumer within the applicable time 
period, then the financial institution will be able to notify the 
consumer in electronic form without regard to the consumer notice and 
consent requirements of section 101(c) of the E-Sign Act.
    Financial institutions with prepaid accounts that offer overdraft 
credit features are likely to trigger this requirement. For any 
consumer who has not consented to electronic communications and who 
will be receiving other physical mailings from the financial 
institution in the specified time period, that financial institution 
will incur a cost of printing the notice, which can be included in the 
envelope or package which was already scheduled to be delivered. It is 
unlikely that the financial institution will incur additional mailing 
costs to send these notices. The remaining notices of change may be 
sent to consumers electronically. Therefore, the Bureau believes that 
the cost associated with providing these notices is minimal.
    Final Sec.  1005.18(h)(2)(ii) requires that financial institutions 
notify any consumer, who acquires a prepaid account after the effective 
date in packaging printed prior to the effective date, of any changes 
as a result of Sec.  1005.18(h)(1) taking effect such that a change-in-
terms notice would have been required under Sec.  1005.8(a) or Sec.  
1005.18(f)(2) for existing customers within 30 days of acquiring the 
customer's contact information. In addition, financial institutions 
must also mail or deliver updated initial disclosures pursuant to Sec.  
1005.7 and Sec.  1005.18(f)(1) within 30 days of obtaining the 
consumer's contact information. Those financial institutions that are 
affected should not incur significant costs to notify consumers and 
provide updated initial disclosures. Consumers who have consented to 
electronic communication may receive the notices and updated 
disclosures electronically, at a minimal cost to financial 
institutions. Those consumers who cannot be contacted electronically 
may receive the notices and updated initial disclosures with another 
scheduled mailing within the 30 day time period. Financial institutions 
will incur small costs to print these notices and disclosures, but it 
is unlikely that financial institutions will incur additional mailing 
costs. Any remaining consumers who are not scheduled to receive 
mailings may be notified without regard to the consumer notice and 
consent requirements of section 101(c) of the E-Sign Act.
    Final Sec.  1005.19(b) requires certain issuers to submit to the 
Bureau, on a rolling basis, short form disclosures and prepaid account 
agreements (including fee schedules) that are offered, amended or 
withdrawn. The Bureau estimates that each issuer will initially take 1 
hour to register and spend 5 minutes to upload each of 17 agreements 
(our estimate of the overall average number of fee schedules per 
issuer). Thus the one-time burden is 145 (= 60 + (5*17)) minutes or 
2.42 hours per issuer. There is considerable uncertainty regarding the 
number of issuers that will offer, amend or withdraw an issuer 
agreement each year on an ongoing basis and the number of issuer 
agreements that each issuer will offer, amend or withdraw. The Bureau's 
experience with the submission of credit card agreements pursuant to 
Sec.  1026.58 of Regulation Z suggests that issuers who upload issuer 
agreements will upload at most 5 issuer agreements annually on an 
ongoing basis.\960\ We assume that every issuer uploads 5 issuer 
agreements annually on an ongoing basis, so our estimate is an upper 
bound on the burden.
---------------------------------------------------------------------------

    \960\ In a recent analysis of submissions for the third quarter 
of 2014, the Bureau found 103 credit card issuers submitted 429 
agreements in a single quarter, so just over four per issuer. 80 FR 
21153, 21156. We repeated this analysis using submissions for all of 
2014, which is the last year of data available, and found that 210 
credit card issuers submitted 1002 agreements, so just under five 
per issuer. See https://www.consumerfinance.gov/credit-cards/agreements/.
---------------------------------------------------------------------------

    The estimated burden on Bureau respondents from the final rule's 
changes to Regulation E are summarized below.

[[Page 84323]]

[GRAPHIC] [TIFF OMITTED] TR22NO16.003

B. Regulation Z

    The Bureau understands that approximately 218,000 consumers 
currently have a form of overdraft protection on their GPR and payroll 
cards.\961\ The Bureau's PRA estimation methodology assumes that the 
same number will use a credit feature after the final rule takes 
effect, although this is likely an overestimate.\962\ Further, the 
methodology generally assumes that the per-respondent and per 
transaction burdens would be consistent with those currently reported 
for credit card accounts in Regulation Z.
---------------------------------------------------------------------------

    \961\ The Bureau is aware of three providers of overdraft credit 
features on prepaid accounts and believes that NetSpend is the only 
significant provider. A recent financial filing suggested that 
NetSpend had 3.6 million active cards as of Sept. 30, 2015. Total 
Sys. Serv., Inc., Form 10-Q, at 27, available at https://www.sec.gov/Archives/edgar/data/721683/000119312515367677/d97203d10q.htm (for the quarterly period ended Sept. 30, 2015). 
NetSpend also stated in a news article that only about 6 percent of 
its customers regularly use overdraft. See 2012 NetSpend WSJ 
Article. Assuming each NetSpend customer has overdraft protection on 
only one account, there are 216,000 prepaid accounts with overdraft 
protection. No data is available for the other two providers. The 
Bureau believes, based on industry data, that the median provider of 
prepaid accounts likely has about 10,000 customers. Assuming 10 
percent have an overdraft service or credit feature on one prepaid 
account gives an additional 2,000 accounts with overdraft 
protection.
    \962\ Current data on the size of the market for credit features 
on prepaid accounts has limited usefulness in predicting the size of 
the market under the final rule, since both eligibility criteria and 
credit features may change as a result. See previous discussions in 
this supplementary information.
---------------------------------------------------------------------------

    As described in greater detail above, in the final rule, the Bureau 
generally intends to cover under Regulation Z overdraft credit features 
offered in connection with prepaid accounts where the credit features 
are offered by the prepaid account issuer, its affiliates, or its 
business partners (except as described in new Sec.  
1026.61(a)(4)).\963\ The Bureau anticipates that most of these 
overdraft credit features covered under the final rule would meet the 
definition of ``open-end credit.'' \964\ In addition, under the final 
rule, a prepaid card that accesses such an overdraft credit feature 
would be a ``credit card'' under Regulation Z.\965\ The overdraft 
credit features described above would be governed by subparts A, B, D, 
and G of Regulation Z. Pursuant to Regulation Z, persons offering such 
plans would be required to comply with the requirements governing 
information collections. These requirements are as follows.
---------------------------------------------------------------------------

    \963\ These overdraft credit features are covered under the term 
``covered separate credit feature'' as defined in new Sec.  1026.61.
    \964\ This would apply if the creditor establishes a program 
where the creditor routinely extends credit and may impose finance 
charges from time to time on an outstanding unpaid balance for 
credit.
    \965\ The final rule defines such a prepaid card that is a 
credit card as a ``hybrid prepaid-credit card'' in new Sec.  
1026.61.
---------------------------------------------------------------------------

    As discussed below, certain disclosure provisions in Regulation Z 
apply to ``creditors'' and other disclosure provisions apply to ``card 
issuers.'' Under the final rule, a person that is offering an overdraft 
credit feature as described above in connection with a prepaid account 
would be both a ``card issuer'' and a ``creditor'' under Regulation Z.
    Persons offering an overdraft credit feature described above in 
connection with a prepaid account are required to inform consumers of 
costs and terms before they use the credit feature and in general to 
inform them of certain subsequent changes in the terms of the credit 
feature. Initial information would need to include the finance charge 
and

[[Page 84324]]

other charges, the APR, a description of how balances on which a 
finance charge is based would be calculated, and any collateral that 
would secure repayment. If the creditor changes certain terms initially 
disclosed, or increases the minimum periodic payment, a written change-
in-terms notice generally would need to be provided to the consumer at 
least 45 days prior to the effective date of the change. Consistent 
with estimates currently reported for credit card accounts in 
Regulation Z, the Bureau estimates 8 hours of one-time burden per 
respondent to develop these disclosures and a small ongoing burden per 
account. The Bureau also assumes that for these accounts, the number of 
account opening disclosures equals the number of accounts in any 
year.\966\
---------------------------------------------------------------------------

    \966\ In one recent analysis, the median life span for GPR cards 
with occasional reloads was 330 days and 570 days for GPR cards with 
periodic non-government direct deposit. 2012 FRB Kansas City Study 
at 47 tbl.4.1.
---------------------------------------------------------------------------

    Creditors are required to provide a written statement of activity 
for each billing cycle (i.e., periodic statement). The statement has to 
be provided for each account that has a balance of more than $1 or on 
which a finance charge is imposed, and it has to include a description 
of activity on the account, opening and closing balances, finance 
charges imposed, and payment information. Consistent with estimates 
currently reported for credit card accounts in Regulation Z, the Bureau 
estimates 80 hours of one-time burden per respondent to develop these 
disclosures and a small ongoing burden per account.
    Creditors are required to notify consumers about their rights and 
responsibilities regarding billing errors. Creditors have to provide 
either a complete statement of billing rights each year or a summary on 
each periodic statement. If a consumer alleges a billing error, the 
creditor must provide an acknowledgment, within 30 days of receipt, 
that the creditor received the consumer's error notice and must report 
on the results of its investigation within 90 days. If a billing error 
did not occur, the creditor must provide an explanation as to why the 
creditor believed an error did not occur and provide documentary 
evidence to the consumer upon request. The creditor must also give 
notice of the portion of the disputed amount and related finance or 
other charges that the consumer still owed and notice of when payment 
was due. The Bureau estimates 8 hours of one-time burden per respondent 
to develop these disclosures and a small ongoing burden per account. 
The Bureau further assumes that, based on discussions with industry, in 
any year 1.5 percent of customers will assert errors that require 
significant time from customer service representatives.
    Persons offering an overdraft credit feature discussed above in 
connection with a prepaid account are required, when advertising their 
product, to include certain basic credit information if the 
advertisement refers to specified credit terms or costs. The Bureau 
estimates 8 hours of one-time burden per respondent to develop these 
disclosures and small ongoing burden to maintain or revise these 
disclosures.
    Persons offering an overdraft credit feature described above in 
connection with a prepaid account are required to send the Bureau 
copies of the overdraft credit feature agreement. The Bureau estimates 
each card issuer will take 5 minutes to upload each agreement. We 
assume the same overall average number of agreements per issuer as 
above (which will not be representative of any of the three), so each 
issuer will initially take 85 minutes to upload 17 agreements and will 
upload 5 agreements annually on an ongoing basis.
    Finally, persons offering overdraft credit features as described 
above in connection with a prepaid account must provide additional 
disclosures with solicitations and applications. Such card issuers must 
disclose key terms of the account, such as the APR, information about 
variable rates, and fees such as annual fees, minimum finance charges, 
and transaction fees for purchases. The Bureau estimates 8 hours of 
one-time burden per respondent to develop these disclosures and small 
ongoing burden to maintain or revise these disclosures.\967\
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    \967\ The recordkeeping requirement in Sec.  1026.25 does not 
specify the kind of records that must be retained, so for purposes 
of PRA the paperwork burden is minimal.
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    The estimated burden on Bureau respondents from the changes to 
Regulation Z are summarized below.

[[Page 84325]]

[GRAPHIC] [TIFF OMITTED] TR22NO16.004

    The Consumer Financial Protection Bureau has a continuing interest 
in the public's opinions of our collections of information. At any 
time, comments regarding the burden estimate, or any other aspect of 
this collection of information, including suggestions for reducing the 
burden, may be sent to: The Office of Management and Budget (OMB), 
Attention: Desk Officer for the Consumer Financial Protection Bureau, 
Office of Information and Regulatory Affairs, Washington, DC 20503, or 
by the internet to oira_submission@omb.eop.gov, with copies to the 
Bureau at the Consumer Financial Protection Bureau (Attention: PRA 
Office), 1700 G Street NW., Washington, DC 20552, or by the internet to 
CFPB_Public_PRA@cfpb.gov.

List of Subjects

12 CFR Part 1005

    Automated teller machines, Banks, Banking, Consumer protection, 
Credit unions, Electronic fund transfers, National banks, Remittances, 
Reporting and recordkeeping requirements, Savings Associations.

12 CFR Part 1026

    Advertising, Appraisal, Appraiser, Banking, Banks, Consumer 
protection, Credit, Credit unions, Mortgages, National banks, Reporting 
and recordkeeping requirements, Savings associations, Truth in lending.

Authority and Issuance

    For the reasons set forth in the preamble, the Bureau amends 12 CFR 
parts 1005 and 1026 as follows:

PART 1005--ELECTRONIC FUND TRANSFERS (REGULATION E)

0
1. The authority citation for part 1005 continues to read as follows:

    Authority:  12 U.S.C. 5512, 5532, 5581; 15 U.S.C. 1693b. Subpart 
B is also issued under 12 U.S.C. 5601 and 15 U.S.C. 1693o-1.

Subpart A--General

0
2. Section 1005.2 is amended by revising paragraphs (b)(2) and (3) to 
read as follows:


Sec.  1005.2  Definitions.

* * * * *
    (b) * * *
    (2) The term does not include an account held by a financial 
institution under a bona fide trust agreement.
    (3) The term includes a prepaid account.
    (i) ``Prepaid account'' means:
    (A) A ``payroll card account,'' which is an account that is 
directly or indirectly established through an employer and to which 
electronic fund transfers of the consumer's wages, salary, or other 
employee compensation (such as commissions) are made on a recurring 
basis, whether the account is operated or managed by the employer, a 
third-party payroll processor, a depository institution, or any other 
person; or
    (B) A ``government benefit account,'' as defined in Sec.  
1005.15(a)(2); or

[[Page 84326]]

    (C) An account that is marketed or labeled as ``prepaid'' and that 
is redeemable upon presentation at multiple, unaffiliated merchants for 
goods or services or usable at automated teller machines; or
    (D) An account:
    (1) That is issued on a prepaid basis in a specified amount or not 
issued on a prepaid basis but capable of being loaded with funds 
thereafter,
    (2) Whose primary function is to conduct transactions with 
multiple, unaffiliated merchants for goods or services, or at automated 
teller machines, or to conduct person-to-person transfers, and
    (3) That is not a checking account, share draft account, or 
negotiable order of withdrawal account.
    (ii) For purposes of paragraphs (b)(3)(i)(C) and (D) of this 
section, the term ``prepaid account'' does not include:
    (A) An account that is loaded only with funds from a health savings 
account, flexible spending arrangement, medical savings account, health 
reimbursement arrangement, dependent care assistance program, or 
transit or parking reimbursement arrangement;
    (B) An account that is directly or indirectly established through a 
third party and loaded only with qualified disaster relief payments;
    (C) The person-to-person functionality of an account established by 
or through the United States government whose primary function is to 
conduct closed-loop transactions on U.S. military installations or 
vessels, or similar government facilities;
    (D)(1) A gift certificate as defined in Sec.  1005.20(a)(1) and 
(b);
    (2) A store gift card as defined in Sec.  1005.20(a)(2) and (b);
    (3) A loyalty, award, or promotional gift card as defined in Sec.  
1005.20(a)(4) and (b); or
    (4) A general-use prepaid card as defined in Sec.  1005.20(a)(3) 
and (b) that is both marketed and labeled as a gift card or gift 
certificate; or
    (E) An account established for distributing needs-tested benefits 
in a program established under state or local law or administered by a 
state or local agency, as set forth in Sec.  1005.15(a)(2).
* * * * *

0
3. Section 1005.10 is amended by revising paragraph (e)(1) to read as 
follows:


Sec.  1005.10  Preauthorized transfers.

* * * * *
    (e) Compulsory use--(1) Credit. No financial institution or other 
person may condition an extension of credit to a consumer on the 
consumer's repayment by preauthorized electronic fund transfers, except 
for credit extended under an overdraft credit plan or extended to 
maintain a specified minimum balance in the consumer's account. This 
exception does not apply to a covered separate credit feature 
accessible by a hybrid prepaid-credit card as defined in Regulation Z, 
12 CFR 1026.61.
* * * * *

0
4. Section 1005.11 is amended by revising paragraphs (c)(2)(i)(A) and 
(B) and adding paragraph (c)(2)(i)(C) to read as follows:


Sec.  1005.11  Procedures for resolving errors.

* * * * *
    (c) * * *
    (2) * * *
    (i) * * *
    (A) The institution requires but does not receive written 
confirmation within 10 business days of an oral notice of error;
    (B) The alleged error involves an account that is subject to 
Regulation T of the Board of Governors of the Federal Reserve System 
(Securities Credit by Brokers and Dealers, 12 CFR part 220); or
    (C) The alleged error involves a prepaid account, other than a 
payroll card account or government benefit account, for which the 
financial institution has not completed its consumer identification and 
verification process, as set forth in Sec.  1005.18(e)(3)(ii).
* * * * *

0
5. Section 1005.12 is amended by revising paragraphs (a)(1)(ii), 
(a)(1)(iv), and (a)(2)(i) and (ii) and adding paragraph (a)(2)(iii) to 
read as follows:


Sec.  1005.12  Relation to other laws.

    (a) * * *
    (1) * * *
    (ii) The issuance of an access device (other than an access device 
for a prepaid account) that permits credit extensions (under a 
preexisting agreement between a consumer and a financial institution) 
only when the consumer's account is overdrawn or to maintain a 
specified minimum balance in the consumer's account, or under an 
overdraft service, as defined in Sec.  1005.17(a) of this part;
* * * * *
    (iv) A consumer's liability for an unauthorized electronic fund 
transfer and the investigation of errors involving:
    (A) Except with respect to a prepaid account, an extension of 
credit that is incident to an electronic fund transfer that occurs 
under an agreement between the consumer and a financial institution to 
extend credit when the consumer's account is overdrawn or to maintain a 
specified minimum balance in the consumer's account, or under an 
overdraft service, as defined in Sec.  1005.17(a);
    (B) With respect to transactions that involve a covered separate 
credit feature and an asset feature on a prepaid account that are both 
accessible by a hybrid prepaid-credit card as those terms are defined 
in Regulation Z, 12 CFR 1026.61, an extension of credit that is 
incident to an electronic fund transfer that occurs when the hybrid 
prepaid-credit card accesses both funds in the asset feature of the 
prepaid account and a credit extension from the credit feature with 
respect to a particular transaction;
    (C) Transactions that involves credit extended through a negative 
balance to the asset feature of a prepaid account that meets the 
conditions set forth in Regulation Z, 12 CFR 1026.61(a)(4); and
    (D) With respect to transactions involving a prepaid account and a 
non-covered separate credit feature as defined in Regulation Z, 12 CFR 
1026.61, transactions that access the prepaid account, as applicable.
    (2) * * *
    (i) The addition of a credit feature or plan to an accepted access 
device, including an access device for a prepaid account, that would 
make the access device into a credit card under Regulation Z (12 CFR 
part 1026);
    (ii) Except as provided in paragraph (a)(1)(ii) of this section, 
the issuance of a credit card that is also an access device; and
    (iii) With respect to transactions involving a prepaid account and 
a non-covered separate credit feature as defined in Regulation Z, 12 
CFR 1026.61, a consumer's liability for unauthorized use and the 
investigation of errors involving transactions that access the non-
covered separate credit feature, as applicable.
* * * * *

0
6. Section 1005.15 is revised to read as follows:


Sec.  1005.15  Electronic fund transfer of government benefits.

    (a) Government agency subject to regulation. (1) A government 
agency is deemed to be a financial institution for purposes of the Act 
and this part if directly or indirectly it issues an access device to a 
consumer for use in initiating an electronic fund transfer of 
government benefits from an account, other than needs-tested benefits 
in a program established under state or local

[[Page 84327]]

law or administered by a state or local agency. The agency shall comply 
with all applicable requirements of the Act and this part except as 
modified by this section.
    (2) For purposes of this section, the term ``account'' or 
``government benefit account'' means an account established by a 
government agency for distributing government benefits to a consumer 
electronically, such as through automated teller machines or point-of-
sale terminals, but does not include an account for distributing needs-
tested benefits in a program established under state or local law or 
administered by a state or local agency.
    (b) Issuance of access devices. For purposes of this section, a 
consumer is deemed to request an access device when the consumer 
applies for government benefits that the agency disburses or will 
disburse by means of an electronic fund transfer. The agency shall 
verify the identity of the consumer receiving the device by reasonable 
means before the device is activated.
    (c) Pre-acquisition disclosure requirements. (1) Before a consumer 
acquires a government benefit account, a government agency shall comply 
with the pre-acquisition disclosure requirements applicable to prepaid 
accounts as set forth in Sec.  1005.18(b).
    (2) Additional content for government benefit accounts--(i) 
Statement regarding consumer's payment options. As part of its short 
form pre-acquisition disclosures, the agency must provide a statement 
that the consumer does not have to accept the government benefit 
account and directing the consumer to ask about other ways to receive 
their benefit payments from the agency instead of receiving them via 
the account, using the following clause or a substantially similar 
clause: ``You do not have to accept this benefits card. Ask about other 
ways to receive your benefits.'' Alternatively, an agency may provide a 
statement that the consumer has several options to receive benefit 
payments, followed by a list of the options available to the consumer, 
and directing the consumer to indicate which option the consumer 
chooses using the following clause or a substantially similar clause: 
``You have several options to receive your payments: [list of options 
available to the consumer]; or this benefits card. Tell the benefits 
office which option you choose.'' This statement must be located above 
the information required by Sec.  1005.18(b)(2)(i) through (iv). This 
statement must appear in a minimum type size of eight points (or 11 
pixels) and appear in no larger a type size than what is used for the 
fee headings required by Sec.  1005.18(b)(2)(i) through (iv).
    (ii) Statement regarding state-required information or other fee 
discounts and waivers. An agency may, but is not required to, include a 
statement in one additional line of text in the short form disclosure 
directing the consumer to a particular location outside the short form 
disclosure for information on ways the consumer may access government 
benefit account funds and balance information for free or for a reduced 
fee. This statement must be located directly below any statements 
disclosed pursuant to Sec.  1005.18(b)(3)(i) and (ii), or, if no such 
statements are disclosed, above the statement required by Sec.  
1005.18(b)(2)(x). This statement must appear in the same type size used 
to disclose variable fee information pursuant to Sec.  1005.18(b)(3)(i) 
and (ii), or, if none, the same type size used for the information 
required by Sec.  1005.18(b)(2)(x) through (xiii).
    (3) Form of disclosures. When a short form disclosure required by 
paragraph (c) of this section is provided in writing or electronically, 
the information required by Sec.  1005.18(b)(2)(i) through (ix) shall 
be provided in the form of a table. Except as provided in Sec.  
1005.18(b)(6)(iii)(B), the short form disclosure required by Sec.  
1005.18(b)(2) shall be provided in a form substantially similar to 
Model Form A-10(a) of appendix A of this part. Sample Form A-10(f) in 
appendix A of this part provides an example of the long form disclosure 
required by Sec.  1005.18(b)(4) when the agency does not offer multiple 
service plans.
    (d) Access to account information--(1) Periodic statement 
alternative. A government agency need not furnish periodic statements 
required by Sec.  1005.9(b) if the agency makes available to the 
consumer:
    (i) The consumer's account balance, through a readily available 
telephone line and at a terminal (such as by providing balance 
information at a balance-inquiry terminal or providing it, routinely or 
upon request, on a terminal receipt at the time of an electronic fund 
transfer);
    (ii) An electronic history of the consumer's account transactions, 
such as through a Web site, that covers at least 12 months preceding 
the date the consumer electronically accesses the account; and
    (iii) A written history of the consumer's account transactions that 
is provided promptly in response to an oral or written request and that 
covers at least 24 months preceding the date the agency receives the 
consumer's request.
    (2) Additional access to account information requirements. For 
government benefit accounts, a government agency shall comply with the 
account information requirements applicable to prepaid accounts as set 
forth in Sec.  1005.18(c)(3) through (5).
    (e) Modified disclosure, limitations on liability, and error 
resolution requirements. A government agency that provides information 
under paragraph (d)(1) of this section shall comply with the following:
    (1) Initial disclosures. The agency shall modify the disclosures 
under Sec.  1005.7(b) by disclosing:
    (i) Access to account information. A telephone number that the 
consumer may call to obtain the account balance, the means by which the 
consumer can obtain an electronic account history, such as the address 
of a Web site, and a summary of the consumer's right to receive a 
written account history upon request (in place of the summary of the 
right to receive a periodic statement required by Sec.  1005.7(b)(6)), 
including a telephone number to call to request a history. The 
disclosure required by this paragraph (e)(1)(i) may be made by 
providing a notice substantially similar to the notice contained in 
paragraph (a) of appendix A-5 of this part.
    (ii) Error resolution. A notice concerning error resolution that is 
substantially similar to the notice contained in paragraph (b) of 
appendix A-5 of this part, in place of the notice required by Sec.  
1005.7(b)(10).
    (2) Annual error resolution notice. The agency shall provide an 
annual notice concerning error resolution that is substantially similar 
to the notice contained in paragraph (b) of appendix A-5 of this part, 
in place of the notice required by Sec.  1005.8(b). Alternatively, the 
agency may include on or with each electronic or written history 
provided in accordance with paragraph (d)(1) of this section, a notice 
substantially similar to the abbreviated notice for periodic statements 
contained in paragraph (b) in appendix A-3 of this part, modified as 
necessary to reflect the error resolution provisions set forth in this 
section.
    (3) Modified limitations on liability requirements. (i) For 
purposes of Sec.  1005.6(b)(3), the 60-day period for reporting any 
unauthorized transfer shall begin on the earlier of:
    (A) The date the consumer electronically accesses the consumer's 
account under paragraph (d)(1)(ii) of this section, provided that the 
electronic history made available to the consumer reflects the 
unauthorized transfer; or
    (B) The date the agency sends a written history of the consumer's 
account transactions requested by the

[[Page 84328]]

consumer under paragraph (d)(1)(iii) of this section in which the 
unauthorized transfer is first reflected.
    (ii) An agency may comply with paragraph (e)(3)(i) of this section 
by limiting the consumer's liability for an unauthorized transfer as 
provided under Sec.  1005.6(b)(3) for any transfer reported by the 
consumer within 120 days after the transfer was credited or debited to 
the consumer's account.
    (4) Modified error resolution requirements. (i) The agency shall 
comply with the requirements of Sec.  1005.11 in response to an oral or 
written notice of an error from the consumer that is received by the 
earlier of:
    (A) Sixty days after the date the consumer electronically accesses 
the consumer's account under paragraph (d)(1)(ii) of this section, 
provided that the electronic history made available to the consumer 
reflects the alleged error; or
    (B) Sixty days after the date the agency sends a written history of 
the consumer's account transactions requested by the consumer under 
paragraph (d)(1)(iii) of this section in which the alleged error is 
first reflected.
    (ii) In lieu of following the procedures in paragraph (e)(4)(i) of 
this section, an agency complies with the requirements for resolving 
errors in Sec.  1005.11 if it investigates any oral or written notice 
of an error from the consumer that is received by the agency within 120 
days after the transfer allegedly in error was credited or debited to 
the consumer's account.
    (f) Disclosure of fees and other information. For government 
benefit accounts, a government agency shall comply with the disclosure 
and change-in-terms requirements applicable to prepaid accounts as set 
forth in Sec.  1005.18(f).
    (g) Government benefit accounts accessible by hybrid prepaid-credit 
cards. For government benefit accounts accessible by hybrid prepaid-
credit cards as defined in Regulation Z, 12 CFR 1026.61, a government 
agency shall comply with prohibitions and requirements applicable to 
prepaid accounts as set forth in Sec.  1005.18(g).

0
7. Section 1005.17 is amended by revising paragraphs (a)(2) and (3) and 
adding paragraph (a)(4) to read as follows:


Sec.  1005.17  Requirements for overdraft services.

    (a) * * *
    (2) A service that transfers funds from another account held 
individually or jointly by a consumer, such as a savings account;
    (3) A line of credit or other transaction exempt from Regulation Z 
(12 CFR part 1026) pursuant to 12 CFR 1026.3(d); or
    (4) A covered separate credit feature accessible by a hybrid 
prepaid-credit card as defined in Regulation Z, 12 CFR 1026.61; or 
credit extended through a negative balance on the asset feature of the 
prepaid account that meets the conditions of 12 CFR 1026.61(a)(4).
* * * * *

0
8. Section 1005.18 is revised to read as follows:


Sec.  1005.18  Requirements for financial institutions offering prepaid 
accounts.

    (a) Coverage. A financial institution shall comply with all 
applicable requirements of the Act and this part with respect to 
prepaid accounts except as modified by this section. For rules 
governing government benefit accounts, see Sec.  1005.15.
    (b) Pre-acquisition disclosure requirements--(1) Timing of 
disclosures--(i) General. Except as provided in paragraphs (b)(1)(ii) 
or (iii) of this section, a financial institution shall provide the 
disclosures required by paragraph (b) of this section before a consumer 
acquires a prepaid account.
    (ii) Disclosures for prepaid accounts acquired in retail locations. 
A financial institution is not required to provide the long form 
disclosures required by paragraph (b)(4) of this section before a 
consumer acquires a prepaid account in person at a retail location if 
the following conditions are met:
    (A) The prepaid account access device is contained inside the 
packaging material.
    (B) The disclosures required by paragraph (b)(2) of this section 
are provided on or are visible through an outward-facing, external 
surface of a prepaid account access device's packaging material.
    (C) The disclosures required by paragraph (b)(2) of this section 
include the information set forth in paragraph (b)(2)(xiii) of this 
section that allows a consumer to access the information required to be 
disclosed by paragraph (b)(4) of this section by telephone and via a 
Web site.
    (D) The long form disclosures required by paragraph (b)(4) of this 
section are provided after the consumer acquires the prepaid account.
    (iii) Disclosures for prepaid accounts acquired orally by 
telephone. A financial institution is not required to provide the long 
form disclosures required by paragraph (b)(4) of this section before a 
consumer acquires a prepaid account orally by telephone if the 
following conditions are met:
    (A) The financial institution communicates to the consumer orally, 
before the consumer acquires the prepaid account, that the information 
required to be disclosed by paragraph (b)(4) of this section is 
available both by telephone and on a Web site.
    (B) The financial institution makes the information required to be 
disclosed by paragraph (b)(4) of this section available both by 
telephone and on a Web site.
    (C) The long form disclosures required by paragraph (b)(4) of this 
section are provided after the consumer acquires the prepaid account.
    (2) Short form disclosure content. In accordance with paragraph 
(b)(1) of this section, a financial institution shall provide a 
disclosure setting forth the following fees and information for a 
prepaid account, as applicable:
    (i) Periodic fee. The periodic fee charged for holding the prepaid 
account, assessed on a monthly or other periodic basis, using the term 
``Monthly fee,'' ``Annual fee,'' or a substantially similar term.
    (ii) Per purchase fee. The fee for making a purchase using the 
prepaid account, using the term ``Per purchase'' or a substantially 
similar term.
    (iii) ATM withdrawal fees. Two fees for using an automated teller 
machine to initiate a withdrawal of cash in the United States from the 
prepaid account, both within and outside of the financial institution's 
network or a network affiliated with the financial institution, using 
the term ``ATM withdrawal'' or a substantially similar term, and ``in-
network'' or ``out-of-network,'' respectively, or substantially similar 
terms.
    (iv) Cash reload fee. The fee for reloading cash into the prepaid 
account using the term ``Cash reload'' or a substantially similar term. 
The fee disclosed must be the total of all charges from the financial 
institution and any third parties for a cash reload.
    (v) ATM balance inquiry fees. Two fees for using an automated 
teller machine to check the balance of the prepaid account in the 
United States, both within and outside of the financial institution's 
network or a network affiliated with the financial institution, using 
the term ``ATM balance inquiry'' or a substantially similar term, and 
``in-network'' or ``out-of-network,'' respectively, or substantially 
similar terms.
    (vi) Customer service fees. Two fees for calling the financial 
institution about the prepaid account, both for calling an interactive 
voice response system and a live customer service agent, using the term 
``Customer service'' or a

[[Page 84329]]

substantially similar term, and ``automated'' or ``live agent,'' or 
substantially similar terms, respectively, and ``per call'' or a 
substantially similar term. When providing a short form disclosure for 
multiple service plans pursuant to paragraph (b)(6)(iii)(B)(2) of this 
section, disclose only the fee for calling the live agent customer 
service about the prepaid account, using the term ``Live customer 
service'' or a substantially similar term and ``per call'' or a 
substantially similar term.
    (vii) Inactivity fee. The fee for non-use, dormancy, or inactivity 
of the prepaid account, using the term ``Inactivity'' or a 
substantially similar term, as well as the conditions that trigger the 
financial institution to impose that fee.
    (viii) Statements regarding additional fee types--(A) Statement 
regarding number of additional fee types charged. A statement 
disclosing the number of additional fee types the financial institution 
may charge consumers with respect to the prepaid account, using the 
following clause or a substantially similar clause: ``We charge [x] 
other types of fees.'' The number of additional fee types disclosed 
must reflect the total number of fee types under which the financial 
institution may charge fees, excluding:
    (1) Fees required to be disclosed pursuant to paragraphs (b)(2)(i) 
through (vii) and (b)(5) of this section; and
    (2) Any finance charges as described in Regulation Z, 12 CFR 
1026.4(b)(11), imposed in connection with a covered separate credit 
feature accessible by a hybrid prepaid-credit card as defined in 12 CFR 
1026.61.
    (B) Statement directing consumers to disclosure of additional fee 
types. If a financial institution makes a disclosure pursuant to 
paragraph (b)(2)(ix) of this section, a statement directing consumers 
to that disclosure, located after but on the same line of text as the 
statement regarding the number of additional fee types required by 
paragraph (b)(2)(viii)(A) of this section, using the following clause 
or a substantially similar clause: ``Here are some of them:''.
    (ix) Disclosure of additional fee types--(A) Determination of which 
additional fee types to disclose. The two fee types that generate the 
highest revenue from consumers for the prepaid account program or 
across prepaid account programs that share the same fee schedule during 
the time period provided in paragraphs (b)(2)(ix)(D) and (E) of this 
section, excluding:
    (1) Fees required to be disclosed pursuant to paragraphs (b)(2)(i) 
through (vii) and (b)(5) of this section;
    (2) Any fee types that generated less than 5 percent of the total 
revenue from consumers for the prepaid account program or across 
prepaid account programs that share the same fee schedule during the 
time period provided in paragraphs (b)(2)(ix)(D) and (E) of this 
section; and
    (3) Any finance charges as described in Regulation Z, 12 CFR 
1026.4(b)(11), imposed in connection with a covered separate credit 
feature accessible by a hybrid prepaid-credit card as defined in 12 CFR 
1026.61.
    (B) Disclosure of fewer than two additional fee types. A financial 
institution that has only one additional fee type that satisfies the 
criteria in paragraph (b)(2)(ix)(A) of this section must disclose that 
one additional fee type; it may, but is not required to, also disclose 
another additional fee type of its choice. A financial institution that 
has no additional fee types that satisfy the criteria in paragraph 
(b)(2)(ix)(A) of this section is not required to make a disclosure 
under this paragraph (b)(2)(ix); it may, but is not required to, 
disclose one or two fee types of its choice.
    (C) Fee variations in additional fee types. If an additional fee 
type required to be disclosed pursuant to paragraph (b)(2)(ix)(A) of 
this section has more than two fee variations, or when providing a 
short form disclosure for multiple service plans pursuant to paragraph 
(b)(6)(iii)(B)(2) of this section, the financial institution must 
disclose the name of the additional fee type and the highest fee amount 
in accordance with paragraph (b)(3)(i) of this section. Except when 
providing a short form disclosure for multiple service plans pursuant 
to paragraph (b)(6)(iii)(B)(2) of this section, if an additional fee 
type has two fee variations, the financial institution must disclose 
the name of the additional fee type together with the names of the two 
fee variations and the fee amounts in a format substantially similar to 
that used to disclose the two-tier fees required by paragraphs 
(b)(2)(v) and (vi) of this section and in accordance with paragraph 
(b)(7)(ii)(B)(1) of this section. If a financial institution only 
charges one fee under a particular fee type, the financial institution 
must disclose the name of the additional fee type and the fee amount; 
it may, but is not required to, disclose also the name of the one fee 
variation for which the fee amount is charged, in a format 
substantially similar to that used to disclose the two-tier fees 
required by paragraphs (b)(2)(v) and (vi) of this section, except that 
the financial institution would disclose only the one fee variation 
name and fee amount instead of two.
    (D) Timing of initial assessment of additional fee type 
disclosure--(1) Existing prepaid account programs as of October 1, 
2017. For a prepaid account program in effect as of October 1, 2017, 
the financial institution must disclose the additional fee types based 
on revenue for a 24-month period that begins no earlier than October 1, 
2014.
    (2) Existing prepaid account programs as of October 1, 2017 with 
unavailable data. If a financial institution does not have 24 months of 
fee revenue data for a particular prepaid account program from which to 
calculate the additional fee types disclosure in advance of October 1, 
2017, the financial institution must disclose the additional fee types 
based on revenue it reasonably anticipates the prepaid account program 
will generate over the 24-month period that begins on October 1, 2017.
    (3) New prepaid account programs created on or after October 1, 
2017. For a prepaid account program created on or after October 1, 
2017, the financial institution must disclose the additional fee types 
based on revenue it reasonably anticipates the prepaid account program 
will generate over the first 24 months of the program.
    (E) Timing of periodic reassessment and update of additional fee 
types disclosure--(1) General. A financial institution must reassess 
its additional fee types disclosure periodically as described in 
paragraph (b)(2)(ix)(E)(2) of this section and upon a fee schedule 
change as described in paragraph (b)(2)(ix)(E)(3) of this section. The 
financial institution must update its additional fee types disclosure 
if the previous disclosure no longer complies with the requirements of 
this paragraph (b)(2)(ix).
    (2) Periodic reassessment. A financial institution must reassess 
whether its previously disclosed additional fee types continue to 
comply with the requirements of this paragraph (b)(2)(ix) every 24 
months based on revenue for the previous 24-month period. The financial 
institution must complete this reassessment and update its disclosures, 
if applicable, within three months of the end of the 24-month period, 
except as provided in the update printing exception in paragraph 
(b)(2)(ix)(E)(4) of this section. A financial institution may, but is 
not required to, carry out this reassessment and update, if applicable, 
more frequently than every 24 months, at which time a new 24-month 
period commences.
    (3) Fee schedule change. If a financial institution revises the fee 
schedule for a prepaid account program, it must

[[Page 84330]]

determine whether it reasonably anticipates that the previously 
disclosed additional fee types will continue to comply with the 
requirements of this paragraph (b)(2)(ix) for the 24 months following 
implementation of the fee schedule change. If the financial institution 
reasonably anticipates that the previously disclosed additional fee 
types will not comply with the requirements of this paragraph 
(b)(2)(ix), it must update the disclosure based on its reasonable 
anticipation of what those additional fee types will be at the time the 
fee schedule change goes into effect, except as provided in the update 
printing exception in paragraph (b)(2)(ix)(E)(4) of this section. If an 
immediate change in terms and conditions is necessary to maintain or 
restore the security of an account or an electronic fund transfer 
system as described in Sec.  1005.8(a)(2) and that change affects the 
prepaid account program's fee schedule, the financial institution must 
complete its reassessment and update its disclosures, if applicable, 
within three months of the date it makes the change permanent, except 
as provided in the update printing exception in paragraph 
(b)(2)(ix)(E)(4) of this section.
    (4) Update printing exception. Notwithstanding the requirements to 
update additional fee types disclosures in paragraph (b)(2)(ix)(E) of 
this section, a financial institution is not required to update the 
listing of additional fee types that are provided on, in, or with 
prepaid account packaging materials that were manufactured, printed, or 
otherwise produced prior to a periodic reassessment and update pursuant 
to paragraph (b)(2)(ix)(E)(2) of this section or prior to a fee 
schedule change pursuant to paragraph (b)(2)(ix)(E)(3) of this section.
    (x) Statement regarding overdraft credit features. If a covered 
separate credit feature accessible by a hybrid prepaid-credit card as 
defined in Regulation Z, 12 CFR 1026.61, may be offered at any point to 
a consumer in connection with the prepaid account, a statement that 
overdraft/credit may be offered, the time period after which it may be 
offered, and that fees would apply, using the following clause or a 
substantially similar clause: ``You may be offered overdraft/credit 
after [x] days. Fees would apply.'' If no such credit feature will be 
offered at any point to a consumer in connection with the prepaid 
account, a statement that no overdraft credit feature is offered, using 
the following clause or a substantially similar clause: ``No overdraft/
credit feature.''
    (xi) Statement regarding registration and FDIC or NCUA insurance. A 
statement regarding the prepaid account program's eligibility for FDIC 
deposit insurance or NCUA share insurance, as appropriate, and 
directing the consumer to register the prepaid account for insurance 
and other account protections, where applicable, as follows:
    (A) Account is insurance eligible and does not have pre-acquisition 
customer identification/verification. If a prepaid account program is 
set up to be eligible for FDIC deposit or NCUA share insurance, and 
customer identification and verification does not occur before the 
account is opened, using the following clause or a substantially 
similar clause: ``Register your card for [FDIC insurance eligibility] 
[NCUA insurance, if eligible,] and other protections.''
    (B) Account is not insurance eligible and does not have pre-
acquisition customer identification/verification. If a prepaid account 
program is not set up to be eligible for FDIC deposit or NCUA share 
insurance, and customer identification and verification does not occur 
before the account is opened, using the following clause or a 
substantially similar clause: ``Not [FDIC] [NCUA] insured. Register 
your card for other protections.''
    (C) Account is insurance eligible and has pre-acquisition customer 
identification/verification. If a prepaid account program is set up to 
be eligible for FDIC deposit or NCUA share insurance, and customer 
identification and verification occurs for all prepaid accounts within 
the prepaid program before the account is opened, using the following 
clause or a substantially similar clause: ``Your funds are [eligible 
for FDIC insurance] [NCUA insured, if eligible].''
    (D) Account is not insurance eligible and has pre-acquisition 
customer identification/verification. If a prepaid account program is 
not set up to be eligible for FDIC deposit or NCUA share insurance, and 
customer identification and verification occurs for all prepaid 
accounts within the prepaid account program before the account is 
opened, using the following clause or a substantially similar clause: 
``Your funds are not [FDIC] [NCUA] insured.''
    (E) No customer identification/verification. If a prepaid account 
program is set up such that there is no customer identification and 
verification process for any prepaid accounts within the prepaid 
account program, using the following clause or a substantially similar 
clause: ``Treat this card like cash. Not [FDIC] [NCUA] insured.''
    (xii) Statement regarding CFPB Web site. A statement directing the 
consumer to a Web site URL of the Consumer Financial Protection Bureau 
(cfpb.gov/prepaid) for general information about prepaid accounts, 
using the following clause or a substantially similar clause: ``For 
general information about prepaid accounts, visit cfpb.gov/prepaid.''
    (xiii) Statement regarding information on all fees and services. A 
statement directing the consumer to the location of the long form 
disclosure required by paragraph (b)(4) of this section to find details 
and conditions for all fees and services. For a financial institution 
offering prepaid accounts at a retail location pursuant to the retail 
location exception in paragraph (b)(1)(ii) of this section, this 
statement must also include a telephone number and a Web site URL that 
a consumer may use to directly access, respectively, an oral and an 
electronic version of the long form disclosure required under paragraph 
(b)(4) of this section. The disclosure required by this paragraph must 
be made using the following clause or a substantially similar clause: 
``Find details and conditions for all fees and services in [location]'' 
or, for prepaid accounts offered at retail locations pursuant to 
paragraph (b)(1)(ii) of this section, made using the following clause 
or a substantially similar clause: ``Find details and conditions for 
all fees and services inside the package, or call [telephone number] or 
visit [Web site].'' The Web site URL may not exceed 22 characters and 
must be meaningfully named. A financial institution may, but is not 
required to, disclose an SMS code at the end of the statement 
disclosing the telephone number and Web site URL, if the SMS code can 
be accommodated on the same line of text as the statement required by 
this paragraph.
    (xiv) Additional content for payroll card accounts--(A) Statement 
regarding wage or salary payment options. For payroll card accounts, a 
statement that the consumer does not have to accept the payroll card 
account and directing the consumer to ask about other ways to receive 
wages or salary from the employer instead of receiving them via the 
payroll card account using the following clause or a substantially 
similar clause: ``You do not have to accept this payroll card. Ask your 
employer about other ways to receive your wages.'' Alternatively, a 
financial institution may provide a statement that the consumer has 
several options to receive wages or salary, followed by a list of the 
options available to the consumer, and directing the consumer to tell 
the employer which option the

[[Page 84331]]

consumer chooses using the following clause or a substantially similar 
clause: ``You have several options to receive your wages: [list of 
options available to the consumer]; or this payroll card. Tell your 
employer which option you choose.'' This statement must be located 
above the information required by paragraphs (b)(2)(i) through (iv).
    (B) Statement regarding state-required information or other fee 
discounts and waivers. For payroll card accounts, a financial 
institution may, but is not required to, include a statement in one 
additional line of text directing the consumer to a particular location 
outside the short form disclosure for information on ways the consumer 
may access payroll card account funds and balance information for free 
or for a reduced fee. This statement must be located directly below any 
statements disclosed pursuant to paragraphs (b)(3)(i) and (ii) of this 
section, or, if no such statements are disclosed, above the statement 
required by paragraph (b)(2)(x) of this section.
    (3) Short form disclosure of variable fees and third-party fees and 
prohibition on disclosure of finance charges--(i) General disclosure of 
variable fees. If the amount of any fee that is required to be 
disclosed in the short form disclosure pursuant to paragraphs (b)(2)(i) 
through (vii) and (ix) of this section could vary, a financial 
institution shall disclose the highest amount it may impose for that 
fee, followed by a symbol, such as an asterisk, linked to a statement 
explaining that the fee could be lower depending on how and where the 
prepaid account is used, using the following clause or a substantially 
similar clause: ``This fee can be lower depending on how and where this 
card is used.'' Except as provided in paragraph (b)(3)(ii) of this 
section, a financial institution must use the same symbol and statement 
for all fees that could vary. The linked statement must be located 
above the statement required by paragraph (b)(2)(x) of this section.
    (ii) Disclosure of variable periodic fee. If the amount of the 
periodic fee disclosed in the short form disclosure pursuant to 
paragraph (b)(2)(i) of this section could vary, as an alternative to 
the disclosure required by paragraph (b)(3)(i) of this section, the 
financial institution may disclose the highest amount it may impose for 
the periodic fee, followed by a symbol, such as a dagger, that is 
different from the symbol the financial institution uses pursuant to 
paragraph (b)(3)(i) of this section, to indicate that a waiver of the 
fee or a lower fee might apply, linked to a statement in one additional 
line of text disclosing the waiver or reduced fee amount and explaining 
the circumstances under which the fee waiver or reduction may occur. 
The linked statement must be located directly above or in place of the 
linked statement required by paragraph (b)(3)(i) of this section, as 
applicable.
    (iii) Single disclosure for like fees. As an alternative to the 
two-tier fee disclosure required by paragraphs (b)(2)(iii), (v), and 
(vi) of this section and any two-tier fee required by paragraph 
(b)(2)(ix) of this section, a financial institution may disclose a 
single fee amount when the amount is the same for both fees.
    (iv) Third-party fees in general. Except as provided in paragraph 
(b)(3)(v) of this section, a financial institution may not include any 
third-party fees in a disclosure made pursuant to paragraph (b)(2) of 
this section.
    (v) Third-party cash reload fees. Any third-party fee included in 
the cash reload fee disclosed in the short form pursuant to paragraph 
(b)(2)(iv) of this section must be the highest fee known by the 
financial institution at the time it prints, or otherwise prepares, the 
short form disclosure required by paragraph (b)(2) of this section. A 
financial institution is not required to revise its short form 
disclosure to reflect a cash reload fee change by a third party until 
such time that the financial institution manufactures, prints, or 
otherwise produces new prepaid account packaging materials or otherwise 
updates the short form disclosure.
    (vi) Prohibition on disclosure of finance charges. A financial 
institution may not include in a disclosure made pursuant to paragraphs 
(b)(2)(i) through (ix) of this section any finance charges as described 
in Regulation Z, 12 CFR 1026.4(b)(11), imposed in connection with a 
covered separate credit feature accessible by a hybrid prepaid-credit 
card as defined in 12 CFR 1026.61.
    (4) Long form disclosure content. In accordance with paragraph 
(b)(1) of this section, a financial institution shall provide a 
disclosure setting forth the following fees and information for a 
prepaid account, as applicable:
    (i) Title for long form disclosure. A heading stating the name of 
the prepaid account program and that the long form disclosure contains 
a list of all fees for that particular prepaid account program.
    (ii) Fees. All fees that may be imposed in connection with a 
prepaid account. For each fee, the financial institution must disclose 
the amount of the fee and the conditions, if any, under which the fee 
may be imposed, waived, or reduced. A financial institution may not use 
any symbols, such as an asterisk, to explain conditions under which any 
fee may be imposed. A financial institution may, but is not required 
to, include in the long form disclosure any service or feature it 
provides or offers at no charge to the consumer. The financial 
institution must also disclose any third-party fee amounts known to the 
financial institution that may apply. For any such third-party fee 
disclosed, the financial institution may, but is not required to, 
include either or both a statement that the fee is accurate as of or 
through a specific date or that the third-party fee is subject to 
change. If a third-party fee may apply but the amount of that fee is 
not known by the financial institution, it must include a statement 
indicating that the third-party fee may apply without specifying the 
fee amount. A financial institution is not required to revise the long 
form disclosure required by paragraph (b)(4) of this section to reflect 
a fee change by a third party until such time that the financial 
institution manufactures, prints, or otherwise produces new prepaid 
account packaging materials or otherwise updates the long form 
disclosure.
    (iii) Statement regarding registration and FDIC or NCUA insurance. 
The statement required by paragraph (b)(2)(xi) of this section, 
together with an explanation of FDIC or NCUA insurance coverage and the 
benefit of such coverage or the consequence of the lack of such 
coverage, as applicable.
    (iv) Statement regarding overdraft credit features. The statement 
required by paragraph (b)(2)(x) of this section.
    (v) Statement regarding financial institution contact information. 
A statement directing the consumer to a telephone number, mailing 
address, and Web site URL of the person or office that a consumer may 
contact to learn about the terms and conditions of the prepaid account, 
to obtain prepaid account balance information, to request a copy of 
transaction history pursuant to paragraph (c)(1)(iii) of this section 
if the financial institution does not provide periodic statements 
pursuant to Sec.  1005.9(b), or to notify the financial institution 
when the consumer believes that an unauthorized electronic fund 
transfer occurred as required by Sec.  1005.7(b)(2) and paragraph 
(d)(1)(ii) of this section.
    (vi) Statement regarding CFPB Web site and telephone number. A 
statement directing the consumer to a Web site URL of the Consumer 
Financial Protection Bureau (cfpb.gov/prepaid) for general information 
about prepaid accounts, and a statement directing the consumer to a 
Consumer Financial

[[Page 84332]]

Protection Bureau telephone number (1-855-411-2372) and Web site URL 
(cfpb.gov/complaint) to submit a complaint about a prepaid account, 
using the following clause or a substantially similar clause: ``For 
general information about prepaid accounts, visit cfpb.gov/prepaid. If 
you have a complaint about a prepaid account, call the Consumer 
Financial Protection Bureau at 1-855-411-2372 or visit cfpb.gov/complaint.''
    (vii) Regulation Z disclosures for overdraft credit features. The 
disclosures described in Regulation Z, 12 CFR 1026.60(e)(1), in 
accordance with the requirements for such disclosures in 12 CFR 
1026.60, if, at any point, a covered separate credit feature accessible 
by a hybrid prepaid-credit card as defined in 12 CFR 1026.61, may be 
offered in connection with the prepaid account. A financial institution 
may, but is not required to, include above the Regulation Z disclosures 
required by this paragraph a heading and other explanatory information 
introducing the overdraft credit feature. A financial institution is 
not required to revise the disclosure required by this paragraph to 
reflect a change in the fees or other terms disclosed therein until 
such time as the financial institution manufactures, prints, or 
otherwise produces new prepaid account packaging materials or otherwise 
updates the long form disclosure.
    (5) Disclosure requirements outside the short form disclosure. At 
the time a financial institution provides the short form disclosure, it 
must also disclose the following information: the name of the financial 
institution; the name of the prepaid account program; the purchase 
price for the prepaid account, if any; and the fee for activating the 
prepaid account, if any. In a setting other than in a retail location, 
this information must be disclosed in close proximity to the short 
form. In a retail location, this information, other than the purchase 
price, must be disclosed on the exterior of the access device's 
packaging material. In a retail location, the purchase price must be 
disclosed either on the exterior of or in close proximity to the 
prepaid account access device's packaging material.
    (6) Form of pre-acquisition disclosures--(i) General--(A) Written 
disclosures. Except as provided in paragraphs (b)(6)(i)(B) and (C) of 
this section, disclosures required by paragraph (b) of this section 
must be in writing.
    (B) Electronic disclosures. The disclosures required by paragraph 
(b) of this section must be provided in electronic form when a consumer 
acquires a prepaid account through electronic means, including via a 
Web site or mobile application, and must be viewable across all screen 
sizes. The long form disclosure must be provided electronically through 
a Web site when a financial institution is offering prepaid accounts at 
a retail location pursuant to the retail location exception in 
paragraph (b)(1)(ii) of this section. Electronic disclosures must be 
provided in a manner which is reasonably expected to be accessible in 
light of how a consumer is acquiring the prepaid account, in a 
responsive form, and using machine-readable text that is accessible via 
Web browsers or mobile applications, as applicable, and via screen 
readers. Electronic disclosures provided pursuant to paragraph (b) of 
this section need not meet the consumer consent and other applicable 
provisions of the Electronic Signatures in Global and National Commerce 
Act (E-Sign Act) (15 U.S.C. 7001 et seq.).
    (C) Oral disclosures. Disclosures required by paragraphs (b)(2) and 
(5) of this section must be provided orally when a consumer acquires a 
prepaid account orally by telephone as described in paragraph 
(b)(1)(iii) of this section. For prepaid accounts acquired in retail 
locations or orally by telephone, disclosures required by paragraph 
(b)(4) of this section provided by telephone pursuant to paragraph 
(b)(1)(ii)(B) or (b)(1)(iii)(B) of this section also must be made 
orally.
    (ii) Retainable form. Pursuant to Sec.  1005.4(a)(1), disclosures 
required by paragraph (b) of this section must be made in a form that a 
consumer may keep, except for disclosures provided orally pursuant to 
paragraphs (b)(1)(ii) or (iii) of this section, long form disclosures 
provided via SMS as permitted by paragraph (b)(2)(xiii) of this section 
for a prepaid account sold at retail locations pursuant to the retail 
location exception in paragraph (b)(1)(ii) of this section, and the 
disclosure of a purchase price pursuant to paragraph (b)(5) of this 
section that is not disclosed on the exterior of the packaging material 
for a prepaid account sold at a retail location pursuant to the retail 
location exception in paragraph (b)(1)(ii) of this section.
    (iii) Tabular format--(A) General. When a short form disclosure is 
provided in writing or electronically, the information required by 
paragraphs (b)(2)(i) through (ix) of this section shall be provided in 
the form of a table. Except as provided in paragraph (b)(6)(iii)(B) of 
this section, the short form disclosures required by paragraph (b)(2) 
of this section shall be provided in a form substantially similar to 
Model Forms A-10(a) through (d) in appendix A of this part, as 
applicable. When a long form disclosure is provided in writing or 
electronically, the information required by paragraph (b)(4)(ii) of 
this section shall be provided in the form of a table. Sample Form A-
10(f) in appendix A of this part provides an example of the long form 
disclosure required by paragraph (b)(4) of this section when the 
financial institution does not offer multiple service plans.
    (B) Multiple service plans--(1) Short form disclosure for default 
service plan. When a financial institution offers multiple service 
plans within a particular prepaid account program and each plan has a 
different fee schedule, the information required by paragraphs 
(b)(2)(i) through (ix) of this section may be provided in the tabular 
format described in paragraph (b)(6)(iii)(A) of this section for the 
service plan in which a consumer is initially enrolled by default upon 
acquiring the prepaid account.
    (2) Short form disclosure for multiple service plans. As an 
alternative to disclosing the default service plan pursuant to 
paragraph (b)(6)(iii)(B)(1) of this section, when a financial 
institution offers multiple service plans within a particular prepaid 
account program and each plan has a different fee schedule, fee 
disclosures required by paragraphs (b)(2)(i) through (vii) and (ix) of 
this section may be provided in the form of a table with separate 
columns for each service plan, in a form substantially similar to Model 
Form A-10(e) in appendix A of this part. Column headings must describe 
each service plan included in the table, using the terms ``Pay-as-you-
go plan,'' ``Monthly plan,'' ``Annual plan,'' or substantially similar 
terms; or, for multiple service plans offering preferred rates or fees 
for the prepaid accounts of consumers who also use another non-prepaid 
service, column headings must describe each service plan included in 
the table for the preferred- and non-preferred service plans, as 
applicable.
    (3) Long form disclosure. The information in the long form 
disclosure required by paragraph (b)(4)(ii) of this section must be 
presented in the form of a table for all service plans.
    (7) Specific formatting requirements for pre-acquisition 
disclosures--(i) Grouping--(A) Short form disclosure. The information 
required in the short form disclosure by paragraphs (b)(2)(i) through 
(iv) of this section must be grouped together and provided in that 
order. The information required by paragraphs (b)(2)(v) through (ix) of 
this section must be generally grouped

[[Page 84333]]

together and provided in that order. The information required by 
paragraphs (b)(3)(i) and (ii) of this section, as applicable, must be 
generally grouped together and in the location described by paragraphs 
(b)(3)(i) and (ii) of this section. The information required by 
paragraphs (b)(2)(x) through (xiii) of this section must be generally 
grouped together and provided in that order. The statement regarding 
wage or salary payment options for payroll card accounts required by 
paragraph (b)(2)(xiv)(A) of this section must be located above the 
information required by paragraphs (b)(2)(i) through (iv) of this 
section, as described in paragraph (b)(2)(xiv)(A) of this section. The 
statement regarding state-required information or other fee discounts 
or waivers permitted by paragraph (b)(2)(xiv)(B) of this section, when 
applicable, must appear in the location described by paragraph 
(b)(2)(xiv)(B) of this section.
    (B) Long form disclosure. The information required by paragraph 
(b)(4)(i) of this section must be located in the first line of the long 
form disclosure. The information required by paragraph (b)(4)(ii) of 
this section must be generally grouped together and organized under 
subheadings by the categories of function for which a financial 
institution may impose the fee. Text describing the conditions under 
which a fee may be imposed must appear in the table required by 
paragraph (b)(6)(iii)(A) of this section in close proximity to the fee 
amount. The information in the long form disclosure required by 
paragraphs (b)(4)(iii) through (vi) of this section must be generally 
grouped together, provided in that order, and appear below the 
information required by paragraph (b)(4)(ii) of this section. If, 
pursuant to Sec.  1005.18(b)(4)(vii), the financial institution 
includes the disclosures described in Regulation Z, 12 CFR 
1026.60(e)(1), such disclosures must appear below the disclosures 
required by paragraph (b)(4)(vi) of this section.
    (C) Multiple service plan disclosure. When providing a short form 
disclosure for multiple service plans pursuant to paragraph 
(b)(6)(iii)(B)(2) of this section, in lieu of the requirements in 
paragraph (b)(7)(i)(A) of this section for grouping of the disclosures 
required by paragraphs (b)(2)(i) through (iv) and (v) through (ix) of 
this section, the information required by paragraphs (b)(2)(i) through 
(ix) of this section must be grouped together and provided in that 
order.
    (ii) Prominence and size--(A) General. All text used to disclose 
information in the short form or in the long form disclosure pursuant 
to paragraphs (b)(2), (b)(3)(i) and (ii), and (b)(4) of this section 
must be in a single, easy-to-read type that is all black or one color 
and printed on a background that provides a clear contrast.
    (B) Short form disclosure--(1) Fees and other information. The 
information required in the short form disclosure by paragraphs 
(b)(2)(i) through (iv) of this section must appear as follows: Fee 
amounts in bold-faced type; single fee amounts in a minimum type size 
of 15 points (or 21 pixels); two-tier fee amounts for ATM withdrawal in 
a minimum type size of 11 points (or 16 pixels) and in no larger a type 
size than what is used for the single fee amounts; and fee headings in 
a minimum type size of eight points (or 11 pixels) and in no larger a 
type size than what is used for the single fee amounts. The information 
required by paragraphs (b)(2)(v) through (ix) of this section must 
appear in a minimum type size of eight points (or 11 pixels) and appear 
in the same or a smaller type size than what is used for the fee 
headings required by paragraphs (b)(2)(i) through (iv) of this section. 
The information required by paragraphs (b)(2)(x) through (xiii) of this 
section must appear in a minimum type size of seven points (or nine 
pixels) and appear in no larger a type size than what is used for the 
information required to be disclosed by paragraphs (b)(2)(v) through 
(ix) of this section. Additionally, the statements disclosed pursuant 
to paragraphs (b)(2)(viii)(A) and (b)(2)(x) of this section and the 
telephone number and URL disclosed pursuant to paragraph (b)(2)(xiii) 
of this section, where applicable, must appear in bold-faced type. The 
following information must appear in a minimum type size of six points 
(or eight pixels) and appear in no larger a type size that what is used 
for the information required by paragraphs (b)(2)(x) through (xiii) of 
this section: text used to distinguish each of the two-tier fees 
pursuant to paragraphs (b)(2)(iii), (v), (vi), and (ix) of this 
section; text used to explain that the fee required by paragraph 
(b)(2)(vi) of this section applies ``per call,'' where applicable; and 
text used to explain the conditions that trigger an inactivity fee and 
that the fee applies monthly or for the applicable time period, 
pursuant to paragraph (b)(2)(vii) of this section.
    (2) Variable fees. The symbols and corresponding statements 
regarding variable fees disclosed in the short form pursuant to 
paragraphs (b)(3)(i) and (ii) of this section, when applicable, must 
appear in a minimum type size of seven points (or nine pixels) and 
appear in no larger a type size than what is used for the information 
required by paragraphs (b)(2)(x) through (xiii) of this section. A 
symbol required next to the fee amount pursuant to paragraphs (b)(3)(i) 
and (ii) of this section must appear in the same type size or pixel 
size as what is used for the corresponding fee amount.
    (3) Payroll card account additional content. The statement 
regarding wage or salary payment options for payroll card accounts 
required by paragraph (b)(2)(xiv)(A) of this section, when applicable, 
must appear in a minimum type size of eight points (or 11 pixels) and 
appear in no larger a type size than what is used for the fee headings 
required by paragraphs (b)(2)(i) through (iv) of this section. The 
statement regarding state-required information and other fee discounts 
or waivers permitted by paragraph (b)(2)(xiv)(B) of this section must 
appear in the same type size used to disclose variable fee information 
pursuant to paragraph (b)(3)(i) and (ii) of this section, or, if none, 
the same type size used for the information required by paragraphs 
(b)(2)(x) through (xiii) of this section.
    (C) Long form disclosure. Long form disclosures required by 
paragraph (b)(4) of this section must appear in a minimum type size of 
eight points (or 11 pixels).
    (D) Multiple service plan short form disclosure. When providing a 
short form disclosure for multiple service plans pursuant to paragraph 
(b)(6)(iii)(B)(2) of this section, the fee headings required by 
paragraphs (b)(2)(i) through (iv) of this section must appear in bold-
faced type. The information required by paragraphs (b)(2)(i) through 
(xiii) of this section must appear in a minimum type size of seven 
points (or nine pixels), except the following must appear in a minimum 
type size of six points (or eight pixels) and appear in no larger a 
type size than what is used for the information required by paragraphs 
(b)(2)(i) through (xiii) of this section: Text used to distinguish each 
of the two-tier fees required by paragraphs (b)(2)(iii) and (v) of this 
section; text used to explain that the fee required by paragraph 
(b)(2)(vi) of this section applies ``per call,'' where applicable; text 
used to explain the conditions that trigger an inactivity fee pursuant 
to paragraph (b)(2)(vii) of this section; and text used to distinguish 
that fees required by paragraphs (b)(2)(i) and (vii) of this section 
apply monthly or for the applicable time period.
    (iii) Segregation. Short form and long form disclosures required by 
paragraphs (b)(2) and (4) of this section must be segregated from other 
information and must contain only information that is required or 
permitted for those

[[Page 84334]]

disclosures by paragraph (b) of this section.
    (8) Terminology of pre-acquisition disclosures. Fee names and other 
terms must be used consistently within and across the disclosures 
required by paragraph (b) of this section.
    (9) Prepaid accounts acquired in foreign languages--(i) General. A 
financial institution must provide the pre-acquisition disclosures 
required by paragraph (b) of this section in a foreign language, if the 
financial institution uses that same foreign language in connection 
with the acquisition of a prepaid account in the following 
circumstances:
    (A) The financial institution principally uses a foreign language 
on the prepaid account packaging material;
    (B) The financial institution principally uses a foreign language 
to advertise, solicit, or market a prepaid account and provides a means 
in the advertisement, solicitation, or marketing material that the 
consumer uses to acquire the prepaid account by telephone or 
electronically; or
    (C) The financial institution provides a means for the consumer to 
acquire a prepaid account by telephone or electronically principally in 
a foreign language.
    (ii) Long form disclosures in English upon request. A financial 
institution required to provide pre-acquisition disclosures in a 
foreign language pursuant to paragraph (b)(9)(i) of this section must 
also provide the information required to be disclosed in its pre-
acquisition long form disclosure pursuant to paragraph (b)(4) of this 
section in English upon a consumer's request and on any part of the Web 
site where it discloses this information in a foreign language.
    (c) Access to prepaid account information--(1) Periodic statement 
alternative. A financial institution need not furnish periodic 
statements required by Sec.  1005.9(b) if the financial institution 
makes available to the consumer:
    (i) The consumer's account balance, through a readily available 
telephone line;
    (ii) An electronic history of the consumer's account transactions, 
such as through a Web site, that covers at least 12 months preceding 
the date the consumer electronically accesses the account; and
    (iii) A written history of the consumer's account transactions that 
is provided promptly in response to an oral or written request and that 
covers at least 24 months preceding the date the financial institution 
receives the consumer's request.
    (2) Periodic statement alternative for unverified prepaid accounts. 
For prepaid accounts that are not payroll card accounts or government 
benefit accounts, a financial institution is not required to provide a 
written history of the consumer's account transactions pursuant to 
paragraph (c)(1)(iii) of this section for any prepaid account for which 
the financial institution has not completed its consumer identification 
and verification process as described in paragraph (e)(3)(i)(A) through 
(C) of this section.
    (3) Information included on electronic or written histories. The 
history of account transactions provided under paragraphs (c)(1)(ii) 
and (iii) of this section must include the information set forth in 
Sec.  1005.9(b).
    (4) Inclusion of all fees charged. A financial institution must 
disclose the amount of any fees assessed against the account, whether 
for electronic fund transfers or otherwise, on any periodic statement 
provided pursuant to Sec.  1005.9(b) and on any history of account 
transactions provided or made available by the financial institution.
    (5) Summary totals of fees. A financial institution must display a 
summary total of the amount of all fees assessed by the financial 
institution against the consumer's prepaid account for the prior 
calendar month and for the calendar year to date on any periodic 
statement provided pursuant to Sec.  1005.9(b) and on any history of 
account transactions provided or made available by the financial 
institution.
    (d) Modified disclosure requirements. A financial institution that 
provides information under paragraph (c)(1) of this section shall 
comply with the following:
    (1) Initial disclosures. The financial institution shall modify the 
disclosures under Sec.  1005.7(b) by disclosing:
    (i) Access to account information. A telephone number that the 
consumer may call to obtain the account balance, the means by which the 
consumer can obtain an electronic account transaction history, such as 
the address of a Web site, and a summary of the consumer's right to 
receive a written account transaction history upon request (in place of 
the summary of the right to receive a periodic statement required by 
Sec.  1005.7(b)(6)), including a telephone number to call to request a 
history. The disclosure required by this paragraph may be made by 
providing a notice substantially similar to the notice contained in 
paragraph (a) of appendix A-7 of this part.
    (ii) Error resolution. A notice concerning error resolution that is 
substantially similar to the notice contained in paragraph (b) of 
appendix A-7 of this part, in place of the notice required by Sec.  
1005.7(b)(10).
    (2) Annual error resolution notice. The financial institution shall 
provide an annual notice concerning error resolution that is 
substantially similar to the notice contained in paragraph (b) of 
appendix A-7 of this part, in place of the notice required by Sec.  
1005.8(b). Alternatively, a financial institution may include on or 
with each electronic and written account transaction history provided 
in accordance with paragraph (c)(1) of this section, a notice 
substantially similar to the abbreviated notice for periodic statements 
contained in paragraph (b) of appendix A-3 of this part, modified as 
necessary to reflect the error resolution provisions set forth in 
paragraph (e) of this section.
    (e) Modified limitations on liability and error resolution 
requirements--(1) Modified limitations on liability requirements. A 
financial institution that provides information under paragraph (c)(1) 
of this section shall comply with the following:
    (i) For purposes of Sec.  1005.6(b)(3), the 60-day period for 
reporting any unauthorized transfer shall begin on the earlier of:
    (A) The date the consumer electronically accesses the consumer's 
account under paragraph (c)(1)(ii) of this section, provided that the 
electronic account transaction history made available to the consumer 
reflects the unauthorized transfer; or
    (B) The date the financial institution sends a written history of 
the consumer's account transactions requested by the consumer under 
paragraph (c)(1)(iii) of this section in which the unauthorized 
transfer is first reflected.
    (ii) A financial institution may comply with paragraph (e)(1)(i) of 
this section by limiting the consumer's liability for an unauthorized 
transfer as provided under Sec.  1005.6(b)(3) for any transfer reported 
by the consumer within 120 days after the transfer was credited or 
debited to the consumer's account.
    (2) Modified error resolution requirements. A financial institution 
that provides information under paragraph (c)(1) of this section shall 
comply with the following:
    (i) The financial institution shall comply with the requirements of 
Sec.  1005.11 in response to an oral or written notice of an error from 
the consumer that is received by the earlier of:
    (A) Sixty days after the date the consumer electronically accesses 
the consumer's account under paragraph

[[Page 84335]]

(c)(1)(ii) of this section, provided that the electronic account 
transaction history made available to the consumer reflects the alleged 
error; or
    (B) Sixty days after the date the financial institution sends a 
written history of the consumer's account transactions requested by the 
consumer under paragraph (c)(1)(iii) of this section in which the 
alleged error is first reflected.
    (ii) In lieu of following the procedures in paragraph (e)(2)(i) of 
this section, a financial institution complies with the requirements 
for resolving errors in Sec.  1005.11 if it investigates any oral or 
written notice of an error from the consumer that is received by the 
institution within 120 days after the transfer allegedly in error was 
credited or debited to the consumer's account.
    (3) Error resolution for unverified accounts--(i) Provisional 
credit for errors on accounts that have not been verified. As set forth 
in Sec.  1005.11(c)(2)(i)(C), for prepaid accounts that are not payroll 
card accounts or government benefit accounts, a financial institution 
may take up to the maximum length of time permitted under Sec.  
1005.11(c)(2)(i) or (c)(3)(ii), as applicable, to investigate and 
determine whether an error occurred without provisionally crediting a 
consumer's account if the financial institution has not completed its 
consumer identification and verification process with respect to that 
prepaid account.
    (ii) For purposes of paragraph (e)(3)(i) of this section, a 
financial institution has not completed its consumer identification and 
verification process where:
    (A) It has not concluded its consumer identification and 
verification process, provided the financial institution has disclosed 
to the consumer the risks of not registering the account using a notice 
that is substantially similar to the model notice contained in 
paragraph (c) of appendix A-7 of this part.
    (B) It has concluded its consumer identification and verification 
process, but could not verify the identity of the consumer, provided 
the financial institution has disclosed to the consumer the risks of 
not registering the account using a notice that is substantially 
similar to the model notice contained in paragraph (c) of appendix A-7 
of this part; or
    (C) It does not have a consumer identification and verification 
process by which the consumer can register the prepaid account.
    (iii) Resolution of pre-verification errors. If a consumer's 
account has been verified, the financial institution must comply with 
the provisions set forth in Sec.  1005.11(c) in full with respect to 
any errors that satisfy the timing requirements of Sec.  1005.11, or 
the modified timing requirements in this paragraph (e), as applicable, 
including with respect to errors that occurred prior to verification.
    (A) Notwithstanding paragraph (e)(3)(iii) of this section, if, at 
the time the financial institution was required to provisionally credit 
the account (pursuant to Sec.  1005.11(c)(2)(i) or (c)(3)(ii), as 
applicable), the financial institution has not yet completed its 
identification and verification process with respect to that account, 
the financial institution may take up to the maximum length of time 
permitted under Sec.  1005.11(c)(2)(i) or (c)(3)(ii), as applicable, to 
investigate and determine whether an error occurred without 
provisionally crediting the account.
    (f) Disclosure of fees and other information--(1) Initial 
disclosure of fees and other information. A financial institution must 
include, as part of the initial disclosures given pursuant to Sec.  
1005.7, all of the information required to be disclosed in its pre-
acquisition long form disclosure pursuant to paragraph (b)(4) of this 
section.
    (2) Change-in-terms notice. The change-in-terms notice provisions 
in Sec.  1005.8(a) apply to any change in a term or condition that is 
required to be disclosed under Sec.  1005.7 or paragraph (f)(1) of this 
section. If a financial institution discloses the amount of a third-
party fee in its pre-acquisition long form disclosure pursuant to 
paragraph (b)(4)(ii) of this section and initial disclosures pursuant 
to paragraph (f)(1) of this section, the financial institution is not 
required to provide a change-in-terms notice solely to reflect a change 
in that fee amount imposed by the third party. If a financial 
institution provides pursuant to paragraph (f)(1) of this section the 
Regulation Z disclosures required by paragraph (b)(4)(vii) of this 
section for an overdraft credit feature, the financial institution is 
not required to provide a change-in-terms notice solely to reflect a 
change in the fees or other terms disclosed therein.
    (3) Disclosures on prepaid account access devices. The name of the 
financial institution and the Web site URL and a telephone number a 
consumer can use to contact the financial institution about the prepaid 
account must be disclosed on the prepaid account access device. If a 
financial institution does not provide a physical access device in 
connection with a prepaid account, the disclosure must appear on the 
Web site, mobile application, or other entry point a consumer must 
visit to access the prepaid account electronically.
    (g) Prepaid accounts accessible by hybrid prepaid-credit cards--(1) 
In general. Except as provided in paragraph (g)(2) of this section, 
with respect to a prepaid account program where consumers may be 
offered a covered separate credit feature accessible by a hybrid 
prepaid-credit card as defined by Regulation Z, 12 CFR 1026.61, a 
financial institution must provide to any prepaid account without a 
covered separate credit feature the same account terms, conditions, and 
features that it provides on prepaid accounts in the same prepaid 
account program that have such a credit feature.
    (2) Exception for higher fees or charges. A financial institution 
is not prohibited under paragraph (g)(1) of this section from imposing 
a higher fee or charge on the asset feature of a prepaid account with a 
covered separate credit feature accessible by a hybrid prepaid-credit 
card than the amount of a comparable fee or charge that it imposes on 
any prepaid account in the same prepaid account program that does not 
have such a credit feature.
    (h) Effective date and special transition rules for disclosure 
provisions--(1) Effective date generally. Except as provided in 
paragraphs (h)(2) and (3) of this section, the requirements of this 
subpart, as modified by this section, apply to prepaid accounts as 
defined in Sec.  1005.2(b)(3), including government benefit accounts 
subject to Sec.  1005.15, beginning October 1, 2017.
    (2) Early disclosures--(i) Exception for disclosures on existing 
prepaid account access devices and prepaid account packaging materials. 
The disclosure requirements of this subpart, as modified by this 
section, shall not apply to any disclosures that are provided, or that 
would otherwise be required to be provided, on prepaid account access 
devices, or on, in, or with prepaid account packaging materials that 
were manufactured, printed, or otherwise produced in the normal course 
of business prior to October 1, 2017.
    (ii) Disclosures for prepaid accounts acquired on or after October 
1, 2017. This paragraph applies to prepaid accounts acquired by 
consumers on or after October 1, 2017 via packaging materials that were 
manufactured, printed, or otherwise produced prior to October 1, 2017.
    (A) Notices of certain changes. If a financial institution has 
changed a prepaid account's terms and conditions as a result of 
paragraph (h)(1) of this section taking effect such that a change-in-
terms notice would have been

[[Page 84336]]

required under Sec.  1005.8(a) or paragraph (f)(2) of this section for 
existing customers, the financial institution must provide to the 
consumer a notice of the change within 30 days of obtaining the 
consumer's contact information.
    (B) Initial disclosures. The financial institution must mail or 
deliver to the consumer initial disclosures pursuant to Sec.  1005.7 
and paragraph (f)(1) of this section that have been updated as a result 
of paragraph (h)(1) of this section taking effect, within 30 days of 
obtaining the consumer's contact information.
    (iii) Disclosures for prepaid accounts acquired before October 1, 
2017. This paragraph applies to prepaid accounts acquired by consumers 
before October 1, 2017. If a financial institution has changed a 
prepaid account's terms and conditions as a result of paragraph (h)(1) 
of this section taking effect such that a change-in-terms notice would 
have been required under Sec.  1005.8(a) or paragraph (f)(2) of this 
section for existing customers, the financial institution must provide 
to the consumer a notice of the change at least 21 days in advance of 
the change becoming effective, provided the financial institution has 
the consumer's contact information. If the financial institution 
obtains the consumer's contact information less than 30 days in advance 
of the change becoming effective or after it has become effective, the 
financial institution is permitted instead to notify the consumer of 
the change in accordance with the timing requirements set forth in 
paragraph (h)(2)(ii)(A) of this section.
    (iv) Method of providing notice to consumers. With respect to 
prepaid accounts governed by paragraph (h)(2)(ii) or (iii) of this 
section, if a financial institution has not obtained a consumer's 
consent to provide disclosures in electronic form pursuant to the 
Electronic Signatures in Global and National Commerce Act (E-Sign Act) 
(15 U.S.C. 7001 et seq.), or is not otherwise already mailing or 
delivering to the consumer written account-related communications 
within the respective time periods specified in paragraphs (h)(2)(ii) 
or (iii) of this section, the financial institution may provide to the 
consumer a notice of a change in terms and conditions pursuant to 
paragraph (h)(2)(ii) or (iii) of this section or required or voluntary 
updated initial disclosures as a result of paragraph (h)(1) of this 
section taking effect in electronic form without regard to the consumer 
notice and consent requirements of section 101(c) of the E-Sign Act.
    (3) Account information not available on October 1, 2017--(i) 
Electronic and written account transaction history. If, on October 1, 
2017, a financial institution does not have readily accessible the data 
necessary to make available 12 months of electronic account transaction 
history pursuant to paragraph (c)(1)(ii) of this section or to provide 
24 months of written account transaction history upon request pursuant 
to paragraph (c)(1)(iii) of this section, the financial institution may 
make available or provide such histories using the data for the time 
period it has until the financial institution has accumulated the data 
necessary to comply in full with the requirements set forth in 
paragraphs (c)(1)(ii) and (iii) of this section.
    (ii) Summary totals of fees. If, on October 1, 2017, the financial 
institution does not have readily accessible the data necessary to 
calculate the summary totals of the amount of all fees assessed by the 
financial institution on the consumer's prepaid account for the prior 
calendar month and for the calendar year to date pursuant to paragraph 
(c)(5) of this section, the financial institution may display the 
summary totals using the data it has until the financial institution 
has accumulated the data necessary to display the summary totals as 
required by paragraph (c)(5) of this section.

0
9. Section 1005.19 is added to read as follows:


Sec.  1005.19  Internet posting of prepaid account agreements.

    (a) Definitions--(1) Agreement. For purposes of this section, 
``agreement'' or ``prepaid account agreement'' means the written 
document or documents evidencing the terms of the legal obligation, or 
the prospective legal obligation, between a prepaid account issuer and 
a consumer for a prepaid account. ``Agreement'' or ``prepaid account 
agreement'' also includes fee information, as defined in paragraph 
(a)(3) of this section.
    (2) Amends. For purposes of this section, an issuer ``amends'' an 
agreement if it makes a substantive change (an ``amendment'') to the 
agreement. A change is substantive if it alters the rights or 
obligations of the issuer or the consumer under the agreement. Any 
change in the fee information, as defined in paragraph (a)(3) of this 
section, is deemed to be substantive.
    (3) Fee information. For purposes of this section, ``fee 
information'' means the short form disclosure for the prepaid account 
pursuant to Sec.  1005.18(b)(2) and the fee information and statements 
required to be disclosed in the pre-acquisition long form disclosure 
for the prepaid account pursuant to Sec.  1005.18(b)(4).
    (4) Issuer. For purposes of this section, ``issuer'' or ``prepaid 
account issuer'' means the entity to which a consumer is legally 
obligated, or would be legally obligated, under the terms of a prepaid 
account agreement.
    (5) Offers. For purposes of this section, an issuer ``offers'' an 
agreement if the issuer markets, solicits applications for, or 
otherwise makes available a prepaid account that would be subject to 
that agreement, regardless of whether the issuer offers the prepaid 
account to the general public.
    (6) Offers to the general public. For purposes of this section, an 
issuer ``offers to the general public'' an agreement if the issuer 
markets, solicits applications for, or otherwise makes available to the 
general public a prepaid account that would be subject to that 
agreement.
    (7) Open account. For purposes of this section, a prepaid account 
is an ``open account'' or ``open prepaid account'' if: There is an 
outstanding balance in the account; the consumer can load funds to the 
account even if the account does not currently hold a balance; or the 
consumer can access credit from a covered separate credit feature 
accessible by a hybrid prepaid-credit card as defined in Regulation Z, 
12 CFR 1026.61, in connection with the account. A prepaid account that 
has been suspended temporarily (for example, due to a report by the 
consumer of unauthorized use of the card) is considered an ``open 
account'' or ``open prepaid account.''
    (8) Prepaid account. For purposes of this section, ``prepaid 
account'' means a prepaid account as defined in Sec.  1005.2(b)(3).
    (b) Submission of agreements to the Bureau--(1) Submissions on a 
rolling basis. An issuer must make submissions of prepaid account 
agreements to the Bureau on a rolling basis, in the form and manner 
specified by the Bureau. Rolling submissions must be sent to the Bureau 
no later than 30 days after an issuer offers, amends, or ceases to 
offer any prepaid account agreement as described in paragraphs 
(b)(1)(ii) through (iv) of this section. Each submission must contain:
    (i) Identifying information about the issuer and the agreements 
submitted, including the issuer's name, address, and identifying number 
(such as an RSSD ID number or tax identification number), the effective 
date of the prepaid account agreement, the name of the program manager, 
if any, and the names of other relevant parties, if applicable (such as 
the employer for a

[[Page 84337]]

payroll card program or the agency for a government benefit program);
    (ii) Any prepaid account agreement offered by the issuer that has 
not been previously submitted to the Bureau;
    (iii) Any prepaid account agreement previously submitted to the 
Bureau that has been amended, as described in paragraph (b)(2) of this 
section; and
    (iv) Notification regarding any prepaid account agreement 
previously submitted to the Bureau that the issuer is withdrawing, as 
described in paragraphs (b)(3), (b)(4)(ii), and (b)(5)(ii) of this 
section.
    (2) Amended agreements. If a prepaid account agreement previously 
submitted to the Bureau is amended, the issuer must submit the entire 
amended agreement to the Bureau, in the form and manner specified by 
the Bureau, no later than 30 days after the change comes effective.
    (3) Withdrawal of agreements no longer offered. If an issuer no 
longer offers a prepaid account agreement that was previously submitted 
to the Bureau, the issuer must notify the Bureau, in the form and 
manner specified by the Bureau, no later than 30 days after the issuer 
ceases to offer the agreement, that it is withdrawing the agreement.
    (4) De minimis exception. (i) An issuer is not required to submit 
any prepaid account agreements to the Bureau if the issuer has fewer 
than 3,000 open prepaid accounts. If the issuer has 3,000 or more open 
prepaid accounts as of the last day of the calendar quarter, the issuer 
must submit to the Bureau its prepaid account agreements no later than 
30 days after the last day of that calendar quarter.
    (ii) If an issuer that did not previously qualify for the de 
minimis exception newly qualifies for the de minimis exception, the 
issuer must continue to make submissions to the Bureau on a rolling 
basis until the issuer notifies the Bureau that the issuer is 
withdrawing all agreements it previously submitted to the Bureau.
    (5) Product testing exception. (i) An issuer is not required to 
submit a prepaid account agreement to the Bureau if the agreement meets 
the criteria set forth in paragraphs (b)(5)(i)(A) through (C) of this 
section. If the agreement fails to meet the criteria set forth in 
paragraphs (b)(5)(i)(A) through (C) of this section as of the last day 
of the calendar quarter, the issuer must submit to the Bureau that 
prepaid account agreement no later than 30 days after the last day of 
that calendar quarter. An agreement qualifies for the product testing 
exception if the agreement:
    (A) Is offered as part of a product test offered to only a limited 
group of consumers for a limited period of time;
    (B) Is used for fewer than 3,000 open prepaid accounts; and
    (C) Is not offered other than in connection with such a product 
test.
    (ii) If an agreement that did not previously qualify for the 
product testing exception newly qualifies for the exception, the issuer 
must continue to make submissions to the Bureau on a rolling basis with 
respect to that agreement until the issuer notifies the Bureau that the 
issuer is withdrawing the agreement.
    (6) Form and content of agreements submitted to the Bureau--(i) 
Form and content generally. (A) Each agreement must contain the 
provisions of the agreement and the fee information currently in 
effect.
    (B) Agreements must not include any personally identifiable 
information relating to any consumer, such as name, address, telephone 
number, or account number.
    (C) The following are not deemed to be part of the agreement for 
purposes of this section, and therefore are not required to be included 
in submissions to the Bureau:
    (1) Ancillary disclosures required by state or Federal law, such as 
affiliate marketing notices, privacy policies, or disclosures under the 
E-Sign Act;
    (2) Solicitation or marketing materials;
    (3) Periodic statements; and
    (4) Documents that may be sent to the consumer along with the 
prepaid account or prepaid account agreement such as a cover letter, a 
validation sticker on the card, or other information about card 
security.
    (D) Agreements must be presented in a clear and legible font.
    (ii) Fee information. Fee information must be set forth either in 
the prepaid account agreement or in a single addendum to that 
agreement. The agreement or addendum thereto must contain all of the 
fee information, as defined by paragraph (a)(3) of this section.
    (iii) Integrated agreement. An issuer may not provide provisions of 
the agreement or fee information to the Bureau in the form of change-
in-terms notices or riders (other than the optional fee information 
addendum). Changes in provisions or fee information must be integrated 
into the text of the agreement, or the optional fee information 
addendum, as appropriate.
    (c) Posting of agreements offered to the general public. (1) An 
issuer must post and maintain on its publicly available Web site any 
prepaid account agreements offered to the general public that the 
issuer is required to submit to the Bureau under paragraph (b) of this 
section.
    (2) Agreements posted pursuant to this paragraph (c) must conform 
to the form and content requirements for agreements submitted to the 
Bureau set forth in paragraph (b)(6) of this section.
    (3) The issuer must post and update the agreements posted on its 
Web site pursuant to this paragraph (c) as frequently as the issuer is 
required to submit new or amended agreements to the Bureau pursuant to 
paragraph (b)(2) of this section.
    (4) Agreements posted pursuant to this paragraph (c) may be posted 
in any electronic format that is readily usable by the general public. 
Agreements must be placed in a location that is prominent and readily 
accessible to the public and must be accessible without submission of 
personally identifiable information.
    (d) Agreements for all open accounts--(1) Availability of an 
individual consumer's prepaid account agreement. With respect to any 
open prepaid account, an issuer must either:
    (i) Post and maintain the consumer's agreement on its Web site; or
    (ii) Promptly provide a copy of the consumer's agreement to the 
consumer upon the consumer's request. If the issuer makes an agreement 
available upon request, the issuer must provide the consumer with the 
ability to request a copy of the agreement by telephone. The issuer 
must send to the consumer a copy of the consumer's prepaid account 
agreement no later than five business days after the issuer receives 
the consumer's request.
    (2) Form and content of agreements. (i) Except as provided in this 
paragraph (d), agreements posted on the issuer's Web site pursuant to 
paragraph (d)(1)(i) of this section or sent to the consumer upon the 
consumer's request pursuant to paragraph (d)(1)(ii) of this section 
must conform to the form and content requirements for agreements 
submitted to the Bureau as set forth in paragraph (b)(6) of this 
section.
    (ii) If the issuer posts an agreement on its Web site under 
paragraph (d)(1)(i) of this section, the agreement may be posted in any 
electronic format that is readily usable by the general public and must 
be placed in a location that is prominent and readily accessible to the 
consumer.
    (iii) Agreements posted or otherwise provided pursuant to this 
paragraph (d) may contain personally identifiable information relating 
to the consumer, such as name, address, telephone number, or account 
number, provided that the issuer takes appropriate

[[Page 84338]]

measures to make the agreement accessible only to the consumer or other 
authorized persons.
    (iv) Agreements posted or otherwise provided pursuant to this 
paragraph (d) must set forth the specific provisions and fee 
information applicable to the particular consumer.
    (v) Agreements posted pursuant to paragraph (d)(1)(i) of this 
section must be updated as frequently as the issuer is required to 
submit amended agreements to the Bureau pursuant to paragraph (b)(2) of 
this section. Agreements provided upon consumer request pursuant to 
paragraph (d)(1)(ii) of this section must be accurate as of the date 
the agreement is sent to the consumer.
    (vi) Agreements provided upon consumer request pursuant to 
paragraph (d)(1)(ii) of this section must be provided by the issuer in 
paper form, unless the consumer agrees to receive the agreement 
electronically.
    (e) E-Sign Act requirements. Except as otherwise provided in this 
section, issuers may provide prepaid account agreements in electronic 
form under paragraphs (c) and (d) of this section without regard to the 
consumer notice and consent requirements of section 101(c) of the 
Electronic Signatures in Global and National Commerce Act (E-Sign Act) 
(15 U.S.C. 7001 et seq.).
    (f) Effective date--(1) Effective date generally. Except as 
provided in paragraph (f)(2) of this section, the requirements of this 
section apply to prepaid accounts beginning on October 1, 2017.
    (2) Delayed effective date for the agreement submission 
requirement. The requirement to submit prepaid account agreements to 
the Bureau on a rolling basis pursuant to paragraph (b) of this section 
is delayed until October 1, 2018. An issuer must submit to the Bureau 
no later than October 31, 2018 all prepaid account agreements it offers 
as of October 1, 2018.
    (3) Requirements to post and provide consumers agreements. Nothing 
in paragraph (f)(2) of this section shall affect the requirements to 
post prepaid account agreements on an issuer's Web site pursuant to 
paragraphs (c) and (d) of this section or the requirement to provide a 
copy of the consumer's agreement to the consumer upon request pursuant 
to paragraph (d) of this section.

Subpart B--Requirements for Remittance Transfers

0
10. Section 1005.32 is amended by revising paragraph (a)(1)(iii) to 
read as follows:


Sec.  1005.32  Estimates.

    (a) * * *
    (1) * * *
    (iii) The remittance transfer is sent from the sender's account 
with the institution; provided however, for the purposes of this 
paragraph, a sender's account does not include a prepaid account, 
unless the prepaid account is a payroll card account or a government 
benefit account.
* * * * *

0
11. In Appendix A to part 1005:
0
a. In the table of contents:
0
i. The entries for A-5 and A-7 are revised.
0
ii. Entries for A-10(a) through A-10(f) are added.
0
iii. The entry for reserved A-10 through A-30 is revised to A-11 
through A-29.
0
b. Model Clauses A-5 and A-7 are revised.
0
c. Model Forms A-10(a) through (f) are added.
0
d. Model Forms A-11 through A-29 are reserved.
    The additions and revisions read as follows:

Appendix A to Part 1005--Model Disclosure Clauses and Forms

Table of Contents

* * * * *
A-5--Model Clauses for Government Agencies (Sec.  1005.15(e)(1) and 
(2))
* * * * *
A-7--Model Clauses for Financial Institutions Offering Prepaid 
Accounts (Sec.  1005.18(d) and (e)(3))
* * * * *
A-10(a)--Model Form for Short Form Disclosures for Government 
Benefit Accounts (Sec. Sec.  1005.15(c) and 1005.18(b)(2), (3), (6), 
and (7))
A-10(b)--Model Form for Short Form Disclosures for Payroll Card 
Accounts (Sec.  1005.18(b)(2), (3), (6), and (7))
A-10(c)--Model Form for Short Form Disclosures for Prepaid Accounts, 
Example 1 (Sec.  1005.18(b)(2), (3), (6), and (7))
A-10(d)--Model Form for Short Form Disclosures for Prepaid Accounts, 
Example 2 (Sec.  1005.18(b)(2), (3), (6), and (7))
A-10(e)--Model Form for Short Form Disclosures for Prepaid Accounts 
with Multiple Service Plans (Sec.  1005.18(b)(2), (3), (6), and (7))
A-10(f)--Sample Form for Long Form Disclosures for Prepaid Accounts 
(Sec.  1005.18(b)(4), (6), and (7))
A-11 through A-29 [Reserved]
* * * * *

A-5--Model Clauses for Government Agencies (Sec.  1005.15(e)(1) and 
(2))

    (a) Disclosure by government agencies of information about 
obtaining account information for government benefit accounts (Sec.  
1005.15(e)(1)(i)).
    You may obtain information about the amount of benefits you have 
remaining by calling [telephone number]. That information is also 
available [on the receipt you get when you make a transfer with your 
card at (an ATM) (a POS terminal)] [when you make a balance inquiry 
at an ATM] [when you make a balance inquiry at specified locations]. 
This information, along with a 12-month history of account 
transactions, is also available online at [Internet address].
    You also have the right to obtain at least 24 months of written 
history of account transactions by calling [telephone number], or by 
writing to us at [address]. You will not be charged a fee for this 
information unless you request it more than once per month. 
[Optional: Or you may request a written history of account 
transactions by contacting your caseworker.]
    (b) Disclosure of error resolution procedures for government 
agencies that do not provide periodic statements (Sec.  
1005.15(e)(1)(ii) and (e)(2)).
    In Case of Errors or Questions About Your Electronic Transfers 
Telephone us at [telephone number] Write us at [address] [or email 
us at [email address]] as soon as you can, if you think an error has 
occurred in your [agency's name for program] account. We must allow 
you to report an error until 60 days after the earlier of the date 
you electronically access your account, if the error could be viewed 
in your electronic history, or the date we sent the FIRST written 
history on which the error appeared. You may request a written 
history of your transactions at any time by calling us at [telephone 
number] or writing us at [address] [optional: or by contacting your 
caseworker]. You will need to tell us:
     Your name and [case] [file] number.
     Why you believe there is an error, and the dollar 
amount involved.
     Approximately when the error took place.
    If you tell us orally, we may require that you send us your 
complaint or question in writing within 10 business days.
    We will determine whether an error occurred within 10 business 
days after we hear from you and will correct any error promptly. If 
we need more time, however, we may take up to 45 days to investigate 
your complaint or question. If we decide to do this, we will credit 
your account within 10 business days for the amount you think is in 
error, so that you will have the use of the money during the time it 
takes us to complete our investigation. If we ask you to put your 
complaint or question in writing and we do not receive it within 10 
business days, we may not credit your account.
    For errors involving new accounts, point-of-sale, or foreign-
initiated transactions, we may take up to 90 days to investigate 
your complaint or question. For new accounts, we may take up to 20 
business days to credit your account for the amount you think is in 
error.
    We will tell you the results within three business days after 
completing our investigation. If we decide that there was no error, 
we will send you a written explanation.
    You may ask for copies of the documents that we used in our 
investigation.
    If you need more information about our error resolution 
procedures, call us at

[[Page 84339]]

[telephone number][the telephone number shown above].
* * * * *

A-7--Model Clauses for Financial Institutions Offering Prepaid Accounts 
(Sec.  1005.18(d) and (e)(3))

    (a) Disclosure by financial institutions of information about 
obtaining account information for prepaid accounts (Sec.  
1005.18(d)(1)(i)).
    You may obtain information about the amount of money you have 
remaining in your prepaid account by calling [telephone number]. 
This information, along with a 12-month history of account 
transactions, is also available online at [Internet address].
    [For accounts that are or can be registered:] [If your account 
is registered with us,] You also have the right to obtain at least 
24 months of written history of account transactions by calling 
[telephone number], or by writing us at [address]. You will not be 
charged a fee for this information unless you request it more than 
once per month.
    (b) Disclosure of error-resolution procedures for financial 
institutions that do not provide periodic statements (Sec.  
1005.18(d)(1)(ii) and (d)(2)).
    In Case of Errors or Questions About Your Prepaid Account 
Telephone us at [telephone number] or Write us at [address] [or 
email us at [email address]] as soon as you can, if you think an 
error has occurred in your prepaid account. We must allow you to 
report an error until 60 days after the earlier of the date you 
electronically access your account, if the error could be viewed in 
your electronic history, or the date we sent the FIRST written 
history on which the error appeared. You may request a written 
history of your transactions at any time by calling us at [telephone 
number] or writing us at [address]. You will need to tell us:
    Your name and [prepaid account] number.
    Why you believe there is an error, and the dollar amount 
involved.
    Approximately when the error took place.
    If you tell us orally, we may require that you send us your 
complaint or question in writing within 10 business days.
    We will determine whether an error occurred within 10 business 
days after we hear from you and will correct any error promptly. If 
we need more time, however, we may take up to 45 days to investigate 
your complaint or question. If we decide to do this, [and your 
account is registered with us,] we will credit your account within 
10 business days for the amount you think is in error, so that you 
will have the money during the time it takes us to complete our 
investigation. If we ask you to put your complaint or question in 
writing and we do not receive it within 10 business days, we may not 
credit your account. [Keep reading to learn more about how to 
register your card.]
    For errors involving new accounts, point-of-sale, or foreign-
initiated transactions, we may take up to 90 days to investigate 
your complaint or question. For new accounts, we may take up to 20 
business days to credit your account for the amount you think is in 
error.
    We will tell you the results within three business days after 
completing our investigation. If we decide that there was no error, 
we will send you a written explanation.
    You may ask for copies of the documents that we used in our 
investigation.
    If you need more information about our error-resolution 
procedures, call us at [telephone number] [the telephone number 
shown above] [or visit [Internet address]].
    (c) Warning regarding unregistered prepaid accounts (Sec.  
1005.18(e)(3)).
    It is important to register your prepaid account as soon as 
possible. Unless you register your account, we may not credit your 
account in the amount you think is in error until we complete our 
investigation. To register your account, go to [Internet address] or 
call us at [telephone number]. We will ask you for identifying 
information about yourself (including your full name, address, date 
of birth, and [Social Security Number] [government-issued 
identification number]), so that we can verify your identity.
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BILLING CODE 4810-AM-C
    A-11 through A-29 [Reserved]
* * * * *

0
12. In Supplement I to part 1005:
0
a. Under Section 1005.2--Definitions:

[[Page 84346]]

0
i. In subsection 2(b) Account, paragraph 2 is removed and paragraph 3 
is redesignated as paragraph 2.
0
ii. Subsection Paragraph 2(b)(3) is added.
0
b. Under Section 1005.4--General Disclosure Requirements; Jointly 
Offered Services:
0
i. In subsection 4(a) Form of Disclosures, paragraph 1 is revised.
0
c. Under Section 1005.10--Preauthorized Transfers:
0
i. Subsection 10(e)(1) Credit is revised.
0
ii. In subsection 10(e)(2) Employment or Government Benefit, paragraph 
2 is added.
0
d. Under Section 1005.12--Relation to Other Laws:
0
i. Subsection 12(a) Relation to Truth in Lending is revised.
0
ii. In subsection 12(b) Preemption of Inconsistent State Laws, 
paragraph 2 is revised and paragraphs 3 and 4 are added.
0
e. Section 1005.15--Electronic Fund Transfer of Government Benefits is 
added.
0
f. Section 1005.18--Requirements for Financial Institutions Offering 
Payroll Card Accounts is removed.
0
g. Section 1005.18--Requirements for Financial Institutions Offering 
Prepaid Accounts is added.
0
h. Section 1005.19--Internet Posting of Prepaid Account Agreements is 
added.
0
i. Under Section 1005.30--Remittance Transfer Definitions:
0
i. In subsection 30(c) Designated Recipient, paragraph 2.ii is revised.
0
ii. In subsection 30(g) Sender, paragraphs 1 and 3 are revised.
0
j. Under Appendix A--Model Disclosure Clauses and Forms:
0
i. Paragraphs 2 and 3 are revised.
    The revisions, additions, and removals read as follows:

Supplement I to Part 1005--Official Interpretations

Section 1005.2--Definitions

* * * * *

2(b) Account

* * * * *

Paragraph 2(b)(3)

Paragraph 2(b)(3)(i)

    1. Debit card includes prepaid card. For purposes of subpart A 
of Regulation E, unless otherwise specified, the term debit card 
also includes a prepaid card.
    2. Certain employment-related cards not covered as payroll card 
accounts. The term ``payroll card account'' does not include an 
account used solely to disburse incentive-based payments (other than 
commissions which can represent the primary means through which a 
consumer is paid), such as bonuses, which are unlikely to be a 
consumer's primary source of salary or other compensation. The term 
also does not include an account used solely to make disbursements 
unrelated to compensation, such as petty cash reimbursements or 
travel per diem payments. Similarly, a payroll card account does not 
include an account that is used in isolated instances to which an 
employer typically does not make recurring payments, such as when 
providing final payments or in emergency situations when other 
payment methods are unavailable. While such accounts would not be 
payroll card accounts, such accounts could constitute prepaid 
accounts generally, provided the other conditions of the definition 
of that term in Sec.  1005.2(b)(3) are satisfied. In addition, all 
transactions involving the transfer of funds to or from a payroll 
card account or prepaid account are covered by the regulation, even 
if a particular transaction involves payment of a bonus, other 
incentive-based payment, or reimbursement, or the transaction does 
not represent a transfer of wages, salary, or other employee 
compensation.
    3. Marketed or labeled as ``prepaid.'' The term ``marketed or 
labeled as `prepaid' '' means promoting or advertising an account 
using the term ``prepaid.'' For example, an account is marketed or 
labeled as prepaid if the term ``prepaid'' appears on the access 
device associated with the account or the access device's packaging 
materials, or on a display, advertisement, or other publication to 
promote purchase or use of the account. An account may be marketed 
or labeled as prepaid if the financial institution, its service 
provider, including a program manager, or the payment network on 
which an access device for the account is used, promotes or 
advertises, or contracts with another party to promote or advertise, 
the account using the label ``prepaid.'' A product or service that 
is marketed or labeled as prepaid is not a ``prepaid account'' 
pursuant to Sec.  1005.2(b)(3)(i)(C) if it does not otherwise meet 
the definition of account under Sec.  1005.2(b)(1).
    4. Issued on a prepaid basis. To be issued on a prepaid basis, a 
prepaid account must be loaded with funds when it is first provided 
to the consumer for use. For example, if a consumer purchases a 
prepaid account and provides funds that are loaded onto a card at 
the time of purchase, the prepaid account is issued on a prepaid 
basis.
    5. Capable of being loaded with funds. A prepaid account that is 
not issued on a prepaid basis but is capable of being loaded with 
funds thereafter includes a prepaid card issued to a consumer with a 
zero balance to which funds may be loaded by the consumer or a third 
party subsequent to issuance.
    6. Prepaid account acting as a pass-through vehicle for funds. 
To satisfy Sec.  1005.2(b)(3)(i)(D), a prepaid account must be 
issued on a prepaid basis or be capable of being loaded with funds. 
This means that the prepaid account must be capable of holding 
funds, rather than merely acting as a pass-through vehicle. For 
example, if a product, such as a digital wallet, is only capable of 
storing a consumer's payment credentials for other accounts but is 
incapable of having funds stored on it, such a product is not a 
prepaid account. However, if a product allows a consumer to transfer 
funds, which can be stored before the consumer designates a 
destination for the funds, the product satisfies Sec.  
1005.2(b)(3)(i)(D).
    7. Not required to be reloadable. Prepaid accounts need not be 
reloadable by the consumer or a third party.
    8. Primary function. To satisfy Sec.  1005.2(b)(3)(i)(D), an 
account's primary function must be to provide consumers with general 
transaction capability, which includes the general ability to use 
loaded funds to conduct transactions with multiple, unaffiliated 
merchants for goods or services, or at automated teller machines, or 
to conduct person-to-person transfers. This definition excludes 
accounts that provide such capability only incidentally. For 
example, the primary function of a brokerage account is to hold 
funds so that the consumer can conduct transactions through a 
licensed broker or firm, not to conduct transactions with multiple, 
unaffiliated merchants for good or services, or at automated teller 
machines, or to conduct person-to-person transfers. Similarly, the 
primary function of a savings account is to accrue interest on funds 
held in the account; such accounts restrict the extent to which the 
consumer can conduct general transactions and withdrawals. 
Accordingly, brokerage accounts and savings accounts do not satisfy 
Sec.  1005.2(b)(3)(i)(D), and thus are not prepaid accounts as 
defined by Sec.  1005.2(b)(3). The following examples provide 
additional guidance:
    i. An account's primary function is to enable a consumer to 
conduct transactions with multiple, unaffiliated merchants for goods 
or services, at automated teller machines, or to conduct person-to-
person transfers, even if the account also enables a third party to 
disburse funds to a consumer. For example, a prepaid account that 
conveys tax refunds or insurance proceeds to a consumer meets the 
primary function test if the account can be used, e.g., to purchase 
goods or services at multiple, unaffiliated merchants.
    ii. Whether an account satisfies Sec.  1005.2(b)(3)(i)(D) is 
determined by reference to the account, not the access device 
associated with the account. An account satisfies Sec.  
1005.2(b)(3)(i)(D) even if the account's access device can be used 
for other purposes, for example, as a form of identification. Such 
accounts may include, for example, a prepaid account used to 
disburse student loan proceeds via a card device that can be used at 
unaffiliated merchants or to withdraw cash from an automated teller 
machine, even if that access device also acts as a student 
identification card.
    iii. Where multiple accounts are associated with the same access 
device, the primary function of each account is determined 
separately. One or more accounts can satisfy Sec.  
1005.2(b)(3)(i)(D) even if other accounts associated with the same 
access device do not. For example, a student identification card may 
act as an access device associated with two separate accounts: An 
account used to conduct transactions with multiple, unaffiliated 
merchants for goods or services, and an account used to conduct 
closed-loop

[[Page 84347]]

transactions on campus. The account used to conduct transactions 
with multiple, unaffiliated merchants for goods or services 
satisfies Sec.  1005.2(b)(3)(i)(D), even though the account used to 
conduct closed-loop transactions does not (and as such the latter is 
not a prepaid account as defined by Sec.  1005.2(b)(3)).
    iv. An account satisfies Sec.  1005.2(b)(3)(i)(D) if its primary 
function is to provide general transaction capability, even if an 
individual consumer does not in fact use it to conduct multiple 
transactions. For example, the fact that a consumer may choose to 
withdraw the entire account balance at an automated teller machine 
or transfer it to another account held by the consumer does not 
change the fact that the account's primary function is to provide 
general transaction capability.
    v. An account whose primary function is other than to conduct 
transactions with multiple, unaffiliated merchants for goods or 
services, or at automated teller machines, or to conduct person-to-
person transfers, does not satisfy Sec.  1005.2(b)(3)(i)(D). Such 
accounts may include, for example, a product whose only function is 
to make a one-time transfer of funds into a separate prepaid 
account.
    9. Redeemable upon presentation at multiple, unaffiliated 
merchants. For guidance, see comments 20(a)(3)-1 and -2.
    10. Person-to-person transfers. A prepaid account whose primary 
function is to conduct person-to-person transfers is an account that 
allows a consumer to send funds by electronic fund transfer to 
another consumer or business. An account may qualify as a prepaid 
account if its primary function is person-to-person transfers even 
if it is neither redeemable upon presentation at multiple, 
unaffiliated merchants for goods or services, nor usable at 
automated teller machines. A transaction involving a store gift card 
would not be a person-to-person transfer if it could only be used to 
make payments to the merchant or affiliated group of merchants on 
whose behalf the card was issued.

Paragraph 2(b)(3)(ii)

    1. Excluded health care and employee benefit related prepaid 
products. For purposes of Sec.  1005.2(b)(3)(ii)(A), ``health 
savings account'' means a health savings account as defined in 26 
U.S.C. 223(d); ``flexible spending arrangement'' means a health 
benefits or a health flexible spending arrangement pursuant to 26 
U.S.C. 125; ``medical savings account'' means an Archer MSA as 
defined in 26 U.S.C. 220(d); ``health reimbursement arrangement'' 
means a health reimbursement arrangement which is treated as 
employer-provided coverage under an accident or health plan for 
purposes of 26 U.S.C. 106; ``dependent care assistance program'' 
means a dependent care assistance program pursuant to 26 U.S.C. 129; 
and ``transit or parking reimbursement arrangement'' means a 
qualified transportation fringe benefit provided by an employer 
pursuant to 26 U.S.C. 132.
    2. Excluded disaster relief funds. For purposes of Sec.  
1005.2(b)(3)(ii)(B), ``qualified disaster relief funds'' means funds 
made available through a qualified disaster relief program as 
defined in 26 U.S.C. 139(b).
    3. Marketed and labeled as a gift card or gift certificate. 
Section 1005.2(b)(3)(ii)(D) excludes, among other things, reloadable 
general-use prepaid cards that are both marketed and labeled as gift 
cards or gift certificates, whereas Sec.  1005.20(b)(2) excludes 
such products that are marketed or labeled as gift cards or gift 
certificates. Comment 20(b)(2)-2 describes, in part, a network-
branded GPR card that is principally advertised as a less-costly 
alternative to a bank account but is promoted in a television, 
radio, newspaper, or Internet advertisement, or on signage as ``the 
perfect gift'' during the holiday season. For purposes of Sec.  
1005.20, such a product would be considered marketed as a gift card 
or gift certificate because of this occasional holiday marketing 
activity. For purposes of Sec.  1005.2(b)(3)(ii)(D), however, such a 
product would not be considered to be both marketed and labeled as a 
gift card or gift certificate and thus would be covered by the 
definition of prepaid account.
* * * * *

Section 1005.4--General Disclosure Requirements; Jointly Offered 
Services

4(a) Form of Disclosures

    1. General. The disclosures required by this part must be in a 
clear and readily understandable written form that the consumer may 
retain. Additionally, except as otherwise set forth in Sec. Sec.  
1005.18(b)(7) and 1005.31(c), no particular rules govern type size, 
number of pages, or the relative conspicuousness of various terms. 
Numbers or codes are considered readily understandable if explained 
elsewhere on the disclosure form.
* * * * *

Section 1005.10--Preauthorized Transfers

* * * * *

10(e) Compulsory Use

10(e)(1) Credit

    1. General rule for loan payments. Creditors may not require 
repayment of loans by electronic means on a preauthorized, recurring 
basis.
    2. Overdraft credit plans not accessible by hybrid prepaid-
credit cards. i. Section 1005.10(e)(1) provides an exception from 
the general rule for an overdraft credit plan other than for a 
covered separate credit feature accessible by a hybrid prepaid-
credit card as defined in Regulation Z, 12 CFR 1026.61. A financial 
institution may therefore require the automatic repayment of an 
overdraft credit plan, other than a covered separate credit feature 
accessible by a hybrid prepaid-credit card, even if the overdraft 
extension is charged to an open-end account that may be accessed by 
the consumer in ways other than by overdrafts.
    ii. Credit extended through a negative balance on the asset 
feature of a prepaid account that meets the conditions of Regulation 
Z, 12 CFR 1026.61(a)(4), is considered credit extended pursuant to 
an overdraft credit plan for purposes of Sec.  1005.10(e)(1). Thus, 
the exception for overdraft credit plans in Sec.  1005.10(e)(1) 
applies to this credit.
    3. Applicability to covered separate credit features accessible 
by hybrid prepaid-credit cards. i. Under Sec.  1005.10(e)(1), 
creditors may not require by electronic means on a preauthorized, 
recurring basis repayment of credit extended under a covered 
separate credit feature accessible by a hybrid prepaid-credit card 
as defined in Regulation Z, 12 CFR 1026.61. The prohibition in Sec.  
1005.10(e)(1) applies to any credit extended under such a credit 
feature, including preauthorized checks. See Regulation Z, 12 CFR 
1026.61, and comment 61(a)(1)-3.
    ii. Under Regulation Z, 12 CFR 1026.12(d)(1), a card issuer may 
not take any action, either before or after termination of credit 
card privileges, to offset a cardholder's indebtedness arising from 
a consumer credit transaction under the relevant credit card plan 
against funds of the cardholder held on deposit with the card 
issuer. Under Regulation Z, 12 CFR 1026.12(d)(3), with respect to 
covered separate credit features accessible by hybrid prepaid-credit 
cards as defined in 12 CFR 1026.61, a card issuer generally is not 
prohibited from periodically deducting all or part of the 
cardholder's credit card debt from a deposit account (such as a 
prepaid account) held with the card issuer under a plan that is 
authorized in writing by the cardholder, so long as the card issuer 
does not make such deductions to the plan more frequently than once 
per calendar month. A card issuer is prohibited under Regulation Z, 
12 CFR 1026.12(d), from automatically deducting all or part of the 
cardholder's credit card debt under a covered separate credit 
feature from a deposit account (such as a prepaid account) held with 
the card issuer on a daily or weekly basis, or whenever deposits are 
made to the deposit account. Section 1005.10(e)(1) further restricts 
the card issuer from requiring payment from a deposit account (such 
as a prepaid account) of credit card balances of a covered separate 
credit feature accessible by a hybrid prepaid-credit card by 
electronic means on a preauthorized, recurring basis.
    4. Incentives. A creditor may offer a program with a reduced 
annual percentage rate or other cost-related incentive for an 
automatic repayment feature, provided the program with the automatic 
payment feature is not the only loan program offered by the creditor 
for the type of credit involved. Examples include:
    i. Mortgages with graduated payments in which a pledged savings 
account is automatically debited during an initial period to 
supplement the monthly payments made by the borrower.
    ii. Mortgage plans calling for preauthorized biweekly payments 
that are debited electronically to the consumer's account and 
produce a lower total finance charge.

10(e)(2) Employment or Government Benefit

* * * * *
    2. Government benefit. A government agency may not require 
consumers to receive government benefits by direct deposit to any 
particular institution. A government agency may require direct 
deposit of benefits by electronic means if recipients are allowed to 
choose the institution that will receive the direct deposit. 
Alternatively, a government agency may give recipients the choice of 
having their benefits deposited at a particular

[[Page 84348]]

institution (designated by the government agency) or receiving their 
benefits by another means.
* * * * *

Section 1005.12--Relation to Other Laws

12(a) Relation to Truth in Lending

    1. Issuance rules for access devices other than access devices 
for prepaid accounts. For access devices that also constitute credit 
cards (other than access devices for prepaid accounts), the issuance 
rules of Regulation E apply if the only credit feature is a 
preexisting credit line attached to the asset account to cover 
overdrafts (or to maintain a specified minimum balance) or an 
overdraft service, as defined in Sec.  1005.17(a). Regulation Z (12 
CFR part 1026) rules apply if there is another type of credit 
feature; for example, one permitting direct extensions of credit 
that do not involve the asset account.
    2. Overdraft services. The addition of an overdraft service, as 
that term is defined in Sec.  1005.17(a), to an accepted access 
device does not constitute the addition of a credit feature subject 
to Regulation Z. Instead, the provisions of Regulation E apply, 
including the liability limitations (Sec.  1005.6) and the 
requirement to obtain consumer consent to the service before any 
fees or charges for paying an overdraft may be assessed on the 
account (Sec.  1005.17).
    3. Issuance of prepaid access devices that can access a covered 
separate credit feature subject to Regulation Z. An access device 
for a prepaid account cannot access a covered separate credit 
feature as defined in Regulation Z, 12 CFR 1026.61, when the access 
device is issued if the access device is issued prior to the 
expiration of the 30-day period set forth in 12 CFR 1026.61(c). 
Regulation Z, 12 CFR 1026.61(c), provides that with respect to a 
covered separate credit feature that could be accessible by a hybrid 
prepaid-credit card at any point, a card issuer must not do any of 
the following until 30 days after the prepaid account has been 
registered: (1) Open a covered separate credit feature accessible by 
the hybrid prepaid-credit card; (2) make a solicitation or provide 
an application to open a covered separate credit feature accessible 
by the hybrid prepaid-credit card; or (3) allow an existing credit 
feature that was opened prior to the consumer to become a covered 
separate credit feature accessible by the hybrid prepaid-credit 
card. An access device for a prepaid account that is not a hybrid 
prepaid-credit card as that term is defined in Regulation Z, 12 CFR 
1026.61, is subject to the issuance rules in Regulation E.
    4. Addition of a covered separate credit feature to an existing 
access device for a prepaid account. Regulation Z governs the 
addition of a covered separate credit feature as that term is 
defined in Regulation Z, 12 CFR 1026.61, to an existing access 
device for a prepaid account. In this case, the access device would 
become a hybrid prepaid-credit card under Regulation Z (12 CFR part 
1026). A covered separate credit feature may be added to a 
previously issued access device for a prepaid account only upon the 
consumer's application or specific request as described in 
Regulation Z, 12 CFR 1026.12(a)(1), and only in compliance with 12 
CFR 1026.61(c).
    5. Determining applicable regulation related to liability and 
error resolution. i. Under Sec.  1005.12(a)(1)(iv)(B), with respect 
to a transaction that involves a covered separate credit feature and 
an asset feature on a prepaid account that are both accessible by a 
hybrid prepaid-credit card as those terms are defined in Regulation 
Z, 12 CFR 1026.61, where credit is extended under a covered separate 
credit feature accessible by a hybrid prepaid-credit card that is 
incident to an electronic fund transfer when the hybrid prepaid-
credit card accesses both funds in the asset feature of a prepaid 
account and credit extensions from the credit feature with respect 
to a particular transaction, Regulation E's liability limitations 
and error resolution provisions apply to the transaction, in 
addition to Regulation Z, 12 CFR 1026.13(d) and (g) (which apply 
because of the extension of credit associated with the covered 
separate credit feature). Section 1005.12(a)(1)(iv)(C) provides that 
with respect to transactions that involves credit extended through a 
negative balance to the asset feature of a prepaid account that 
meets the conditions set forth in Regulation Z, 12 CFR 
1026.61(a)(4), these transactions are governed solely by the 
liability limitations and error resolution procedures in Regulation 
E, and Regulation Z does not apply. Section 1005.12(a)(1)(iv)(D) and 
(a)(2)(iii), taken together, provide that with respect to 
transactions involving a prepaid account and a non-covered separate 
credit feature as defined in Regulation Z, 12 CFR 1026.61, a 
financial institution must comply with Regulation E's liability 
limitations and error resolution procedures with respect to 
transactions that access the prepaid account as applicable, and the 
creditor must comply with Regulation Z's liability limitations and 
error resolution procedures with respect to transactions that access 
the non-covered separate credit feature, as applicable.
    ii. Under Sec.  1005.12(a)(1)(iv)(A), with respect to an account 
(other than a prepaid account) where credit is extended incident to 
an electronic fund transfer under an agreement to extend overdraft 
credit between the consumer and the financial institution, 
Regulation E's liability limitations and error resolution provisions 
apply to the transaction, in addition to Regulation Z, 12 CFR 
1026.13(d) and (g) (which apply because of the extension of credit 
associated with the overdraft feature on the asset account).
    iii. For transactions involving access devices that also 
function as credit cards under Regulation Z (12 CFR part 1026), 
whether Regulation E or Regulation Z applies depends on the nature 
of the transaction. For example, if the transaction solely involves 
an extension of credit, and does not access funds in a consumer 
asset account, such as a checking account or prepaid account, the 
liability limitations and error resolution requirements of 
Regulation Z apply. If the transaction accesses funds in an asset 
account only (with no credit extended), the provisions of Regulation 
E apply. If the transaction access funds in an asset account but 
also involves an extension of credit under the overdraft credit 
feature subject to Regulation Z attached to the account, Regulation 
E's liability limitations and error resolution provisions apply, in 
addition to Regulation Z, 12 CFR 1026.13(d) and (g) (which apply 
because of the extension of credit associated with the overdraft 
feature on the asset account). If a consumer's access device is also 
a credit card and the device is used to make unauthorized 
withdrawals from an asset account, but also is used to obtain 
unauthorized cash advances directly from a credit feature that is 
subject to Regulation Z that is separate from the asset account, 
both Regulation E and Regulation Z apply.
    iv. The following examples illustrate these principles:
    A. A consumer has a card that can be used either as a credit 
card or an access device that draws on the consumer's checking 
account. When used as a credit card, the card does not first access 
any funds in the checking account but draws only on a separate 
credit feature subject to Regulation Z. If the card is stolen and 
used as a credit card to make purchases or to get cash advances at 
an ATM from the line of credit, the liability limits and error 
resolution provisions of Regulation Z apply; Regulation E does not 
apply.
    B. In the same situation, if the card is stolen and is used as 
an access device to make purchases or to get cash withdrawals at an 
ATM from the checking account, the liability limits and error 
resolution provisions of Regulation E apply; Regulation Z does not 
apply.
    C. In the same situation, assume the card is stolen and used 
both as an access device for the checking account and as a credit 
card; for example, the thief makes some purchases using the card to 
access funds in the checking account and other purchases using the 
card as a credit card. Here, the liability limits and error 
resolution provisions of Regulation E apply to the unauthorized 
transactions in which the card was used as an access device for the 
checking account, and the corresponding provisions of Regulation Z 
apply to the unauthorized transactions in which the card was used as 
a credit card.
    D. Assume a somewhat different type of card, one that draws on 
the consumer's checking account and can also draw on an overdraft 
credit feature subject to Regulation Z attached to the checking 
account. The overdraft credit feature associated with the card is 
accessed only when the consumer uses the card to make a purchase (or 
other transaction) for which there are insufficient or unavailable 
funds in the checking account. In this situation, if the card is 
stolen and used to make purchases funded entirely by available funds 
in the checking account, the liability limits and the error 
resolution provisions of Regulation E apply. If the use of the card 
results in an extension of credit that is incident to an electronic 
fund transfer where the transaction is funded partially by funds in 
the consumer's asset account and partially by credit extended under 
the overdraft credit feature, the error resolution provisions of 
Regulation Z, 12 CFR 1026.13(d) and (g), apply in addition to the 
Regulation E provisions, but the other liability limit and error 
resolution provisions of Regulation Z do not. Relatedly, if the use

[[Page 84349]]

of the card is funded entirely by credit extended under the 
overdraft credit feature, the transaction is governed solely by the 
liability limitations and error resolution requirements of 
Regulation Z. See Regulation Z, 12 CFR 1026.13(i).
    E. The same principles in comment 12(a)-5.iv.A, B, C, and D 
apply to an access device for a prepaid account that also is a 
hybrid prepaid-credit card with respect to a covered separate credit 
feature under Regulation Z, 12 CFR 1026.61. See also Regulation Z, 
12 CFR 1026.13(i)(2) and comment 13(i)-4.

12(b) Preemption of Inconsistent State Laws

* * * * *
    2. Preemption determinations generally. The Bureau recognizes 
state law preemption determinations made by the Board of Governors 
of the Federal Reserve System prior to July 21, 2011, until and 
unless the Bureau makes and publishes any contrary determination.
    3. Preemption determination--Michigan. The Board of Governors of 
the Federal Reserve System determined that certain provisions in the 
state law of Michigan are preempted by the Federal law, effective 
March 30, 1981:
    i. Definition of unauthorized use. Section 488.5(4) of the state 
law of Michigan, governing electronic fund transfers, is preempted 
to the extent that it relates to the section of state law governing 
consumer liability for unauthorized use of an access device.
    ii. Consumer liability for unauthorized use of an account. 
Section 488.14 of the state law of Michigan, governing electronic 
fund transfers, is preempted because it is inconsistent with Sec.  
1005.6 and is less protective of the consumer than the Federal law. 
The state law places liability on the consumer for the unauthorized 
use of an account in cases involving the consumer's negligence. 
Under the Federal law, a consumer's liability for unauthorized use 
is not related to the consumer's negligence and depends instead on 
the consumer's promptness in reporting the loss or theft of the 
access device.
    iii. Error resolution. Section 488.15 of the state law of 
Michigan, governing electronic fund transfers, is preempted because 
it is inconsistent with Sec.  1005.11 and is less protective of the 
consumer than the Federal law. The state law allows financial 
institutions up to 70 days to resolve errors, whereas the Federal 
law generally requires errors to be resolved within 45 days.
    iv. Receipts and periodic statements. Sections 488.17 and 488.18 
of the state law of Michigan, governing electronic fund transfers, 
are preempted because they are inconsistent with Sec.  1005.9, other 
than for transfers of $15 or less pursuant to Sec.  1005.9(e). The 
state provisions require a different disclosure of information than 
does the Federal law. The receipt provision is also preempted 
because it allows the consumer to be charged for receiving a receipt 
if a machine cannot furnish one at the time of a transfer.
    4. Preemption determination--Tennessee. The Bureau determined 
that the following provision in the state law of Tennessee is 
preempted by the Federal law, effective April 25, 2013:
    i. Gift certificates, store gift cards, and general-use prepaid 
cards. Section 66-29-116 of Tennessee's Uniform Disposition of 
Unclaimed (Personal) Property Act is preempted to the extent that it 
permits gift certificates, store gift cards, and general-use prepaid 
cards, as defined in Sec.  1005.20(a), to be declined at the point-
of-sale sooner than the gift certificates, store gift cards, or 
general-use prepaid cards and their underlying funds are permitted 
to expire under Sec.  1005.20(e).
* * * * *

Section 1005.15--Electronic Fund Transfer of Government Benefits

15(c) Pre-Acquisition Disclosure Requirements

    1. Disclosing the short and long form before acquisition. 
Section 1005.15(c)(1) requires that, before a consumer acquires an 
account governed by Sec.  1005.15, a government agency must comply 
with the pre-acquisition disclosure requirements applicable to 
prepaid accounts as set forth in Sec.  1005.18(b). Section 
1005.18(b)(1)(i) generally requires delivery of both the short form 
disclosure required by Sec.  1005.18(b)(2), accompanied by the 
information in Sec.  1005.18(b)(5), and the long form disclosure 
required by Sec.  1005.18(b)(4) before a consumer acquires a prepaid 
account. For purposes of Sec.  1005.15(c), a consumer is deemed to 
have received the disclosures required by Sec.  1005.18(b) prior to 
acquisition when the consumer receives the disclosures before 
choosing to receive benefits via the government benefit account. The 
following example illustrates when a consumer receives disclosures 
before acquisition of an account for purposes of Sec.  1005.15(c):
    i. A government agency informs a consumer that she can receive 
distribution of benefits via a government benefit account in the 
form of a prepaid card. The consumer receives the prepaid card and 
the disclosures required by Sec.  1005.18(b) to review at the time 
the consumer receives benefits eligibility information from the 
agency. After receiving the disclosures, the consumer chooses to 
receive benefits via the government benefit account. These 
disclosures were provided to the consumer pre-acquisition, and the 
agency has complied with Sec.  1005.15(c). By contrast, if the 
consumer does not receive the disclosures required by Sec.  
1005.18(b) to review until the time at which the consumer received 
the first benefit payment deposited into the government benefit 
account, these disclosures were provided to the consumer post-
acquisition, and were not provided in compliance with Sec.  
1005.15(c).
    2. Acquisition and disclosures given during the same 
appointment. The disclosures and notice required by Sec.  1005.15(c) 
may be given in the same process or appointment during which the 
consumer receives a government benefit card. When a consumer 
receives benefits eligibility information and enrolls to receive 
benefits during the same process or appointment, a government agency 
that gives the disclosures and notice required by Sec.  1005.15(c) 
before the consumer chooses to receive the first benefit payment on 
the card complies with the timing requirements of Sec.  1005.15(c).
    3. Form and formatting requirements for government benefit 
account disclosures. The form and formatting requirements for 
government benefit accounts in Sec.  1005.15(c) correspond to those 
for payroll card accounts set forth in Sec.  1005.18(b). See 
comments 18(b)(2)(xiv)(A)-1 and 18(b)(2)(xiv)(B)-1 for additional 
guidance regarding the requirements set forth in Sec.  
1005.15(c)(2)(i) and (ii), respectively.
    4. Disclosure requirements outside the short form disclosure. 
Section 1005.18(b)(5) requires that the name of the financial 
institution be disclosed outside the short form disclosure. For 
government benefit accounts, the financial institution that must be 
disclosed pursuant to Sec.  1005.18(b)(5) is the financial 
institution that directly holds the account or issues the account's 
access device. The disclosure provided outside the short form 
disclosure may, but is not required to, also include the name of the 
government agency that established the government benefit account.

15(d) Access to Account Information

    1. Access to account information. For guidance, see comments 
18(c)-1 through -3 and 18(c)-5 through -9.

15(e) Modified Disclosure, Limitations on Liability, and Error 
Resolution Requirements

    1. Modified limitations on liability and error resolution 
requirements. For guidance, see comments 18(e)-1 through -3.

15(f) Disclosure of Fees and Other Information

    1. Disclosures on prepaid account access devices. Pursuant to 
Sec.  1005.18(f)(3), the name of the financial institution and the 
Web site URL and a telephone number a consumer can use to contact 
the financial institution about the prepaid account must be 
disclosed on the prepaid account access device. For government 
benefit accounts, the financial institution whose name and contact 
information must be disclosed pursuant to Sec.  1005.18(f)(3) is the 
financial institution that directly holds the account or issues the 
account's access device.
* * * * *

Section 1005.18--Requirements for Financial Institutions Offering 
Prepaid Accounts

18(a) Coverage

    1. Issuance of access device. Consistent with Sec.  1005.5(a) 
and except as provided, as applicable, in Sec.  1005.5(b), a 
financial institution may issue an access device only in response to 
an oral or written request for the device, or as a renewal or 
substitute for an accepted access device. A consumer is deemed to 
request an access device for a payroll card account when the 
consumer chooses to receive salary or other compensation through a 
payroll card account. A consumer is deemed to request an access 
device for a prepaid account when, for example, the consumer 
acquires a prepaid account offered for sale at a retail location or 
applies for a prepaid account by telephone or online.
    2. Application to employers and service providers. Typically, 
employers and third-

[[Page 84350]]

party service providers do not meet the definition of a ``financial 
institution'' subject to the regulation because they neither hold 
prepaid accounts (including payroll card accounts) nor issue prepaid 
cards and agree with consumers to provide EFT services in connection 
with prepaid accounts. However, to the extent an employer or a 
service provider undertakes either of these functions, it would be 
deemed a financial institution under the regulation.

18(b) Pre-Acquisition Disclosure Requirements

    1. Written and electronic pre-acquisition disclosures. Section 
1005.4(a)(1) generally requires that disclosures be made in writing; 
written disclosures may be provided in electronic form in accordance 
with the Electronic Signatures in Global and National Commerce Act 
(E-Sign Act) (15 U.S.C. 7001 et seq.). Because Sec.  
1005.18(b)(6)(i)(B) provides that electronic disclosures required by 
Sec.  1005.18(b) need not meet the consumer consent or other 
applicable provisions of the E-Sign Act, Sec.  1005.18(b) addresses 
certain requirements for written and electronic pre-acquisition 
disclosures separately. Section 1005.18(b) also addresses specific 
requirements for pre-acquisition disclosures provided orally.
    2. Currency. Fee amounts required to be disclosed by Sec.  
1005.18(b) may be disclosed in a foreign currency for a prepaid 
account denominated in that foreign currency, other than the fee for 
the purchase price required by Sec.  1005.18(b)(5). For example, a 
prepaid account sold in a U.S. airport intended for use in England 
may disclose in pound sterling ([pound]) the fees required to be 
disclosed in the short form and long form disclosures and outside 
the short form disclosure, except for the purchase price.

18(b)(1) Timing of Disclosures

18(b)(1)(i) General

    1. Disclosing the short form and long form before acquisition. 
Section 1005.18(b)(1)(i) generally requires delivery of a short form 
disclosure as described in Sec.  1005.18(b)(2), accompanied by the 
information required to be disclosed by Sec.  1005.18(b)(5), and a 
long form disclosure as described in Sec.  1005.18(b)(4) before a 
consumer acquires a prepaid account. For purposes of Sec.  
1005.18(b)(1)(i), a consumer acquires a prepaid account by 
purchasing, opening or choosing to be paid via a prepaid account, as 
illustrated by the following examples:
    i. A consumer inquires about obtaining a prepaid account at a 
branch location of a bank. A consumer then receives the disclosures 
required by Sec.  1005.18(b). After receiving the disclosures, a 
consumer then opens a prepaid account with the bank. This consumer 
received the short form and long form pre-acquisition in accordance 
with Sec.  1005.18(b)(1)(i).
    ii. A consumer learns that he or she can receive wages via a 
payroll card account, at which time the consumer is provided with a 
payroll card and the disclosures required by Sec.  1005.18(b) to 
review. The consumer then chooses to receive wages via a payroll 
card account. These disclosures were provided pre-acquisition in 
compliance with Sec.  1005.18(b)(1)(i). By contrast, if a consumer 
receives the disclosures required by Sec.  1005.18(b) to review at 
the end of the first pay period, after the consumer received the 
first payroll payment on the payroll card, these disclosures were 
provided to a consumer post-acquisition, and thus not provided in 
compliance with Sec.  1005.18(b)(1)(i).
    2. Disclosures provided electronically. Disclosures required by 
Sec.  1005.18(b) may be provided before or after a consumer has 
initiated the process of acquiring a prepaid account electronically. 
When the disclosures required by Sec.  1005.18(b) are presented 
after a consumer has initiated the process for acquiring a prepaid 
account online or via a mobile device, but before a consumer chooses 
to accept the prepaid account, such disclosures are also made pre-
acquisition in accordance with Sec.  1005.18(b)(1)(i). The 
disclosures required by Sec.  1005.18(b) that are provided 
electronically when a consumer acquires a prepaid account 
electronically are not considered to be given pre-acquisition unless 
a consumer must view the Web page containing the disclosures before 
choosing to accept the prepaid account. The following examples 
illustrate several methods by which a financial institution may 
present Sec.  1005.18(b) disclosures before a consumer acquires a 
prepaid account electronically in compliance with Sec.  
1005.18(b)(1)(i):
    i. A financial institution presents the short form disclosure 
required by Sec.  1005.18(b)(2), together with the information 
required by Sec.  1005.18(b)(5), and the long form disclosure 
required by Sec.  1005.18(b)(4) on the same Web page. A consumer 
must view the Web page before choosing to accept the prepaid 
account.
    ii. A financial institution presents the short form disclosure 
required by Sec.  1005.18(b)(2), together with the information 
required by Sec.  1005.18(b)(5), on a Web page. The financial 
institution includes, after the short form disclosure or as part of 
the statement required by Sec.  1005.18(b)(2)(xiii), a link that 
directs the consumer to a separate Web page containing the long form 
disclosure required by Sec.  1005.18(b)(4). The consumer must view 
the Web page containing the long form disclosure before choosing to 
accept the prepaid account.
    iii. A financial institution presents on a Web page the short 
form disclosure required by Sec.  1005.18(b)(2), together with the 
information required by Sec.  1005.18(b)(5), followed by the initial 
disclosures required by Sec.  1005.7(b), which contains the long 
form disclosure required by Sec.  1005.18(b)(4), in accordance with 
Sec.  1005.18(f)(1). The financial institution includes, after the 
short form disclosure or as part of the statement required by Sec.  
1005.18(b)(2)(xiii), a link that directs the consumer to the section 
of the initial disclosures containing the long form disclosure 
pursuant to Sec.  1005.18(b)(4). A consumer must view this Web page 
before choosing to accept the prepaid account.

18(b)(1)(ii) Disclosures for Prepaid Accounts Acquired in Retail 
Locations

    1. Retail locations. Section 1005.18(b)(1)(ii) sets forth an 
alternative timing regime for pre-acquisition disclosures for 
prepaid accounts acquired in person at retail locations. For 
purposes of Sec.  1005.18(b)(1)(ii), a retail location is a store or 
other physical site where a consumer can purchase a prepaid account 
in person and that is operated by an entity other than the financial 
institution that issues the prepaid account. A branch of a financial 
institution that offers its own prepaid accounts is not a retail 
location with respect to those accounts and, thus, both the short 
form and the long form disclosure must be provided pre-acquisition 
pursuant to the timing requirement set forth in Sec.  
1005.18(b)(1)(i).
    2. Disclosures provided inside prepaid account access device 
packaging material. Except when providing the long form disclosure 
post-acquisition in accordance with the retail location exception 
set forth in Sec.  1005.18(b)(1)(ii), the disclosures required by 
Sec.  1005.18(b)(2), (4), and (5) must be provided to a consumer 
pre-acquisition in compliance with Sec.  1005.18(b)(1)(i). A short 
form disclosures is not considered to have been provided pre-
acquisition if, for example, it is inside the packaging material 
accompanying a prepaid account access device such that the consumer 
cannot see or access the disclosures before acquiring the prepaid 
account.
    3. Consumers working in retail locations. A payroll card account 
offered to consumers working in retail locations is not eligible for 
the retail location exception in Sec.  1005.18(b)(1)(ii); thus, a 
consumer employee must receive both the short form and long form 
disclosures for the payroll card account pre-acquisition pursuant to 
the timing requirement set forth in Sec.  1005.18(b)(1)(i).
    4. Providing the long form disclosure by telephone and Web site 
pursuant to the retail location exception. Pursuant to Sec.  
1005.18(b)(1)(ii), a financial institution may provide the long form 
disclosure described in Sec.  1005.18(b)(4) after a consumer 
acquires a prepaid account in a retail location, if the conditions 
set forth in Sec.  1005.18(b)(1)(ii)(A) through (D) are met. 
Pursuant to Sec.  1005.18(b)(1)(ii)(C), a financial institution must 
make the long form disclosure accessible to consumers by telephone 
and via a Web site when not providing a written version of the long 
form disclosure pre-acquisition. A financial institution may, for 
example, provide the long form disclosure by telephone using an 
interactive voice response or similar system or by using a customer 
service agent.

18(b)(1)(iii) Disclosures for Prepaid Accounts Acquired Orally by 
Telephone

    1. Prepaid accounts acquired by telephone. Section 
1005.18(b)(1)(iii) sets forth requirements for prepaid accounts 
acquired orally by telephone. For purposes of Sec.  
1005.18(b)(1)(iii), a prepaid account is considered to have been 
acquired orally by telephone when a consumer speaks to a customer 
service agent or communicates with an automated system, such as an 
interactive voice response system, to provide personally 
identifiable information to acquire a prepaid account. Prepaid 
accounts acquired using a mobile device without speaking to a 
customer service agent or communicating with an automated system are 
not considered to have been acquired orally by telephone.

[[Page 84351]]

    2. Disclosures for prepaid accounts acquired by telephone. 
Pursuant to Sec.  1005.18(b)(1)(iii), a financial institution must 
disclose the information required by Sec.  1005.18(b)(2) and (5) 
orally before a consumer acquires a prepaid account orally by 
telephone. A financial institution may, for example, provide these 
disclosures by using an interactive voice response or similar system 
or by using a customer service agent, after the consumer has 
initiated the purchase of a prepaid account by telephone, but before 
the consumer acquires the prepaid account. In addition, a financial 
institution must provide the initial disclosures required by Sec.  
1005.7, as modified by Sec.  1005.18(f)(1), before the first 
electronic fund transfer is made involving the prepaid account.

18(b)(2) Short Form Disclosure Content

    1. Disclosures that are not applicable or are free. The short 
form disclosures required by Sec.  1005.18(b)(2) must always be 
provided prior to prepaid account acquisition, even when a 
particular feature is free or is not applicable to a specific 
prepaid account product. For example, if a financial institution 
does not charge a fee to a consumer for withdrawing money at an 
automated teller machine in the financial institution's network or 
an affiliated network, which is required to be disclosed pursuant to 
Sec.  1005.18(b)(2)(iii), the financial institution would list ``ATM 
withdrawal in-network'' on the short form disclosure and list ``$0'' 
as the fee. If, however, the financial institution does not have its 
own network or an affiliated network from which a consumer can 
withdraw money via automated teller machine, the financial 
institution would list ``ATM withdrawal in-network'' on the short 
form disclosure but instead of disclosing a fee amount, state ``N/
A.'' (The financial institution must still disclose any fee it 
charges for out-of-network ATM withdrawals.)
    2. Prohibition on disclosure of finance charges. Pursuant to 
Sec.  1005.18(b)(3)(vi), a financial institution may not include in 
the short form disclosure finance charges as described in Regulation 
Z, 12 CFR 1026.4(b)(11), imposed in connection with a covered 
separate credit feature accessible by a hybrid prepaid-credit card 
as defined in Sec.  1026.61. See also comment 18(b)(3)(vi)-1.

18(b)(2)(i) Periodic Fee

    1. Periodic fee variation. If the amount of a fee disclosed on 
the short form could vary, the financial institution must disclose 
in the short form the information required by Sec.  
1005.18(b)(3)(i). If the amount of the periodic fee could vary, the 
financial institution may opt instead to use an alternative 
disclosure pursuant to Sec.  1005.18(b)(3)(ii). See comments 
18(b)(3)(i)-1 and 18(b)(3)(ii)-1.

18(b)(2)(iii) ATM Withdrawal Fees

    1. International ATM withdrawal fees. Pursuant to Sec.  
1005.18(b)(2)(iii), a financial institution must disclose the fees 
imposed when a consumer uses an automated teller machine to initiate 
a withdrawal of cash in the United States from the prepaid account, 
both within and outside of the financial institution's network or a 
network affiliated with the financial institution. A financial 
institution may not disclose its fee (if any) for using an automated 
teller machine to initiate a withdrawal of cash in a foreign country 
in the disclosure required by Sec.  1005.18(b)(2)(iii), although it 
may be required to disclose that fee as an additional fee type 
pursuant to Sec.  1005.18(b)(2)(ix).

18(b)(2)(iv) Cash Reload Fee

    1. Total of all charges. Pursuant to Sec.  1005.18(b)(2)(iv), a 
financial institution must disclose the total of all charges imposed 
when a consumer reloads cash into a prepaid account, including 
charges imposed by the financial institution as well as any charges 
that may be imposed by third parties for the cash reload. The cash 
reload fee includes the cost of adding cash to the prepaid account 
at a point-of-sale terminal, the cost of purchasing an additional 
card or other device on which cash is loaded and then transferred 
into the prepaid account, or any other method a consumer may use to 
reload cash into the prepaid account. For example, a financial 
institution does not have its own proprietary cash reload network 
and instead contracts with a third-party reload network for this 
service. The financial institution itself does not charge any fee 
related to cash reloads but the third-party reload network charges a 
fee of $3.95 per cash reload. The financial institution must 
disclose the cash reload fee as $3.95. If the financial institution 
offers more than one method to reload cash into the prepaid account, 
Sec.  1005.18(b)(3)(i) requires disclosure of the highest cash 
reload fee. For example, a financial institution contracts with two 
third-party cash reload networks; one third party charges $3.95 for 
a point-of-sale reload and the other third party charges $2.95 for 
purchase of a reload pack. In addition to the third-party cash 
reload charge, the financial institution charges a $1 fee for every 
cash reload. The financial institution must disclose the cash reload 
fee on the short form as $4.95, that is, the highest third-party fee 
plus the financial institution's $1 fee. See comments 18(b)(3)(v)-1 
for additional guidance regarding third-party fees for cash reloads.
    2. Cash deposit fee. If a financial institution does not permit 
cash reloads via a third-party reload network but instead permits 
cash deposits, for example, in a bank branch, the term ``cash 
deposit'' may be substituted for ``cash reload.''

18(b)(2)(v) ATM Balance Inquiry Fees

    1. International ATM balance inquiry fees. Pursuant to Sec.  
1005.18(b)(2)(v), a financial institution must disclose the fees 
imposed when a consumer uses an automated teller machine to check 
the balance of the prepaid account in the United States, both within 
and outside of the financial institution's network or a network 
affiliated with the financial institution. A financial institution 
may not disclose its fee (if any) for using an automated teller 
machine to check the balance of the prepaid account in a foreign 
country in the disclosure required by Sec.  1005.18(b)(2)(v), 
although it may be required to disclose that fee as an additional 
fee type pursuant to Sec.  1005.18(b)(2)(ix).

18(b)(2)(vii) Inactivity Fee

    1. Inactivity fee conditions. Section 1005.18(b)(2)(vii) 
requires disclosure of any fee for non-use, dormancy, or inactivity 
of the prepaid account as well as the conditions that trigger the 
financial institution to impose that fee. For example, a financial 
institution that imposes an inactivity fee of $1 per month after 12 
months without any transactions on the prepaid account would 
disclose on the short form ``Inactivity (after 12 months with no 
transactions)'' and ``$1.00 per month.''

18(b)(2)(viii) Statements Regarding Additional Fee Types

18(b)(2)(viii)(A) Statement Regarding Number of Additional Fee Types 
Charged

    1. Fee types counted in total number of additional fee types. 
Section 1005.18(b)(2)(viii)(A) requires a statement disclosing the 
number of additional fee types the financial institution may charge 
consumers with respect to the prepaid account, using the following 
clause or a substantially similar clause: ``We charge [x] other 
types of fees.'' The number of additional fee types disclosed must 
reflect the total number of fee types under which the financial 
institution may charge fees, excluding fees required to be disclosed 
pursuant to Sec.  1005.18(b)(2)(i) through (vii) and (b)(5) and any 
finance charges as described in Regulation Z, 12 CFR 1026.4(b)(11), 
imposed in connection with a covered separate credit feature 
accessible by a hybrid prepaid-credit card as defined in 12 CFR 
1026.61. The following clarify which fee types to include in the 
total number of additional fee types:
    i. Fee types excluded from the number of additional fee types. 
The number of additional fee types required to be disclosed pursuant 
to Sec.  1005.18(b)(2)(viii)(A) does not include the fees otherwise 
required to be disclosed in the short form pursuant to Sec.  
1005.18(b)(2)(i) through (vii), nor any purchase fee or activation 
fee required to be disclosed outside the short form pursuant to 
Sec.  1005.18(b)(5). It also does not include any finance charges as 
described in Regulation Z, 12 CFR 1026.4(b)(11), imposed in 
connection with a credit feature defined in 12 CFR 1026.61. The 
number of additional fee types includes only fee types under which 
the financial institution may charge fees; accordingly, third-party 
fees are not included unless they are imposed for services performed 
on behalf of the financial institution. In addition, the number of 
additional fee types includes only fee types the financial 
institution may charge consumers with respect to the prepaid 
account; accordingly, additional fee types does not include other 
revenue sources such as interchange fees or fees paid by employers 
for payroll card programs, government agencies for government 
benefit programs, or other entities sponsoring prepaid account 
programs for financial disbursements.
    ii. Fee types counted in the number of additional fee types. Fee 
types that bear a relationship to, but are separate from, the static 
fee types disclosed in the short form must be counted as additional 
fees for purposes of Sec.  1005.18(b)(2)(viii). For

[[Page 84352]]

example, the ATM withdrawal and ATM balance inquiry fee types 
required to be disclosed respectively by Sec.  1005.18(b)(2)(iii) 
and (v) that are excluded from the number of additional fee types 
pursuant to Sec.  1005.18(b)(2)(viii) do not include such services 
outside of the United States. Thus, any international ATM fees 
charged by the financial institution for ATM withdrawal or balance 
inquiries must each be counted in the total number of additional fee 
types. Similarly, any fees for reloading funds into a prepaid 
account in a form other than cash (such as electronic reload and 
check reload, as described in comment 18(b)(2)(viii)(A)-2) must be 
counted in the total number of additional fee types because Sec.  
1005.18(b)(2)(iv) is limited to cash reloads. Also, additional fee 
types disclosed in the short form pursuant to Sec.  
1005.18(b)(2)(ix) must be counted in the total number of additional 
fee types.
    2. Examples of fee types and fee variations. The term fee type, 
as used in Sec.  1005.18(b)(2)(viii) and (ix), is a general category 
under which a financial institution charges fees to consumers. A 
financial institution may charge only one fee within a particular 
fee type, or may charge two or more variations of fees within the 
same fee type. The following is a list of examples of fee types a 
financial institution may use when determining both the number of 
additional fee types charged pursuant to Sec.  
1005.18(b)(2)(viii)(A) and any additional fee types to disclose 
pursuant to Sec.  1005.18(b)(2)(ix). A financial institution may 
create an appropriate name for other additional fee types.
    i. Fee types related to reloads of funds. Fees for reloading 
funds into a prepaid account. Fees for cash reloads are required to 
be disclosed in the short form pursuant to Sec.  1005.18(b)(2)(iv) 
and that such fees are not counted in the total number of additional 
fee types or disclosed as an additional fee type pursuant to Sec.  
1005.18(b)(2)(ix). Fee types for other methods to reload funds, such 
as Electronic reload or Check reload, would be counted in the total 
number of additional fee types and may be required to be disclosed 
as additional fee types pursuant to Sec.  1005.18(b)(2)(ix).
    A. Electronic reload. Fees for reloading a prepaid account 
through electronic methods. Fee variations within this fee type may 
include fees for transferring funds from a consumer's bank account 
via ACH, reloads conducted using a debit card or credit card, and 
for incoming wire transfers.
    B. Check reload. Fees for reloading a prepaid account using 
checks. Fee variations within this fee type may include fees for 
depositing checks at an ATM, depositing checks with a teller at the 
financial institution's branch location, mailing checks to the 
financial institution for deposit, and depositing checks using 
remote deposit capture.
    ii. Fee types related to withdrawals of funds. Fees for 
withdrawing funds from a prepaid account. Per purchase fees and ATM 
withdrawal fees within the United States are fee types required to 
be disclosed in the short form respectively pursuant to Sec.  
1005.18(b)(2)(ii) and (iii) and thus such fees are not counted in 
the total number of additional fee types or disclosed as an 
additional fee type pursuant to Sec.  1005.18(b)(2)(ix). Fee types 
for other methods to withdraw funds, such as Electronic withdrawal, 
Teller withdrawal, Cash back at point of sale (POS), and Account 
closure would be counted in the total of additional fee types and 
may be required to be disclosed as additional fee types pursuant to 
Sec.  1005.18(b)(2)(ix).
    A. Electronic withdrawal. Fees for withdrawing funds from a 
prepaid account through electronic methods other than an ATM. Fee 
variations within this fee type may include fees for transferring 
funds from the prepaid account to a consumer's bank account or other 
destination.
    B. Teller withdrawal. Fees for withdrawing funds from a prepaid 
account in person with a teller at a bank or credit union. Fee 
variations within this fee type may include fees for withdrawing 
funds, whether at the financial institution's own branch locations 
or at another bank or credit union.
    C. Cash back at POS. Fees for withdrawing cash from a prepaid 
account via cash back at a merchant's point-of-sale terminal.
    D. Account closure. Fees for closing out a prepaid account, such 
as for a check refund. Fee variations within this fee type may 
include fees for regular and expedited delivery of close-out funds.
    iii. Fee types related to international transactions. Fee types 
for international transactions and ATM activity.
    A. International ATM withdrawal. Fees for withdrawing funds at 
an ATM outside the United States. This fee type does not include 
fees for ATM withdrawals in the United States, as such fees are 
required to be disclosed in the short form pursuant to Sec.  
1005.18(b)(2)(iii).
    B. International ATM balance inquiry. Fees for balance inquiries 
at an ATM outside the United States. This fee type does not include 
fees for ATM balance inquiries in the United States, as such fees 
are required to be disclosed in the short form pursuant to Sec.  
1005.18(b)(2)(v).
    C. International transaction (excluding ATM withdrawal and 
balance inquiry). Fees for transactions outside the United States. 
Fee variations within this fee type may include fees for currency 
conversion, foreign exchange processing, and other charges for 
transactions outside of the United States.
    iv. Bill payment. Fees for bill payment services. Fee variations 
within this fee type may include fees for ACH bill payment, paper 
check bill payment, check cancellation, and expedited delivery of 
paper check.
    v. Person-to-person or card-to-card transfer of funds. Fees for 
transferring funds from one prepaid account to another prepaid 
account. Fee variations within this fee type may include fees for 
transferring funds to another prepaid account within or outside of a 
specified prepaid account program, transferring funds to another 
cardholder within United States or outside the United States, and 
expedited transfer of funds.
    vi. Paper checks. Fees for providing paper checks that draw on 
the prepaid account. Fee variations within this fee type may include 
fees for providing checks and associated shipping costs. This does 
not include checks issued as part of a bill pay service, which are 
addressed in comment 18(b)(2)(viii)(A)-2.iv above.
    vii. Stop payment. Fees for stopping payment of a preauthorized 
transfer of funds.
    viii. Fee types related to card services. Fee types for card 
services.
    A. Card replacement. Fees for replacing or reissuing a prepaid 
card that has been lost, stolen, damaged, or that has expired. Fee 
variations within this fee types may include fees for replacing the 
card, regular or expedited delivery of the replacement card, and 
international card replacement.
    B. Secondary card. Fees for issuing an additional access device 
assigned to a particular prepaid account.
    C. Personalized card. Fees for customizing or personalizing a 
prepaid card.
    ix. Legal. Fees for legal process. Fee variations within this 
fee type may include fees for garnishments, attachments, levies, and 
other court or administrative orders against a prepaid account.
    3. Multiple service plans. Pursuant to Sec.  1005.18(b)(2)(vi), 
a financial institution using the multiple service plan short form 
disclosure pursuant to Sec.  1005.18(b)(6)(iii)(B)(2) must disclose 
only the fee for calling customer service via a live agent. Thus, 
pursuant to Sec.  1005.18(b)(2)(viii), any charge for calling 
customer service via an interactive voice response system must be 
counted in the total number of additional fee types.
    4. Consistency in additional fee type categorization. A 
financial institution must use the same categorization of fee types 
in the number of additional fee types disclosed pursuant to Sec.  
1005.18(b)(2)(viii) and in its determination of which additional fee 
types to disclose pursuant to Sec.  1005.18(b)(2)(ix).

18(b)(2)(viii)(B) Statement Directing Consumers to Disclosure of 
Additional Fee Types

    1. Statement clauses. Section 1005.18(b)(2)(viii)(B) requires, 
if a financial institution makes a disclosure of additional fee 
types pursuant to Sec.  1005.18(b)(2)(ix), it must include in the 
short form a statement directing consumers to that disclosure, 
located after but on the same line of text as the statement 
regarding the number of additional fee types required by Sec.  
1005.18(b)(2)(viii)(A), using the following clause or a 
substantially similar clause: ``Here are some of them:''. A 
financial institution that makes no disclosure pursuant to Sec.  
1005.18(b)(2)(ix) may not include a disclosure pursuant to Sec.  
1005.18(b)(2)(viii)(B). The following examples provide guidance 
regarding substantially similar clauses a financial institution may 
use in certain circumstances to make its disclosures under Sec.  
1005.18(b)(2)(viii)(A) and (B):
    i. A financial institution that has one additional fee type and 
discloses that additional fee type pursuant to Sec.  
1005.18(b)(2)(ix) might provide the statements required by Sec.  
1005.18(b)(2)(viii)(A) and (B) together as: ``We charge 1 other type 
of fee. It is:''.

[[Page 84353]]

    ii. A financial institution that has five additional fee types 
and discloses one of those additional fee types pursuant to Sec.  
1005.18(b)(2)(ix) might provide the statements required by Sec.  
1005.18(b)(2)(viii)(A) and (B) together as: ``We charge 5 other 
types of fees. Here is 1 of them:''.
    iii. A financial institution that has two additional fee types 
and discloses both of those fee types pursuant to Sec.  
1005.18(b)(2)(ix) might provide the statement required by Sec.  
1005.18(b)(2)(viii)(A) and (B) together as: ``We charge 2 other 
types of fees. They are:''.

18(b)(2)(ix) Disclosure of Additional Fee Types

18(b)(2)(ix)(A) Determination of Which Additional Fee Types To Disclose

    1. Number of fee types to disclose. Section 1005.18(b)(2)(ix)(A) 
requires disclosure of the two fee types that generate the highest 
revenue from consumers for the prepaid account program or across 
prepaid account programs that share the same fee schedule during the 
time period provided in Sec.  1005.18(b)(2)(ix)(D) and (E), 
excluding the categories set forth in Sec.  1005.18(b)(2)(ix)(A)(1) 
through (3). See comment 18(b)(2)(viii)(A)-2 for guidance on and 
examples of fee types. If a prepaid account program has two fee 
types that satisfy the criteria in Sec.  1005.18(b)(2)(ix)(A), it 
must disclose both fees. If a prepaid account program has three or 
more fee types that potentially satisfy the criteria in Sec.  
1005.18(b)(2)(ix)(A), the financial institution must disclose only 
the two fee types that generate the highest revenue from consumers. 
See comment 18(b)(2)(ix)(B)-1 for guidance regarding the disclosure 
of additional fee types for a prepaid account with fewer than two 
fee types that satisfy the criteria in Sec.  1005.18(b)(2)(ix)(A).
    2. Abbreviations. Commonly accepted or readily understandable 
abbreviations may be used as needed for additional fee types and fee 
variations disclosed pursuant to Sec.  1005.18(b)(2)(ix). For 
example, to accommodate on one line in the short form disclosure the 
additional fee types ``international ATM balance inquiry'' or 
``person-to-person transfer of funds,'' with or without fee 
variations, a financial institution may choose to abbreviate the fee 
type name as ``Int'l ATM inquiry'' or ``P2P transfer.''
    3. Revenue from consumers. The revenue calculation for the 
disclosure of additional fee types pursuant to Sec.  
1005.18(b)(2)(ix)(A) is based on fee types that the financial 
institution may charge consumers with respect to the prepaid 
account. The calculation excludes other revenue sources such as 
revenue generated from interchange fees and fees paid by employers 
for payroll card programs, government agencies for government 
benefit programs, and other entities sponsoring prepaid account 
programs for financial disbursements. It also excludes third-party 
fees, unless they are imposed for services performed on behalf of 
the financial institution.
    4. Assessing revenue within and across prepaid account programs 
to determine disclosure of additional fee types. Pursuant to Sec.  
1005.18(b)(2)(ix)(A), the disclosure of the two fee types that 
generate the highest revenue from consumers must be determined for 
each prepaid account program or across prepaid account programs that 
share the same fee schedule. Thus, if a financial institution offers 
more than one prepaid account program, unless the programs share the 
same fee schedule, the financial institution must consider the fee 
revenue data separately for each prepaid account program and not 
consolidate the fee revenue data across prepaid account programs. 
Prepaid account programs are deemed to have the same fee schedules 
if they charge the same fee amounts, including offering the same fee 
waivers and fee reductions for the same features. The following 
examples illustrate how to assess revenue within and across prepaid 
account programs to determine the disclosure of additional fee 
types:
    i. Prepaid account programs with different fee schedules. A 
financial institution offers multiple prepaid account programs and 
each program has a different fee schedule. The financial institution 
must consider the revenue from consumers for each program 
separately; it may not consider the revenue from all of its prepaid 
account programs together in determining the disclosure of 
additional fee types for its programs.
    ii. Prepaid account programs with identical fee schedules. A 
financial institution offers multiple prepaid account programs and 
they all share the same fee schedule. The financial institution may 
consider the revenue across all of its prepaid account programs 
together in determining the disclosure of additional fee types for 
its programs.
    iii. Prepaid account programs with both different fee schedules 
and identical fee schedules. A financial institution offers multiple 
prepaid account programs, some of which share the same fee schedule. 
The financial institution may consider the revenue across all 
prepaid account programs with identical fee schedules in determining 
the disclosure of additional fee types for those programs. The 
financial institution must separately consider the revenue from each 
of the prepaid account programs with unique fee schedules.
    iv. Multiple service plan prepaid account programs. A financial 
institution that discloses multiple service plans on a short form 
disclosure as permitted by Sec.  1005.18(b)(6)(iii)(B)(2) must 
consider revenue across all of those plans in determining the 
disclosure of additional fee types for that program. If, however, 
the financial institution instead is disclosing the default service 
plan pursuant to Sec.  1005.18(b)(6)(iii)(B)(1), the financial 
institution must consider the revenue generated from consumers for 
the default service plan only. See Sec.  1005.18(b)(6)(iii)(B)(2) 
and comment 18(b)(6)(iii)(B)(2)-1 for guidance on what constitutes 
multiple service plans.
    5. Exclusions. Once the financial institution has calculated the 
fee revenue data for the prepaid account program or across prepaid 
account programs that share the same fee schedule during the 
appropriate time period, it must remove from consideration the 
categories excluded pursuant to Sec.  1005.18(b)(2)(ix)(A)(1) 
through (3) before determining the fee types, if any, that generated 
the highest revenue.
    i. Exclusion for fee types required to be disclosed elsewhere. 
Fee types otherwise required to be disclosed in or outside the short 
form are excluded from the additional fee types required to be 
disclose pursuant to Sec.  1005.18(b)(2)(ix)(A)(1). Thus, the 
following fee types are excluded: Periodic fee, per purchase fee, 
ATM withdrawal fees (for ATM withdrawals in the United States), cash 
reload fee, ATM balance inquiry fees (for ATM balance inquiries in 
the United States), customer service fees, and inactivity fee. 
However, while the cash reload fee type is excluded, other reload 
fee types, such as electronic reload and check reload, are not 
excluded under Sec.  1005.18(b)(2)(ix)(A)(1) and thus may be 
disclosed as additional fee types pursuant to Sec.  
1005.18(b)(2)(ix). Similarly, while the fee types ATM withdrawal and 
ATM balance inquiry in the United States are excluded, international 
ATM withdrawal and international ATM balance inquiry fees are not 
excluded under Sec.  1005.18(b)(2)(ix)(A)(1) and thus may be 
disclosed as additional fee types pursuant to Sec.  
1005.18(b)(2)(ix). Also pursuant to Sec.  1005.18(b)(2)(ix)(A)(1), 
the purchase price and activation fee, if any, required to be 
disclosed outside the short form disclosure pursuant to Sec.  
1005.18(b)(5), are excluded from the additional fee types required 
to be disclosed pursuant to Sec.  1005.18(b)(2)(ix).
    ii. De minimis exclusion. Any fee types that generated less than 
5 percent of the total revenue from consumers for the prepaid 
account program or across prepaid account programs that share the 
same fee schedule during the time period provided in Sec.  
1005.18(b)(2)(ix)(D) and (E) are excluded from the additional fee 
types required to be disclosed pursuant to Sec.  
1005.18(b)(2)(ix)(A)(2). For example, for a particular prepaid 
account program over the appropriate time period, bill payment, 
check reload, and card replacement are the only fee types that 
generated 5 percent or more of the total revenue from consumers at, 
respectively, 15 percent, 10 percent, and 7 percent. Two other fee 
types, legal fee and personalized card, generated revenue below 1 
percent of the total revenue from consumers. The financial 
institution must disclose bill payment and check reload as the 
additional fee types for that particular prepaid account program 
because those two fee types generated the highest revenue from 
consumers from among the categories not excluded from disclosure as 
additional fee types. For a different prepaid account program over 
the appropriate time period, bill payment is the only fee type that 
generated 5 percent or more of the total revenue from consumers. Two 
other fee types, check reload and card replacement, each generated 
revenue below 5 percent of the total revenue from consumers. The 
financial institution must disclose bill payment as an additional 
fee type for that particular prepaid account program because it is 
the only fee type that satisfies the criteria of Sec.  
1005.18(b)(2)(ix)(A). The financial institution may, but is not 
required to, disclose either check reload or card

[[Page 84354]]

replacement on the short form as well, pursuant to Sec.  
1005.18(b)(2)(ix)(B). See comment 18(b)(2)(ix)(B)-1.
    iii. Exclusion for credit-related fees. Any finance charges as 
described in Regulation Z, 12 CFR 1026.4(b)(11), imposed in 
connection with a covered separate credit feature accessible by a 
hybrid prepaid-credit card as defined in 12 CFR 1026.61, are 
excluded from the additional fee types required to be disclosed 
pursuant to Sec.  1005.18(b)(2)(ix)(A)(3). Pursuant to Sec.  
1005.18(b)(2)(viii)(A)(2), such finance charges are also excluded 
from the number of additional fee types disclosed.

18(b)(2)(ix)(B) Disclosure of Fewer Than Two Additional Fee Types

    1. Disclosure of one or no additional fee types. The following 
examples provide guidance on the additional fee types disclosure 
pursuant to Sec.  1005.18(b)(2)(ix)(B) for a prepaid account with 
fewer than two fee types that satisfy the criteria in Sec.  
1005.18(b)(2)(ix)(A):
    i. A financial institution has a prepaid account program with 
only one fee type that satisfies the criteria in Sec.  
1005.18(b)(2)(ix)(A) and thus, pursuant to Sec.  
1005.18(b)(2)(ix)(A), the financial institution must disclose that 
one fee type. The prepaid account program has three other fee types 
that generate revenue from consumers, but they do not exceed the de 
minimis threshold or otherwise satisfy the criteria in Sec.  
1005.18(b)(2)(ix)(B). Pursuant to Sec.  1005.18(b)(2)(ix)(B), the 
financial institution is not required to make any additional 
disclosure, but it may choose to disclose one of the three fee types 
that do not meet the criteria in Sec.  1005.18(b)(2)(ix)(A).
    ii. A financial institution has a prepaid account program with 
four fee types that generate revenue from consumers, but none 
exceeds the de minimis threshold or otherwise satisfy the criteria 
in Sec.  1005.18(b)(2)(ix)(A). Pursuant to Sec.  
1005.18(b)(2)(ix)(B), the financial institution is not required to 
make any disclosure, but it may choose to disclose one or two of the 
fee types that do not meet the criteria in Sec.  
1005.18(b)(2)(ix)(A).
    2. No disclosure of finance charges as an additional fee type. 
Pursuant to Sec.  1005.18(b)(3)(vi), a financial institution may not 
disclose any finance charges as a voluntary additional fee 
disclosure under Sec.  1005.18(b)(2)(ix)(B).

18(b)(2)(ix)(C) Fee Variations in Additional Fee Types

    1. Two or more fee variations. Section 1005.18(b)(2)(ix)(C) 
specifies how to disclose additional fee types with two fee 
variations, more than two fee variations, and for multiple service 
plans pursuant to Sec.  1005.18(b)(6)(iii)(B)(2). See comment 
18(b)(2)(viii)(A)-2 for guidance on and examples of fee types and 
fee variations within those fee types. The following examples 
illustrate how to disclose two-tier fees and other fee variations in 
additional fee types:
    i. Two fee variations with different fee amounts. A financial 
institution charges a fee of $1 for providing a card replacement 
using standard mail service and charges a fee of $5 for providing a 
card replacement using expedited delivery. The financial institution 
must calculate the total revenue generated from consumers for all 
card replacements, both via standard mail service and expedited 
delivery, during the required time period to determine whether it is 
required to disclose card replacement as an additional fee type 
pursuant to Sec.  1005.18(b)(2)(ix). Because there are only two fee 
variations for the fee type ``card replacement,'' if card 
replacement is required to be disclosed as an additional fee type 
pursuant to Sec.  1005.18(b)(2)(ix)(A), the financial institution 
must disclose both fee variations pursuant to Sec.  
1005.18(b)(2)(ix)(C). Thus, the financial institution would disclose 
on the short form the fee type and two variations as ``Card 
replacement (regular or expedited delivery)'' and the fee amount as 
``$1.00 or $5.00''.
    ii. More than two fee variations. A financial institution offers 
two methods of bill payment--via ACH and paper check--and offers two 
modes of delivery for bill payments made by paper check--regular 
standard mail service and expedited delivery. The financial 
institution charges $0.25 for bill pay via ACH, $0.50 for bill pay 
via paper check sent by regular standard mail service, and $3 for 
bill pay via paper check sent via expedited delivery. The financial 
institution must calculate the total revenue generated from 
consumers for all methods of bill pay and all modes of delivery 
during the required time period to determine whether it must 
disclose bill payment as an additional fee type pursuant to Sec.  
1005.18(b)(2)(ix). Because there are more than two fee variations 
for the fee type ``bill payment,'' if bill payment is required to be 
disclosed as an additional fee type pursuant to Sec.  
1005.18(b)(2)(ix)(A), the financial institution must disclose the 
highest fee, $3, followed by a symbol, such as an asterisk, linked 
to a statement explaining that the fee could be lower depending on 
how and where the prepaid account is used, pursuant to Sec.  
1005.18(b)(3)(i). Thus, the financial institution would disclose on 
the short form the fee type as ``Bill payment'' and the fee amount 
as ``$3.00*''.
    iii. Two fee variations with like fee amounts. A financial 
institution offers two methods of check reload for which it charges 
a fee--depositing checks at an ATM and depositing checks with a 
teller at the financial institution's branch locations. There is a 
fee of $0.50 for both methods of check deposit. The financial 
institution must calculate the total revenue generated from both of 
these check reload methods during the required time period to 
determine whether it must disclose this fee type as an additional 
fee type pursuant to Sec.  1005.18(b)(2)(ix). Because the fee 
amounts are the same for the two methods of check deposit, if the 
fee type is required to be disclosed as an additional fee type, the 
financial institution's options for disclosing this fee type in 
accordance with Sec.  1005.18(b)(2)(ix)(C) and (b)(3)(iii) include: 
``Check reload (ATM or teller check dep)'' and the fee amount as 
``$0.50'' or ``Check reload'' and the fee amount as ``$0.50''.
    iv. Multiple service plans. A financial institution provides a 
short form disclosure for multiple service plans pursuant to Sec.  
1005.18(b)(6)(iii)(B)(2). Notwithstanding that an additional fee 
type has only two fee variations, a financial institution must 
disclose the highest fee in accordance with Sec.  1005.18(b)(3)(i).
    2. One fee variation under a particular fee type. Section 
1005.18(b)(2)(ix)(C) provides in part that, if a financial 
institution only charges one fee under a particular fee type, the 
financial institution must disclose the name of the additional fee 
type and the fee amount; it may, but is not required to, disclose 
also the name of the one fee variation, if any, for which the fee 
amount is charged, in a format substantially similar to that used to 
disclose the two-tier fees required by Sec.  1005.18(b)(2)(v) and 
(vi), except that the financial institution must disclose only the 
one fee variation name and fee amount instead of two. For example, a 
financial institution offers one method of electronic reload for 
which it charges a fee--electronic reload conducted using a debit 
card. The financial institution must calculate the total revenue 
generated from consumers for the fee type electronic reload (i.e., 
in this case, electronic reloads conducted using a debit card) 
during the required time period to determine whether it must 
disclose electronic reload as an additional fee type pursuant to 
Sec.  1005.18(b)(2)(ix). Because the financial institution only 
charges one fee variation under the fee type electronic reload, if 
this fee type is required to be disclosed as an additional fee type, 
the financial institution has two options for disclosing this fee 
type in accordance with Sec.  1005.18(b)(2)(ix)(C): ``Electronic 
reload (debit card)'' and the fee amount as ``$1.00'' or 
``Electronic reload'' and the fee amount as ``$1.00''.

18(b)(2)(ix)(D) Timing of Initial Assessment of Additional Fee Types 
Disclosure

18(b)(2)(ix)(D)(1) Existing Prepaid Account Programs as of October 1, 
2017

    1. 24 month period with available data. Section 
1005.18(b)(2)(ix)(D)(1) requires for a prepaid account program in 
effect as of October 1, 2017 the financial institution must disclose 
additional fee types based on revenue for a 24-month period that 
begins no earlier than October 1, 2014. Thus, a prepaid account 
program that was in existence as of October 1, 2017 must assess its 
additional fee types disclosure from data collected during a 
consecutive 24-month period that took place between October 1, 2014 
and October 1, 2017. For example, an existing prepaid account 
program was first offered to consumers on January 1, 2012 and 
provides its first short form disclosure on October 1, 2017. The 
earliest 24-month period from which that financial institution could 
calculate its first additional fee types disclosure would be from 
October 1, 2014 to September 30, 2016.

18(b)(2)(ix)(D)(2) Existing Prepaid Account Programs as of October 1, 
2017 With Unavailable Data

    1. 24 month period without available data. Section 
1005.18(b)(2)(ix)(D)(2) requires that if a financial institution 
does not have 24 months of fee revenue data for a particular

[[Page 84355]]

prepaid account program from which to calculate the additional fee 
types disclosure in advance of October 1, 2017, the financial 
institution must disclose the additional fee types based on revenue 
it reasonably anticipates the prepaid account program will generate 
over the 24-month period that begins on October 1, 2017. For 
example, a financial institution begins offering to consumers a 
prepaid account program six months before October 1, 2017. Because 
the prepaid account program will not have 24 months of fee revenue 
data prior to October 1, 2017, pursuant to Sec.  
1005.18(b)(2)(ix)(D)(2) the financial institution must disclose the 
additional fee types it reasonably anticipates the prepaid account 
program will generate over the 24-month period that begins on 
October 1, 2017. The financial institution would take into account 
the data it had accumulated at the time of its calculation to arrive 
at the reasonably anticipated additional fee types for the prepaid 
account program.

18(b)(2)(ix)(E) Timing of Periodic Reassessment and Update of 
Additional Fee Types Disclosure

18(b)(2)(ix)(E)(2) Periodic Reassessment

    1. Periodic reassessment and, if applicable, update of 
additional fee types disclosure. Pursuant to Sec.  
1005.18(b)(2)(ix)(E)(2), a financial institution must reassess 
whether its previously disclosed additional fee types continue to 
comply with the requirements of Sec.  1005.18(b)(2)(ix) every 24 
months based on revenue for the previous 24-month period. The 
financial institution must complete this reassessment and update its 
disclosures, if applicable, within three months of the end of the 
24-month period, except as provided in the update printing exception 
in Sec.  1005.18(b)(2)(ix)(E)(4). The following examples provide 
guidance on the periodic assessment and, if applicable, update of 
the disclosure of additional fee types pursuant to Sec.  
1005.18(b)(2)(ix)(E)(2):
    i. Reassessment with no change in the additional fee types 
disclosed. A financial institution disclosed two additional fee 
types (bill payment and card replacement) for a particular prepaid 
account program on October 1, 2017. Starting on October 1, 2019, the 
financial institution assessed the fee revenue data it collected 
over the previous 24 months, and the two additional fee types 
previously disclosed continue to qualify as additional fee types 
pursuant to Sec.  1005.18(b)(2)(ix). The financial institution is 
not required to take any action with regard to the disclosure of 
additional fee types for that prepaid account program.
    ii. Reassessment with a change in the additional fee types 
disclosed. A financial institution disclosed two additional fee 
types (bill payment and card replacement) for a particular prepaid 
account program on October 1, 2017. Starting on October 1, 2019, the 
financial institution assessed the fee revenue data it collected 
over the previous 24 months, and bill payment continued to qualify 
as an additional fee type pursuant to Sec.  1005.18(b)(2)(ix) but 
check reload qualified as the second additional fee type instead of 
card replacement. The financial institution must update the 
additional fee types disclosure in its short form disclosures 
provided electronically, orally, and in writing (other than for 
printed materials that qualify for the update printing exception in 
Sec.  1005.18(b)(2)(ix)(E)(4)) no later than January 1, 2020, which 
is three months after the end of the 24-month period.
    iii. Reassessment with the addition of an additional fee type 
already voluntarily disclosed. A financial institution disclosed one 
additional fee type (bill payment) and voluntarily disclosed one 
other additional fee type (card replacement, both for regular and 
expedited delivery) for a particular prepaid account program on 
October 1, 2017. Starting on October 1, 2019, the financial 
institution assessed the fee revenue data it collected over the 
previous 24 months, and bill payment continued to qualify as an 
additional fee type pursuant to Sec.  1005.18(b)(2)(ix) and card 
replacement now qualified as the second additional fee type. Because 
the financial institution already had disclosed its card replacement 
fees in the format required for an additional fee type disclosure, 
the financial institution is not required to take any action with 
regard to the additional fee types disclosure in the short form for 
that prepaid account program.
    2. Reassessment more frequently than every 24 months. Pursuant 
to Sec.  1005.18(b)(2)(ix)(E)(2), a financial institution may, but 
is not required to, carry out the reassessment and update, if 
applicable, more frequently than every 24 months, at which time a 
new 24-month period commences. A financial institution may choose to 
do this, for example, to sync its reassessment process for 
additional fee types with its financial reporting schedule or other 
financial analysis it performs regarding the particular prepaid 
account program. If a financial institution chooses to reassess its 
additional fee types disclosure more frequently than every 24 
months, it is still required to use 24 months of fee revenue data to 
conduct the reassessment. For example, a financial institution first 
offered a particular prepaid account program on October 1, 2016 and 
thus was required to estimate its initial additional fee types 
disclosure pursuant to Sec.  1005.18(b)(2)(ix)(D)(2). If the 
financial institution chooses to begin its reassessment of its fee 
revenue data on October 1, 2018, it would use the data it collected 
over the previous 24 months (October 1, 2016 to September 30, 2018) 
and complete its reassessment and its update, if applicable, by 
January 1, 2019.

18(b)(2)(ix)(E)(3) Fee Schedule Change

    1. Revised prepaid account programs. Section 
1005.18(b)(2)(ix)(E)(3) requires that if a financial institution 
revises the fee schedule for a prepaid account program, it must 
determine whether it reasonably anticipates that the previously 
disclosed additional fee types will continue to comply with the 
requirements of Sec.  1005.18(b)(2)(ix) for the 24 months following 
implementation of the fee schedule change. A fee schedule change 
resets the 24-month period for assessment; a financial institution 
must comply with the requirements of Sec.  1005.18(b)(2)(ix)(E)(2) 
at the end of the 24-month period following implementation of the 
fee schedule change. If the financial institution reasonably 
anticipates that the previously disclosed additional fee types will 
not comply with the requirements of Sec.  1005.18(b)(2)(ix), it must 
update the disclosure based on its reasonable anticipation of what 
those additional fee types will be at the time the fee schedule 
change goes into effect, except as provided in the update printing 
exception in Sec.  1005.18(b)(2)(ix)(E)(4). For example, if a 
financial institution lowers its card replacement fee from $4 to $3 
on December 1, 2018 after having first assessed its additional fee 
types disclosure as of October 1, 2017, the financial institution 
would assess whether it reasonably anticipates that the existing 
additional fee types disclosure will continue to reflect the 
additional fee types that generate the highest revenue from 
consumers for that prepaid account program for the next 24 months 
(until December 1, 2020). If the financial institution reasonably 
anticipates that its additional fee types will remain unchanged over 
the next 24 months, the financial institution is not required to 
take any action with regard to the additional fee types disclosure 
for that prepaid account program. In the same example, if the 
financial institution reasonably anticipates that the previously 
disclosed additional fee types will not comply with the requirements 
of Sec.  1005.18(b)(2)(ix) for the 24 months following 
implementation of the fee schedule change, the financial institution 
must update the listing of additional fee types at the time the fee 
schedule change goes into effect, except as provided in the update 
printing exception pursuant to Sec.  1005.18(b)(2)(ix)(E)(4).

18(b)(2)(ix)(E)(4) Update Printing Exception

    1. Application of the update printing exception to prepaid 
accounts sold in retail locations. Pursuant to Sec.  
1005.18(b)(2)(ix)(E)(4), notwithstanding the requirements to update 
additional fee types disclosures in Sec.  1005.18(b)(2)(ix)(E), a 
financial institution is not required to update the listing of 
additional fee types that are provided on, in, or with prepaid 
account packaging materials that were manufactured, printed, or 
otherwise produced prior to a periodic reassessment and update 
pursuant to Sec.  1005.18(b)(2)(ix)(E)(2) or prior to a fee schedule 
change pursuant to Sec.  1005.18(b)(2)(ix)(E)(3). For prepaid 
accounts sold in retail locations, for example, Sec.  
1005.18(b)(2)(ix)(E)(4) permits a financial institution to implement 
any necessary updates to the listing of the additional fee types 
disclosures on the short form disclosure that appear on its physical 
prepaid account packaging materials at the time the financial 
institution prints new materials. Section 1005.18(b)(2)(ix)(E)(4) 
does not require financial institutions to destroy existing 
inventory in retail locations or elsewhere in the distribution 
channel, to the extent the disclosures on such packaging materials 
are otherwise accurate, to comply with this requirement. For 
example, a financial institution determines that an additional fee 
type listed on a short form disclosure in a retail location no 
longer qualifies as an additional fee type pursuant to Sec.  
1005.18(b)(2)(ix). The financial institution must update any 
electronic and

[[Page 84356]]

oral short form disclosures pursuant to the timing requirements set 
forth in Sec.  1005.18(b)(2)(ix)(E). Pursuant to Sec.  
1005.18(b)(2)(ix)(E)(4), the financial institution may continue 
selling any previously printed prepaid account packages that contain 
the prior listing of additional fee types; prepaid account packages 
printed after that time must contain the updated listing of 
additional fee types.

18(b)(2)(x) Statement Regarding Overdraft Credit Features

    1. Short form disclosure when overdraft credit feature may be 
offered. Section 1005.18(b)(2)(x) requires disclosure of a statement 
if a covered separate credit feature accessible by a hybrid prepaid-
credit card as defined in Regulation Z, 12 CFR 1026.61, may be 
offered at any point to a consumer in connection with the prepaid 
account. This statement must be provided on the short form 
disclosures for all prepaid accounts that may offer such a feature, 
regardless of whether some consumers may never be solicited or 
qualify to enroll in such a feature.

18(b)(2)(xi) Statement Regarding Registration and FDIC or NCUA 
Insurance

    1. Disclosure of FDIC or NCUA insurance. Section 
1005.18(b)(2)(xi) requires a statement regarding the prepaid account 
program's eligibility for FDIC deposit insurance or NCUA share 
insurance, as appropriate, and directing the consumer to register 
the prepaid account for insurance and other account protections, 
where applicable. If the consumer's prepaid account funds are held 
at a credit union, the disclosure must indicate NCUA insurance 
eligibility. If the consumer's prepaid account funds are held at a 
financial institution other than a credit union, the disclosure must 
indicate FDIC insurance eligibility.
    2. Customer identification and verification processes. For 
additional guidance on the timing of customer identification and 
verification processes, and on prepaid account programs for which 
there is no customer identification and verification process for any 
prepaid accounts within the prepaid account program, see Sec.  
1005.18(e)(3) and comments 18(e)-4 and -5.

18(b)(2)(xiii) Statement Regarding Information on All Fees and Services

    1. Financial institution's telephone number. For a financial 
institution offering prepaid accounts at a retail location pursuant 
to the retail location exception in Sec.  1005.18(b)(1)(ii), the 
statement required by Sec.  1005.18(b)(2)(xiii) must also include a 
telephone number (and the Web site URL) that a consumer may use to 
directly access an oral version of the long form disclosure. To 
provide the long form disclosure by telephone, a financial 
institution could use a live customer service agent or an 
interactive voice response system. The financial institution could 
use a telephone number specifically dedicated to providing the long 
form disclosure or a more general customer service telephone number 
for the prepaid account program. For example, a financial 
institution would be deemed to provide direct access pursuant to 
Sec.  1005.18(b)(2)(xiii) if a consumer navigates one or two prompts 
to reach the oral long form disclosure via a live customer service 
agent or an interactive voice response system using either a 
specifically dedicated telephone number of a more general customer 
service telephone number.
    2. Financial institution's Web site. For a financial institution 
offering prepaid accounts at a retail location pursuant to the 
retail location exception in Sec.  1005.18(b)(1)(ii), the statement 
required by Sec.  1005.18(b)(2)(xiii) must also include a Web site 
URL (and a telephone number) that a consumer may use to directly 
access an electronic version of the long form disclosure. For 
example, a financial institution that requires a consumer to 
navigate various other Web pages before viewing the long form 
disclosure would not be deemed to provide direct access pursuant to 
Sec.  1005.18(b)(2)(xiii). Trademark and product names and their 
commonly accepted or readily understandable abbreviations comply 
with the requirement in Sec.  1005.18(b)(2)(xiii) that the URL be 
meaningfully named. For example, ABC or ABCard would be readily 
understandable abbreviations for a prepaid account program named the 
Alpha Beta Card.

18(b)(2)(xiv) Additional Content for Payroll Card Accounts

18(b)(2)(xiv)(A) Statement Regarding Wage or Salary Payment Options

    1. Statement options for payroll card accounts. Section 
1005.18(b)(2)(xiv)(A) requires a financial institution to include at 
the top of the short form disclosure for payroll card accounts, 
above the information required by Sec.  1005.18(b)(2)(i) through 
(iv), one of two statements regarding wage payment options. 
Financial institutions offering payroll card accounts may choose 
which of the two statements required by Sec.  1005.18(b)(2)(xiv)(A) 
to use in the short form disclosure. The list of other options 
required in the second statement might include the following, as 
applicable: Direct deposit to the consumer's bank account, direct 
deposit to the consumer's own prepaid account, paper check, or cash. 
A financial institution may, but is not required to, provide more 
specificity as to whom consumers must ask or inform of their choice 
of wage payment method, such as specifying the employer's Human 
Resources Department.
    2. Statement options for government benefit accounts. See Sec.  
1005.15(c)(2)(i) for statement options for government benefit 
accounts.
    3. Statement permitted for other prepaid accounts. A financial 
institution offering a prepaid account other than a payroll card 
account or government benefit account may, but is not required to, 
include a statement in the short form disclosure regarding payment 
options that is similar to either of the statements required for 
payroll card accounts pursuant to Sec.  1005.18(b)(2)(xiv)(A) or 
government benefit accounts pursuant to Sec.  1005.15(c)(2)(i). For 
example, a financial institution issuing a prepaid account to 
disburse student financial aid proceeds may disclose a statement 
such as the following: ``You have several options to receive your 
financial aid payments: Direct deposit to your bank account, direct 
deposit to your own prepaid card, paper check, or this prepaid card. 
Tell your school which option you choose.''

18(b)(2)(xiv)(B) Statement Regarding State-Required Information or 
Other Fee Discounts and Waivers

    1. Statement options for state-required information or other fee 
discounts or waivers. Section 1005.18(b)(2)(xiv)(B) permits, but 
does not require, a financial institution to include in the short 
form disclosure for payroll card accounts one additional line of 
text directing the consumer to a particular location outside the 
short form disclosure for information on ways the consumer may 
access payroll card account funds and balance information for free 
or for a reduced fee. For example, a financial institution might 
include the following line of text in the short form disclosure: 
``See below for free ways to access your funds and balance 
information'' and then list below, but on the same page as, the 
short form disclosure several ways consumers can access their 
prepaid account funds and balance information for free. 
Alternatively, the financial institution might direct the consumer 
to another location for that information, such as by stating ``See 
the cardholder agreement for free ways to access your funds and 
balance information.'' A similar statement is permitted for 
government benefit accounts pursuant to Sec.  1005.15(c)(2)(ii).

18(b)(3) Short Form Disclosure of Variable Fees and Third-Party Fees 
and Prohibition on Disclosure of Finance Charges

18(b)(3)(i) General Disclosure of Variable Fees

    1. Short form disclosure of variable fees. Section 
1005.18(b)(3)(i) requires disclosure in the short form of the 
highest fee when a fee can vary, followed by a symbol, such as an 
asterisk, linked to a statement explaining that the fee could be 
lower depending on how and where the prepaid account is used. For 
example, a financial institution provides interactive voice response 
(IVR) customer service for free and provides the first three live 
agent customer service calls per month for free, after which it 
charges $0.50 for each additional live agent customer service call 
during that month. Pursuant to Sec.  1005.18(b)(2)(vi), the 
financial institution must disclose both its IVR and live agent 
customer service fees on the short form disclosure. The financial 
institution would disclose the IVR fee as $0 and the live agent 
customer service fee as $0.50, followed by an asterisk (or other 
symbol) linked to a statement explaining that the fee can be lower 
depending on how and where the prepaid account is used. Except as 
described in Sec.  1005.18(b)(3)(ii), Sec.  1005.18(b)(3)(i) does 
not permit a financial institution to describe in the short form 
disclosure the specific conditions under which a fee may be reduced 
or waived, but the financial institution could use, for example, any 
other part of the prepaid account's packaging or other printed 
materials to disclose that information. The conditions under which a 
fee may be lower

[[Page 84357]]

are required to be disclosed in the long form disclosure pursuant to 
Sec.  1005.18(b)(4)(ii).

18(b)(3)(ii) Disclosure of Variable Periodic Fee

    1. Periodic fee variation alternative. If the amount of the 
periodic fee disclosed in the short form pursuant to Sec.  
1005.18(b)(2)(i) could vary, a financial institution has two 
alternatives for disclosing the variation, as set forth in Sec.  
1005.18(b)(3)(i) and (ii). For example, a financial institution 
charges a monthly fee of $4.95, but waives this fee if a consumer 
receives direct deposit into the prepaid account or conducts 30 or 
more transactions during that month. Pursuant to Sec.  
1005.18(b)(3)(ii), the financial institution could list its monthly 
fee of $4.95 on the short form disclosure followed by a dagger 
symbol that links to a statement that states, for example, ``No 
monthly fee with direct deposit or 30 transactions per month.'' This 
statement may take up no more than one line of text in the short 
form disclosure and must be located directly above or in place of 
the linked statement required by Sec.  1005.18(b)(3)(i). 
Alternatively, pursuant to Sec.  1005.18(b)(3)(i), the financial 
institution could list its monthly fee of $4.95 on the short form 
disclosure followed by an asterisk that links to a statement that 
states, ``This fee can be lower depending on how and where this card 
is used.''

18(b)(3)(iii) Single Disclosure for Like Fees

    1. Alternative for two-tier fees in the short form disclosure. 
Pursuant to Sec.  1005.18(b)(3)(iii), a financial institution may 
opt to disclose one fee instead of the two fees required by Sec.  
1005.18(b)(2)(iii), (v), and (vi) and any two-tier fee required by 
Sec.  1005.18(b)(2)(ix), when the amount is the same for both fees. 
The following examples illustrate how to provide a single disclosure 
for like fees on both the short form disclosure and the multiple 
service plan short form disclosure:
    i. A financial institution charges $1 for both in-network and 
out-of-network automated teller machine withdrawals in the United 
States. The financial institution may list the $1 fee once under the 
general heading ``ATM withdrawal'' required by Sec.  
1005.18(b)(2)(iii); in that case, it need not disclose the terms 
``in-network'' or ``out-of-network.''
    ii. A financial institution using the multiple service plan 
short form disclosure pursuant to Sec.  1005.18(b)(6)(iii)(B)(2) 
charges $1 under each of its service plans for both in-network and 
out-of-network automated teller machine withdrawals in the United 
States. The financial institution may disclose the ATM withdrawal 
fee on one line, instead of two, using the general heading ``ATM 
withdrawal'' required by Sec.  1005.18(b)(2)(iii); in that case, it 
need not disclose the terms ``in-network'' or ``out-of-network.''

18(b)(3)(iv) Third-Party Fees in General

    1. General prohibition on disclosure of third-party fees in the 
short form. Section 1005.18(b)(3)(iv) states that a financial 
institution may not include any third-party fees in a disclosure 
made pursuant to Sec.  1005.18(b)(2), except for, as provided by 
Sec.  1005.18(b)(3)(v), the cash reload fee required to be disclosed 
by Sec.  1005.18(b)(2)(iv). Fees imposed by another party, such as a 
program manager, for services performed on behalf of the financial 
institution are not third-party fees and therefore must be disclosed 
pursuant to Sec.  1005.18(b)(3)(iv). For example, if a program 
manager performs customer service functions for a financial 
institution's prepaid account program, and charges a fee for live 
agent customer service, that fee must be disclosed pursuant to Sec.  
1005.18(b)(2)(iv).

18(b)(3)(v) Third-Party Cash Reload Fees

    1. Updating third-party fees. Section 1005.18(b)(3)(v) provides 
that a financial institution is not required to revise its short 
form disclosure to reflect a cash reload fee change by a third party 
until such time that the financial institution manufactures, prints, 
or otherwise produces new prepaid account packaging materials or 
otherwise updates the short form disclosure. For example, at the 
time a financial institution first prints packaging material for its 
prepaid account program, it discloses on the short form the $3.99 
fee charged by the third-party reload network with which it 
contracts to provide cash reloads. Ten months later, the third-party 
reload network raises its cash reload fee to $4.25. The financial 
institution is not required to update its on-package disclosures to 
reflect the change in the cash reload fee until the financial 
institution next prints packaging materials for that prepaid account 
program. With respect to that financial institution's electronic and 
oral disclosures for that prepaid account program, the financial 
institution may, but is not required to, update its short form 
disclosure immediately upon learning of the third-party reload 
network's change to its cash reload fee. Alternatively, the 
financial institution may wait to update its electronic and oral 
short form disclosures to reflect the change in the cash reload fee 
until it otherwise updates those disclosures.

18(b)(3)(vi) Prohibition on Disclosure of Finance Charges

    1. No disclosure of finance charges in the short form. Section 
1005.18(b)(3)(vi) provides that a financial institution may not 
include in a disclosure made pursuant to Sec.  1005.18(b)(2)(i) 
through (ix) any finance charges as described in Regulation Z, 12 
CFR 1026.4(b)(11), imposed in connection with a covered separate 
credit feature accessible by a hybrid prepaid-credit card as defined 
in 12 CFR 1026.61. If a financial institution imposes a higher fee 
or charge on the asset feature of a prepaid account with a covered 
separate credit feature accessible by a hybrid prepaid-credit card 
than the amount of a comparable fee or charge it imposes on any 
prepaid account in the same prepaid account program that does not 
have such a credit feature, it must disclose on the short form for 
purposes of Sec.  1005.18(b)(2)(i) through (vii) and (ix) the amount 
of the comparable fee rather than the higher fee. See, e.g., Sec.  
1005.18(g)(2) and related commentary.

18(b)(4) Long Form Disclosure Content

18(b)(4)(ii) Fees

    1. Disclosure of all fees. Section 1005.18(b)(4)(ii) requires a 
financial institution to disclose in the long form all fees that may 
be imposed in connection with a prepaid account, not just fees for 
electronic fund transfers or the right to make transfers. The 
requirement to disclose all fees in the long form includes any 
finance charges imposed on the prepaid account as described in 
Regulation Z, 12 CFR 1026.4(b)(11)(ii), in connection with a covered 
separate credit feature accessible by a hybrid prepaid-credit card 
as defined in 12 CFR 1026.61 but does not include finance charges 
imposed on the covered separate credit feature as described in 12 
CFR 1026.4(b)(11)(i). See comment 18(b)(7)(i)(B)-2 for guidance on 
disclosure of finance charges as part of the Sec.  1005.18(b)(4)(ii) 
fee disclosure in the long form. A financial institution may also be 
required to include finance charges in the Regulation Z disclosures 
required pursuant to Sec.  1005.18(b)(4)(vii).
    2. Disclosure of conditions. Section 1005.18(b)(4)(ii) requires 
a financial institution to disclose the amount of each fee and the 
conditions, if any, under which the fee may be imposed, waived, or 
reduced. For example, if a financial institution charges a cash 
reload fee, the financial institution must list the amount of the 
cash reload fee and also specify any circumstances under which a 
consumer can qualify for a lower fee. Similarly, if a financial 
institution discloses both a periodic fee and an inactivity fee, it 
must indicate whether the inactivity fee will be charged in addition 
to, or instead of, the periodic fee. A financial institution may, 
but is not required to, also include on the long form disclosure 
additional information or limitations related to the service or 
feature for which a fee is charged, such as, for cash reloads, any 
limit on the amount of cash a consumer may load into the prepaid 
account in a single transaction or during a particular time period. 
The general requirement in Sec.  1005.18(b)(4)(ii) does not apply to 
individual fee waivers or reductions granted to a particular 
consumer or group of consumers on a discretionary or case-by-case 
basis.
    3. Disclosure of a service or feature without a charge. Pursuant 
to Sec.  1005.18(b)(4)(ii), a financial institution may, but is not 
required to, list in the long form disclosure any service or feature 
it provides or offers at no charge to the consumer. For example, a 
financial institution may list ``online bill pay'' in its long form 
disclosure and indicate a fee amount of ``$0'' when the financial 
institution does not charge consumers a fee for that feature. By 
contrast, where a fee is waived or reduced under certain 
circumstances or where a service or feature is available for an 
introductory period without a fee, the financial institution may not 
list the fee amount as ``$0''. Rather, the financial institution 
must list the highest fee, accompanied by an explanation of the 
waived or reduced fee amount and any conditions for the waiver or 
discount. For example, if a financial institution waives its monthly 
fee for any consumer who receives direct deposit payments into the 
prepaid account or conducts 30 or more transactions in a given 
month, the long form disclosure must list the regular monthly fee 
amount along with an explanation that the monthly

[[Page 84358]]

fee is waived if the consumer receives direct deposit or conducts 30 
or more transactions each month. Similarly, for an introductory fee, 
the financial institution would list the highest fee, and explain 
the introductory fee amount, the duration of the introductory 
period, and any conditions that apply during the introductory 
period.
    4. Third-party fees. Section 1005.18(b)(4)(ii) requires 
disclosure in the long form of any third-party fee amounts known to 
the financial institution that may apply. Fees imposed by another 
party, such as a program manager, for services performed on behalf 
of the financial institution are not third-party fees and therefore 
must be disclosed on the long form pursuant to Sec.  
1005.18(b)(4)(ii). Also pursuant to Sec.  1005.18(b)(4)(ii), for any 
third-party fee disclosed, a financial institution may, but is not 
required to, include either or both a statement that the fee is 
accurate as of or through a specific date or that the third-party 
fee is subject to change. For example, a financial institution that 
contracts with a third-party remote deposit capture service must 
include in the long form disclosure the amount of the fee known to 
the financial institution that is charged by the third party for 
remote deposit capture services. The financial institution may, but 
is not required to, also state that the third-party remote deposit 
capture fee is accurate as of or through a specific date, such as 
the date the financial institution prints the long form disclosure. 
The financial institution may also state that the fee is subject to 
change. Section 1005.18(b)(4)(ii) also provides that, if a third-
party fee may apply but the amount of the fee is not known by the 
financial institution, it must include a statement indicating that a 
third-party fee may apply without specifying the fee amount. For 
example, a financial institution that permits out-of-network ATM 
withdrawals would disclose that, for ATM withdrawals that occur 
outside the financial institution's network, the ATM operator may 
charge the consumer a fee for the withdrawal, but the financial 
institution is not required to disclose the out-of-network ATM 
operator's fee amount if it does not know the amount of the fee.

18(b)(4)(iii) Statement Regarding Registration and FDIC or NCUA 
Insurance

    1. Statement regarding registration and FDIC or NCUA insurance, 
including implications thereof. Section 1005.18(b)(4)(iii) requires 
that the long form disclosure include the same statement regarding 
prepaid account registration and FDIC or NCUA insurance eligibility 
required by Sec.  1005.18(b)(2)(xi) in the short form disclosure, 
together with an explanation of FDIC or NCUA insurance coverage and 
the benefit of such coverage or the consequence of the lack of such 
coverage, as applicable.
    i. Bank disclosure of FDIC insurance. For example, XYZ Bank 
offers a prepaid account program for sale at retail locations that 
is set up to be eligible for FDIC deposit insurance, but does not 
conduct customer identification and verification before consumers 
purchase the prepaid account. XYZ Bank may disclose the required 
statements as ``Register your card for FDIC insurance eligibility 
and other protections. Your funds will be held at or transferred to 
XYZ Bank, an FDIC-insured institution. Once there, your funds are 
insured up to $250,000 by the FDIC in the event XYZ Bank fails, if 
specific deposit insurance requirements are met and your card is 
registered. See fdic.gov/deposit/deposits/prepaid.html for 
details.'' Conversely, if XYZ Bank offers another prepaid account 
program for sale at retail locations for which it conducts customer 
identification and verification after purchase of the prepaid 
account, but the program is not set up to be eligible for FDIC 
insurance, XYZ Bank may disclose the required statements as ``Not 
FDIC insured. Your funds will be held at or transferred to XYZ Bank. 
If XYZ Bank fails, you are not protected by FDIC deposit insurance 
and could lose some or all of your money. Register your card for 
other protections.''
    ii. Credit union disclosure of NCUA insurance. For example, ABC 
Credit Union offers a prepaid account program for sale at its own 
branches that is set up to be eligible for NCUA share insurance, but 
does not conduct customer identification and verification before 
consumers purchase the prepaid account. ABC Credit Union may 
disclose the requirement statements as ``Register your card for NCUA 
insurance, if eligible, and other protections. Your funds will be 
held at or transferred to ABC Credit Union, an NCUA-insured 
institution. Once there, if specific share insurance requirements 
are met and your card is registered, your funds are insured up to 
$250,000 by the NCUA in the event ABC Credit Union fails.'' See 
comment 18(b)(2)(xi)-1 for guidance as to when NCUA insurance 
coverage should be disclosed instead of FDIC insurance coverage.

18(b)(4)(vii) Regulation Z Disclosures for Overdraft Credit Features

    1. Long form Regulation Z disclosure of overdraft credit 
features. Section 1005.18(b)(4)(vii) requires that the long form 
include the disclosures described in Regulation Z, 12 CFR 
1026.60(e)(1), in accordance with the requirements for such 
disclosures in 12 CFR 1026.60, if, at any point, a covered separate 
credit feature accessible by a hybrid prepaid-credit card as defined 
in Regulation Z, 12 CFR 1026.61, may be offered to a consumer in 
connection with the prepaid account. If the financial institution 
includes the disclosures described in Regulation Z, 12 CFR 
1026.60(e)(1), pursuant to Sec.  1005.18(b)(7)(i)(B), such 
disclosures must appear below the disclosures required by Sec.  
1005.18(b)(4)(vi). If the disclosures provided pursuant to 
Regulation Z, 12 CFR 1026.60(e)(1), are provided in writing, these 
disclosures must be provided in the form required by 12 CFR 
1026.60(a)(2), and to the extent possible, on the same page as the 
other disclosures required by Sec.  1005.18(b)(4).
    2. Updates to the long form for changes to the Regulation Z 
disclosures. Pursuant to Sec.  1005.18(b)(4)(vii), a financial 
institution is not required to revise the disclosure required by 
that paragraph to reflect a change in the fees or other terms 
disclosed therein until such time as the financial institution 
manufactures, prints, or otherwise produces new prepaid account 
packaging materials or otherwise updates the long form disclosure. 
This exception does not extend to any finance charges imposed on the 
prepaid account as described in Regulation Z, 12 CFR 
1026.4(b)(11)(ii), in connection with a covered separate credit 
feature accessible by a hybrid prepaid-credit card as defined in 12 
CFR 1026.61 that are required to be disclosed on the long form 
pursuant to Sec.  1005.18(b)(4)(ii). See comment 18(b)(4)(ii)-1.

18(b)(5) Disclosure Requirements Outside the Short Form Disclosure

    1. Content of disclosure. Section 1005.18(b)(5) requires that 
the name of the financial institution, the name of the prepaid 
account program, and any purchase price or activation fee for the 
prepaid account be disclosed outside the short form disclosure. A 
financial institution may, but is not required to, also disclose the 
name of the program manager or other service provider involved in 
the prepaid account program.
    2. Location of disclosure. In addition to setting forth the 
required content for disclosures outside the short form disclosure, 
Sec.  1005.18(b)(5) requires that, in a setting other than a retail 
location, the information required by Sec.  1005.18(b)(5) must be 
disclosed in close proximity to the short form. For example, if the 
financial institution provides the short form disclosure online, the 
information required by Sec.  1005.18(b)(5) is deemed disclosed in 
close proximity to the short form if it appears on the same Web page 
as the short form disclosure. If the financial institution offers 
the prepaid account in its own branch locations and provides the 
short form disclosure on the exterior of its preprinted packaging 
materials, the information required by Sec.  1005.18(b)(5) is deemed 
disclosed in close proximity to the short form disclosure if it 
appears on the exterior of the packaging. If the financial 
institution provides written short form disclosures in a manner 
other than on preprinted packaging materials, such as on paper, the 
information required by Sec.  1005.18(b)(5) is deemed disclosed in 
close proximity if it appears on the same piece of paper as the 
short form disclosure. If the financial institution provides the 
short form disclosure orally, the information required by Sec.  
1005.18(b)(5) is deemed disclosed in close proximity to the short 
form disclosure if it is provided immediately before or after 
disclosing the fees and information required pursuant to Sec.  
1005.18(b)(2). For prepaid accounts sold in a retail location 
pursuant to the retail location exception in Sec.  
1005.18(b)(1)(ii), Sec.  1005.18(b)(5) requires the information 
other than purchase price be disclosed on the exterior of the access 
device's packaging material. If the purchase price, if any, is not 
also disclosed on the exterior of the packaging, disclosure of the 
purchase price on or near the sales rack or display for the 
packaging material is deemed in close proximity to the short form 
disclosure.

[[Page 84359]]

18(b)(6) Form of Pre-Acquisition Disclosures

18(b)(6)(i) General

18(b)(6)(i)(B) Electronic Disclosures

    1. Providing pre-acquisition disclosures electronically. Section 
1005.18(b)(6)(i)(B) requires electronic delivery of the disclosures 
required by Sec.  1005.18(b) when a consumer acquires a prepaid 
account through electronic means, including via a Web site or mobile 
application, and, among other things, in a manner which is 
reasonably expected to be accessible in light of how a consumer is 
acquiring the prepaid account. For example, if a consumer is 
acquiring a prepaid account via a Web site or mobile application, it 
would be reasonable to expect that a consumer would be able to 
access the disclosures required by Sec.  1005.18(b) on the first 
page or via a direct link from the first page of the Web site or 
mobile application or on the first page that discloses the details 
about the specific prepaid account program. See comment 18(b)(1)(i)-
2 for additional guidance on placement of the short form and long 
form disclosures on a Web page.
    2. Disclosures responsive to smaller screens. In accordance with 
the requirement in Sec.  1005.18(b)(6)(i)(B) that electronic 
disclosures be provided in a responsive form, electronic disclosures 
provided pursuant to Sec.  1005.18(b) must be provided in a way that 
responds to different screen sizes, for example, by stacking 
elements of the disclosures in a manner that accommodates consumer 
viewing on smaller screens, while still meeting the other formatting 
requirements set forth in Sec.  1005.18(b)(7). For example, the 
disclosures permitted by Sec.  1005.18(b)(2)(xiv)(B) or (b)(3)(ii) 
must take up no more than one additional line of text in the short 
form disclosure. If a consumer is acquiring a prepaid account using 
a mobile device with a screen too small to accommodate these 
disclosures on one line of text in accordance with the size 
requirements set forth in Sec.  1005.18(b)(7)(ii)(B), a financial 
institution is permitted to display the disclosures permitted by 
Sec.  1005.18(b)(2)(xiv)(B) and (b)(3)(ii), for example, by stacking 
those disclosures in a way that responds to smaller screen sizes, 
while still meeting the other formatting requirements in Sec.  
1005.18(b)(7).
    3. Machine-readable text. Section 1005.18(b)(6)(i)(B) requires 
that electronic disclosures must be provided using machine-readable 
text that is accessible via both Web browsers (or mobile 
applications, as applicable) and screen readers. A disclosure would 
not be deemed to comply with this requirement if it was not provided 
in a form that can be read automatically by Internet search engines 
or other computer systems.

18(b)(6)(ii) Retainable Form

    1. Retainable disclosures. Section 1005.18(b)(6)(ii) requires 
that, except for disclosures provided orally pursuant to Sec.  
1005.18(b)(1)(ii) or (iii), long form disclosures provided via SMS 
as permitted by Sec.  1005.18(b)(2)(xiii) for a prepaid account sold 
at retail locations pursuant to the retail location exception in 
Sec.  1005.18(b)(1)(ii), and the disclosure of a purchase price 
pursuant to Sec.  1005.18(b)(5) that is not disclosed on the 
exterior of the packaging material for a prepaid account sold at a 
retail location pursuant to the retail location exception in Sec.  
1005.18(b)(1)(ii), disclosures provided pursuant to Sec.  1005.18(b) 
must be made in a form that a consumer may keep. For example, a 
short form disclosure with a tear strip running though it would not 
be deemed retainable because use of the tear strip to gain access to 
the prepaid account access device inside the packaging would destroy 
part of the short form disclosure. Electronic disclosures are deemed 
retainable if the consumer is able to print, save, and email the 
disclosures from the Web site or mobile application on which they 
are displayed.

18(b)(6)(iii) Tabular Format

18(b)(6)(iii)(B) Multiple Service Plans

18(b)(6)(iii)(B)(1) Short Form Disclosure for Default Service Plan

    1. Disclosure of default service plan excludes short-term or 
promotional service plans. Section 1005.18(b)(6)(iii)(B)(1) provides 
that when a financial institution offers multiple service plans 
within a particular prepaid account program and each plan has a 
different fee schedule, the information required by final Sec.  
1005.18(b)(2)(i) through (ix) may be provided in the tabular format 
described in final Sec.  1005.18(b)(6)(iii)(A) for the service plan 
in which a consumer is initially enrolled by default upon acquiring 
a prepaid account. Pursuant to the requirement in Sec.  
1005.18(b)(3)(i) to disclose the highest amount a financial 
institution may impose for a fee disclosed pursuant to Sec.  
1005.18(b)(2)(i) through (vii) and (ix), a financial institution 
would not be permitted to disclose any short-term or promotional 
service plans as a default service plan.

18(b)(6)(iii)(B)(2) Short Form Disclosure for Multiple Service Plans

    1. Disclosure of multiple service plans. The multiple service 
plan disclosure requirements in Sec.  1005.18(b)(6)(iii)(B)(2) apply 
when a financial institution offers more than one service plan 
within a particular prepaid account program, each plan has a 
different fee schedule, and the financial institution opts not to 
disclose the default service plan pursuant to Sec.  
1005.18(b)(6)(iii)(B)(1). See Model Form A-10(e). For example, a 
financial institution that offers a prepaid account program with one 
service plan for which a consumer pays no periodic fee but instead 
pays a fee for each transaction, and another plan that includes a 
monthly fee but no per transaction fee may use the short form 
disclosure for multiple service plans pursuant to Sec.  
1005.18(b)(6)(iii)(B)(2). Similarly, a financial institution that 
offers a prepaid account program with preferred rates or fees for 
the prepaid accounts of consumers who also use another non-prepaid 
service (e.g., a mobile phone service), often referred to as 
``loyalty plans,'' may also use the short form disclosure for 
multiple service plans pursuant to Sec.  1005.18(b)(6)(iii)(B)(2). 
Pricing variations based on whether a consumer elects to use a 
specific feature of a prepaid account, such as waiver of the monthly 
fee for consumers electing to receive direct deposit, does not 
constitute multiple service plans or a loyalty plan. See comment 
18(b)(3)(iii)-1.ii for guidance on providing a single disclosure for 
like fees for multiple service plan short form disclosures.

18(b)(7) Specific Formatting Requirements for Pre-Acquisition 
Disclosures

18(b)(7)(i) Grouping

18(b)(7)(i)(B) Long Form Disclosure

    1. Conditions must be in close proximity to fee amount. Pursuant 
to Sec.  1005.18(b)(4)(ii), the long form disclosure generally must 
disclose all fees that may be imposed in connection with a prepaid 
account, including the amount of the fee and any conditions under 
which the fee may be imposed, waived, or reduced. Pursuant to Sec.  
1005.18(b)(7)(i)(B), text describing the conditions under which a 
fee may be imposed must appear in the table in the long form 
disclosure in close proximity to the fee amount disclosed pursuant 
to Sec.  1005.18(b)(4)(ii). For example, a financial institution is 
deemed to comply with this requirement if the text describing the 
conditions is located directly to the right of the fee amount in the 
long form disclosure, as illustrated in Sample Form A-10(f). See 
comment 18(b)(6)(i)(B)-2 regarding stacking of electronic 
disclosures for display on smaller screen sizes.
    2. Category of function for finance charges. Section 
1005.18(b)(7)(i)(B) requires that the information required by Sec.  
1005.18(b)(4)(ii) must be generally grouped together and organized 
under subheadings by the categories of function for which a 
financial institution may impose the fee. If any finance charges may 
be imposed on the prepaid account as described in Regulation Z, 12 
CFR 1026.4(b)(11)(ii), in connection with a covered separate credit 
feature accessible by a hybrid prepaid-credit card as defined in 12 
CFR 1026.61, the financial institution may, but is not required to, 
group all finance charges together under a single subheading. This 
includes situations where the financial institution imposes a higher 
fee or charge on the asset feature of a prepaid account with a 
covered separate credit feature accessible by a hybrid prepaid-
credit card than the amount of a comparable fee or charge it imposes 
on any prepaid account in the same prepaid account program that does 
not have such a credit feature. For example, if a financial 
institution charges on the prepaid account a $0.50 per transaction 
fee for each transaction that accesses funds in the asset feature of 
a prepaid account and a $1.25 per transaction fee for each 
transaction where the hybrid prepaid-credit card accesses credit 
from the covered separate credit feature in the course of the 
transaction, the financial institution is permitted to disclose the 
$0.50 per transaction fee under a general transactional subheading 
and disclose the additional $0.75 per transaction fee under a 
separate subheading together with any other finance charges that may 
be imposed on the prepaid account.

18(b)(7)(ii) Prominence and Size

    1. Minimum type size. Section 1005.18(b)(7)(ii) sets forth 
minimum type/

[[Page 84360]]

pixel size requirements for each element of the disclosures required 
by Sec.  1005.18(b)(2), (b)(3)(i) and (ii), and (b)(4). A financial 
institution may provide disclosures in a type size larger than the 
required minimum to enhance consumer comprehension in any 
acquisition scenario, as long as the financial institution complies 
with the type/pixel size hierarchy set forth in Sec.  
1005.18(b)(7)(ii).
    2. ``Point'' refers to printed disclosures and ``pixel'' refers 
to electronic disclosures. References in Sec.  1005.18(b)(7)(ii) to 
``point'' size correspond to printed disclosures and references to 
``pixel'' size correspond to disclosures provided via electronic 
means.

18(b)(7)(ii)(A) General

    1. Contrast required between type color and background of 
disclosures. Section Sec.  1005.18(b)(7)(ii)(A) requires that all 
text used to disclose information in the short form or in the long 
form disclosure pursuant to Sec.  1005.18(b)(2), (b)(3)(i) and (ii), 
and (b)(4) must be in a single, easy-to-read type that is all black 
or one color and printed on a background that provides a clear 
contrast. A financial institution complies with the color 
requirements if, for example, it provides the disclosures required 
by Sec.  1005.18(b)(2), (b)(3)(i) and (ii), and (b)(4) printed in 
black type on a white background or white type on a black 
background. Also, pursuant to Sec.  1005.18(b)(7)(ii)(A), the type 
and color may differ between the short form disclosure and the long 
form disclosure provided for a particular prepaid account program. 
For example, a financial institution may use one font/type style for 
the short form disclosure for a particular prepaid account program 
and use a different font/type style for the long form disclosure for 
that same prepaid account program. Similarly, a financial 
institution may use black type for the short form disclosure for a 
particular prepaid account program and use blue type for the long 
form disclosure for that same prepaid account program.

18(b)(7)(iii) Segregation

    1. Permitted information outside the short form and long form 
disclosures. Section 1005.18(b)(7)(iii) requires that the short form 
and long form disclosures required by Sec.  1005.18(b)(2) and (4) be 
segregated from other information and contain only information that 
is required or permitted for those disclosures by Sec.  1005.18(b). 
This segregation requirement does not prohibit the financial 
institution from providing information elsewhere on the same page as 
the short form disclosure, such as the information required by Sec.  
1005.18(b)(5), additional disclosures required by state law for 
payroll card accounts, or any other information the financial 
institution wishes to provide about the prepaid account. Similarly, 
the segregation requirement does not prohibit a financial 
institution from providing the long form disclosure on the same page 
as other disclosures or information, or as part of a larger 
document, such as the prepaid account agreement. See also Sec.  
1005.18(b)(1) and (f)(1).

18(b)(8) Terminology of Pre-Acquisition Disclosures

    1. Consistent terminology. Section 1005.18(b)(8) requires that 
fee names and other terms be used consistently within and across the 
disclosures required by Sec.  1005.18(b). For example, a financial 
institution may not name the fee required to be disclosed by Sec.  
1005.18(b)(2)(vii) an ``inactivity fee'' in the short form 
disclosure and a ``dormancy fee'' in the long form disclosure. 
However, a financial institution may substitute the term prepaid 
``account'' for the term prepaid ``card,'' as appropriate, wherever 
it is used in Sec.  1005.18(b).

18(b)(9) Prepaid Accounts Acquired in Foreign Languages

    1. Prepaid accounts acquired in foreign languages. Section 
1005.18(b)(9)(i) requires a financial institution to provide the 
pre-acquisition disclosures required by Sec.  1005.18(b)(2) of this 
section in a foreign language in certain circumstances.
    i. Examples of situations in which foreign language disclosures 
are required. The following examples illustrate situations in which 
a financial institution must provide the pre-acquisition disclosures 
in a foreign language in connection with the acquisition of that 
prepaid account:
    A. The financial institution principally uses a foreign language 
on the packaging material of a prepaid account sold in a retail 
location or distributed at a bank or credit union branch, even 
though a few words appear in English on the packaging.
    B. The financial institution principally uses a foreign language 
in a television advertisement for a prepaid account. That 
advertisement includes a telephone number a consumer can call to 
acquire the prepaid account, whether by speaking to a customer 
service representative or interacting with an interactive voice 
response (IVR) system.
    C. The financial institution principally uses a foreign language 
in an online advertisement for a prepaid account. That advertisement 
includes a Web site URL through which a consumer can acquire the 
prepaid account.
    D. The financial institution principally uses a foreign language 
on a printed advertisement for a prepaid account. That advertisement 
includes a telephone number or a Web site URL a consumer can call or 
visit to acquire the prepaid account. The pre-acquisition 
disclosures must be provided to the consumer in that same foreign 
language prior to the consumer acquiring the prepaid account.
    E. The financial institution does not principally use a foreign 
language on prepaid account packaging material nor does it 
principally use a foreign language to advertise, solicit, or market 
a prepaid account. A consumer calls the financial institution and 
has the option to proceed with the prepaid account acquisition 
process in a foreign language, whether by speaking to a customer 
service representative or interacting with an IVR system.
    F. The financial institution does not principally use a foreign 
language on prepaid account packaging material nor does it 
principally use a foreign language to advertise, solicit, or market 
a prepaid account. A consumer visits the financial institution's Web 
site. On that Web site, the consumer has the option to proceed with 
the prepaid account acquisition process in a foreign language.
    ii. Examples of situations in which foreign language disclosures 
are not required. The following examples illustrate situations in 
which a financial institution is not required to provide the pre-
acquisition disclosures in a foreign language:
    A. A consumer visits the financial institution's branch location 
in person and speaks to an employee in a foreign language about 
acquiring a prepaid account. The consumer proceeds with the 
acquisition process in that foreign language.
    B. The financial institution does not principally use a foreign 
language on prepaid account packaging material nor does it 
principally use a foreign language to advertise, solicit, or market 
a prepaid account. A consumer calls the financial institution's 
customer service line and speaks to a customer service 
representative in a foreign language. However, if the customer 
service representative proceeds with the prepaid account acquisition 
process over the telephone, the financial institution would be 
required to provide the pre-acquisition disclosures in that foreign 
language.
    C. The financial institution principally uses a foreign language 
in an advertisement for a prepaid account. That advertisement 
includes a telephone number a consumer can call to acquire the 
prepaid account. The consumer calls the telephone number provided on 
the advertisement and has the option to proceed with the prepaid 
account acquisition process in English or in a foreign language. The 
consumer chooses to proceed with the acquisition process in English.
    2. Principally used. All relevant facts and circumstances 
determine whether a foreign language is principally used by the 
financial institution to advertise, solicit, or market under Sec.  
1005.18(b)(9). Whether a foreign language is principally used is 
determined at the packaging material, advertisement, solicitation, 
or marketing communication level, not at the prepaid account program 
level or across the financial institution's activities as a whole. A 
financial institution that advertises a prepaid account program in 
multiple languages would evaluate its use of foreign language in 
each advertisement to determine whether it has principally used a 
foreign language therein.
    3. Advertise, solicit, or market a prepaid account. Any 
commercial message, appearing in any medium, that promotes directly 
or indirectly the availability of prepaid accounts constitutes 
advertising, soliciting, or marketing for purposes of Sec.  
1005.18(b)(9). Examples illustrating advertising, soliciting, or 
marketing include, but are not limited to:
    i. Messages in a leaflet, promotional flyer, newspaper, or 
magazine.
    ii. Electronic messages, such as on a Web site or mobile 
application.
    iii. Telephone solicitations.
    iv. Solicitations sent to the consumer by mail or email.
    v. Television or radio commercials.
    4. Information in the long form disclosure in English. Section 
1005.18(b)(9)(ii) states that a financial institution required to 
provide pre-acquisition disclosures in a foreign language pursuant 
to

[[Page 84361]]

Sec.  1005.18(b)(9)(i) must also provide the information required to 
be disclosed in its pre-acquisition long form disclosure pursuant to 
Sec.  1005.18(b)(4) in English upon a consumer's request and on any 
part of the Web site where it discloses this information in a 
foreign language. A financial institution may, but is not required 
to, provide the English version of the information required by Sec.  
1005.18(b)(4) in accordance with the formatting, grouping, size and 
other requirements set forth in Sec.  1005.18(b) for the long form 
disclosure.

18(c) Access to Prepaid Account Information

    1. Posted transactions. The electronic and written history of 
the consumer's account transactions provided under Sec.  
1005.18(c)(1)(ii) and (iii), respectively, shall reflect transfers 
once they have been posted to the account. Thus, a financial 
institution does not need to include transactions that have been 
authorized but that have not yet posted to the account.
    2. Electronic history. The electronic history required under 
Sec.  1005.18(c)(1)(ii) must be made available in a form that the 
consumer may keep, as required under Sec.  1005.4(a)(1). Financial 
institutions may satisfy this requirement if they make the 
electronic history available in a format that is capable of being 
retained. For example, a financial institution satisfies the 
requirement if it provides electronic history on a Web site in a 
format that is capable of being printed or stored electronically 
using a web browser.
    3. Written history. Requests that exceed the requirements of 
Sec.  1005.18(c)(1)(iii) for providing written account transaction 
history, and which therefore a financial institution may charge a 
fee, include the following:
    i. A financial institution may assess a fee or charge to a 
consumer for responding to subsequent requests for written account 
transaction history made in a single calendar month. For example, if 
a consumer requests written account transaction history on June 1 
and makes another request on August 5, the financial institution may 
not assess a fee or charge to the consumer for responding to either 
request. However, if the consumer requests written account 
transaction history on June 1 and then makes another request on June 
15, the financial institution may assess a fee or charge to the 
consumer for responding to the request made on June 15, as this is 
the second response in the same month.
    ii. If a financial institution maintains more than 24 months of 
written account transaction history, it may assess a fee or charge 
to the consumer for providing a written history for transactions 
occurring more than 24 months preceding the date the financial 
institution receives the consumer's request, provided the consumer 
specifically requests the written account transaction history for 
that time period.
    iii. If a financial institution offers a consumer the ability to 
request automatic mailings of written account transaction history on 
a monthly or other periodic basis, it may assess a fee or charge for 
such automatic mailings but not for the written account transaction 
history requested pursuant to Sec.  1005.18(c)(1)(iii). See comment 
18(c)-6.
    4. 12 months of electronic account transaction history. Section 
1005.18(c)(1)(ii) requires a financial institution to make available 
at least 12 months of account transaction history electronically. If 
a prepaid account has been opened for fewer than 12 months, the 
financial institution need only provide electronic account 
transaction history pursuant to Sec.  1005.18(c)(1)(ii) since the 
time of account opening. If a prepaid account is closed or becomes 
inactive, as defined by the financial institution, the financial 
institution need not make available electronic account transaction 
history. See comment 9(b)-3. If an inactive account becomes active, 
the financial institution must again make available 12 months of 
electronic account transaction history.
    5. 24 months of written account transaction history. Section 
1005.18(c)(1)(iii) requires a financial institution to provide at 
least 24 months of account transaction history in writing upon the 
consumer's request. A financial institution may provide fewer than 
24 months of written account transaction history if the consumer 
requests a shorter period of time. If a prepaid account has been 
opened for fewer than 24 months, the financial institution need only 
provide written account transaction history pursuant to Sec.  
1005.18(c)(1)(iii) since the time of account opening. Even if a 
prepaid account is closed or becomes inactive, the financial 
institution must continue to provide upon request at least 24 months 
of written account transaction history preceding the date the 
request is received. When a prepaid account has been closed or 
inactive for 24 months or longer, the financial institution is no 
longer required to make available any written account transaction 
history pursuant to Sec.  1005.18(c)(1)(iii).
    6. Periodic statement alternative for unverified prepaid 
accounts. For prepaid accounts that are not payroll card accounts or 
government benefit accounts, a financial institution is not required 
to provide a written history of the consumer's account transactions 
for any prepaid account for which the financial institution has not 
completed its consumer identification and verification process as 
described in Sec.  1005.18(e)(3)(i)(A) through (C). If a prepaid 
account is verified, a financial institution must provide written 
account transaction history upon the consumer's request that 
includes the period during which the account was not verified, 
provided that the period is within the 24-month time frame specified 
in Sec.  1005.18(c)(1)(iii).
    7. Inclusion of all fees charged. A financial institution that 
furnishes a periodic statement pursuant to Sec.  1005.9(b) for a 
prepaid account must disclose the amount of any fees assessed 
against the account, whether for electronic fund transfers or 
otherwise, on the periodic statement as well as on any electronic or 
written account transaction history the financial institution makes 
available or provides to the consumer. For example, if a financial 
institution sends periodic statements and also makes available the 
consumer's electronic account transaction history on its Web site, 
the financial institution must disclose the amount of any fees 
assessed against the account, whether for electronic fund transfers 
or otherwise, on the periodic statement and on the consumer's 
electronic account transaction history made available on its Web 
site. Likewise, a financial institution that follows the periodic 
statement alternative in Sec.  1005.18(c)(1) must disclose the 
amount of any fees assessed against the account, whether for 
electronic fund transfers or otherwise, on the electronic history of 
the consumer's account transactions made available pursuant to Sec.  
1005.18(c)(1)(ii) and any written history of the consumer's account 
transactions provided pursuant to Sec.  1005.18(c)(1)(iii).
    8. Summary totals of fees. Section 1005.18(c)(5) requires a 
financial institution to disclose a summary total of the amount of 
all fees assessed by the financial institution against a prepaid 
account for the prior calendar month and for the calendar year to 
date.
    i. Generally. A financial institution that furnishes a periodic 
statement pursuant to Sec.  1005.9(b) for a prepaid account must 
display the monthly and annual fee totals on the periodic statement 
as well as on any electronic or written account transaction history 
the financial institution makes available or provides to the 
consumer. For example, if a financial institution sends periodic 
statements and also makes available the consumer's electronic 
account transaction history on its Web site, the financial 
institution must display the monthly and annual fee totals on the 
periodic statement and on the consumer's electronic account 
transaction history made available on its Web site. Likewise, a 
financial institution that follows the periodic statement 
alternative in Sec.  1005.18(c)(1) must display the monthly and 
annual fee totals on the electronic history of the consumer's 
account transactions made available pursuant to Sec.  
1005.18(c)(1)(ii) and any written history of the consumer's account 
transactions provided pursuant to Sec.  1005.18(c)(1)(iii). If a 
financial institution provides periodic statements pursuant to Sec.  
1005.9(b), fee totals may be disclosed for each statement period 
rather than each calendar month, if different. The summary totals of 
fees should be net of any fee reversals.
    ii. Third-party fees. A financial institution may, but is not 
required to, include third-party fees in its summary totals of fees 
provided pursuant to Sec.  1005.18(c)(5). For example, a financial 
institution must include in the summary totals of fees the fee it 
charges a consumer for using an out-of-network ATM, but it need not 
include any fee charged by an ATM operator, with whom the financial 
institution has no relationship, for the consumer's use of that 
operator's ATM. Similarly, a financial institution need not include 
in the summary totals of fees the fee charged by a third-party 
reload network for the service of adding cash to a prepaid account 
at a point-of-sale terminal. A financial institution may, but is not 
required to, inform consumers of third-party fees such as by 
providing a disclaimer to indicate that the summary totals do not 
include certain third-party fees or to explain when third-

[[Page 84362]]

party fees may occur or through some other method.
    9. Display of summary totals of fees. A financial institution 
may, but is not required to, also include sub-totals of the types of 
fees that make up the summary totals of fees as required by Sec.  
1005.18(c)(5). For example, if a financial institution distinguishes 
optional fees (e.g., custom card design fees) from fees to use the 
account, in displaying the summary totals of fees, the financial 
institution may include sub-totals of those fees, provided the 
financial institution also presents the combined totals of all fees.

18(e) Modified Limitations on Liability and Error Resolution 
Requirements

    1. Error resolution safe harbor provision. Institutions that 
choose to investigate notices of error provided up to 120 days from 
the date a transaction has posted to a consumer's account may still 
disclose the error resolution time period required by the regulation 
(as set forth in the model clause in paragraph (b) of appendix A-7 
of this part). Specifically, an institution may disclose to prepaid 
account holders that the institution will investigate any notice of 
error provided within 60 days of the consumer electronically 
accessing an account or receiving a written history upon request 
that reflects the error, even if, for some or all transactions, the 
institution investigates any notice of error provided up to 120 days 
from the date that the transaction alleged to be in error has posted 
to the consumer's account. Similarly, an institution's summary of 
the consumer's liability (as required under Sec.  1005.7(b)(1)) may 
disclose that liability is based on the consumer providing notice of 
error within 60 days of the consumer electronically accessing an 
account or receiving a written history reflecting the error, even 
if, for some or all transactions, the institution allows a consumer 
to assert a notice of error up to 120 days from the date of posting 
of the alleged error.
    2. Electronic access. A consumer is deemed to have accessed a 
prepaid account electronically when the consumer enters a user 
identification code or password or otherwise complies with a 
security procedure used by an institution to verify the consumer's 
identity and to provide access to a Web site or mobile application 
through which account information can be viewed. An institution is 
not required to determine whether a consumer has in fact accessed 
information about specific transactions to trigger the beginning of 
the 60-day periods for liability limits and error resolution under 
Sec. Sec.  1005.6 and 1005.11. A consumer is not deemed to have 
accessed a prepaid account electronically when the consumer receives 
an automated text message or other automated account alert, or 
checks the account balance by telephone.
    3. Untimely notice of error. An institution that provides a 
transaction history under Sec.  1005.18(c)(1) is not required to 
comply with the requirements of Sec.  1005.11 for any notice of 
error from the consumer received more than 60 days after the earlier 
of the date the consumer electronically accesses the account 
transaction history or the date the financial institution sends a 
written account transaction history upon the consumer's request. 
(Alternatively, as provided in Sec.  1005.18(e)(2)(ii), an 
institution need not comply with the requirements of Sec.  1005.11 
with respect to any notice of error received from the consumer more 
than 120 days after the date of posting of the transfer allegedly in 
error.) Where the consumer's assertion of error involves an 
unauthorized EFT, however, the institution must comply with Sec.  
1005.6 (including the extension of time limits in Sec.  
1005.6(b)(4)) before it may impose any liability on the consumer.
    4. Verification of accounts. Section 1005.18(e)(3) provides that 
for prepaid accounts that are not payroll card accounts or 
government benefit accounts, a financial institution need not extend 
provisional credit for any prepaid account for which it has not 
completed its collection of consumer identification and verification 
process. Consumer identifying information may include the consumer's 
full name, address, date of birth, and Social Security number or 
other government-issued identification number.
    5. Financial institution has not completed verification. Section 
1005.18(e)(3)(ii)(A) states that, provided it discloses to the 
consumer the risks of not registering a prepaid account, a financial 
institution has not completed its consumer identification and 
verification process where it has not concluded the process with 
respect to a particular consumer. For example, a financial 
institution initiates the identification and verification process by 
collecting identifying information about a consumer and informing 
the consumer of the nature of the outstanding information, but 
despite efforts to obtain additional information from the consumer, 
the financial institution is unable to conclude the process because 
of conflicting information about the consumer's current address. As 
long as the information needed to complete the verification process 
remains outstanding, the financial institution has not concluded its 
consumer identification and verification process with respect to 
that consumer. A financial institution may not delay completing its 
customer identification and verification process or refuse to verify 
a consumer's identity based on the consumer's assertion of an error.
    6. Account verification prior to acquisition. A financial 
institution that collects and verifies consumer identifying 
information, or that obtains such information after it has been 
collected and verified by a third party, prior to or as part of the 
account acquisition process, is deemed to have completed its 
consumer identification and verification process with respect to 
that account. For example, a university contracts with a financial 
institution to disburse financial aid to students via the financial 
institution's prepaid accounts. To facilitate the accurate disbursal 
of aid awards, the university provides the financial institution 
with identifying information about the university's students, whose 
identities the university had previously verified. The financial 
institution is deemed to have completed its consumer identification 
and verification process with respect to those accounts.

18(f) Disclosure of Fees and Other Information

    1. Initial disclosure of fees and other information. Section 
1005.18(f)(1) requires a financial institution to include, as part 
of the initial disclosures given pursuant to Sec.  1005.7, all of 
the information required to be disclosed in its pre-acquisition long 
form disclosure pursuant to Sec.  1005.18(b)(4). Section 
1005.18(b)(4)(ii) requires a financial institution to disclose in 
its pre-acquisition long form disclosure all fees imposed in 
connection with a prepaid account. Section 1005.18(b)(4) also 
contains several specific statements that must be provided as part 
of the long form disclosure. A financial institution may, but is not 
required to, disclose the information required by Sec.  
1005.18(b)(4) in accordance with the formatting, grouping, size and 
other requirements set forth in Sec.  1005.18(b) for the long form 
disclosure as part of its initial disclosures provided pursuant to 
Sec.  1005.7; a financial institution may choose to do so, however, 
in order to satisfy other requirements in Sec.  1005.18. See, e.g., 
Sec.  1005.18(b)(1)(ii) regarding the retail location exception.
    2. Changes to the Regulation Z disclosures for overdraft credit 
features. Pursuant to Sec.  1005.18(f)(2), if a financial 
institution provides pursuant Sec.  1005.18(f)(1) the Regulation Z 
disclosures required by Sec.  1005.18(b)(4)(vii) for an overdraft 
credit feature, the financial institution is not required to provide 
a change-in-terms notice solely to reflect a change in the fees or 
other terms disclosed therein. This exception does not extend to any 
finance charges imposed on the prepaid account as described in 
Regulation Z, 12 CFR 1026.4(b)(11)(ii), in connection with a covered 
separate credit feature accessible by a hybrid prepaid-credit card 
as defined in 12 CFR 1026.61 that are required to be disclosed 
pursuant to Sec.  1005.18(b)(4)(ii). See comment 18(b)(4)(ii)-1.
    3. Web site and telephone number on a prepaid account access 
device. Section 1005.18(f)(3) requires that the name of a financial 
institution and the Web site URL and a telephone number that a 
consumer can use to contact the financial institution about the 
prepaid account must be disclosed on the prepaid account access 
device. A disclosure made on an accompanying document, such as a 
terms and conditions document, on packaging material surrounding an 
access device, or on a sticker or other label affixed to an access 
device does not constitute a disclosure on the access device. The 
financial institution must provide this information to allow 
consumers to, for example, contact the financial institution to 
learn about the terms and conditions of the prepaid account, obtain 
prepaid account balance information, request a copy of transaction 
history pursuant to Sec.  1005.18(c)(1)(iii) if the financial 
institution does not provide periodic statements pursuant to Sec.  
1005.9(b), or to notify the financial institution when the consumer 
believes that an unauthorized electronic fund transfer has occurred 
as required by Sec. Sec.  1005.7(b)(2) and 1005.18(d)(1)(ii).

[[Page 84363]]

18(g) Prepaid Accounts Accessible by Hybrid Prepaid-Credit Cards

    1. Covered separate credit feature accessible by a hybrid 
prepaid-credit card. Regulation Z, 12 CFR 1026.61, defines the term 
covered separate credit feature accessible by a hybrid prepaid-
credit card.
    2. Asset feature. i. Regulation Z, 12 CFR 1026.61(a)(5)(ii), 
defines the term asset feature.
    ii. Section 1005.18(g) applies to account terms, conditions, and 
features that apply to the asset feature of the prepaid account. 
Section 1005.18(g) does not apply to the account terms, conditions, 
or features that apply to the covered separate credit feature, 
regardless of whether it is structured as a separate credit account 
or as a credit subaccount of the prepaid account that is separate 
from the asset feature of the prepaid account.
    3. Scope of Sec.  1005.18(g). Under Sec.  1005.18(g), a 
financial institution may offer different terms on different prepaid 
account programs. For example, the terms may differ between a 
prepaid account program where a covered separate credit feature 
accessible by a hybrid prepaid-credit card is not offered in 
connection with any prepaid accounts within the prepaid account 
program, and a prepaid account program where a covered separate 
credit feature accessible by a hybrid prepaid-credit card may be 
offered to some consumers in connection with their prepaid accounts.
    4. Variation in account terms, conditions, or features. i. 
Account terms, conditions, and features subject to Sec.  1005.18(g) 
include, but are not limited to:
    A. Interest paid on funds deposited into the asset feature of 
the prepaid account, if any;
    B. Fees or charges imposed on the asset feature of the prepaid 
account. See comment 18(g)-5 for additional guidance on how Sec.  
1005.18(g) applies to fees or charges imposed on the asset feature 
of the prepaid account.
    C. The type of access device provided to the consumer. For 
instance, an institution may not provide a PIN-only card on prepaid 
accounts without a covered separate credit feature that is 
accessible by a hybrid prepaid-credit card, while providing a 
prepaid card with both PIN and signature-debit functionality for 
prepaid accounts in the same prepaid account program with such a 
credit feature;
    D. Minimum balance requirements on the asset feature of the 
prepaid account; or
    E. Account features offered in connection with the asset feature 
of the prepaid account, such as online bill payment services.
    5. Fees. i. With respect to a prepaid account program where 
consumers may be offered a covered separate credit feature 
accessible by a hybrid prepaid-credit card as defined by Regulation 
Z, 12 CFR 1026.61, Sec.  1005.18(g) only permits a financial 
institution to charge the same or higher fees on the asset feature 
of a prepaid account with a covered separate credit feature than the 
amount of a comparable fee it charges on prepaid accounts in the 
same prepaid account program that do not have a such a credit 
feature. Section 1005.18(g) prohibits a financial institution from 
imposing a lower fee or charge on prepaid accounts with a covered 
separate credit feature than the amount of a comparable fee or 
charge it charges on prepaid accounts in the same prepaid account 
program without such a credit feature. With regard to a covered 
separate credit feature and an asset feature of a prepaid account 
that are both accessible by a hybrid prepaid-credit card as defined 
in Regulation Z, 12 CFR 1026.61, a fee or charge imposed on the 
asset feature of the prepaid account generally is a finance charge 
under Regulation Z (12 CFR part 1026) to the extent that the amount 
of the fee or charge exceeds the amount of a comparable fee or 
charge imposed on prepaid accounts in the same prepaid account 
program that do not have such a credit feature. See Regulation Z, 12 
CFR 1026.4(b)(11)(ii). With regard to a covered separate credit 
feature and an asset feature of a prepaid account that are both 
accessible by a hybrid prepaid-credit card as defined in Regulation 
Z, 12 CFR 1026.61, this comment below provides illustrations of how 
Sec.  1005.18(g) applies to fees or charges imposed on the asset 
feature of a prepaid account. The term ``non-covered separate credit 
feature'' refers to a separate credit feature that is not accessible 
by a hybrid prepaid-credit card as defined in Regulation Z, 12 CFR 
1026.61.
    ii. The following examples illustrate how Sec.  1005.18(g) 
applies to per transaction fees for each transaction to access funds 
available in the asset feature of the prepaid account.
    A. Assume that a consumer has selected a prepaid account program 
where a covered separate credit feature accessible by a hybrid 
prepaid-credit card may be offered. For prepaid accounts without 
such a credit feature, the financial institution charges $0.50 for 
each transaction conducted that accesses funds available in the 
prepaid account. For prepaid accounts with a credit feature, the 
financial institution also charges $0.50 on the asset feature for 
each transaction conducted that accesses funds available in the 
asset feature of the prepaid account. In this case, for purposes of 
Sec.  1005.18(g), the financial institution is imposing the same fee 
for each transaction that accesses funds in the asset feature of the 
prepaid account, regardless of whether the prepaid account has a 
covered separate credit feature accessible by a hybrid prepaid-
credit card. Also, with regard to a covered separate credit feature 
and an asset feature of a prepaid account that are both accessible 
by a hybrid prepaid-credit card as those terms are defined in 
Regulation Z, 12 CFR 1026.61, the $0.50 per transaction fee imposed 
on the asset feature for each transaction that accesses funds 
available in the asset feature of the prepaid account is not a 
finance charge under 12 CFR 1026.4(b)(11)(ii). See Regulation Z, 12 
CFR 1026.4(b)(11)(ii) and comment 4(b)(11)(ii)-1, for a discussion 
of the definition of finance charge with respect to fees or charges 
imposed on the asset feature of a prepaid account with regard to a 
covered separate credit feature and an asset feature of a prepaid 
account that are both accessible by a hybrid prepaid-credit card as 
defined in 12 CFR 1026.61.
    B. Same facts as in paragraph A, except that for prepaid 
accounts with a covered separate credit feature, the financial 
institution imposes a $1.25 fee for each transaction conducted that 
accesses funds available in the asset feature of the prepaid 
account. In this case, the financial institution is permitted to 
charge a higher fee under Sec.  1005.18(g)(2) on prepaid accounts 
with a covered separate credit feature than it charges on prepaid 
accounts without such a credit feature. The $0.75 excess is a 
finance charge under Regulation Z, 12 CFR 1026.4(b)(11)(ii).
    C. Same facts as in paragraph A, except that for prepaid 
accounts with a covered separate credit feature, the financial 
institution imposes a $0.25 fee for each transaction conducted that 
accesses funds available in the asset feature of the prepaid 
account. In this case, the financial institution is in violation of 
Sec.  1005.18(g) because it is imposing a lower fee on the asset 
feature of a prepaid account with a covered separate credit feature 
than it imposes on prepaid accounts in the same program without such 
a credit feature.
    iii. Where the hybrid prepaid-credit card accesses credit from a 
covered separate credit feature in the course of authorizing, 
settling, or otherwise completing a transaction conducted with the 
card to obtain goods or services, obtain cash, or conduct person-to-
person transfers, any per transaction fees imposed on the asset 
feature of prepaid accounts, including load and transfer fees, with 
such a credit feature are comparable only to per transaction fees 
for each transaction to access funds in the asset feature of a 
prepaid account that are imposed on prepaid accounts in the same 
prepaid account program that does not have such a credit feature. 
Per transaction fees for a transaction that is conducted to load or 
draw funds into a prepaid account from a source other than the funds 
in the asset feature are not comparable for purposes of Sec.  
1005.18(g). To illustrate:
    A. Assume a financial institution charges $0.50 on prepaid 
accounts for each transaction that accesses funds in the asset 
feature of the prepaid accounts without a covered separate credit 
feature. Also, assume that the financial institution charges $0.50 
per transaction on the asset feature of prepaid accounts in the same 
prepaid program where the hybrid prepaid-credit card accesses credit 
from a covered separate credit feature in the course of a 
transaction. In this case, for purposes of Sec.  1005.18(g), the 
financial institution is imposing the same fee for each transaction 
it pays, regardless of whether the transaction accesses funds 
available in the asset feature of the prepaid accounts without a 
covered separate credit feature, or is paid from credit from a 
covered separate credit feature in the course of authorizing, 
settling, or otherwise completing a transaction conducted with the 
card to obtain goods or services, obtain cash, or conduct person-to-
person transfers. Also, for purposes of Regulation Z, 12 CFR 
1026.4(b)(11)(ii), the $0.50 per transaction fee imposed on the 
asset feature of the prepaid account with a covered separate credit 
feature is not a finance charge.
    B. Assume same facts as in paragraph A above, except that assume 
the financial

[[Page 84364]]

institution charges $1.25 on the asset feature of a prepaid account 
for each transaction where the hybrid prepaid-credit card accesses 
credit from the covered separate credit feature in the course of the 
transaction. The financial institution is permitted to charge the 
higher fee under Sec.  1005.18(g) for transactions that access the 
covered separate credit feature in the course of the transaction 
than the amount of the comparable fee it charges for each 
transaction that accesses funds available in the asset feature of 
the prepaid accounts without such a credit feature. The $0.75 excess 
is a finance charge under Regulation Z, 12 CFR 1026.4(b)(11)(ii).
    C. Same facts as in paragraph A, except that the financial 
institution imposes $0.25 on the asset feature of the prepaid 
account for each transaction conducted where the hybrid prepaid-
credit card accesses credit from the covered separate credit feature 
in the course of the transaction. In this case, the financial 
institution is in violation of Sec.  1005.18(g) because it is 
imposing a lower fee on the asset feature of a prepaid account with 
a covered separate credit feature than the amount of the comparable 
fee it imposes on prepaid accounts in the same program without such 
a credit feature.
    D. Assume a financial institution charges $0.50 on prepaid 
accounts for each transaction that accesses funds in the asset 
feature of the prepaid accounts without a covered separate credit 
feature. Assume also that the financial institution charges both a 
$0.50 per transaction fee and a $1.25 transfer fee on the asset 
feature of prepaid accounts in the same prepaid program where the 
hybrid prepaid-credit card accesses credit from a covered separate 
credit feature in the course of a transaction. In this case, both 
fees charged on a per-transaction basis for the credit transaction 
(i.e., a combined fee of $1.75 per transaction) must be compared to 
the $0.50 per transaction fee to access funds in the asset feature 
of the prepaid account without a covered separate credit feature. 
The financial institution is permitted to charge a higher fee under 
Sec.  1005.18(g) for transactions that access the covered separate 
credit feature in the course of the transaction than the amount of 
the comparable fee it charges for each transaction that accesses 
funds available in the asset feature of the prepaid accounts without 
such a credit feature. The $1.25 excess is a finance charge under 
Regulation Z, 12 CFR 1026.4(b)(11)(ii).
    E. Assume same facts as in paragraph D above, except that assume 
the financial institution also charges a load fee of $1.25 whenever 
funds are transferred or loaded from a separate asset account, such 
as from a deposit account via a debit card, in the course of a 
transaction on prepaid accounts without a covered separate credit 
feature, in addition to charging a $0.50 per transaction fee. In 
this case, both fees charged on a per-transaction basis for the 
credit transaction (i.e., a combined fee of $1.75 per transaction) 
must be compared to the per transaction fee (i.e., the fee of $0.50) 
to access funds available in the asset feature of the prepaid 
accounts on a prepaid account without a covered separate credit 
feature. Per transaction fees for a transaction that is conducted by 
drawing funds into a prepaid account from some other source (i.e., 
the fee of $1.25) are not comparable for purposes of Sec.  
1005.18(g). The financial institution is permitted to charge a 
higher fee under Sec.  1005.18(g) for transactions that access the 
covered separate credit feature in the course of the transaction 
than the amount of the comparable fee it charges for each 
transaction to access funds available in the asset feature of the 
prepaid accounts without such a credit feature. The $1.25 excess is 
a finance charge under Regulation Z, 12 CFR 1026.4(b)(11)(ii).
    iv. A consumer may choose in a particular circumstance to draw 
or transfer credit from the covered separate credit feature outside 
the course of a transaction conducted with the card to obtain goods 
or service, obtain cash, or conduct person-to-person transfers. For 
example, a consumer may use the prepaid card at the financial 
institution's Web site to load funds from the covered separate 
credit feature outside the course of a transaction conducted with 
the card to obtain goods or services, obtain cash, or conduct 
person-to-person transfers. See Regulation Z, 12 CFR 
1026.61(a)(2)(i)(B) and comment 61(a)(2)-4.ii. In these situations, 
load or transfer fees imposed for draws or transfers of credit from 
the covered separate credit feature outside the course of a 
transaction are compared only with fees, if any, to load funds as a 
direct deposit of salary from an employer or a direct deposit of 
government benefits that are charged on prepaid accounts without a 
covered separate credit feature. Fees imposed on prepaid accounts 
without a covered separate credit feature for a one-time load or 
transfer of funds from a separate asset account or from a non-
covered separate credit feature are not comparable for purposes of 
Sec.  1005.18(g). To illustrate:
    A. Assume a financial institution charges a $1.25 load fee to 
transfer funds from a non-covered separate credit feature, such as a 
non-covered separate credit card account, into prepaid accounts that 
do not have a covered separate credit feature and does not charge a 
fee for a direct deposit of salary from an employer or a direct 
deposit of government benefits on those prepaid accounts. Assume the 
financial institution charges $1.25 on the asset feature of a 
prepaid account with a covered separate credit feature to load funds 
from the covered separate credit feature outside the course of a 
transaction. In this case, the load or transfer fees imposed for 
draws or transfers of credit from the covered separate credit 
feature outside the course of a transaction (i.e., the fee of $1.25) 
is compared with the fees to load funds as a direct deposit of 
salary from an employer or a direct deposit of government benefits 
that are charged on prepaid accounts without a covered separate 
credit feature (i.e., the fee of $0). Fees imposed on prepaid 
accounts without a covered separate credit feature for a one-time 
load or transfer of funds from a separate asset account (i.e., the 
fee of $1.25) is not comparable for purposes of Sec.  1005.18(g). In 
this case, the financial institution is permitted to charge a higher 
fee under Sec.  1005.18(g) for transactions that access the covered 
separate credit feature on prepaid accounts with a credit feature 
than the amount of the comparable fee it charges on prepaid accounts 
in the same program without such a credit feature. The $1.25 fee 
imposed on the asset feature of the prepaid account with a separate 
credit feature is a finance charge under Regulation Z, 12 CFR 
1026.4(b)(11)(ii).
    B. Assume that a financial institution charges a $1.25 load fee 
for a one-time transfer of funds from a separate asset account, such 
as from a deposit account via a debit card, to a prepaid account 
without a covered separate credit feature and does not charge a fee 
for a direct deposit of salary from an employer or a direct deposit 
of government benefits on those prepaid accounts. Assume the 
financial institution charges $1.25 on the asset feature of a 
prepaid account with a covered separate credit feature to load funds 
from the covered separate credit feature outside the course of a 
transaction. In this case, the load or transfer fees imposed for 
draws or transfers of credit from the covered separate credit 
feature outside the course of a transaction (i.e., the fee of $1.25) 
is compared with the fees to load funds as a direct deposit of 
salary from an employer or a direct deposit of government benefits 
that are charged on prepaid accounts without a covered separate 
credit feature (i.e., the fee of $0). Fees imposed on prepaid 
accounts without a covered separate credit feature for a one-time 
load or transfer of funds from a separate asset account (i.e., the 
fee of $1.25) is not comparable for purposes of Sec.  1005.18(g). In 
this case, the financial institution is permitted to charge a higher 
fee under Sec.  1005.18(g) for transactions that access the covered 
separate credit feature on prepaid accounts with a credit feature 
than the amount of the comparable fee it charges on prepaid accounts 
in the same program without such a credit feature. The $1.25 fee 
imposed on the asset feature of the prepaid account with a covered 
separate credit feature is a finance charge under Regulation Z, 12 
CFR 1026.4(b)(11)(ii).

18(h) Effective Date and Special Transition Rules for Disclosure 
Provisions

    1. Disclosures not on prepaid account access devices and prepaid 
account packaging materials. Section 1005.18(h)(1) provides that, 
except as provided in Sec.  1005.18(h)(2) and (3), the disclosure 
requirements of subpart A, as modified by Sec.  1005.18, apply to 
prepaid accounts as defined in Sec.  1005.2(b)(3), including 
government benefit accounts subject to Sec.  1005.15, beginning 
October 1, 2017. This effective date applies to disclosures made 
available or provided to consumers electronically, orally by 
telephone, or in a form other than on pre-printed materials, such as 
disclosures printed on paper by a financial institution upon a 
consumer's request.
    2. Disclosures on prepaid account access devices and prepaid 
account packaging materials. Section 1005.18(h)(2)(i) provides that 
the disclosure requirements of subpart A, as modified by Sec.  
1005.18, do not apply to any disclosures that are provided, or that 
would otherwise be required to be provided, on prepaid account 
access devices, or on, in, or with prepaid account packaging 
materials

[[Page 84365]]

that were manufactured, printed, or otherwise produced in the normal 
course of business prior to October 1, 2017. This includes, for 
example, disclosures contained on or in packages for prepaid 
accounts sold at retail, or disclosures for payroll card accounts or 
government benefit accounts that are distributed to employees or 
benefits recipients in packages or envelopes. Disclosures and access 
devices that are manufactured, printed, or otherwise produced on or 
after October 1, 2017 must comply with all the requirements of 
subpart A.
    3. Form of notice to consumers. A financial institution that is 
required to notify consumers of a change in terms and conditions 
pursuant to Sec.  1005.18(h)(2)(ii) or (iii), or that otherwise 
provides updated initial disclosures as a result of Sec.  
1005.18(h)(1) taking effect, may provide the notice or disclosures 
either as a separate document or included in another notice or 
mailing that the consumer receives regarding the prepaid account to 
the extent permitted by other laws and regulations.
    4. Ability to contact the consumer. A financial institution that 
has not obtained the consumer's contact information is not required 
to comply with the requirements set forth in Sec.  1005.18(h)(2)(ii) 
or (iii). A financial institution is able to contact the consumer 
when, for example, it has the consumer's mailing address or email 
address.
    5. Closed and inactive prepaid accounts. The requirements of 
Sec.  1005.18(h)(2)(iii) do not apply to prepaid accounts that are 
closed or inactive, as defined by the financial institution. 
However, if an inactive account becomes active, the financial 
institution must comply with the applicable portions of those 
provisions within 30 days of the account becoming active again in 
order to avail itself of the timing requirements and accommodations 
set forth inSec.  1005.18(h)(2)(iii) and (iv).
    6. Account information not available on October 1, 2017. i. 
Electronic and written account transaction history. A financial 
institution following the periodic statement alternative in Sec.  
1005.18(c) must make available 12 months of electronic account 
transaction history pursuant to Sec.  1005.18(c)(1)(ii) and must 
provide 24 months of written account transaction history upon 
request pursuant to Sec.  1005.18(c)(1)(iii) beginning October 1, 
2017. If, on October 1, 2017, the financial institution does not 
have readily accessible the data necessary to make available or 
provide the account histories for the required time periods, the 
financial institution may make available or provide such histories 
using the data for the time period it has until the financial 
institution has accumulated the data necessary to comply in full 
with the requirements set forth in Sec.  1005.18(c)(1)(ii) and 
(iii). For example, a financial institution that had been retaining 
only 60 days of account history before October 1, 2017 would provide 
60 days of written account transaction history upon a consumer's 
request on October 1, 2017. If, on November 1, 2017, the consumer 
made another request for written account transaction history, the 
financial institution would be required to provide three months of 
account history. The financial institution must continue to provide 
as much account history as it has accumulated at the time of a 
consumer's request until it has accumulated 24 months of account 
history. Thus, all financial institutions must fully comply with the 
electronic account transaction history requirement set forth in 
Sec.  1005.18(c)(1)(ii) no later than October 1, 2018 and must fully 
comply with the written account transaction history requirement set 
forth in Sec.  1005.18(c)(1)(iii) no later than October 1, 2019.
    ii. Summary totals of fees. A financial institution must display 
a summary total of the amount of all fees assessed by the financial 
institution on the consumer's prepaid account for the prior calendar 
month and for the calendar year to date pursuant to Sec.  
1005.18(c)(5) beginning October 1, 2017. If, on October 1, 2017, the 
financial institution does not have readily accessible the data 
necessary to calculate the summary totals of fees for the prior 
calendar month or the calendar year to date, the financial 
institution may provide the summary totals using the data it has 
until the financial institution has accumulated the data necessary 
to display the summary totals as required by Sec.  1005.18(c)(5). 
That is, the financial institution would first display the monthly 
fee total beginning on November 1, 2017 for the month of October, 
and the year-to-date fee total beginning on October 1, 2017, 
provided the financial institution discloses that it is displaying 
the year-to-date total beginning on October 1, 2017 rather than for 
the entire calendar year 2017. On January 1, 2018, financial 
institutions must begin displaying year-to-date fee totals for 
calendar year 2018.

Section 1005.19 Internet Posting of Prepaid Account Agreements

19(a) Definitions

19(a)(1) Agreement

    1. Provisions contained in separate documents included. Section 
1005.19(a)(1) defines a prepaid account agreement, for purposes of 
Sec.  1005.19, as the written document or documents evidencing the 
terms of the legal obligation, or the prospective legal obligation, 
between a prepaid account issuer and a consumer for a prepaid 
account. An agreement may consist of several documents that, taken 
together, define the legal obligation between the issuer and 
consumer.

19(a)(2) Amends

    1. Substantive changes. A change to an agreement is substantive, 
and therefore is deemed an amendment of the agreement, if it alters 
the rights or obligations of the parties. Section 1005.19(a)(2) 
provides that any change in the fee information, as defined in Sec.  
1005.19(a)(3), is deemed to be substantive. Examples of other 
changes that generally would be considered substantive include:
    i. Addition or deletion of a provision giving the issuer or 
consumer a right under the agreement, such as a clause that allows 
an issuer to unilaterally change the terms of an agreement.
    ii. Addition or deletion of a provision giving the issuer or 
consumer an obligation under the agreement, such as a clause 
requiring the consumer to pay an additional fee.
    iii. Changes that may affect the cost of the prepaid account to 
the consumer, such as changes in a provision describing how the 
prepaid account's monthly fee will be calculated.
    iv. Changes that may affect how the terms of the agreement are 
construed or applied, such as changes to a choice of law provision.
    v. Changes that may affect the parties to whom the agreement may 
apply, such as changes to provisions regarding authorized users or 
assignment of the agreement.
    vi. Changes to the corporate name of the issuer or program 
manager, or to the issuer's address or identifying number, such as 
its RSSD ID number or tax identification number.
    vii. Changes to the names of other relevant parties, such as the 
employer for a payroll card program or the agency for a government 
benefit program.
    viii. Changes to the name of the prepaid account program to 
which the agreement applies.
    2. Non-substantive changes. Changes that generally would not be 
considered substantive include, for example:
    i. Correction of typographical errors that do not affect the 
meaning of any terms of the agreement.
    ii. Changes to the issuer's corporate logo or tagline.
    iii. Changes to the format of the agreement, such as conversion 
to a booklet from a full-sheet format, changes in font, or changes 
in margins.
    iv. Reordering sections of the agreement without affecting the 
meaning of any terms of the agreement.
    v. Adding, removing, or modifying a table of contents or index.
    vi. Changes to titles, headings, section numbers, or captions.

19(a)(4) Issuer

    1. Issuer. Section 1005.19(a)(4) provides that, for purposes of 
Sec.  1005.19, issuer or prepaid account issuer means the entity to 
which a consumer is legally obligated, or would be legally 
obligated, under the terms of a prepaid account agreement. For 
example, Bank X and Bank Y work together to issue prepaid accounts. 
A consumer that obtains a prepaid account issued pursuant to this 
arrangement between Bank X and Bank Y is subject to an agreement 
that states ``This is an agreement between you, the consumer, and 
Bank X that governs the terms of your Bank Y Prepaid Account.'' The 
prepaid account issuer in this example is Bank X, because the 
agreement creates a legally enforceable obligation between the 
consumer and Bank X. Bank X is the issuer even if the consumer 
applied for the prepaid account through a link on Bank Y's Web site 
and the cards prominently feature the Bank Y logo on the front of 
the card.
    2. Use of third-party service providers. An issuer has a legal 
obligation to comply with the requirements of Sec.  1005.19. 
However, an issuer generally may use a third-party service provider 
to satisfy its obligations under

[[Page 84366]]

Sec.  1005.19, provided that the issuer acts in accordance with 
regulatory guidance regarding use of third-party service providers 
and other applicable regulatory guidance. In some cases, an issuer 
may wish to arrange for the entity with which it partners to issue 
prepaid accounts to fulfill the requirements of Sec.  1005.19 on the 
issuer's behalf. For example, Program Manager and Bank work together 
to issue prepaid accounts. Under the Sec.  1005.19(a)(4) definition 
of issuer, Bank is the issuer of these prepaid accounts for purposes 
of Sec.  1005.19. However, Program Manager services the prepaid 
accounts, including mailing to consumers account opening materials 
and making available to consumers their electronic account 
transaction history, pursuant to Sec.  1005.18(c)(1)(ii). While Bank 
is responsible for ensuring compliance with Sec.  1005.19, Bank may 
arrange for Program Manager (or another appropriate third-party 
service provider) to submit prepaid account agreements to the Bureau 
under Sec.  1005.19 on Bank's behalf. Bank must comply with 
regulatory guidance regarding use of third-party service providers 
and other applicable regulatory guidance.
    3. Third-party Web sites. As explained in comment 19(c)-2, if an 
issuer provides consumers with access to specific information about 
their individual accounts, such as making available to consumers 
their electronic account transaction history, pursuant to Sec.  
1005.18(c)(1)(ii), through a third-party Web site, the issuer is 
deemed to maintain that Web site for purposes of Sec.  1005.19. Such 
a Web site is deemed to be maintained by the issuer for purposes of 
Sec.  1005.19 even where, for example, an unaffiliated entity 
designs the Web site and owns and maintains the information 
technology infrastructure that supports the Web site, consumers with 
prepaid accounts from multiple issuers can access individual account 
information through the same Web site, and the Web site is not 
labeled, branded, or otherwise held out to the public as belonging 
to the issuer. A partner institution's Web site is an example of a 
third-party Web site that may be deemed to be maintained by the 
issuer for purposes of Sec.  1005.19. For example, Program Manager 
and Bank work together to issue prepaid accounts. Under the Sec.  
1005.19(a)(4) definition of issuer, Bank is the issuer of these 
prepaid accounts for purposes of Sec.  1005.19. Bank does not 
maintain a Web site specifically related to prepaid accounts. 
However, consumers can access information about their individual 
accounts, such as an electronic account transaction history, through 
a Web site maintained by Program Manager. Program Manager designs 
the Web site and owns and maintains the information technology 
infrastructure that supports the Web site. The Web site is branded 
and held out to the public as belonging to Program Manager. Because 
consumers can access information about their individual accounts 
through this Web site, the Web site is deemed to be maintained by 
Bank for purposes of Sec.  1005.19. Bank therefore may comply with 
Sec.  1005.19(c) or (d)(1) by ensuring that agreements offered by 
Bank are posted on Program Manager's Web site in accordance with 
Sec.  1005.19(c) or (d)(1), respectively. Bank need not create and 
maintain a Web site branded and held out to the public as belonging 
to Bank in order to comply with Sec.  1005.19(c) and (d) as long as 
Bank ensures that Program Manager's Web site complies with these 
sections.

19(a)(6) Offers to the General Public

    1. Prepaid accounts offered to limited groups. An issuer is 
deemed to offer a prepaid account agreement to the general public 
even if the issuer markets, solicits applications for, or otherwise 
makes available prepaid accounts only to a limited group of persons. 
For example, an issuer may solicit only residents of a specific 
geographic location for a particular prepaid account; in this case, 
the agreement would be considered to be offered to the general 
public. Similarly, agreements for prepaid accounts issued by a 
credit union are considered to be offered to the general public even 
though such prepaid accounts are available only to credit union 
members.
    2. Prepaid account agreements not offered to the general public. 
A prepaid account agreement is not offered to the general public 
when a consumer is offered the agreement only by virtue of the 
consumer's relationship with a third party. Examples of agreements 
not offered to the general public include agreements for payroll 
card accounts, government benefit accounts, or for prepaid accounts 
used to distribute student financial aid disbursements, or property 
and casualty insurance payouts, and other similar programs.

19(a)(7) Open Account

    1. Open account. A prepaid account is an open account if (i) 
there is an outstanding balance in the account; (ii) the consumer 
can load more funds to the account even if the account does not 
currently hold a balance; or (iii) the consumer can access credit 
from a covered separate credit feature accessible by a hybrid 
prepaid-credit card as defined in Regulation Z, 12 CFR 1026.61, in 
connection with a prepaid account. Under this definition, an account 
that meets any of these criteria is considered to be open even if 
the account is deemed inactive by the issuer.

19(a)(8) Prepaid Account

    1. Prepaid account. Section 1005.19(a)(7) provides that, for 
purposes of Sec.  1005.19, the term prepaid account means a prepaid 
account as defined in Sec.  1005.2(b)(3). Therefore, for purposes of 
Sec.  1005.19, a prepaid account includes, among other things, a 
payroll card account as defined in Sec.  1005.2(b)(3)(iii) and a 
government benefit account as defined in Sec. Sec.  
1005.2(b)(3)(iii) and 1005.15(a)(2).

19(b) Submission of Agreements to the Bureau

19(b)(1) Submissions on a Rolling Basis

    1. Rolling submission requirement. Section 1005.19(b)(1) 
requires issuers to send submissions to the Bureau no later than 30 
days after offering, amending, or ceasing to offer any prepaid 
account agreement, as described in Sec.  1005.19(b)(1)(ii) through 
(iv). For example, if on July 1 an issuer offers a prepaid account 
agreement that has not been previously submitted to the Bureau, it 
must submit that agreement to the Bureau by July 31 of the same 
year. Similarly, if on August 1 an issuer amends a prepaid account 
agreement previously submitted to the Bureau, and the change becomes 
effective on September 15, the issuer must submit the entire amended 
agreement as required by Sec.  1005.19(b)(2) by October 15 of the 
same year. Furthermore, if on December 31 an issuer ceases to offer 
a prepaid account agreement that was previously submitted to the 
Bureau, it must submit notification to the Bureau that it is 
withdrawing that agreement as required by Sec.  1005.19(b)(3) by 
January 30 of the following year.
    2. Prepaid accounts offered in conjunction with multiple 
issuers. If a program manager offers prepaid account agreements in 
conjunction with multiple issuers, each issuer must submit its own 
agreement to the Bureau. Alternatively, each issuer may use the 
program manager to submit the agreement on its behalf, in accordance 
with comment 19(a)(4)-2.

19(b)(2) Amended Agreements

    1. Change-in-terms notices not permissible. Section 
1005.19(b)(2) requires that if an agreement previously submitted to 
the Bureau is amended, the issuer must submit the entire revised 
agreement to the Bureau. An issuer may not fulfill this requirement 
by submitting a change-in-terms or similar notice covering only the 
terms that have changed. Amendments must be integrated into the text 
of the agreement (or the optional addendum described in Sec.  
1005.19(b)(6)), not provided as separate riders.

19(b)(3) Withdrawal of Agreements No Longer Offered

    1. No longer offers agreement. Section 1005.19(b)(3) provides 
that, if an issuer no longer offers an agreement that was previously 
submitted to the Bureau, the issuer must notify the Bureau no later 
than 30 days after the issuer ceases to offer the agreement that it 
is withdrawing the agreement. An issuer no longer offers an 
agreement when it no longer allows a consumer to activate or 
register a new account in connection with that agreement.

19(b)(4) De Minimis Exception

    1. Relationship to other exceptions. The de minimis exception in 
Sec.  1005.19(b)(4) is distinct from the product testing exception 
under Sec.  1005.19(b)(5). The de minimis exception provides that an 
issuer with fewer than 3,000 open prepaid accounts is not required 
to submit any agreements to the Bureau, regardless of whether those 
agreements qualify for the product testing exception. In contrast, 
the product testing exception provides that an issuer is not 
required to submit to the Bureau agreements offered solely in 
connection with certain types of prepaid account programs with fewer 
than 3,000 open accounts, regardless of the issuer's total number of 
open accounts.
    2. De minimis exception. Under Sec.  1005.19(b)(4), an issuer is 
not required to submit any prepaid account agreements to the Bureau 
under Sec.  1005.19(b)(1) if the issuer has fewer than 3,000 open 
prepaid accounts. For example, an issuer has 2,000 open

[[Page 84367]]

prepaid accounts. The issuer is not required to submit any 
agreements to the Bureau because the issuer qualifies for the de 
minimis exception.
    3. Date for determining whether issuer qualifies. Whether an 
issuer qualifies for the de minimis exception is determined as of 
the last day of each calendar quarter. For example, an issuer has 
2,500 open prepaid accounts as of December 31, the last day of the 
calendar quarter. As of January 30, the issuer has 3,100 open 
prepaid accounts. As of March 31, the last day of the following 
calendar quarter, the issuer has 2,700 open prepaid accounts. Even 
though the issuer had 3,100 open prepaid accounts at one time during 
the calendar quarter, the issuer qualifies for the de minimis 
exception because the number of open prepaid accounts was less than 
3,000 as of March 31. The issuer therefore is not required to submit 
any agreements to the Bureau under Sec.  1005.19(b)(1).
    4. Date for determining whether issuer ceases to qualify. 
Whether an issuer ceases to qualify for the de minimis exception 
under Sec.  1005.19(b)(4) is determined as of the last day of the 
calendar quarter. For example, an issuer has 2,500 open prepaid 
accounts as of June 30, the last day of the calendar quarter. The 
issuer is not required to submit any agreements to the Bureau under 
Sec.  1005.19(b) by July 30 (the 30th day after June 30) because the 
issuer qualifies for the de minimis exception. As of July 15, the 
issuer has 3,100 open prepaid accounts. The issuer is not required 
to take any action at this time, because whether an issuer qualifies 
for the de minimis exception under Sec.  1005.19(b)(4) is determined 
as of the last day of the calendar quarter. The issuer still has 
3,100 open prepaid accounts as of September 30. Because the issuer 
had 3,100 open prepaid accounts as of September 30, the issuer 
ceases to qualify for the de minimis exception and must submit its 
agreements to the Bureau by October 30, the 30th day after the last 
day of the calendar quarter.
    5. Option to withdraw agreements. Section 1005.19(b)(4) provides 
that if an issuer that did not previously qualify for the de minimis 
exception newly qualifies for the de minimis exception, the issuer 
must continue to make rolling submissions to the Bureau as required 
by Sec.  1005.19(b)(1) until the issuer notifies the Bureau that the 
issuer is withdrawing all agreements it previously submitted to the 
Bureau. For example, an issuer offers three agreements and has 3,001 
open accounts as of December 31. The issuer submitted each of the 
three agreements to the Bureau by January 30 as required under Sec.  
1005.19(b). As of March 31, the issuer has only 2,999 open accounts. 
The issuer has two options. First, the issuer may notify the Bureau 
that the issuer is withdrawing each of the three agreements it 
previously submitted. Once the issuer has notified the Bureau, the 
issuer is no longer required to make rolling submissions to the 
Bureau under Sec.  1005.19(b) unless it later ceases to qualify for 
the de minimis exception. Alternatively, the issuer may choose not 
to notify the Bureau that it is withdrawing its agreements. In this 
case, the issuer must continue making rolling submissions to the 
Bureau as required by Sec.  1005.19(b). The issuer might choose not 
to withdraw its agreements if, for example, the issuer believes it 
will likely cease to qualify for the de minimis exception again in 
the near future.

19(b)(6) Form and Content of Agreements Submitted to the Bureau

    1. Agreements currently in effect. Agreements submitted to the 
Bureau must contain the provisions of the agreement and fee 
information currently in effect. For example, on June 1, an issuer 
decides to decrease the out-of-network ATM withdrawal fee associated 
with one of the agreements it offers. The change in that fee will 
become effective on August 1. The issuer must submit and post the 
amended agreement with the decreased out-of-network ATM withdrawal 
fee to the Bureau by August 31 as required by Sec.  1005.19(b)(2) 
and (c).
    2. Fee information variations do not constitute separate 
agreements. Fee information that may vary from one consumer to 
another depending on the consumer's state of residence or other 
factors must be disclosed by setting forth all the possible 
variations. For example, an issuer offers a prepaid account with a 
monthly fee of $4.95 or $0 if the consumer regularly receives direct 
deposit to the prepaid account. The issuer must submit to the Bureau 
one agreement with fee information listing the possible monthly fees 
of $4.95 or $0 and including the explanation that the latter fee is 
dependent upon the consumer regularly receiving direct deposit.
    3. Integrated agreement requirement. Issuers may not submit 
provisions of the agreement or fee information in the form of 
change-in-terms notices or riders. The only addendum that may be 
submitted as part of an agreement is the optional fee information 
addendum described in Sec.  1005.19(b)(6)(ii). Changes in provisions 
or fee information must be integrated into the body of the agreement 
or the optional fee information addendum described in Sec.  
1005.19(b)(6)(ii). For example, it would be impermissible for an 
issuer to submit to the Bureau an agreement in the form of a terms 
and conditions document on January 1 and subsequently submit a 
change-in-terms notice or an addendum to indicate amendments to the 
previously submitted agreement. Instead, the issuer must submit a 
document that integrates the changes made by each of the change-in-
terms notices into the body of the original terms and conditions 
document and a single optional addendum displaying variations in fee 
information.

19(c) Posting of Agreements Offered to the General Public

    1. Requirement applies only to agreements offered to the general 
public. An issuer is only required to post and maintain on its 
publicly available Web site the prepaid account agreements that the 
issuer offers to the general public as defined by Sec.  
1005.19(a)(6) and must submit to the Bureau under Sec.  1005.19(b). 
For agreements not offered to the general public, the issuer is not 
required to post and maintain the agreements on its publicly 
available Web site, but is still required to provide each individual 
consumer with access to his or her specific prepaid account 
agreement under Sec.  1005.19(d). This posting requirement is 
distinct from that of Sec.  1005.7, as modified by Sec.  
1005.18(f)(1), which requires an issuer to provide certain 
disclosures at the time a consumer contracts for an electronic fund 
transfer service or before the first electronic fund transfer is 
made involving the consumer's account, and the change-in-terms 
notice required under Sec.  1005.8(a), as modified by Sec.  
1005.18(f)(2). This requirement is also distinct from that of Sec.  
1005.18(b)(4), which requires issuers to make the long form 
disclosure available to consumers prior to prepaid account 
acquisition and which, depending on the methods an issuer offers 
prepaid accounts to consumers, may require posting of the long form 
disclosure on the issuer's Web site. Additionally, if an issuer is 
not required to submit any agreements to the Bureau because the 
issuer qualifies for the de minimis exception under Sec.  
1005.19(b)(4) or the agreement qualifies for the product testing 
exception under Sec.  1005.19(b)(5), the issuer is not required to 
post and maintain any agreements on its Web site under Sec.  
1005.19(c). The issuer is still required to provide each individual 
consumer with access to his or her specific prepaid account 
agreement under Sec.  1005.19(d) by posting and maintaining the 
agreement on the issuer's Web site or by providing a copy of the 
agreement upon the consumer's request.
    2. Issuers that do not otherwise maintain Web sites. If an 
issuer offers an agreement to the general public as defined by Sec.  
1005.19(a)(6), that issuer must post that agreement on a publicly 
available Web site it maintains. If an issuer provides consumers 
with access to specific information about their individual accounts, 
such as balance information or copies of statements, through a 
third-party Web site, the issuer is considered to maintain that Web 
site for purposes of Sec.  1005.19. Such a third-party Web site is 
deemed to be maintained by the issuer for purposes of Sec.  
1005.19(c) even where, for example, an unaffiliated entity designs 
the Web site and owns and maintains the information technology 
infrastructure that supports the Web site, consumers with prepaid 
accounts from multiple issuers can access individual account 
information through the same Web site, and the Web site is not 
labeled, branded, or otherwise held out to the public as belonging 
to the issuer. Therefore, issuers that provide consumers with access 
to account-specific information through a third-party Web site can 
comply with Sec.  1005.19(c) by ensuring that the agreements the 
issuer submits to the Bureau are posted on the third-party Web site 
in accordance with Sec.  1005.19(c).

19(d) Agreements for All Open Accounts

    1. Requirement applies to all open accounts. The requirement to 
provide access to prepaid account agreements under Sec.  1005.19(d) 
applies to all open prepaid accounts. For example, an issuer that is 
not required to post agreements on its Web site because it qualifies 
for the de minimis exception under Sec.  1005.19(b)(4) would still 
be required to provide consumers with access to their specific 
agreements under Sec.  1005.19(d). Similarly, an agreement that is

[[Page 84368]]

no longer offered would not be required to be posted on the issuer's 
Web site, but would still need to be provided to the consumer to 
whom it applies under Sec.  1005.19(d). Additionally, an issuer is 
not required to post on its Web site agreements not offered to the 
general public, such as agreements for payroll card accounts and 
government benefit accounts, as explained in comment 19(c)-1, but 
the issuer must still provide consumers with access to their 
specific agreements under Sec.  1005.19(d).
    2. Agreements sent to consumers. Section 1005.19(d)(1)(ii) 
provides, in part, that if an issuer makes an agreement available 
upon request, the issuer must send the consumer a copy of the 
consumer's prepaid account agreement no later than five business 
days after the issuer receives the consumer's request. If the issuer 
mails the agreement, the agreement must be posted in the mail five 
business days after the issuer receives the consumer's request. If 
the issuer hand delivers or provides the agreement electronically, 
the agreement must be hand delivered or provided electronically five 
business days after the issuer receives the consumer's request. For 
example, if the issuer emails the agreement, the email with the 
attached agreement must be sent no later than five business days 
after the issuer receives the consumer's request.

19(f) Effective Date

    1. Delayed effective date for the agreement submission 
requirement. Section 1005.19(f)(2) provides that the requirement to 
submit prepaid account agreements to the Bureau on a rolling basis 
pursuant to Sec.  1005.19(b) is delayed until October 1, 2018. An 
issuer must submit to the Bureau no later than October 31, 2018 all 
prepaid account agreements it offers as of October 1, 2018. After 
October 1, 2018, issuers must submit on a rolling basis prepaid 
account agreements or notifications of withdrawn agreements to the 
Bureau within 30 days after offering, amending, or ceasing to offer 
the agreements.
    2. Continuing obligation to post and provide consumer 
agreements. Pursuant to Sec.  1005.19(f)(3), during the delayed 
agreement submission period set forth in Sec.  1005.19(f)(2), an 
issuer must post agreements on its Web site as required by Sec.  
1005.19(c) and (d)(1)(i) using the agreements it would have 
otherwise submitted to the Bureau under Sec.  1005.19(b) and must 
provide a copy of the consumer's agreement to the consumer upon 
request pursuant to Sec.  1005.19(d)(1)(ii). For purposes of Sec.  
1005.19(c)(2) and (d)(2), agreements posted by an issuer on its Web 
site must conform to the form and content requirements set forth in 
Sec.  1005.19(b)(6). For purposes of Sec.  1005.19(c)(3) and 
(d)(2)(v), amended agreements must be posted to the issuer's Web 
site no later than 30 days after the change becomes effective as 
required by Sec.  1005.19(b)(2).
* * * * *

Section 1005.30 Remittance Transfer Definitions

* * * * *

30(c) Designated Recipient

* * * * *
    2. * * *
    ii. For transfers to a prepaid account (other than a prepaid 
account that is a payroll card account or a government benefit 
account), where the funds are to be received in a location 
physically outside of any State depends on whether the provider at 
the time the transfer is requested has information indicating that 
funds are to be received in a foreign country. See comments 30(c)-
2.iii and 30(e)-3.i.C for illustrations of when a remittance 
transfer provider would have such information and when the provider 
would not. For transfers to all other accounts, whether funds are to 
be received at a location physically outside of any State depends on 
where the account is located. If the account is located in a State, 
the funds will not be received at a location in a foreign country. 
Further, for these accounts, if they are located on a U.S. military 
installation that is physically located in a foreign country, then 
these accounts are located in a State.
* * * * *

30(g) Sender

    1. Determining whether a consumer is located in a State. Under 
Sec.  1005.30(g), the definition of ``sender'' means a consumer in a 
State who, primarily for personal, family, or household purposes, 
requests a remittance transfer provider to send a remittance 
transfer to a designated recipient. A sender located on a U.S. 
military installation that is physically located in a foreign 
country is located in a State. For transfers sent from a prepaid 
account (other than a prepaid account that is a payroll card account 
or a government benefit account), whether the consumer is located in 
a State depends on the location of the consumer. If the provider 
does not know where the consumer is at the time the consumer 
requests the transfer from the consumer's prepaid account (other 
than a prepaid account that is a payroll card account or a 
government benefit account) the provider may make the determination 
of whether a consumer is located in a State based on information 
that is provided by the consumer and on any records associated with 
the consumer that the provider may have, such as an address provided 
by the consumer. For transfers from all other accounts belonging to 
a consumer, whether a consumer is located in a State depends on 
where the consumer's account is located. If the account is located 
in a State, the consumer will be located in a State for purposes of 
the definition of ``sender'' in Sec.  1005.30(g), notwithstanding 
comment 3(a)-3. For these accounts, if they are located on a U.S. 
military installation that is physically located in a foreign 
country, then these accounts are located in a State. Where a 
transfer is requested electronically or by telephone and the 
transfer is not from an account, the provider may make the 
determination of whether a consumer is located in a State based on 
information that is provided by the consumer and on any records 
associated with the consumer that the provider may have, such as an 
address provided by the consumer.
* * * * *
    3. Non-consumer accounts. A transfer that is requested to be 
sent from an account that was not established primarily for 
personal, family, or household purposes, such as an account that was 
established as a business or commercial account or an account held 
by a business entity such as a corporation, not-for-profit 
corporation, professional corporation, limited liability company, 
partnership, or sole proprietorship, is not requested primarily for 
personal, family, or household purposes. A consumer requesting a 
transfer from such an account therefore is not a sender under Sec.  
1005.30(g). Additionally, a transfer that is requested to be sent 
from an account held by a financial institution under a bona fide 
trust agreement pursuant to Sec.  1005.2(b)(2) is not requested 
primarily for personal, family, or household purposes, and a 
consumer requesting a transfer from such an account is therefore not 
a sender under Sec.  1005.30(g).
* * * * *

Appendix A--Model Disclosure Clauses and Forms

* * * * *
    2. Use of forms. The appendix contains model disclosure clauses 
for optional use by financial institutions and remittance transfer 
providers to facilitate compliance with the disclosure requirements 
of Sec. Sec.  1005.5(b)(2) and (3), 1005.6(a), 1005.7, 1005.8(b), 
1005.14(b)(1)(ii), 1005.15(c), 1005.15(e)(1) and (2), 1005.18(b)(2), 
(3), (6) and (7), 1005.18(d)(1) and (2), 1005.31, 1005.32 and 
1005.36. The use of appropriate clauses in making disclosures will 
protect a financial institution and a remittance transfer provider 
from liability under sections 916 and 917 of the act provided the 
clauses accurately reflect the institution's EFT services and the 
provider's remittance transfer services, respectively.
    3. Altering the clauses. Unless otherwise expressly addressed in 
the rule, the following applies. Financial institutions may use 
clauses of their own design in conjunction with the Bureau's model 
clauses. The inapplicable words or portions of phrases in 
parentheses should be deleted. The catchlines are not part of the 
clauses and need not be used. Financial institutions may make 
alterations, substitutions, or additions in the clauses to reflect 
the services offered, such as technical changes (including the 
substitution of a trade name for the word ``card,'' deletion of 
inapplicable services, or substitution of lesser liability limits). 
Several of the model clauses include references to a telephone 
number and address. Where two or more of these clauses are used in a 
disclosure, the telephone number and address may be referenced and 
need not be repeated.
* * * * *

PART 1026--TRUTH IN LENDING (REGULATION Z)

0
13. The authority citation for part 1026 continues to read as follows:

    Authority: 12 U.S.C. 2601, 2603-2605, 2607, 2609, 2617, 3353, 
5511, 5512, 5532, 5581; 15 U.S.C. 1601 et seq.

[[Page 84369]]

Subpart A--General

0
14. Section 1026.2 is amended by revising paragraphs (a)(15)(i), 
(a)(15)(ii)(A), and (a)(15)(ii)(B), and by adding paragraphs 
(a)(15)(ii)(C) and (a)(15)(iv) to read as follows:


Sec.  1026.2  Definitions and rules of construction.

    (a) * * *
    (15)(i) Credit card means any card, plate, or other single credit 
device that may be used from time to time to obtain credit. The term 
credit card includes a hybrid prepaid-credit card as defined in Sec.  
1026.61.
    (ii) * * *
    (A) A home-equity plan subject to the requirements of Sec.  1026.40 
that is accessed by a credit card;
    (B) An overdraft line of credit that is accessed by a debit card; 
or
    (C) An overdraft line of credit that is accessed by an account 
number, except if the account number is a hybrid prepaid-credit card 
that can access a covered separate credit feature as defined in Sec.  
1026.61.
* * * * *
    (iv) Debit card means any card, plate, or other single device that 
may be used from time to time to access an asset account other than a 
prepaid account as defined in Sec.  1026.61. The term debit card does 
not include a prepaid card as defined in Sec.  1026.61.
* * * * *

0
15. Section 1026.4 is amended by revising paragraphs (b)(2), (c)(3), 
and (c)(4), and by adding paragraph (b)(11) to read as follows:


Sec.  1026.4  Finance charge.

* * * * *
    (b) * * *
    (2) Service, transaction, activity, and carrying charges, including 
any charge imposed on a checking or other transaction account (except a 
prepaid account as defined in Sec.  1026.61) to the extent that the 
charge exceeds the charge for a similar account without a credit 
feature.
* * * * *
    (11) With regard to a covered separate credit feature and an asset 
feature on a prepaid account that are both accessible by a hybrid 
prepaid-credit card as defined in Sec.  1026.61:
    (i) Any fee or charge described in paragraphs (b)(1) through (10) 
of this section imposed on the covered separate credit feature, whether 
it is structured as a credit subaccount of the prepaid account or a 
separate credit account.
    (ii) Any fee or charge imposed on the asset feature of the prepaid 
account to the extent that the amount of the fee or charge exceeds 
comparable fees or charges imposed on prepaid accounts in the same 
prepaid account program that do not have a covered separate credit 
feature accessible by a hybrid prepaid-credit card.
    (c) * * *
    (3) Charges imposed by a financial institution for paying items 
that overdraw an account, unless the payment of such items and the 
imposition of the charge were previously agreed upon in writing. This 
paragraph does not apply to credit offered in connection with a prepaid 
account as defined in Sec.  1026.61.
    (4) Fees charged for participation in a credit plan, whether 
assessed on an annual or other periodic basis. This paragraph does not 
apply to a fee to participate in a covered separate credit feature 
accessible by a hybrid prepaid-credit card as defined in Sec.  1026.61, 
regardless of whether this fee is imposed on the credit feature or on 
the asset feature of the prepaid account.
* * * * *

Subpart B--Open-End Credit

* * * * *

0
16. Section 1026.6 is amended by adding paragraphs (b)(3)(iii)(D) and 
(E) to read as follows:


Sec.  1026.6  Account-opening disclosures.

* * * * *
    (b) * * *
    (3) * * *
    (iii) * * *
    (D) With regard to a covered separate credit feature and an asset 
feature on a prepaid account that are both accessible by a hybrid 
prepaid-credit card as defined in Sec.  1026.61, any fee or charge 
imposed on the asset feature of the prepaid account to the extent that 
the amount of the fee or charge does not exceed comparable fees or 
charges imposed on prepaid accounts in the same prepaid account program 
that do not have a covered separate credit feature accessible by a 
hybrid prepaid-credit card.
    (E) With regard to a non-covered separate credit feature accessible 
by a prepaid card as defined in Sec.  1026.61, any fee or charge 
imposed on the asset feature of the prepaid account.
* * * * *

0
17. Section 1026.7 is amended by revising paragraph (b)(11)(ii)(A) to 
read as follows:


Sec.  1026.7  Periodic statement.

* * * * *
    (b) * * *
    (11) * * *
    (ii) * * *
    (A) Periodic statements provided solely for charge card accounts, 
other than covered separate credit features that are charge card 
accounts accessible by hybrid prepaid-credit cards as defined in Sec.  
1026.61; and
* * * * *

0
18. Section 1026.12 is amended by revising paragraph (d) to read as 
follows:


Sec.  1026.12  Special credit card provisions.

* * * * *
    (d) Offsets by card issuer prohibited--(1) General rule. A card 
issuer may not take any action, either before or after termination of 
credit card privileges, to offset a cardholder's indebtedness arising 
from a consumer credit transaction under the relevant credit card plan 
against funds of the cardholder held on deposit with the card issuer.
    (2) Rights of the card issuer. This paragraph (d) does not alter or 
affect the right of a card issuer acting under state or Federal law to 
do any of the following with regard to funds of a cardholder held on 
deposit with the card issuer if the same procedure is constitutionally 
available to creditors generally: Obtain or enforce a consensual 
security interest in the funds; attach or otherwise levy upon the 
funds; or obtain or enforce a court order relating to the funds.
    (3) Periodic deductions. (i) This paragraph (d) does not prohibit a 
plan, if authorized in writing by the cardholder, under which the card 
issuer may periodically deduct all or part of the cardholder's credit 
card debt from a deposit account held with the card issuer (subject to 
the limitations in Sec.  1026.13(d)(1)).
    (ii) With respect to a covered separate credit feature accessible 
by a hybrid prepaid-credit card as defined in Sec.  1026.61, for 
purposes of this paragraph (d)(3), ``periodically'' means no more 
frequently than once per calendar month, such as on a monthly due date 
disclosed on the applicable periodic statement in accordance with the 
requirements of Sec.  1026.7(b)(11)(i)(A) or on an earlier date in each 
calendar month in accordance with a written authorization signed by the 
consumer.
* * * * *

0
19. Section 1026.13 is amended by revising paragraph (i) to read as 
follows:


Sec.  1026.13  Billing error resolution.

* * * * *
    (i) Relation to Electronic Fund Transfer Act and Regulation E. A 
creditor shall comply with the

[[Page 84370]]

requirements of Regulation E, 12 CFR 1005.11, and 1005.18(e) as 
applicable, governing error resolution rather than those of paragraphs 
(a), (b), (c), (e), (f), and (h) of this section if:
    (1) Except with respect to a prepaid account as defined in Sec.  
1026.61, an extension of credit that is incident to an electronic fund 
transfer occurs under an agreement between the consumer and a financial 
institution to extend credit when the consumer's account is overdrawn 
or to maintain a specified minimum balance in the consumer's account; 
or
    (2) With regard to a covered separate credit feature and an asset 
feature of a prepaid account where both are accessible by a hybrid 
prepaid-credit card as defined in Sec.  1026.61, an extension of credit 
that is incident to an electronic fund transfer occurs when the hybrid 
prepaid-credit card accesses both funds in the asset feature of the 
prepaid account and a credit extension from the credit feature with 
respect to a particular transaction.
* * * * *

Subpart G--Special Rules Applicable to Credit Card Accounts and 
Open-End Credit Offered to College Students

* * * * *

0
20. Section 1026.52 is amended by revising the heading for paragraph 
(a) to read as follows:


Sec.  1026.52  Limitations on fees.

    (a) Limitations during first year after account opening--* * *
* * * * *

0
21. Section 1026.60 is amended by revising paragraph (a)(5)(iv) and 
paragraph (b) introductory text to read as follows:


Sec.  1026.60  Credit and charge card applications and solicitations.

    (a) * * *
    (5) * * *
    (iv) Lines of credit accessed solely by account numbers except for 
a covered separate credit feature solely accessible by an account 
number that is a hybrid prepaid-credit card as defined in Sec.  
1026.61;
* * * * *
    (b) Required disclosures. The card issuer shall disclose the items 
in this paragraph on or with an application or a solicitation in 
accordance with the requirements of paragraphs (c), (d), (e)(1), or (f) 
of this section. A credit card issuer shall disclose all applicable 
items in this paragraph except for paragraph (b)(7) of this section. A 
charge card issuer shall disclose the applicable items in paragraphs 
(b)(2), (4), (7) through (12), and (15) of this section. With respect 
to a covered separate credit feature that is a charge card account 
accessible by a hybrid prepaid-credit card as defined in Sec.  1026.61, 
a charge card issuer also shall disclose the applicable items in 
paragraphs (b)(3), (13), and (14) of this section.
* * * * *

0
22. Section 1026.61 is added to read as follows:


Sec.  1026.61  Hybrid prepaid-credit cards.

    (a) Hybrid prepaid-credit card--(1) In general. (i) Credit offered 
in connection with a prepaid account is subject to this section and 
this regulation as specified below.
    (ii) For purposes of this regulation, except as provided in 
paragraph (a)(4) of this section, a prepaid card is a hybrid prepaid-
credit card with respect to a separate credit feature as described in 
paragraph (a)(2)(i) of this section when it can access credit from that 
credit feature, or with respect to a credit feature structured as a 
negative balance on the asset feature of the prepaid account as 
described in paragraph (a)(3) of this section when it can access credit 
from that credit feature. A hybrid prepaid-credit card is a credit card 
for purposes of this regulation with respect to those credit features.
    (iii) A prepaid card is not a hybrid prepaid-credit card or a 
credit card for purposes of this regulation if the only credit offered 
in connection with the prepaid account meets the conditions set forth 
in paragraph (a)(4) of this section.
    (2) Prepaid card can access credit from a covered separate credit 
feature--(i) Covered separate credit feature. (A) A separate credit 
feature that can be accessed by a hybrid prepaid-credit card as 
described in this paragraph (a)(2)(i) is defined as a covered separate 
credit feature. A prepaid card is a hybrid prepaid-credit card with 
respect to a separate credit feature when it is a single device that 
can be used from time to time to access the separate credit feature 
where the following two conditions are both satisfied:
    (1) The card can be used to draw, transfer, or authorize the draw 
or transfer of credit from the separate credit feature in the course of 
authorizing, settling, or otherwise completing transactions conducted 
with the card to obtain goods or services, obtain cash, or conduct 
person-to-person transfers; and
    (2) The separate credit feature is offered by the prepaid account 
issuer, its affiliate, or its business partner.
    (B) A separate credit feature that meets the conditions set forth 
in paragraph (a)(2)(i)(A) of this section is a covered separate credit 
feature accessible by a hybrid prepaid-credit card even with respect to 
credit that is drawn or transferred, or authorized to be drawn or 
transferred, from the credit feature outside the course of a 
transaction conducted with the card to obtain goods or services, obtain 
cash, or conduct person-to-person transfers.
    (ii) Non-covered separate credit feature. A separate credit feature 
that does not meet the two conditions set forth in paragraph (a)(2)(i) 
of this section is defined as a non-covered separate credit feature. A 
prepaid card is not a hybrid prepaid-credit card with respect to a non-
covered separate credit feature, even if the prepaid card is a hybrid 
prepaid-credit card with respect to a covered separate credit feature 
as described in paragraph (a)(2)(i) of this section. A non-covered 
separate credit feature is not subject to the rules applicable to 
hybrid prepaid-credit cards; however, it may be subject to this 
regulation depending on its own terms and conditions, independent of 
the connection to the prepaid account.
    (3) Prepaid card can access credit extended through a negative 
balance on the asset feature of the prepaid account--(i) In general. 
Except as provided in paragraph (a)(4) of this section, a prepaid card 
is a hybrid prepaid-credit card when it is a single device that can be 
used from time to time to access credit extended through a negative 
balance on the asset feature of the prepaid account.
    (ii) Negative asset balances. Notwithstanding paragraph (a)(3)(i) 
of this section with regard to coverage under this regulation, 
structuring a hybrid prepaid-credit card to access credit through a 
negative balance on the asset feature violates paragraph (b) of this 
section. A prepaid account issuer can use a negative asset balance 
structure to extend credit on an asset feature of a prepaid account 
only if the prepaid card is not a hybrid prepaid-credit card as 
described in paragraph (a)(4) of this section.
    (4) Exception. A prepaid card is not a hybrid prepaid-credit card 
and is not a credit card for purposes of this regulation where:
    (i) The prepaid card cannot access credit from a covered separate 
credit feature as described in paragraph (a)(2)(i) of this section; and
    (ii) The prepaid card only can access credit extended through a 
negative balance on the asset feature of the prepaid account where both 
paragraphs (a)(4)(ii)(A) and (B) of this section are satisfied.

[[Page 84371]]

    (A) The prepaid account issuer has an established policy and 
practice of either declining to authorize any transaction for which it 
reasonably believes the consumer has insufficient or unavailable funds 
in the asset feature of the prepaid account at the time the transaction 
is authorized to cover the amount of the transaction, or declining to 
authorize any such transactions except in one or more of the following 
circumstances:
    (1) The amount of the transaction will not cause the asset feature 
balance to become negative by more than $10 at the time of the 
authorization; or
    (2) In cases where the prepaid account issuer has received an 
instruction or confirmation for an incoming electronic fund transfer 
originated from a separate asset account to load funds to the prepaid 
account or where the prepaid account issuer has received a request from 
the consumer to load funds to the prepaid account from a separate asset 
account but in either case the funds from the separate asset account 
have not yet settled, the amount of the transaction will not cause the 
asset feature balance to become negative at the time of the 
authorization by more than the incoming or requested load amount, as 
applicable.
    (B) The following fees or charges are not imposed on the asset 
feature of the prepaid account:
    (1) Any fees or charges for opening, issuing, or holding a negative 
balance on the asset feature, or for the availability of credit, 
whether imposed on a one-time or periodic basis. This paragraph does 
not include fees or charges to open, issue, or hold the prepaid account 
where the amount of the fee or charge imposed on the asset feature is 
not higher based on whether credit might be offered or has been 
accepted, whether or how much credit the consumer has accessed, or the 
amount of credit available;
    (2) Any fees or charges that will be imposed only when credit is 
extended on the asset feature or when there is a negative balance on 
the asset feature, except that a prepaid account issuer may impose fees 
or charges for the actual costs of collecting the credit extended if 
otherwise permitted by law; or
    (3) Any fees or charges where the amount of the fee or charge is 
higher when credit is extended on the asset feature or when there is a 
negative balance on the asset feature.
    (C) A prepaid account issuer may still satisfy the exception in 
paragraph (a)(4) of this section even if it debits fees or charges from 
the asset feature when there are insufficient or unavailable funds in 
the asset feature to cover those fees or charges at the time they are 
imposed, so long as those fees or charges are not the type of fees or 
charges enumerated in paragraph (a)(4)(ii)(B) of this section.
    (5) Definitions. For purposes of this section and other provisions 
in the regulation that relate to hybrid prepaid-credit cards:
    (i) Affiliate means any company that controls, is controlled by, or 
is under common control with another company, as set forth in the Bank 
Holding Company Act of 1956 (12 U.S.C. 1841 et seq.).
    (ii) Asset feature means an asset account that is a prepaid 
account, or an asset subaccount of a prepaid account.
    (iii) Business partner means a person (other than the prepaid 
account issuer or its affiliates) that can extend credit through a 
separate credit feature where the person or its affiliate has an 
arrangement with a prepaid account issuer or its affiliate.
    (iv) Credit feature means a separate credit account or a credit 
subaccount of a prepaid account through which credit can be extended in 
connection with a prepaid card, or a negative balance on an asset 
feature of a prepaid account through which credit can be extended in 
connection with a prepaid card.
    (v) Prepaid account means a prepaid account as defined in 
Regulation E, 12 CFR 1005.2(b)(3).
    (vi) Prepaid account issuer means a financial institution as 
defined in Regulation E, 12 CFR 1005.2(i), with respect to a prepaid 
account.
    (vii) Prepaid card means any card, code, or other device that can 
be used to access a prepaid account.
    (viii) Separate credit feature means a credit account or a credit 
subaccount of a prepaid account through which credit can be extended in 
connection with a prepaid card that is separate from the asset feature 
of the prepaid account. This term does not include a negative balance 
on an asset feature of a prepaid account.
    (b) Structure of credit features accessible by hybrid prepaid-
credit cards. With respect to a credit feature that is accessible by a 
hybrid prepaid-credit card, a card issuer shall not structure the 
credit feature as a negative balance on the asset feature of a prepaid 
account. A card issuer shall structure the credit feature as a separate 
credit feature, either as a separate credit account, or as a credit 
subaccount of a prepaid account that is separate from the asset feature 
of the prepaid account. The separate credit feature is a covered 
separate credit feature accessible by a hybrid prepaid-credit card 
under Sec.  1026.61(a)(2)(i).
    (c) Timing requirement for credit card solicitation or application 
with respect to hybrid prepaid-credit cards. (1) With respect to a 
covered separate credit feature that could be accessible by a hybrid 
prepaid-credit card at any point, a card issuer must not do any of the 
following until 30 days after the prepaid account has been registered:
    (i) Open a covered separate credit feature that could be accessible 
by the hybrid prepaid-credit card;
    (ii) Make a solicitation or provide an application to open a 
covered separate credit feature that could be accessible by the hybrid 
prepaid-credit card; or
    (iii) Allow an existing credit feature that was opened prior to the 
consumer obtaining the prepaid account to become a covered separate 
credit feature accessible by the hybrid prepaid-credit card.
    (2) For purposes of paragraph (c) of this section, the term 
solicitation has the meaning set forth in Sec.  1026.60(a)(1).
* * * * *

0
23. In Supplement I to part 1026--Official Interpretations:
0
a. Under Section 1026.2--Definitions and Rules of Construction:
0
i. In subsection 2(a)(7) Card Issuer, paragraph 1 is revised and 
paragraph 2 is added.
0
ii. In subsection 2(a)(14) Credit, paragraph 3 is added.
0
iii. In subsection Paragraph 2(a)(15):
0
A. Paragraph 2.i.B is revised.
0
B. Paragraph 2.i.F is added.
0
C. Paragraph 2.ii.C is revised.
0
D. Paragraph 2.ii.D is added.
0
E. Paragraphs 3 and 4 are revised.
0
iv. In subsection Paragraph 2(a)(17)(i), paragraph 8 is added.
0
v. In subsection Paragraph 2(a)(17)(iii), paragraph 2 is added.
0
vi. In subsection 2(a)(20) Open-End Credit, paragraphs 2 and 4 are 
revised.
0
b. Under Section 1026.4--Finance Charge:
0
i. In subsection 4(a) Definition, paragraph 4 introductory text is 
revised.
0
ii. In subsection Paragraph 4(b)(2), paragraph 1 is revised and 
paragraph 2 is added.
0
iii. Subsection Paragraph 4(b)(11) is added.
0
iv. In subsection Paragraph 4(c)(3), paragraph 1 is revised and 
paragraph 2 is added.
0
iv. In subsection Paragraph 4(c)(4), paragraph 1 is revised and 
paragraph 3 is added.
0
c. Under Section 1026.5--General Disclosure Requirements:
0
i. In subsection 5(b)(2)(ii) Timing Requirements, paragraph 4.i is 
revised.

[[Page 84372]]

0
d. Under Section 1026.6--Account-Opening Disclosures:
0
i. In subsection 6(b)(2) Required Disclosures for Account-Opening Table 
for Open-End (Not Home-Secured) Plans, paragraphs 1 and 2 are added.
0
ii. Subheading Paragraph 6(b)(3)(iii) and subsections Paragraph 
6(b)(3)(iii)(D) and Paragraph 6(b)(3)(iii)(E) are added.
0
e. Under Section 1026.7--Periodic Statement:
0
i. In subsection 7(b)(13) Format Requirements, paragraph 1 is revised.
0
f. Under Section 1026.8--Identifying Transactions on Periodic 
Statements:
0
i. In subsection 8(a) Sale Credit, paragraph 1 introductory text is 
revised and paragraph 9 is added.
0
ii. In subsection 8(b) Nonsale credit, the subheading is revised, 
paragraph 1.ii is revised, paragraphs 1.v and 1.vi are added, and 2 
introductory text is revised.
0
g. Under Section 1026.10--Payments:
0
i. In subsection 10(a) General Rule., the subheading is revised, and 
paragraph 2.ii is revised.
0
ii. In subsection 10(b) Specific Requirements for Payments, paragraph 1 
is revised.
0
h. Under Section 1026.12--Special Credit Card Provisions:
0
i. In subsection Paragraph 12(a)(1), paragraphs 2 and 7 are revised.
0
ii. In subsection Paragraph 12(a)(2), paragraph 6.i is revised, 
paragraph 6.ii is redesignated as 6.iii, and new paragraph 6.ii is 
added.
0
iii. In subsection 12(c) Right of Cardholder to Assert Claims or 
Defenses Against Card Issuer, paragraph 5 is added.
0
iv. In subsection 12(c)(1) General Rule, paragraphs 1 introductory text 
and 1.ii are revised.
0
v. In subsection 12(d) Offsets by Card Issuer Prohibited, paragraph 1 
is added.
0
vi. In subsection Paragraph 12(d)(1), paragraph 2 is revised.
0
vii. In subsection Paragraph 12(d)(2), paragraph 1.i is revised, 
paragraph 1.ii is redesignated as 1.iv, and new paragraph 1.ii and 
paragraph 1.iii are added.
0
viii. In subsection Paragraph 12(d)(3), paragraph 1.iii is revised and 
paragraphs 2.iii and 3 are added.
0
i. Under Section 1026.13--Billing Error Resolution:
0
i. In subsection 13(i) Relation to Electronic Fund Transfer Act and 
Regulation E, paragraphs 2, 3 introductory text, 3.i, and 3.iv are 
revised and paragraphs 4 and 5 is added.
0
j. Under Section 1026.52--Limitations on Fees:
0
i. In subsection 52(a)(1) General rule, paragraph 1 introductory text 
is revised and paragraphs 1.iii and 1.iv are added.
0
ii. In subsection 52(a)(2) Fees Not Subject to Limitations, paragraph 1 
introductory text is revised, paragraphs 2 and 3 are redesignated as 
paragraphs 4 and 5, and new paragraphs 2 and 3 are added.
0
iii. In subsection 52(b) Limitations on Penalty Fees, paragraphs 3 and 
4 are added.
0
iv. In subsection 52(b)(2)(i) Fees That Exceed Dollar Amount Associated 
with Violation, paragraph 7 is added.
0
k. Under Section 1026.55--Limitations on Increasing Annual Percentage 
Rates, Fees, and Charges:
0
i. In subsection 55(a) General Rule, paragraphs 3 and 4 are added.
0
l. Under Section 1026.57--Reporting and Marketing Rules for College 
Student Open-End Credit:
0
i. In subsection 57(a)(1) College student credit card, paragraph 1 is 
revised.
0
ii. In subsection 57(a)(5) College credit card agreement, paragraph 1 
is revised.
0
iii. In subsection 57(b) Public disclosure of agreements, paragraph 3 
is added.
0
iv. In subsection 57(c) Prohibited inducements, paragraph 7 is added.
0
m. Under Section 1026.60--Credit and Charge Card Applications and 
Solicitations:
0
i. Paragraph 1 is revised.
0
ii. In subsection 60(b) Required Disclosures, paragraphs 3 and 4 are 
added.
0
iii. In subsection 60(b)(4) Transaction Charges, paragraph 3 is added.
0
iv. In subsection 60(b)(8) Cash Advance Fee, paragraph 4 is added.
0
n. Section 1026.61--Hybrid Prepaid-Credit Cards is added.
    The revisions, additions, and removals read as follows:

Supplement I to Part 1026--Official Interpretations

* * * * *

Subpart A--General

* * * * *

Section 1026.2 Definitions and Rules of Construction

* * * * *

2(a)(7) Card Issuer

    1. Agent. i. An agent of a card issuer is considered a card 
issuer. Except as provided in comment 2(a)(7)-1.ii, because agency 
relationships are traditionally defined by contract and by state or 
other applicable law, the regulation does not define agent. Merely 
providing services relating to the production of credit cards or 
data processing for others, however, does not make one the agent of 
the card issuer. In contrast, a financial institution may become the 
agent of the card issuer if an agreement between the institution and 
the card issuer provides that the cardholder may use a line of 
credit with the financial institution to pay obligations incurred by 
use of the credit card.
    ii. Under Sec.  1026.2(a)(7), with respect to a covered separate 
credit feature accessible by a hybrid prepaid-credit card as defined 
in Sec.  1026.61 where that credit feature is offered by an 
affiliate or business partner of the prepaid account issuer as those 
terms are defined in Sec.  1026.61, the affiliate or business 
partner offering the credit feature is an agent of the prepaid 
account issuer and thus, is itself a card issuer with respect to the 
hybrid prepaid-credit card.
    2. Prepaid cards that are not hybrid prepaid-credit cards. See 
Sec.  1026.61(a) and comments 61(a)(2)-5.iii and 61(a)(4)-1.iv for 
guidance on the applicability of this regulation in connection with 
credit accessible by prepaid cards that are not hybrid prepaid-
credit cards.
* * * * *

2(a)(14) Credit

* * * * *
    3. Transactions on the asset features of prepaid accounts when 
there are insufficient or unavailable funds. Credit includes 
authorization of a transaction on the asset feature of a prepaid 
account as defined in Sec.  1026.61 where the consumer has 
insufficient or unavailable funds in the asset feature of the 
prepaid account at the time the transaction is authorized to cover 
the amount of the transaction. It also includes settlement of a 
transaction on the asset feature of a prepaid account where the 
consumer has insufficient or unavailable funds in the asset feature 
of the prepaid account at the time the transaction is settled to 
cover the amount of the transaction. This includes a transaction 
where the consumer has sufficient or available funds in the asset 
feature of a prepaid account to cover the amount of the transaction 
at the time the transaction is authorized but insufficient or 
unavailable funds in the asset feature of the prepaid account to 
cover the transaction amount at the time the transaction is settled. 
See Sec.  1026.61 and related commentary on the applicability of 
this regulation to credit that is extended in connection with a 
prepaid account.

Paragraph 2(a)(15)

* * * * *
    2. * * *
    i. * * *
    B. A debit card (other than a debit card that is solely an 
account number) that also accesses a credit account (that is, a 
debit-credit card). See comment 2(a)(15)-2.ii.C for guidance on 
whether a debit card that is solely an account number is a credit 
card.
* * * * *
    F. A prepaid card that is a hybrid prepaid-credit card as 
defined in Sec.  1026.61.
    ii. * * *
    C. An account number that accesses a credit account, unless the 
account number can access an open-end line of credit to purchase 
goods or services or as provided in Sec.  1026.61 with respect to a 
hybrid prepaid-credit card. For example, if a creditor provides a 
consumer with an open-end line of credit that can be accessed by an 
account number in order to transfer funds into

[[Page 84373]]

another account (such as an asset account with the same creditor), 
the account number is not a credit card for purposes of Sec.  
1026.2(a)(15)(i). However, if the account number can also access the 
line of credit to purchase goods or services (such as an account 
number that can be used to purchase goods or services on the 
Internet), the account number is a credit card for purposes of Sec.  
1026.2(a)(15)(i), regardless of whether the creditor treats such 
transactions as purchases, cash advances, or some other type of 
transaction. Furthermore, if the line of credit can also be accessed 
by a card (such as a debit card), that card is a credit card for 
purposes of Sec.  1026.2(a)(15)(i).
    D. A prepaid card that is not a hybrid prepaid-credit card as 
defined in Sec.  1026.61.
    3. Charge card. i. Charge cards are credit cards where no 
periodic rate is used to compute the finance charge. Under the 
regulation, a reference to credit cards generally includes charge 
cards. In particular, references to credit card accounts under an 
open-end (not home-secured) consumer credit plan in subparts B and G 
generally include charge cards. The term charge card is, however, 
distinguished from credit card or credit card account under an open-
end (not home-secured) consumer credit plan in Sec. Sec.  
1026.6(b)(2)(xiv), 1026.7(b)(11) (except as described in comment 
2(a)(15)-3.ii below), 1026.7(b)(12), 1026.9(e), 1026.9(f), 
1026.28(d), 1026.52(b)(1)(ii)(C), 1026.60, and appendices G-10 
through G-13.
    ii. A hybrid prepaid-credit card as defined in Sec.  1026.61 is 
a charge card with respect to a covered separate credit feature if 
no periodic rate is used to compute the finance charge in connection 
with the covered separate credit feature. Unlike other charge card 
accounts, the requirements in Sec.  1026.7(b)(11) apply to a covered 
separate credit feature accessible by a hybrid prepaid-credit card 
that is a charge card when that covered separate credit feature is a 
credit card account under an open-end (not home-secured) consumer 
credit plan. Thus, under Sec.  1026.5(b)(2)(ii)(A), with respect to 
a covered separate credit feature that is a credit card account 
under an open-end (not home-secured) consumer credit plan, a card 
issuer of a hybrid prepaid-credit card that meets the definition of 
a charge card because no periodic rate is used to compute a finance 
charge in connection with the covered separate credit feature must 
adopt reasonable procedures for the covered separate credit feature 
designed to ensure that (1) periodic statements are mailed or 
delivered at least 21 days prior to the payment due date disclosed 
on the statement pursuant to Sec.  1026.7(b)(11)(i)(A); and (2) the 
card issuer does not treat as late for any purposes a required 
minimum periodic payment received by the card issuer within 21 days 
after mailing or delivery of the periodic statement disclosing the 
due date for that payment.
    4. Credit card account under an open-end (not home-secured) 
consumer credit plan. i. An open-end consumer credit account is a 
credit card account under an open-end (not home-secured) consumer 
credit plan for purposes of Sec.  1026.2(a)(15)(ii) if:
    A. The account is accessed by a credit card, as defined in Sec.  
1026.2(a)(15)(i); and
    B. The account is not excluded under Sec.  1026.2(a)(15)(ii)(A) 
through (C).
    ii. As noted in Sec.  1026.2(a)(15)(ii)(C), the exclusion from 
credit card account under an open-end (not home-secured) consumer 
credit plan provided by that paragraph for an overdraft line of 
credit that is accessed by an account number does not apply to a 
covered separate credit feature accessible by a hybrid prepaid-
credit card (including a hybrid prepaid-credit card that is solely 
an account number) as defined in Sec.  1026.61.
* * * * *

2(a)(17) Creditor

* * * * *

Paragraph 2(a)(17)(i)

* * * * *
    8. Prepaid cards that are not hybrid prepaid-credit cards. See 
Sec.  1026.61(a) and comments 61(a)(2)-5.iii and 61(a)(4)-1.iv for 
guidance on the applicability of this regulation in connection with 
credit accessible by prepaid cards that are not hybrid prepaid-
credit cards.
* * * * *

Paragraph 2(a)(17)(iii)

* * * * *
    2. Prepaid cards that are not hybrid prepaid-credit cards. See 
Sec.  1026.61(a) and comments 61(a)(2)-5.iii and 61(a)(4)-1.iv for 
guidance on the applicability of this regulation in connection with 
credit accessible by prepaid cards that are not hybrid prepaid-
credit cards.
* * * * *

2(a)(20) Open-End Credit

* * * * *
    2. Existence of a plan. i. The definition requires that there be 
a plan, which connotes a contractual arrangement between the 
creditor and the consumer.
    ii. With respect to a covered separate credit feature accessible 
by a hybrid prepaid-credit card as defined in Sec.  1026.61, a plan 
means a program where the consumer is obligated contractually to 
repay any credit extended by the creditor. For example, a plan 
includes a program under which a creditor routinely extends credit 
from a covered separate credit feature offered by the prepaid 
account issuer, its affiliate, or its business partner where the 
prepaid card can be used from time to time to draw, transfer, or 
authorize the draw or transfer of credit from the covered separate 
credit feature in the course of authorizing, settling, or otherwise 
completing transactions conducted with the card to obtain goods or 
services, obtain cash, or conduct person-to-person transfers, and 
the consumer is obligated contractually to repay those credit 
transactions. Such a program constitutes a plan notwithstanding 
that, for example, the creditor has not agreed in writing to extend 
credit for those transactions, the creditor retains discretion not 
to extend credit for those transactions, or the creditor does not 
extend credit for those transactions once the consumer has exceeded 
a certain amount of credit. See Sec.  1026.61(a) and related 
commentary for guidance on the applicability of this regulation to 
credit accessible by hybrid prepaid-credit cards.
    iii. Some creditors offer programs containing a number of 
different credit features. The consumer has a single account with 
the institution that can be accessed repeatedly via a number of sub-
accounts established for the different program features and rate 
structures. Some features of the program might be used repeatedly 
(for example, an overdraft line) while others might be used 
infrequently (such as the part of the credit line available for 
secured credit). If the program as a whole is subject to prescribed 
terms and otherwise meets the definition of open-end credit, such a 
program would be considered a single, multifeatured plan.
* * * * *
    4. Finance charge on an outstanding balance. i. The requirement 
that a finance charge may be computed and imposed from time to time 
on the outstanding balance means that there is no specific amount 
financed for the plan for which the finance charge, total of 
payments, and payment schedule can be calculated. A plan may meet 
the definition of open-end credit even though a finance charge is 
not normally imposed, provided the creditor has the right, under the 
plan, to impose a finance charge from time to time on the 
outstanding balance. For example, in some plans, a finance charge is 
not imposed if the consumer pays all or a specified portion of the 
outstanding balance within a given time period. Such a plan could 
meet the finance charge criterion, if the creditor has the right to 
impose a finance charge, even though the consumer actually pays no 
finance charges during the existence of the plan because the 
consumer takes advantage of the option to pay the balance (either in 
full or in installments) within the time necessary to avoid finance 
charges.
    ii. With regard to a covered separate credit feature and an 
asset feature on a prepaid account that are both accessible by a 
hybrid prepaid-credit card as defined in Sec.  1026.61, any service, 
transaction, activity, or carrying charges imposed on the covered 
separate credit feature, and any such charges imposed on the asset 
feature of the prepaid account to the extent that the amount of the 
charge exceeds comparable charges imposed on prepaid accounts in the 
same prepaid account program that do not have a covered separate 
credit feature accessible by a hybrid prepaid-credit card, generally 
is a finance charge. See Sec.  1026.4(a) and (b)(11). Such charges 
include a periodic fee to participate in the covered separate credit 
feature, regardless of whether this fee is imposed on the credit 
feature or on the asset feature of the prepaid account. With respect 
to credit from a covered separate credit feature accessible by a 
hybrid prepaid-credit card, any service, transaction, activity, or 
carrying charges that are finance charges under Sec.  1026.4 
constitute finance charges imposed from time to time on an 
outstanding unpaid balance as described in Sec.  1026.2(a)(20) if 
there is no specific amount financed for the credit feature for 
which the finance charge, total of payments, and payment schedule 
can be calculated.
* * * * *

[[Page 84374]]

Section 1026.4 Finance Charge

4(a) Definition

* * * * *
    4. Treatment of transaction fees on credit card plans. Except 
with regard to a covered separate credit feature and an asset 
feature on a prepaid account that are both accessible by a hybrid 
prepaid-credit card as defined in Sec.  1026.61, which are addressed 
in more detail in Sec. Sec.  1026.4(b)(11) and 1026.61, any 
transaction charge imposed on a cardholder by a card issuer is a 
finance charge, regardless of whether the issuer imposes the same, 
greater, or lesser charge on withdrawals of funds from an asset 
account such as a checking or savings account. For example:
* * * * *

4(b) Examples of Finance Charges

* * * * *

Paragraph 4(b)(2)

    1. Checking or transaction account charges. A charge imposed in 
connection with a credit feature on a checking or transaction 
account (other than a prepaid account as defined in Sec.  1026.61) 
is a finance charge under Sec.  1026.4(b)(2) to the extent the 
charge exceeds the charge for a similar account without a credit 
feature. If a charge for an account with a credit feature does not 
exceed the charge for an account without a credit feature, the 
charge is not a finance charge under Sec.  1026.4(b)(2). To 
illustrate:
    i. A $5 service charge is imposed on an account with an 
overdraft line of credit (where the institution has agreed in 
writing to pay an overdraft), while a $3 service charge is imposed 
on an account without a credit feature; the $2 difference is a 
finance charge. (If the difference is not related to account 
activity, however, it may be excludable as a participation fee. See 
the commentary to Sec.  1026.4(c)(4).)
    ii. A $5 service charge is imposed for each item that results in 
an overdraft on an account with an overdraft line of credit, while a 
$25 service charge is imposed for paying or returning each item on a 
similar account without a credit feature; the $5 charge is not a 
finance charge.
    2. Prepaid accounts. Fee or charges related to credit offered in 
connection with prepaid accounts as defined in Sec.  1026.61 are 
discussed in Sec. Sec.  1026.4(b)(11) and 1026.61 and related 
commentary.
* * * * *

Paragraph 4(b)(11)

    1. Credit in connection with a prepaid card. Section 1026.61 
governs credit offered in connection with a prepaid card.
    i. A separate credit feature that meets the conditions of Sec.  
1026.61(a)(2)(i) is defined as a covered separate credit feature 
accessible by a hybrid prepaid-credit card. See Sec.  
1026.61(a)(2)(i) and comment 61(a)(2)-4. In this case, the hybrid 
prepaid-credit card can access both the covered separate credit 
feature and the asset feature of the prepaid account. The rules for 
classification of fees or charges as finance charges in connection 
with this account structure are specified in Sec.  1026.4(b)(11) and 
related commentary.
    ii. If a prepaid card can access a non-covered separate credit 
feature as described in Sec.  1026.61(a)(2)(ii), the card is not a 
hybrid prepaid-credit card with respect to that credit feature. In 
that case:
    A. Section 1026.4(b)(11) and related commentary do not apply to 
fees or charges imposed on the non-covered separate credit feature; 
instead, the general rules set forth in Sec.  1026.4 determine 
whether these fees or charges are finance charges; and
    B. Fees or charges on the asset feature of the prepaid account 
are not finance charges under Sec.  1026.4 with respect to the non-
covered separate credit feature. See comment 61(a)(2)-5.iii for 
guidance on the applicability of this regulation in connection with 
non-covered credit features accessible by prepaid cards.
    iii. If the prepaid card is not a hybrid prepaid-credit card 
because the only credit extended through a negative balance on the 
asset feature of the prepaid account is pursuant to Sec.  
1026.61(a)(4), fees charged on the asset feature of the prepaid 
account in accordance with Sec.  1026.61(a)(4)(ii)(B) are not 
finance charges.

Paragraph 4(b)(11)(i)

    1. Transaction fees imposed on the covered separate credit 
feature. Consistent with comment 4(a)-4, any transaction charge 
imposed on a cardholder by a card issuer on a covered separate 
credit feature accessible by a hybrid prepaid-credit card is a 
finance charge. Transaction charges that are imposed on the asset 
feature of a prepaid account are subject to Sec.  1026.4(b)(11)(ii) 
and related commentary, instead of Sec.  1026.4(b)(11)(i).

Paragraph 4(b)(11)(ii)

    1. Fees or charges imposed on the asset feature of a prepaid 
account. i. Under Sec.  1026.4(b)(11)(ii), with regard to a covered 
separate credit feature and an asset feature of a prepaid account 
that are both accessible by a hybrid prepaid-credit card as defined 
Sec.  1026.61, any fee or charge imposed on the asset feature of the 
prepaid account is a finance charge to the extent that the amount of 
the fee or charge exceeds comparable fees or charges imposed on 
prepaid accounts in the same prepaid account program that do not 
have a covered separate credit feature accessible by a hybrid 
prepaid-credit card. This comment provides guidance with respect to 
comparable fees under Sec.  1026.4(b)(11)(ii) for the two types of 
credit extensions on a covered separate credit feature. See Sec.  
1026.61(a)(2)(i)(B) and comment 61(a)(2)-4.ii. Comment 4(b)(11)(ii)-
1.ii provides guidance for credit extensions where the hybrid 
prepaid-credit card accesses credit from the covered separate credit 
feature in the course of authorizing, settling, or otherwise 
completing a transaction conducted with the card to obtain goods or 
services, obtain cash, or conduct person-to-person transfers. 
Comment 4(b)(11)(ii)-1.iii provides guidance for credit extensions 
where a consumer draws or transfers credit from the covered separate 
credit feature outside the course of a transaction conducted with 
the card to obtain goods or services, obtain cash, or conduct 
person-to-person transfers.
    ii. Where the hybrid prepaid-credit card accesses credit from a 
covered separate credit feature in the course of authorizing, 
settling, or otherwise completing a transaction conducted with the 
card to obtain goods or services, obtain cash, or conduct person-to-
person transfers, any per transaction fees imposed on the asset 
feature of prepaid accounts, including load and transfer fees, for 
such credit from the credit feature are comparable only to per 
transaction fees for each transaction to access funds in the asset 
feature of a prepaid account that are imposed on prepaid accounts in 
the same prepaid account program that does not have such a credit 
feature. Per transaction fees for a transaction that is conducted to 
load or draw funds into a prepaid account from some other source are 
not comparable for purposes of Sec.  1026.4(b)(11)(ii). To 
illustrate:
    A. Assume a prepaid account issuer charges $0.50 on prepaid 
accounts without a covered separate credit feature for each 
transaction that accesses funds in the asset feature of the prepaid 
accounts. Also, assume that the prepaid account issuer charges $0.50 
per transaction on the asset feature of prepaid accounts in the same 
prepaid program where the hybrid prepaid-credit card accesses credit 
from a covered separate credit feature in the course of a 
transaction. In this case, the $0.50 per transaction fee imposed on 
the asset feature of the prepaid account with a covered separate 
credit feature is not a finance charge.
    B. Assume same facts as in paragraph A above, except that assume 
the prepaid account issuer charges $1.25 on the asset feature of a 
prepaid account for each transaction where the hybrid prepaid-credit 
card accesses credit from the covered separate credit feature in the 
course of the transaction. In this case, the additional $0.75 is a 
finance charge.
    C. Assume a prepaid account issuer charges $0.50 on prepaid 
accounts without a covered separate credit feature for each 
transaction that accesses funds in the asset feature of the prepaid 
accounts. Assume also that the prepaid account issuer charges both a 
$0.50 per transaction fee and a $1.25 transfer fee on the asset 
feature of prepaid accounts in the same prepaid program where the 
hybrid prepaid-credit card accesses credit from a covered separate 
credit feature in the course of a transaction. In this case, both 
fees charged on a per-transaction basis for the credit transaction 
(i.e., a combined fee of $1.75 per transaction) must be compared to 
the $0.50 per transaction fee to access funds in the asset feature 
of the prepaid account without a covered separate credit feature. 
Accordingly, the $1.25 excess is a finance charge.
    D. Assume same facts as in paragraph C above, except that assume 
the prepaid account issuer also charges a load fee of $1.25 whenever 
funds are transferred or loaded from a separate asset account, such 
as from a deposit account via a debit card, in the course of a 
transaction on prepaid accounts without a covered separate credit 
feature, in addition to charging a $0.50 per transaction fee. The 
$1.25 excess in paragraph C is still a finance charge because load 
or transfer fees that are charged on the asset feature of prepaid 
account for credit from the covered separate credit feature are 
compared only to per transaction fees

[[Page 84375]]

imposed for accessing funds in the asset feature of the prepaid 
account for prepaid accounts without such a credit feature. Per 
transaction fees for a transaction that is conducted to load or draw 
funds into a prepaid account from some other source are not 
comparable for purposes of Sec.  1026.4(b)(11)(ii).
    iii. A consumer may choose in a particular circumstance to draw 
or transfer credit from the covered separate credit feature outside 
the course of a transaction conducted with the card to obtain goods 
or services, obtain cash, or conduct person-to-person transfers. For 
example, a consumer may use the prepaid card at the prepaid account 
issuer's Web site to load funds from the covered separate credit 
feature outside the course of a transaction conducted with the card 
to obtain goods or services, obtain cash, or conduct person-to-
person transfers. See Sec.  1026.61(a)(2)(i)(B) and comment 
61(a)(2)-4.ii. In these situations, load or transfer fees imposed 
for draws or transfers of credit from the covered separate credit 
feature outside the course of a transaction are compared only with 
fees, if any, to load funds as a direct deposit of salary from an 
employer or a direct deposit of government benefits that are charged 
on prepaid accounts without a covered separate credit feature. Fees 
imposed on prepaid accounts without a covered separate credit 
feature for a one-time load or transfer of funds from a separate 
asset account or from a non-covered separate credit feature are not 
comparable for purposes of Sec.  1026.4(b)(11)(ii). To illustrate:
    A. Assume a prepaid account issuer charges a $1.25 load fee to 
transfer funds from a non-covered separate credit feature, such as a 
non-covered separate credit card account, into prepaid accounts that 
do not have a covered separate credit feature and does not charge a 
fee for a direct deposit of salary from an employer or a direct 
deposit of government benefits on those prepaid accounts. Assume the 
prepaid account issuer charges $1.25 on the asset feature of a 
prepaid account with a covered separate credit feature to load funds 
from the covered separate credit feature outside the course of a 
transaction. In this case, the $1.25 fee imposed on the asset 
feature of the prepaid account with a covered separate credit 
feature is a finance charge because no fee is charged for a direct 
deposit of salary from an employer or a direct deposit of government 
benefits on prepaid accounts without such a credit feature. Fees 
imposed on prepaid accounts without a covered separate credit 
feature for a one-time load or transfer of funds from a non-covered 
separate credit feature are not comparable for purposes of Sec.  
1026.4(b)(11)(ii).
    B. Assume that a prepaid account issuer charges a $1.25 load fee 
for a one-time transfer of funds from a separate asset account, such 
as from a deposit account via a debit card, to a prepaid account 
without a covered separate credit feature and does not charge a fee 
for a direct deposit of salary from an employer or a direct deposit 
of government benefits on those prepaid accounts. Assume the prepaid 
account issuer charges $1.25 on the asset feature of a prepaid 
account with a covered separate credit feature to load funds from 
the covered separate credit feature outside the course of a 
transaction. In this case, the $1.25 fee imposed on the asset 
feature of the prepaid account with a covered separate credit 
feature is a finance charge because no fee is charged for a direct 
deposit of salary from an employer or a direct deposit of government 
benefits on prepaid accounts without a covered separate credit 
feature. Fees imposed on prepaid accounts without a covered separate 
credit feature for a one-time load or transfer of funds from a 
separate asset account are not comparable for purposes of Sec.  
1026.4(b)(11)(ii).
    2. Relation to Regulation E. See Regulation E, 12 CFR 
1005.18(g), which only permits a financial institution to charge the 
same or higher fees on the asset feature of a prepaid account with a 
covered separate credit feature accessible by a hybrid prepaid-
credit card than the amount of a comparable fee it charges on 
prepaid accounts in the same prepaid account program without such a 
credit feature. Under that provision, a financial institution cannot 
charge a lower fee on the asset feature of a prepaid account with a 
covered separate credit feature accessible by a hybrid prepaid-
credit card than the amount of a comparable fee it charges on 
prepaid accounts without such a credit feature in the same prepaid 
account program.

4(c) Charges Excluded From the Finance Charge

* * * * *

Paragraph 4(c)(3)

    1. Assessing interest on an overdraft balance. Except with 
respect to credit offered in connection with a prepaid account as 
defined in Sec.  1026.61, a charge on an overdraft balance computed 
by applying a rate of interest to the amount of the overdraft is not 
a finance charge, even though the consumer agrees to the charge in 
the account agreement, unless the financial institution agrees in 
writing that it will pay such items.
    2. Credit accessed in connection with a prepaid account. See 
comment 4(b)(11)-1 for guidance on when fees imposed with regard to 
credit accessed in connection with a prepaid account as defined in 
Sec.  1026.61 are finance charges.

Paragraph 4(c)(4)

    1. Participation fees--periodic basis. The participation fees 
described in Sec.  1026.4(c)(4) do not necessarily have to be formal 
membership fees, nor are they limited to credit card plans. Except 
as provided in Sec.  1026.4(c)(4) for covered separate credit 
features accessible by hybrid prepaid-credit cards as defined in 
Sec.  1026.61, the provision applies to any credit plan in which 
payment of a fee is a condition of access to the plan itself, but it 
does not apply to fees imposed separately on individual closed-end 
transactions. The fee may be charged on a monthly, annual, or other 
periodic basis; a one-time, non-recurring fee imposed at the time an 
account is opened is not a fee that is charged on a periodic basis, 
and may not be treated as a participation fee.
* * * * *
    3. Credit accessed in connection with by a prepaid account. See 
comment 4(b)(11)-1 for guidance on when fees imposed with regard to 
credit accessed in connection with a prepaid account as defined in 
Sec.  1026.61 are finance charges.
* * * * *

Subpart B--Open-End Credit

Section 1026.5--General Disclosure Requirements

* * * * *

5(b) Time of Disclosures

* * * * *

5(b)(2) Periodic Statements

* * * * *

5(b)(2)(ii) Timing Requirements

* * * * *
    4. * * *
    i. Charge card accounts. For purposes of Sec.  
1026.5(b)(2)(ii)(A)(1), the payment due date for a credit card 
account under an open-end (not home-secured) consumer credit plan is 
the date the card issuer is required to disclose on the periodic 
statement pursuant to Sec.  1026.7(b)(11)(i)(A). Because Sec.  
1026.7(b)(11)(ii) provides that Sec.  1026.7(b)(11)(i) does not 
apply to periodic statements provided solely for charge card 
accounts other than covered separate credit features that are charge 
card accounts accessible by hybrid prepaid-credit cards as defined 
in Sec.  1026.61, Sec.  1026.5(b)(2)(ii)(A)(1) also does not apply 
to the mailing or delivery of periodic statements provided solely 
for such accounts. However, in these circumstances, Sec.  
1026.5(b)(2)(ii)(A)(2) requires the card issuer to have reasonable 
procedures designed to ensure that a payment is not treated as late 
for any purpose during the 21-day period following mailing or 
delivery of the statement. A card issuer that complies with Sec.  
1026.5(b)(2)(ii)(A) as discussed above with respect to a charge card 
account has also complied with Sec.  1026.5(b)(2)(ii)(B)(2). Section 
1026.5(b)(2)(ii)(B)(1) does not apply to charge card accounts 
because, for purposes of Sec.  1026.5(b)(2)(ii)(B), a grace period 
is a period within which any credit extended may be repaid without 
incurring a finance charge due to a periodic interest rate and, 
consistent with Sec.  1026.2(a)(15)(iii), charge card accounts do 
not impose a finance charge based on a periodic rate.
* * * * *

Section 1026.6--Account-Opening Disclosures

* * * * *

6(b) Rules Affecting Open-End (Not Home-Secured) Plans

* * * * *

6(b)(2) Required Disclosures for Account-Opening Table for Open-End 
(Not Home-Secured) Plans

    1. Fees imposed on the asset feature of a prepaid account in 
connection with a covered separate credit feature accessible by a 
hybrid prepaid-credit card. With regard to a covered separate credit 
feature and an asset feature on a prepaid account that are both 
accessible by a hybrid prepaid-credit card as defined in Sec.  
1026.61, a creditor is required to

[[Page 84376]]

disclose under Sec.  1026.6(b)(2) any fees or charges imposed on the 
asset feature that are charges imposed as part of the plan under 
Sec.  1026.6(b)(3) to the extent those fees fall within the 
categories of fees or charges required to be disclosed under Sec.  
1026.6(b)(2). For example, assume that a creditor imposes a $1.25 
per transaction fee on an asset feature of the prepaid account for 
purchases when a hybrid prepaid-credit card accesses a covered 
separate credit feature in the course of authorizing, settling, or 
otherwise completing purchase transactions conducted with the card, 
and a $0.50 transaction fee for purchases that access funds in the 
asset feature of a prepaid account in the same program without such 
a credit feature. In this case, the $0.75 excess is a charge imposed 
as part of the plan under Sec.  1026.6(b)(3) and must be disclosed 
under Sec.  1026.6(b)(2)(iv).
    2. Fees imposed on the asset feature of a prepaid account that 
are not charges imposed as part of the plan. A creditor is not 
required to disclose under Sec.  1026.6(b)(2) any fee or charge 
imposed on the asset feature of a prepaid account that is not a 
charge imposed as part of the plan under Sec.  1026.6(b)(3). See 
Sec.  1026.6(b)(3)(iii)(D) and (E) and related commentary regarding 
fees imposed on the asset feature of the prepaid account that are 
not charges imposed as part of the plan under Sec.  1026.6(b)(3).
* * * * *

6(b)(3) Disclosure of Charges Imposed as Part of Open-End (Not Home-
Secured) Plans

* * * * *

Paragraph 6(b)(3)(iii)

* * * * *

Paragraph 6(b)(3)(iii)(D)

    1. Fees imposed on the asset feature of the prepaid account in 
connection with a covered separate credit feature accessible by a 
hybrid prepaid-credit card. Under Sec.  1026.6(b)(3)(iii)(D), with 
regard to a covered separate credit feature and an asset feature on 
a prepaid account that are both accessible by a hybrid prepaid-
credit card as defined in Sec.  1026.61, a fee or charge imposed on 
the asset feature of the prepaid account is not a charge imposed as 
part of the plan under Sec.  1026.6(b)(3) with respect to a covered 
separate credit feature to the extent that the amount of the fee or 
charge does not exceed comparable fees or charges imposed on prepaid 
accounts in the same prepaid account program that do not have a 
covered separate credit feature assessed by a hybrid prepaid-credit 
card. To illustrate:
    i. Assume a prepaid account issuer charges a $0.50 per 
transaction fee on an asset feature of the prepaid account for 
purchases when a hybrid prepaid-credit card accesses a covered 
separate credit feature in the course of authorizing, settling, or 
otherwise completing purchase transactions conducted with the card 
and a $0.50 transaction fee for purchases that access funds in the 
asset feature of a prepaid account in the same program without such 
a credit feature. The $0.50 fees are comparable fees and the $0.50 
fee for purchases when a hybrid prepaid-credit card accesses a 
covered separate credit feature in the course of authorizing, 
settling, or otherwise completing purchase transactions conducted 
with the card is not a charge imposed as part of the plan. However, 
if in this example, the prepaid account issuer imposes a $1.25 per 
transaction fee on an asset feature of the prepaid account for 
purchases when a hybrid prepaid-credit card accesses a covered 
separate credit feature in the course of authorizing, settling, or 
otherwise completing purchase transactions conducted with the card, 
the $0.75 excess is a charge imposed as part of the plan. This $0.75 
excess also is a finance charge under Sec.  1026.4(b)(11)(ii).
    ii. See comment 4(b)(11)(ii)-1 for additional illustrations of 
when a prepaid account issuer is charging comparable per transaction 
fees or load or transfer fees on the prepaid account.

Paragraph 6(b)(3)(iii)(E)

    1. Fees imposed on the asset feature of a prepaid account in 
connection with a non-covered separate credit feature. With regard 
to a non-covered separate credit feature accessible by a prepaid 
card as defined in Sec.  1026.61, under Sec.  1026.6(b)(3)(iii)(E), 
none of the fees or charges imposed on the asset balance of the 
prepaid account are charges imposed as part of the plan under Sec.  
1026.6(b)(3) with respect to the non-covered separate credit 
feature. In addition, none of these fees or charges imposed on the 
asset feature of the prepaid account are finance charges with 
respect to the non-covered separate credit feature as discussed in 
comment 4(b)(11)-1.ii.B.
* * * * *

Section 1026.7--Periodic Statement

* * * * *

7(b) Rules Affecting Open-End (Not Home-Secured) Plans

* * * * *

7(b)(13) Format Requirements

    1. Combined asset account and credit account statements. Some 
financial institutions provide information about deposit account and 
open-end credit account activity on one periodic statement. For 
purposes of providing disclosures on the front of the first page of 
the periodic statement pursuant to Sec.  1026.7(b)(13), the first 
page of such a combined statement shall be the page on which credit 
transactions first appear. This guidance also applies to financial 
institutions that provide information about prepaid accounts and 
account activity in connection with covered separate credit features 
accessible by hybrid prepaid-credit cards as defined in Sec.  
1026.61 on one periodic statement.

Section 1026.8 Identifying Transactions on Periodic Statements

8(a) Sale Credit

    1. Sale credit. The term ``sale credit'' refers to a purchase in 
which the consumer uses a credit card or otherwise directly accesses 
an open-end line of credit (see comment 8(b)-1 if access is by means 
of a check) to obtain goods or services from a merchant, whether or 
not the merchant is the card issuer or creditor. See comment 8(a)-9 
for guidance on when credit accessed by a hybrid prepaid-credit card 
from a covered separate credit feature is ``sale credit' or 
``nonsale credit.'' ``Sale credit'' includes:
* * * * *
    9. Covered separate credit feature accessible by hybrid prepaid-
credit card. i. A transaction will be treated as a ``sale credit'' 
under Sec.  1026.8(a) in cases where a consumer uses a hybrid 
prepaid-credit card as defined in Sec.  1026.61 to make a purchase 
to obtain goods or services from a merchant with credit from a 
covered separate credit feature and the credit is drawn directly 
from the covered separate credit feature without transferring funds 
into the asset feature of the prepaid account to cover the amount of 
the purchase. For example, assume that the consumer has $10 of funds 
in the asset feature of the prepaid account and initiates a 
transaction with a merchant to obtain goods or services with the 
hybrid prepaid-credit card for $25. In this case, $10 is debited 
from the asset feature, and $15 of credit is drawn directly from the 
covered separate credit feature accessed by the hybrid prepaid-
credit card without any transfer of funds into the asset feature of 
the prepaid account to cover the amount of the purchase. The $15 
credit transaction will be treated as ``sale credit'' under Sec.  
1026.8(a).
    ii. On the other hand, a transaction will be treated as 
``nonsale credit'' for purposes of Sec.  1026.8(b) in cases where a 
consumer uses a hybrid prepaid-credit card as defined in Sec.  
1026.61 to make a purchase to obtain goods or services from a 
merchant and credit is transferred from a covered separate credit 
feature accessed by the hybrid prepaid-credit card into the asset 
feature of the prepaid account to cover the amount of the purchase. 
For example, assume the same facts as above, except that the $15 
will be transferred from the credit feature to the asset feature, 
and a transaction of $25 is debited from the asset feature of the 
prepaid account. In this case, the $15 credit transaction is treated 
as ``nonsale credit'' under Sec.  1026.8(b). See comment 8(b)-1.vi 
below.
    iii. If a transaction is ``sale credit'' as described above in 
comment 8(a)-9.i, the following applies:
    A. If a hybrid prepaid-credit card is used to obtain goods or 
services from a merchant and the transaction is partially paid with 
funds in the asset feature of the prepaid account, and partially 
paid with credit from a covered separate credit feature, the amount 
to be disclosed under Sec.  1026.8(a) is the amount of the credit 
extension, not the total amount of the purchase transaction.
    B. For a transaction at point of sale where credit from a 
covered separate credit feature is accessed by a hybrid prepaid-
credit card, and that transaction partially involves the purchase of 
goods or services and partially involves other credit such as cash 
back given to the cardholder, the creditor must disclose the entire 
amount of the credit transaction as sale credit, including the part 
of the transaction that does not relate to the purchase of goods or 
services.

8(b) Nonsale Credit

    1. * * *
    ii. An advance on a credit plan that is accessed by overdrafts 
on an asset account

[[Page 84377]]

other than a prepaid account as defined in Sec.  1026.61.
* * * * *
    v. An advance at an ATM on a covered separate credit feature 
accessed by a hybrid prepaid-credit card as defined in Sec.  
1026.61. If a hybrid prepaid-credit card is used to obtain an 
advance at an ATM and the transaction is partially paid with funds 
from the asset feature of the prepaid account, and partially paid 
with a credit extension from the covered separate credit feature, 
the amount to be disclosed under Sec.  1026.8(b) is the amount of 
the credit extension, not the total amount of the ATM transaction.
    vi. A transaction where a consumer uses a hybrid prepaid-credit 
card as defined in Sec.  1026.61 to make a purchase to obtain goods 
or services from a merchant and credit is transferred from a covered 
separate credit feature accessed by the hybrid prepaid-credit card 
into the asset feature of the prepaid account to cover the amount of 
the purchase, as described in comment 8(a)-9.ii. In this scenario, 
the amount to be disclosed under Sec.  1026.8(b) is the amount of 
the credit extension, not the total amount of the purchase 
transaction.
    2. Amount--overdraft credit plans. If credit is extended under 
an overdraft credit plan tied to an asset account other than a 
prepaid account as defined in Sec.  1026.61 or by means of a debit 
card tied to an overdraft credit plan:
* * * * *

Section 1026.10--Payments

10(a) General Rule

* * * * *
    2. * * *
    ii. In a payroll deduction plan in which funds are deposited to 
an asset account held by the creditor, and from which payments are 
made periodically to an open-end credit account, payment is received 
on the date when it is debited to the asset account (rather than on 
the date of the deposit), provided the payroll deduction method is 
voluntary and the consumer retains use of the funds until the 
contractual payment date. Section 1026.12(d)(3)(ii) defines 
``periodically'' to mean no more frequently than once per calendar 
month for payments made periodically from a deposit account, 
including a prepaid account, held by a card issuer to pay credit 
card debt in a covered separate credit feature accessible by a 
hybrid prepaid-credit card as defined in Sec.  1026.61 held by the 
card issuer. In a payroll deduction plan in which funds are 
deposited to a prepaid account held by the card issuer, and from 
which payments are made on a monthly basis to a covered separate 
credit feature accessible by a hybrid prepaid-credit card that is 
held by the card issuer, payment is received on the date when it is 
debited to the prepaid account (rather than on the date of the 
deposit), provided the payroll deduction method is voluntary and the 
consumer retains use of the funds until the contractual payment 
date.
* * * * *

10(b) Specific Requirements for Payments

    1. Payment by electronic fund transfer. A creditor may be 
prohibited from specifying payment by preauthorized electronic fund 
transfer. See section 913 of the Electronic Fund Transfer Act and 
Regulation E, 12 CFR 1005.10(e).
* * * * *

Section 1026.12--Special Credit Card Provisions

* * * * *

12(a) Issuance of Credit Cards

Paragraph 12(a)(1)

* * * * *
    2. Addition of credit features. If the consumer has a non-credit 
card, including a prepaid card, the addition of a credit feature or 
plan to the card that would make the card into a credit card under 
Sec.  1026.2(a)(15)(i) constitutes issuance of a credit card. For 
example, the following constitute issuance of a credit card:
    i. Granting overdraft privileges on a checking account when the 
consumer already has a check guarantee card; or
    ii. Allowing a prepaid card to access a covered separate credit 
feature that would make the card into a hybrid prepaid-credit card 
as defined in Sec.  1026.61 with respect to the covered separate 
credit feature.
* * * * *
    7. Issuance of non-credit cards. i. Issuance of non-credit cards 
other than prepaid cards. A. Under Sec.  1026.12(a)(1), a credit 
card cannot be issued except in response to a request or an 
application. (See comment 2(a)(15)-2 for examples of cards or 
devices that are and are not credit cards.) A non-credit card other 
than a prepaid card may be sent on an unsolicited basis by an issuer 
that does not propose to connect the card to any credit plan; a 
credit feature may be added to a previously issued non-credit card 
other than a prepaid card only upon the consumer's specific request.
    B. Examples. A purchase-price discount card may be sent on an 
unsolicited basis by an issuer that does not propose to connect the 
card to any credit plan. An issuer demonstrates that it proposes to 
connect the card to a credit plan by, for example, including 
promotional materials about credit features or account agreements 
and disclosures required by Sec.  1026.6. The issuer will violate 
the rule against unsolicited issuance if, for example, at the time 
the card is sent a credit plan can be accessed by the card or the 
recipient of the unsolicited card has been preapproved for credit 
that the recipient can access by contacting the issuer and 
activating the card.
    ii. Issuance of a prepaid card. Section 1026.12(a)(1) does not 
apply to the issuance of a prepaid card where an issuer does not 
connect the card to any covered separate credit feature that would 
make the prepaid card into a hybrid prepaid-credit card as defined 
in Sec.  1026.61 at the time the card is issued and only opens a 
covered separate credit feature, or provides an application or 
solicitation to open a covered separate credit feature, or allows an 
existing credit feature to become a covered separate credit feature 
accessible by a hybrid prepaid-credit card as defined in Sec.  
1026.61 in compliance with Sec.  1026.61(c). A covered separate 
credit feature may be added to a previously issued prepaid card only 
upon the consumer's application or specific request and only in 
compliance with Sec.  1026.61(c). An issuer does not connect a 
prepaid card to a covered separate credit feature that would make 
the card into a credit card simply by providing the disclosures 
required by Regulation E, 12 CFR 1005.18(b)(2)(x), (b)(4)(iv), and 
(vii), with the prepaid card. See Sec.  1026.12(a)(2) and related 
commentary for when a hybrid prepaid-credit card as defined in Sec.  
1026.61 may be issued as a replacement or substitution for another 
hybrid prepaid-credit card. See also Regulation E, 12 CFR 1005.5 and 
1005.18(a), and related commentary, governing issuance of access 
devices under Regulation E.
* * * * *

Paragraph 12(a)(2)

* * * * *
    6. * * *
    i. Replacing a single card that is both a debit card and a 
credit card with a credit card and a separate debit card with only 
debit functions (or debit functions plus an associated overdraft 
capability), since the latter card could be issued on an unsolicited 
basis under Regulation E.
    ii. Replacing a single card that is both a prepaid card and a 
credit card with a credit card and a separate prepaid card where the 
latter card is not a hybrid prepaid-credit card as defined in Sec.  
1026.61.
* * * * *

12(c) Right of Cardholder To Assert Claims or Defenses Against Card 
Issuer

* * * * *
    5. Prepaid cards. i. Section 1026.12(c) applies to property or 
services purchased with the hybrid prepaid-credit card that accesses 
a covered separate credit feature as defined in Sec.  1026.61. The 
following examples illustrate when a hybrid prepaid-credit card is 
used to purchase property or services:
    A. A consumer uses a hybrid prepaid-credit card as defined in 
Sec.  1026.61 to make a purchase to obtain goods or services from a 
merchant and credit is drawn directly from a covered separate credit 
feature accessed by the hybrid prepaid-credit card without 
transferring funds into the asset feature of the prepaid account to 
cover the amount of the purchase. For example, assume that the 
consumer has $10 of funds in the asset feature of the prepaid 
account and initiates a transaction with a merchant to obtain goods 
or services with the hybrid prepaid-credit card for $25. In this 
case, $10 is debited from the asset feature and $15 of credit is 
drawn directly from the covered separate credit feature accessed by 
the hybrid prepaid-credit card without any transfer of funds into 
the asset feature of the prepaid account to cover the amount of the 
purchase. In this case, the consumer is using credit accessed by the 
hybrid prepaid-credit card to purchase property or services where 
credit is drawn directly from the covered separate credit feature 
accessed by the hybrid prepaid-credit card to cover the amount of 
the purchase.
    B. A consumer uses a hybrid prepaid-credit card as defined in 
Sec.  1026.61 to make a purchase to obtain goods or services from a 
merchant and credit is transferred from a

[[Page 84378]]

covered separate credit feature accessed by the hybrid prepaid-
credit card into the asset feature of the prepaid account to cover 
the amount of the purchase. For example, assume the same facts as 
above, except that the $15 will be transferred from a covered 
separate credit feature to the asset feature, and a transaction of 
$25 is debited from the asset feature of the prepaid account. In 
this case, the consumer is using credit accessed by the hybrid 
prepaid-credit card to purchase property or services because credit 
is transferred to the asset feature of the prepaid account to cover 
the amount of a purchase made with the card. This is true even 
though the $15 credit transaction is treated as ``nonsale credit'' 
under Sec.  1026.8(b). See comments 8(a)-9.ii and 8(b)-1.vi.
    ii. For a transaction at point of sale where a hybrid prepaid-
credit card is used to obtain goods or services from a merchant and 
the transaction is partially paid with funds from the asset feature 
of the prepaid account, and partially paid with credit from the 
covered separate credit feature, the amount of the purchase 
transaction that is funded by credit generally would be subject to 
the requirements of Sec.  1026.12(c). The amount of the transaction 
funded from the prepaid account would not be subject to the 
requirements of Sec.  1026.12(c).

12(c)(1) General Rule

    1. Situations excluded and included. The consumer may assert 
claims or defenses only when the goods or services are ``purchased 
with the credit card.'' This would include when the goods or 
services are purchased by a consumer using a hybrid prepaid-credit 
card to access a covered separate credit feature as defined in Sec.  
1026.61. This could include mail, the Internet or telephone orders, 
if the purchase is charged to the credit card account. But it would 
exclude:
* * * * *
    ii. The purchase of goods or services by use of a check 
accessing an overdraft account and a credit card used solely for 
identification of the consumer. (On the other hand, if the credit 
card is used to make partial payment for the purchase and not merely 
for identification, the right to assert claims or defenses would 
apply to credit extended via the credit card, although not to credit 
extended by the overdraft line other than a covered separate credit 
feature accessible by a hybrid prepaid-credit card.)
* * * * *

12(d) Offsets by Card Issuer Prohibited

    1. Meaning of funds on deposit. For purposes of Sec.  
1026.12(d), funds of the cardholder held on deposit include funds in 
a consumer's prepaid account as defined in Sec.  1026.61. In 
addition, for purposes of Sec.  1026.12(d), deposit account includes 
a prepaid account.

Paragraph 12(d)(1)

* * * * *
    2. Funds intended as deposits. If the consumer tenders funds as 
a deposit (to a checking account, for example) or if the card issuer 
receives funds designated for the consumer's prepaid account as 
defined in Sec.  1026.61 with the issuer, such as by means of an ACH 
deposit or an electronic transmittal of funds the consumer submits 
as cash at a non-bank location, the card issuer may not apply the 
funds to repay indebtedness on the consumer's credit card account.
* * * * *

Paragraph 12(d)(2)

    1. * * *
    i. The consumer must be aware that granting a security interest 
is a condition for the credit card account (or for more favorable 
account terms) and must specifically intend to grant a security 
interest in a deposit account.
    ii. With respect to a credit card account other than a covered 
separate credit feature accessible by a hybrid prepaid-credit card 
as defined in Sec.  1026.61, indicia of the consumer's awareness and 
intent to grant a security interest in a deposit account include at 
least one of the following (or a substantially similar procedure 
that evidences the consumer's awareness and intent):
    A. Separate signature or initials on the agreement indicating 
that a security interest is being given.
    B. Placement of the security agreement on a separate page, or 
otherwise separating the security interest provisions from other 
contract and disclosure provisions.
    C. Reference to a specific amount of deposited funds or to a 
specific deposit account number.
    iii. With respect to a covered separate credit feature 
accessible by a hybrid prepaid-credit card as defined in Sec.  
1026.61, in order for a consumer to show awareness and intent to 
grant a security interest in a deposit account, including a prepaid 
account, all of the following conditions must be met:
    A. In addition to being disclosed in the issuer's account-
opening disclosures under Sec.  1026.6, the security agreement must 
be provided to the consumer in a document separate from the deposit 
account agreement and the credit card account agreement;
    B. The separate document setting forth the security agreement 
must be signed by the consumer;
    C. The separate document setting forth the security agreement 
must refer to the deposit account number and to a specific amount of 
funds in the deposit account in which the card issuer is taking a 
security interest and these two elements of the document must be 
separately signed or initialed by the consumer;
    D. The separate document setting forth the security agreement 
must specifically enumerate the conditions under which the card 
issuer will enforce the security interest and each of those 
conditions must be separately signed or initialed by the consumer.
* * * * *

Paragraph 12(d)(3)

    1. * * *
    iii. If the cardholder has the option to accept or reject the 
automatic debit feature (such option may be required under section 
913 of the Electronic Fund Transfer Act and Regulation E, 12 CFR 
1005.10(e)), the fact that the option exists should be clearly 
indicated.
    2. * * *
    iii. Automatically deducting from the consumer's deposit account 
any fee or charge imposed on the asset feature of the prepaid 
account that is not a charge imposed as part of the plan under Sec.  
1026.6(b)(3). See Sec.  1026.6(b)(3)(iii)(D) and (E) and related 
commentary regarding fees imposed on the asset feature of a prepaid 
account that are not charges imposed as part of the plan under Sec.  
1026.6(b)(3) with respect to covered separate credit features 
accessible by hybrid prepaid-credit cards and non-covered separate 
credit features as those terms are defined in Sec.  1026.61.
    3. Prepaid accounts. With respect to covered separate credit 
features accessible by hybrid prepaid-credit cards as defined in 
Sec.  1026.61, a card issuer is not prohibited under Sec.  
1026.12(d) from periodically deducting all or part of the 
cardholder's credit card debt from a deposit account (including the 
prepaid account) held with the card issuer (subject to the 
limitations of Sec.  1026.13(d)(1)) under a plan that is authorized 
in writing by the cardholder, so long as the creditor does not 
deduct all or part of the cardholder's credit card debt from the 
deposit account more frequently than once per calendar month, 
pursuant to such a plan. To illustrate, with respect to a covered 
separate credit feature accessible by a hybrid prepaid-credit card, 
assume that a periodic statement is sent out each month to a 
cardholder on the first day of the month and the payment due date 
for the amount due on that statement is the 25th day of each month. 
In this case:
    i. The card issuer is not prohibited under Sec.  1026.12(d) from 
automatically deducting the amount due on the periodic statement on 
the 25th of each month, or on an earlier date in each calendar 
month, from a deposit account held by the card issuer, if the 
deductions are pursuant to a plan that is authorized in writing by 
the cardholder (as discussed in comment 12(d)(3)-1) and comply with 
the limitations in Sec.  1026.13(d)(1).
    ii. The card issuer is prohibited under Sec.  1026.12(d) from 
automatically deducting all or part of the cardholder's credit card 
debt from a deposit account (including the prepaid account) held 
with the card issuer more frequently than once per calendar month, 
such as on a daily or weekly basis, or whenever deposits are made or 
expected to be made to the deposit account.
* * * * *

Section 1026.13--Billing Error Resolution

* * * * *

13(i) Relation to Electronic Fund Transfer Act and Regulation E

* * * * *
    2. Incidental credit under an agreement with respect to an 
account other than a prepaid account. Except with respect to a 
prepaid account as defined in Sec.  1026.61, for credit extended 
incident to an electronic fund transfer under an agreement between 
the consumer and the financial institution, Sec.  1026.13(i)(1) 
provides that certain error resolution procedures in both this part 
and Regulation E apply. Except with respect to a prepaid account, 
incidental credit that is not

[[Page 84379]]

extended under an agreement between the consumer and the financial 
institution is governed solely by the error resolution procedures in 
Regulation E. For example, credit inadvertently extended incident to 
an electronic fund transfer using a debit card, such as under an 
overdraft service not subject to Regulation Z, is governed solely by 
the Regulation E error resolution procedures, if the bank and the 
consumer do not have an agreement to extend credit when the 
consumer's account is overdrawn.
    3. Application to debit/credit transactions--examples. If a 
consumer uses a debit card to withdraw money at an automated teller 
machine and activates an overdraft credit feature on the checking 
account:
    i. An error asserted with respect to the transaction is subject, 
for error resolution purposes, to the applicable Regulation E (12 
CFR part 1005) provisions (such as timing and notice) for the entire 
transaction.
* * * * *
    iv. The provisions of Sec.  1026.13(d) and (g) apply only to the 
credit portion of the transaction.
    4. Credit under a covered separate credit feature accessible by 
a hybrid prepaid-credit card. For transactions involving a covered 
separate credit feature accessible by a hybrid prepaid-credit card 
as defined in Sec.  1026.61, whether Regulation E (12 CFR part 1005) 
or Regulation Z applies depends on the nature of the transaction. 
For example:
    i. If the transaction solely involves an extension of credit 
under a covered separate credit feature and does not access funds 
from the asset feature of the prepaid account, the error resolution 
requirements of Regulation Z apply. To illustrate, assume that there 
is $0 in the asset feature of the prepaid account, and the consumer 
makes a $25 transaction with the card. The error resolution 
requirements of Regulation Z apply to the transaction. This is true 
regardless of whether the $25 of credit is drawn directly from the 
covered separate credit feature without a transfer to the asset 
feature of the prepaid account to cover the amount of the 
transaction, or whether the $25 of credit is transferred from the 
covered separate credit feature to the asset feature of the prepaid 
account to cover the amount of the transaction.
    ii. If the transaction accesses funds from the asset feature of 
a prepaid account only (with no credit extended under the credit 
feature), the provisions of Regulation E apply.
    iii. If the transaction accesses funds from the asset feature of 
a prepaid account but also involves an extension of credit under the 
covered separate credit feature, a creditor must comply with the 
requirements of Regulation E, 12 CFR 1005.11, and 1005.18(e) as 
applicable, governing error resolution rather than those of Sec.  
1026.13(a), (b), (c), (e), (f), and (h). To illustrate, assume that 
there is $10 in the asset feature of the prepaid account, and the 
consumer makes a $25 transaction with the card. The error resolution 
requirements of Regulations E and Z apply as described above to the 
transaction. This is true regardless of whether $10 is debited from 
the asset feature and $15 of credit is drawn directly from the 
covered separate credit feature without a transfer to the asset 
feature of the prepaid account to cover the amount of the 
transaction, or whether $15 of credit is transferred from the 
covered separate credit feature to the asset feature of the prepaid 
account and a $25 transaction is debited from the asset feature to 
cover the amount of the transaction. When this paragraph applies:
    A. An error asserted with respect to the transaction is subject, 
for error resolution purposes, to the applicable Regulation E (12 
CFR part 1005) provisions (such as timing and notice) for the entire 
transaction.
    B. The creditor need not provisionally credit the consumer's 
account, under Regulation E, 12 CFR 1005.11(c)(2)(i), for any 
portion of the unpaid extension of credit.
    C. The creditor must credit the consumer's account under Sec.  
1005.11(c) with any finance or other charges incurred as a result of 
the alleged error.
    D. The provisions of Sec.  1026.13(d) and (g) apply only to the 
credit portion of the transaction.
    5. Prepaid cards that are not hybrid prepaid-credit cards. 
Regulation E, 12 CFR 1005.12(a)(1)(iv)(C) and (D), and (a)(2)(iii) 
provide guidance on whether error resolution procedures in 
Regulations E or Z apply to transactions involving credit features 
that are accessed by prepaid cards that are not hybrid prepaid-
credit cards as defined in Sec.  1026.61. Regulation E 12 CFR 
1005.12(a)(1)(iv)(C) provides that with respect to transactions that 
involve credit extended through a negative balance to the asset 
feature of a prepaid account that meets the conditions set forth in 
Sec.  1026.61(a)(4), these transactions are governed solely by error 
resolution procedures in Regulation E, and Regulation Z does not 
apply. Regulation E 12 CFR 1005.12(a)(1)(iv)(D) and (a)(2)(iii), 
taken together, provide that with respect to transactions involving 
a prepaid account and a non-covered separate credit feature as 
defined in Sec.  1026.61, a financial institution must comply with 
Regulation E's error resolution procedures with respect to 
transactions that access the prepaid account as applicable, and the 
creditor must comply with Regulation Z's error resolution procedures 
with respect to transactions that access the non-covered separate 
credit feature, as applicable.
* * * * *

Subpart G--Special Rules Applicable to Credit Card Accounts and 
Open-End Credit Offered to College Students

* * * * *

Section 1026.52--Limitations on Fees

52(a) Limitations During First Year After Account Opening

52(a)(1) General Rule

    1. Application. The 25 percent limit in Sec.  1026.52(a)(1) 
applies to fees that the card issuer charges to the account as well 
as to fees that the card issuer requires the consumer to pay with 
respect to the account through other means (such as through a 
payment from the consumer's asset account, including a prepaid 
account as defined in Sec.  1026.61, to the card issuer or from 
another credit account provided by the card issuer). For example:
* * * * *
    iii. Assume that a consumer opens a prepaid account accessed by 
a prepaid card on January 1 of year one and opens a covered separate 
credit feature accessible by a hybrid prepaid-credit card as defined 
by Sec.  1026.61 that is a credit card account under an open-end 
(not home-secured) consumer credit plan on March 1 of year one. 
Assume that, under the terms of the covered separate credit feature 
accessible by the hybrid prepaid-credit card, a consumer is required 
to pay $50 in fees for the issuance or availability of credit at 
account opening. At credit account opening on March 1 of year one, 
the credit limit for the account is $200. Section 1026.52(a)(1) 
permits the card issuer to charge the $50 in fees to the credit 
account. However, Sec.  1026.52(a)(1) prohibits the card issuer from 
requiring the consumer to make payments to the card issuer for 
additional non-exempt fees with respect to the credit account during 
the first year after account opening. Section 1026.52(a)(1) also 
prohibits the card issuer from requiring the consumer to open an 
additional credit feature with the card issuer to fund the payment 
of additional non-exempt fees during the first year after the 
covered separate credit feature is opened.
    iv. Assume that a consumer opens a prepaid account accessed by a 
prepaid card on January 1 of year one and opens a covered separate 
credit feature accessible by a hybrid prepaid-credit card as defined 
in Sec.  1026.61 that is a credit card account under an open-end 
(not home-secured) consumer credit plan on March 1 of year one. 
Assume that, under the terms of the covered separate credit feature 
accessible by the hybrid prepaid-credit card, a consumer is required 
to pay $120 in fees for the issuance or availability of credit at 
account opening. The consumer is also required to pay a cash advance 
fee that is equal to 5 percent of any cash advance and a late 
payment fee of $15 if the required minimum periodic payment is not 
received by the payment due date (which is the 25th of the month). 
At credit account opening on March 1 of year one, the credit limit 
for the account is $500. Section 1026.52(a)(1) permits the card 
issuer to charge to the account the $120 in fees for the issuance or 
availability of credit at account opening. On April 1 of year one, 
the consumer uses the account for a $100 cash advance. Section 
1026.52(a)(1) permits the card issuer to charge a $5 cash advance 
fee to the account. On April 26 of year one, the card issuer has not 
received the consumer's required minimum periodic payment. Section 
1026.52(a)(2) permits the card issuer to charge a $15 late payment 
fee to the account. On July 15 of year one, the consumer uses the 
account for a $50 cash advance. Section 1026.52(a)(1) does not 
permit the card issuer to charge a $2.50 cash advance fee to the 
account, because the total amount of non-exempt fees reached the 25 
percent limit with the $5 cash advance fee on April 1 (the $15 late 
fee on April 26 is exempt pursuant to Sec.  1026.52(a)(2)(i)). 
Furthermore, Sec.  1026.52(a)(1) prohibits the card issuer from

[[Page 84380]]

collecting the $2.50 cash advance fee from the consumer by other 
means.
* * * * *

52(a)(2) Fees Not Subject to Limitations

    1. Covered fees. Except as provided in Sec.  1026.52(a)(2) and 
except as provided in comments 52(a)(2)-2 and-3, Sec.  1026.52(a) 
applies to any fees or other charges that a card issuer will or may 
require the consumer to pay with respect to a credit card account 
during the first year after account opening, other than charges 
attributable to periodic interest rates. For example, Sec.  
1026.52(a) applies to:
* * * * *
    2. Fees in connection with a covered separate credit feature and 
an asset feature of the prepaid account that are both accessible by 
a hybrid prepaid-credit card. With regard to a covered separate 
credit feature and an asset feature on a prepaid account that are 
both accessible by a hybrid prepaid-credit card as defined in Sec.  
1026.61 where the credit feature is a credit card account under an 
open-end (not home-secured) consumer credit plan, Sec.  1026.52(a) 
applies to the following fees:
    i. Except as provided in Sec.  1026.52(a)(2), any fee or charge 
imposed on the covered separate credit feature, other than a charge 
attributable to a periodic interest rate, during the first year 
after account opening that the card issuer will or may require the 
consumer to pay in connection with the credit feature, and
    ii. Except as provided in Sec.  1026.52(a)(2), any fee or charge 
imposed on the asset feature of the prepaid account, other than a 
charge attributable to a periodic interest rate, during the first 
year after account opening that the card issuer will or may require 
the consumer to pay where that fee or charge is a charge imposed as 
part of the plan under Sec.  1026.6(b)(3).
    3. Fees imposed on the asset feature of a prepaid account that 
are not charges imposed as part of the plan. Section 1026.52(a) does 
not apply to any fee or charge imposed on the asset feature of the 
prepaid account that is not a charge imposed as part of the plan 
under Sec.  1026.6(b)(3). See Sec.  1026.6(b)(3)(iii)(D) and (E) and 
related commentary regarding fees imposed on the asset feature of 
the prepaid account that are not charges imposed as part of the plan 
under Sec.  1026.6(b)(3) with respect to covered separate credit 
features accessible by hybrid prepaid-credit cards and non-covered 
separate credit features as those terms are defined in Sec.  
1026.61.
* * * * *

52(b) Limitations on Penalty Fees

* * * * *
    3. Fees in connection with covered separate credit features 
accessible by hybrid prepaid-credit cards. With regard to a covered 
separate credit feature and an asset feature on a prepaid account 
that are both accessible by a hybrid prepaid-credit card as defined 
in Sec.  1026.61 where the credit feature is a credit card account 
under an open-end (not home-secured) consumer credit plan, Sec.  
1026.52(b) applies to any fee for violating the terms or other 
requirements of the credit feature, regardless of whether those fees 
are imposed on the credit feature or on the asset feature of the 
prepaid account. For example, assume that a late fee will be imposed 
by the card issuer if the covered separate credit feature becomes 
delinquent or if a payment is not received by a particular date. 
This fee is subject to Sec.  1026.52(b) regardless of whether the 
fee is imposed on the asset feature of the prepaid account or on the 
separate credit feature.
    4. Fees imposed on the asset feature of a prepaid account that 
are not charges imposed as part of the plan. Section 1026.52(b) does 
not apply to any fee or charge imposed on the asset feature of the 
prepaid account that is not a charge imposed as part of the plan 
under Sec.  1026.6(b)(3). See Sec.  1026.6(b)(3)(iii)(D) and (E) and 
related commentary regarding fees imposed on the asset feature 
prepaid account that are not charges imposed as part of the plan 
under Sec.  1026.6(b)(3) with respect to covered separate credit 
features accessible by hybrid prepaid-credit cards and non-covered 
separate credit features as those terms are defined in Sec.  
1026.61.
* * * * *

52(b)(2) Prohibited Fees

* * * * *

52(b)(2)(i) Fees That Exceed Dollar Amount Associated With Violation

* * * * *
    7. Declined transaction fees. Section 1026.52(b)(2)(i)(B)(1) 
states that card issuers must not impose a fee when there is no 
dollar amount associated with the violation, such as for 
transactions that the card issuer declines to authorize. With regard 
to a covered separate credit feature and an asset feature on a 
prepaid account that are both accessible by a hybrid prepaid-credit 
card as defined in Sec.  1026.61 where the credit feature is a 
credit card account under an open-end (not home-secured) consumer 
credit plan, Sec.  1026.52(b)(2)(i)(B)(1) prohibits a card issuer 
from imposing declined transaction fees in connection with the 
credit feature, regardless of whether the declined transaction fee 
is imposed on the credit feature or on the asset feature of the 
prepaid account. For example, if the prepaid card attempts to access 
credit from the covered separate credit feature accessible by the 
hybrid prepaid-credit card and the transaction is declined, Sec.  
1026.52(a)(2)(i)(B)(1) prohibits the card issuer from imposing a 
declined transaction fee, regardless of whether the fee is imposed 
on the credit feature or on the asset feature of the prepaid 
account. Fees imposed for declining a transaction that would have 
only accessed the asset feature of the prepaid account and would not 
have accessed the covered separate credit feature accessible by the 
hybrid prepaid-credit are not covered by Sec.  
1026.52(b)(2)(i)(B)(1).
* * * * *

Section 1026.55--Limitations on Increasing Annual Percentage Rates, 
Fees, and Charges

55(a) General Rule

* * * * *
    3. Fees in connection with covered separate credit features 
accessible by hybrid prepaid-credit cards. With regard to a covered 
separate credit feature and an asset feature on a prepaid account 
that are both accessible by a hybrid prepaid-credit card as defined 
in Sec.  1026.61 where the credit feature is a credit card account 
under an open-end (not home-secured) consumer credit plan, Sec.  
1026.55(a) prohibits card issuers from increasing an annual 
percentage rate or any fee or charge required to be disclosed under 
Sec.  1026.6(b)(2)(ii), (iii), or (xii) on a credit card account 
unless specifically permitted by one of the exceptions in Sec.  
1026.55(b). This is true regardless of whether these fees or annual 
percentage rates are imposed on the asset feature of the prepaid 
account or on the credit feature.
    4. Fees imposed on the asset feature of a prepaid account that 
are not charges imposed as part of the plan. Section 1026.55(a) does 
not apply to any fee or charge imposed on the asset feature of the 
prepaid account that is not a charge imposed as part of the plan 
under Sec.  1026.6(b)(3). See Sec.  1026.6(b)(3)(iii)(D) and (E) and 
related commentary regarding fees imposed on the asset feature of 
the prepaid account that are not charges imposed as part of the plan 
under Sec.  1026.6(b)(3) with respect to covered separate credit 
features accessible by hybrid prepaid-credit cards and non-covered 
separate credit features as those terms are defined in Sec.  
1026.61.
* * * * *

Section 1026.57--Reporting and Marketing Rules for College Student 
Open-End Credit

57(a) Definitions

57(a)(1) College Student Credit Card

    1. Definition. The definition of college student credit card 
excludes home-equity lines of credit accessed by credit cards and 
overdraft lines of credit accessed by debit cards. A college student 
credit card includes a college affinity card within the meaning of 
TILA section 127(r)(1)(A). In addition, a card may fall within the 
scope of the definition regardless of the fact that it is not 
intentionally targeted at or marketed to college students. For 
example, an agreement between a college and a card issuer may 
provide for marketing of credit cards to alumni, faculty, staff, and 
other non-student consumers who have a relationship with the 
college, but also contain provisions that contemplate the issuance 
of cards to students. A credit card issued to a student at the 
college in connection with such an agreement qualifies as a college 
student credit card. The definition of college student credit card 
includes a hybrid prepaid-credit card as defined by Sec.  1026.61 
that is issued to any college student where the card can access a 
covered separate credit feature that is a credit card account under 
an open-end (not home-secured) consumer credit plan. The definition 
of college student credit card also includes a prepaid account as 
defined in Sec.  1026.61 that is issued to any college student where 
a covered separate credit feature that is a credit card account 
under an open-end (not home-secured) consumer credit plan accessible 
by a hybrid prepaid-credit card as defined by Sec.  1026.61 may be 
added in the future to the prepaid account.

[[Page 84381]]

57(a)(5) College Credit Card Agreement

    1. Definition. Section 1026.57(a)(5) defines ``college credit 
card agreement'' to include any business, marketing or promotional 
agreement between a card issuer and a college or university (or an 
affiliated organization, such as an alumni club or a foundation) if 
the agreement provides for the issuance of credit cards to full-time 
or part-time students. Business, marketing or promotional agreements 
may include a broad range of arrangements between a card issuer and 
an institution of higher education or affiliated organization, 
including arrangements that do not meet the criteria to be 
considered college affinity card agreements as discussed in TILA 
section 127(r)(1)(A). For example, TILA section 127(r)(1)(A) 
specifies that under a college affinity card agreement, the card 
issuer has agreed to make a donation to the institution or 
affiliated organization, the card issuer has agreed to offer 
discounted terms to the consumer, or the credit card will display 
pictures, symbols, or words identified with the institution or 
affiliated organization; even if these conditions are not met, an 
agreement may qualify as a college credit card agreement, if the 
agreement is a business, marketing or promotional agreement that 
contemplates the issuance of college student credit cards to college 
students currently enrolled (either full-time or part-time) at the 
institution. An agreement may qualify as a college credit card 
agreement even if marketing of cards under the agreement is targeted 
at alumni, faculty, staff, and other non-student consumers, as long 
as cards may also be issued to students in connection with the 
agreement. This definition also includes a business, marketing, or 
promotional agreement between a card issuer and a college or 
university (or an affiliated organization, such as an alumni club or 
a foundation) if the agreement provides for the addition of a 
covered separate credit feature that is a credit card account under 
an open-end (not home-secured) consumer credit plan accessible by a 
hybrid prepaid-credit card as defined by Sec.  1026.61 to prepaid 
accounts previously issued to full-time or part-time students. This 
definition also includes a business, marketing, or promotional 
agreement between a card issuer and a college or university (or an 
affiliated organization, such as an alumni club or a foundation) if 
(1) the agreement provides for the issuance of prepaid accounts as 
defined in Sec.  1026.61 to full-time or part-time students; and (2) 
a covered separate credit feature that is a credit card account 
under an open-end (not home-secured) consumer credit plan accessible 
by a hybrid prepaid-credit card as defined by Sec.  1026.61 may be 
added in the future to the prepaid account.

57(b) Public Disclosure of Agreements

* * * * *
    3. Credit card accounts in connection with prepaid accounts. 
Section 1026.57(b) applies to any contract or other agreement that 
an institution of higher education makes with a card issuer or 
creditor for the purpose of marketing either (1) the addition of a 
covered separate credit feature that is a credit card account under 
an open-end (not home-secured) consumer credit plan accessible by a 
hybrid prepaid-credit card as defined in Sec.  1026.61 to prepaid 
accounts previously issued to full-time or part-time students; or 
(2) new prepaid accounts as defined in Sec.  1026.61 where a covered 
separate credit feature that is a credit card account under an open-
end (not home-secured) consumer credit plan accessible by a hybrid 
prepaid-credit card as defined in Sec.  1026.61 may be added in the 
future to the prepaid account. Thus, under Sec.  1026.57(b), an 
institution of higher education must publicly disclose such 
agreements.

57(c) Prohibited Inducements

* * * * *
    7. Credit card accounts in connection with prepaid accounts. 
Section 1026.57(c) applies to (1) the application for or opening of 
a covered separate credit feature that is a credit card account 
under an open-end (not home-secured) consumer credit plan accessible 
by a hybrid prepaid-credit card as defined in Sec.  1026.61 that is 
being added to a prepaid account previously issued to a full-time or 
part-time student as well as (2) the application for or opening of a 
prepaid account as defined in Sec.  1026.61 where a covered separate 
credit feature that is a credit card account under an open-end (not 
home-secured) consumer credit plan accessible by a hybrid prepaid-
credit card as defined in Sec.  1026.61 may be added in the future 
to the prepaid account.
* * * * *

Section 1026.60 Credit and Charge Card Applications and Solicitations

    1. General. Section 1026.60 generally requires that credit 
disclosures be contained in application forms and solicitations 
initiated by a card issuer to open a credit or charge card account. 
(See Sec.  1026.60(a)(5) and (e)(2) for exceptions; see Sec.  
1026.60(a)(1) and accompanying commentary for the definition of 
solicitation; see also Sec.  1026.2(a)(15) and accompanying 
commentary for the definition of charge card and Sec.  1026.61(c) 
for restrictions on when credit or charge card accounts can be added 
to previously issued prepaid accounts.)
* * * * *

60(b) Required Disclosures

* * * * *
    3. Fees imposed on the asset feature of a prepaid account in 
connection with a covered separate credit feature accessible by a 
hybrid prepaid-credit card. With regard to a covered separate credit 
feature and an asset feature on a prepaid account that are both 
accessible by a hybrid prepaid-credit card as defined in Sec.  
1026.61, a card issuer is required to disclose under Sec.  
1026.60(b) any fees or charges imposed on the asset feature of the 
prepaid account that are charges imposed as part of the plan under 
Sec.  1026.6(b)(3) to the extent those fees or charges fall within 
the categories of fees or charges required to be disclosed under 
Sec.  1026.60(b). For example, assume that a card issuer imposes a 
$1.25 per transaction fee on the asset feature of a prepaid account 
for purchases when a hybrid prepaid-credit card accesses a covered 
separate credit feature in the course of authorizing, settling, or 
otherwise completing purchase transactions conducted with the card, 
and the card issuer charges $0.50 per transaction for purchases that 
access funds in the asset feature of the prepaid account in the same 
program without such a credit feature. In this case, the $0.75 
excess is a charge imposed as part of the plan under Sec.  
1026.6(b)(3) and must be disclosed under Sec.  1026.60(b)(4).
    4. Fees imposed on the asset feature of a prepaid account that 
are not charges imposed as part of the plan. A card issuer is not 
required under Sec.  1026.60(b) to disclose any fee or charge 
imposed on the asset feature of the prepaid account that is not a 
charge imposed as part of the plan under Sec.  1026.6(b)(3). See 
Sec.  1026.6(b)(3)(iii)(D) and (E) and related commentary regarding 
fees imposed on the asset feature of the prepaid account that are 
not charges imposed as part of the plan under Sec.  1026.6(b)(3) 
with respect to covered separate credit features accessible by 
hybrid prepaid-credit cards and non-covered separate credit features 
as those terms are defined in Sec.  1026.61.
* * * * *

60(b)(4) Transaction Charges

* * * * *
    3. Prepaid cards. i. With respect to a covered separate credit 
feature accessible by a hybrid prepaid-credit card as defined by 
Sec.  1026.61, if a card issuer assesses a fee (other than a 
periodic rate that may be used to compute the finance charge on an 
outstanding balance) to make a purchase where this fee is imposed as 
part of the plan as described in Sec.  1026.6(b)(3), that fee is a 
transaction charge described in Sec.  1026.60(b)(4). See comments 
60(b)-3 and -4. This is so whether the fee is a per transaction fee 
to make a purchase, or a flat fee for each day (or other period) the 
consumer has an outstanding balance of purchase transactions.
    ii. A fee for a transaction will be treated as a fee to make a 
purchase under Sec.  1026.60(b)(4) in cases where a consumer uses a 
hybrid prepaid-credit card as defined in Sec.  1026.61 to make a 
purchase to obtain goods or services from a merchant and credit is 
drawn directly from a covered separate credit feature accessed by 
the hybrid prepaid-credit card without transferring funds into the 
asset feature of the prepaid account to cover the amount of the 
purchase. For example, assume that the consumer has $10 of funds in 
the asset feature of the prepaid account and initiates a transaction 
with a merchant to obtain goods or services with the hybrid prepaid-
credit card for $25. In this case, $10 is debited from the asset 
feature and $15 of credit is drawn directly from the covered 
separate credit feature accessed by the hybrid prepaid-credit card 
without any transfer of funds into the asset feature of the prepaid 
account to cover the amount of the purchase. A per transaction fee 
imposed for the $15 credit transaction must be disclosed under Sec.  
1026.60(b)(4).
    iii. On the other hand, a fee for a transaction will be treated 
as a cash advance fee under Sec.  1026.60(b)(8) in cases where a 
consumer uses a hybrid prepaid-credit card as defined in Sec.  
1026.61 to make a purchase to obtain goods or services from a 
merchant

[[Page 84382]]

and credit is transferred from a covered separate credit feature 
accessed by the hybrid prepaid-credit card into the asset feature of 
the prepaid account to cover the amount of the purchase. For 
example, assume the same facts as above, except that the $15 will be 
transferred from the covered separate credit feature to the asset 
feature, and a transaction of $25 is debited from the asset feature 
of the prepaid account. In this case, a per transaction fee for the 
$15 credit transaction must be disclosed under Sec.  1026.60(b)(8).
* * * * *

60(b)(8) Cash Advance Fee

* * * * *
    4. Prepaid cards. i. With respect to a covered separate credit 
feature accessible by a hybrid prepaid-credit card as defined by 
Sec.  1026.61, if a card issuer assesses a fee (other than a 
periodic rate that may be used to compute the finance charge on an 
outstanding balance) for a cash advance, such as a cash withdrawal 
at an ATM, where the fee is imposed as part of the plan as described 
in Sec.  1026.6(b)(3), that fee is a cash advance fee. See comments 
60(b)-3 and -4. In addition, a fee for a transaction will be treated 
as a cash advance fee under Sec.  1026.60(b)(8) in cases where a 
consumer uses a hybrid prepaid-credit card as defined in Sec.  
1026.61 to make a purchase to obtain goods or services from a 
merchant and credit is transferred from a covered separate credit 
feature accessed by the hybrid prepaid-credit card into the asset 
feature of the prepaid account to cover the amount of the purchase. 
See comment 60(b)(4)-3.iii.
    ii. If the cash advance fee is the same dollar amount as the 
transaction charge for purchases described in Sec.  1026.60(b)(4), 
the card issuer may disclose the fee amount under a heading that 
indicates the fee applies to both purchase transactions and cash 
advances. Examples of how fees for purchase transactions described 
in Sec.  1026.60(b)(4) and fees for cash advances described in Sec.  
1026.60(b)(8) must be disclosed are as follows. Assume that all the 
fees in the examples below are charged on the covered separate 
credit feature.
    A. A card issuer assesses a $15 fee for credit drawn from a 
covered separate credit feature using a hybrid prepaid-credit card 
to purchase goods or services at the point of sale when the consumer 
has insufficient or unavailable funds in the prepaid account as 
described in comment 60(b)(4)-3.ii. The card issuer assesses a $25 
fee for credit drawn from a covered separate credit feature using a 
hybrid prepaid-credit card for a cash advance at an ATM when the 
consumer has insufficient or unavailable funds in the prepaid 
account. In this instance, the card issuer must disclose separately 
a purchase transaction charge of $15 and a cash advance fee of $25.
    B. A card issuer assesses a $15 fee for credit drawn from a 
covered separate credit feature using a hybrid prepaid-credit card 
to purchase goods or services at the point of sale when the consumer 
has insufficient or unavailable funds in the prepaid account as 
discussed in comment 60(b)(4)-3.ii. The card issuer assesses a $15 
fee for credit drawn from a covered separate credit feature using a 
hybrid prepaid-credit card for providing cash at an ATM when the 
consumer has insufficient or unavailable funds in the prepaid 
account. In this instance, the card issuer may disclose the $15 fee 
under a heading that indicates the fee applies to both purchase 
transactions and ATM cash advances. Alternatively, the card issuer 
may disclose the $15 fee on two separate rows, one row indicating 
that a $15 fee applies to purchase transactions, and a second row 
indicating that a $15 fee applies to ATM cash advances.
    C. A card issuer assesses a $15 fee for credit drawn from a 
covered separate credit feature using a hybrid prepaid-credit card 
for providing cash at an ATM when the consumer has insufficient or 
unavailable funds in the prepaid account. The card issuer also 
assesses a fee of $1.50 for out-of-network ATM cash withdrawals and 
$1.00 for in-network ATM cash withdrawals. The card issuer must 
disclose the cash advance fee as $16.50 for out-of-network ATM cash 
withdrawals, indicating that $1.50 is for the out-of-network ATM 
withdrawal fee, such as ``$16.50 (including a $1.50 out-of-network 
ATM withdrawal fee).'' The card issuer also must disclose the cash 
advance fee as $16.00 for in-network ATM cash withdrawals, 
indicating that $1.00 is for the in-network ATM withdrawal fee, such 
as ``$16 (including a $1.00 in-network ATM cash withdrawal fee).''
* * * * *

Section 1026.61 Hybrid Prepaid-Credit Cards

61(a) Hybrid Prepaid-Credit Card

    1. Scope of Sec.  1026.61. Section 1026.61 sets forth the 
definition of hybrid prepaid-credit card, and several requirements 
that only apply to covered separate credit features accessible by 
hybrid prepaid-credit cards as defined in Sec.  1026.61(a)(2)(i). 
Hybrid prepaid-credit cards and covered separate credit features 
accessible by hybrid prepaid-credit cards are also subject to other 
rules in this regulation, and some of those rules and related 
commentary contain specific guidance related to hybrid prepaid-
credit cards and covered separate credit features accessible by 
hybrid prepaid-credit cards. For example, as discussed in Sec. Sec.  
1026.2(a)(15)(i) and 1026.61(a), a hybrid prepaid-credit card is a 
credit card for purposes of this regulation with respect to a 
covered separate credit feature. A covered separate credit feature 
accessible by a hybrid prepaid-credit card also will be a credit 
card account under an open-end (not home-secured) consumer credit 
plan as defined in Sec.  1026.2(a)(15)(ii) if the covered separate 
credit feature is an open-end credit plan. Thus, the provisions in 
this regulation that apply to credit cards and credit card accounts 
under an open-end (not home-secured) consumer credit plan generally 
will apply to hybrid prepaid-credit cards and covered separate 
credit features accessible by hybrid prepaid-credit cards as 
applicable (see generally subparts B and G). Some of those rules and 
related commentary contain specific guidance with respect to hybrid 
prepaid-credit cards and covered separate credit features accessible 
by hybrid prepaid-credit cards. See, e.g., Sec. Sec.  
1026.2(a)(15)(i) and (ii), 1026.4(b)(11), (c)(3) and (4), 
1026.6(b)(3)(iii)(D) and (E), 1026.7(b)(11)(ii)(A), 
1026.12(d)(3)(ii), 1026.13(i)(2), 1026.60(a)(5)(iv) and (b), and 
related commentary to these and other rules in the regulation.

61(a)(1) In General

    1. Credit. Under Sec.  1026.61(a)(1), except as provided in 
Sec.  1026.61(a)(4), a prepaid card is a hybrid prepaid-credit card 
if the prepaid card can access credit from a covered separate credit 
feature as described in Sec.  1026.61(a)(2)(i) or if it can access 
credit extended through a negative balance on the asset feature of 
the prepaid account as described in Sec.  1026.61(a)(3). When Sec.  
1026.61 references credit that can be accessed from a separate 
credit feature or credit that can be extended through a negative 
balance on the asset feature, it means credit that can be accessed 
or can be extended even if, for example:
    i. The person that can extend the credit does not agree in 
writing to extend the credit;
    ii. The person retains discretion not to extend the credit, or
    iii. The person does not extend the credit once the consumer has 
exceeded a certain amount of credit.
    2. Prepaid card that is solely an account number. A prepaid card 
that is solely an account number is a hybrid prepaid-credit card if 
it meets the conditions set forth in Sec.  1026.61(a).
    3. Usable from time to time. In order for a prepaid card to be a 
hybrid prepaid-credit card under Sec.  1026.61(a), the prepaid card 
must be capable of being used from time to time to access credit as 
described in Sec.  1026.61(a). Since this involves the possibility 
of repeated use of a single device, checks and similar instruments 
that can be used only once to obtain a single credit extension are 
not hybrid prepaid-credit cards. With respect to a preauthorized 
check that is issued on a prepaid account for which credit is 
extended through a negative balance on the asset feature of the 
prepaid account, or credit is drawn, transferred or authorized to be 
drawn or transferred from a separate credit feature, the credit is 
obtained using the prepaid account number and not the check at the 
time of preauthorization using the prepaid account number. The 
prepaid account number is a hybrid prepaid-credit card if the 
account number meets the conditions set forth in Sec.  1026.61(a). 
See comment 61(a)(1)-2.
    4. Prepaid account that is a digital wallet. i. A digital wallet 
that is capable of being loaded with funds is a prepaid account 
under Regulation E, 12 CFR 1005.2(b)(3). See Regulation E, 12 CFR 
1005.2(b)(3) and comment 2(b)(3)(i)-6. A prepaid account number that 
can access such a digital wallet would be a hybrid prepaid-credit 
card if it meets the conditions set forth in Sec.  1026.61(a). To 
illustrate:
    A. A prepaid account number that can access such a digital 
wallet is a hybrid prepaid-credit card where it can be used from 
time to time to access a covered separate credit feature offered by 
the prepaid account issuer, its affiliate, or its business partner 
in the course of authorizing, settling, or otherwise completing a 
transaction

[[Page 84383]]

conducted with the prepaid account number to obtain goods or 
services, obtain cash, or conduct person-to-person transfers as 
described in Sec.  1026.61(a)(2)(i).
    B. A prepaid account number that can access such a digital 
wallet also is a hybrid prepaid-credit card where it can be used 
from time to time to access the stored credentials for a covered 
separate credit feature offered by the prepaid account issuer, its 
affiliate, or its business partner in the course of authorizing, 
settling, or otherwise completing a transaction conducted with the 
prepaid account number to obtain goods or services, obtain cash, or 
conduct person-to-person transfers as described in Sec.  
1026.61(a)(2)(i).
    C. A prepaid account number that can access such a digital 
wallet is not a hybrid prepaid-credit card with respect to 
credentials stored in the prepaid account that can access a non-
covered separate credit feature as described in Sec.  
1026.61(a)(2)(ii) that is not offered by the prepaid account issuer, 
its affiliate, or its business partner, even if the prepaid account 
number can access those credentials in the course of authorizing, 
settling, or otherwise completing a transaction conducted with the 
prepaid account number to obtain goods or services, obtain cash, or 
conduct person-to-person transfers.
    D. A prepaid account number that can access such a digital 
wallet is not a hybrid prepaid-credit card with respect to 
credentials stored in the prepaid account that can access a non-
covered separate credit feature as described in Sec.  
1026.61(a)(2)(ii) where the prepaid account number cannot access 
those credentials in the course of authorizing, settling, or 
otherwise completing a transaction conducted with the prepaid 
account number to obtain goods or services, obtain cash, or conduct 
person-to-person transfers, even if such credit feature is offered 
by the prepaid account issuer, its affiliate, or its business 
partner.
    ii. A digital wallet is not a prepaid account under Regulation 
E, 12 CFR 1005.2(b)(3), if the digital wallet can never be loaded 
with funds, such as a digital wallet that only stores payment 
credentials for other accounts. See Regulation E, 12 CFR 
1005.2(b)(3) and comment 2(b)(3)(i)-6. An account number that can 
access such a digital wallet would not be a hybrid prepaid-credit 
card under Sec.  1026.61(a), even if it stores a credential for a 
separate credit feature that is offered by the digital wallet 
provider, its affiliate, or its business partner and can be used in 
the course of a transaction involving the digital wallet.
    5. Prepaid account that can be used for bill payment services. 
Where a prepaid account can be used for online bill payment services 
offered by the prepaid account issuer, the prepaid card (including a 
prepaid account number) that can access that prepaid account is a 
hybrid prepaid-credit card if it meets the requirements set forth in 
Sec.  1026.61(a). For example, if a prepaid account number can be 
used from time to time to initiate a transaction using the online 
bill payment service offered by the prepaid account issuer to pay a 
bill, and credit can be drawn, transferred, or authorized to be 
drawn or transferred, to the prepaid account from a covered separate 
credit feature offered by the prepaid account issuer, its affiliate, 
or its business partner in the course of authorizing, settling, or 
otherwise completing that transaction as described in Sec.  
1026.61(a)(2)(i), the prepaid account number would be a hybrid 
prepaid-credit card under Sec.  1026.61(a). In this case, the 
prepaid account number can be used to draw or transfer credit, or 
authorize the draw or transfer of credit, from a covered separate 
credit feature offered by the prepaid account issuer, its affiliate, 
or its business partner in the course of completing a transaction to 
pay for goods or services through the online bill payment service.

61(a)(2) Prepaid Card Can Access Credit From a Covered Separate Credit 
Feature

    1. Draws or transfers of credit. i. For a prepaid card to be a 
hybrid prepaid-credit card under Sec.  1026.61(a)(2)(i) with respect 
to a separate credit feature, the prepaid account must be structured 
such that the draw or transfer of credit, or authorizations of 
either, from a separate credit feature offered by the prepaid 
account issuer, its affiliate, or its business partner is capable of 
occurring in the course of authorizing, settling, or otherwise 
completing transactions conducted with the prepaid card to obtain 
goods or services, obtain cash, or conduct person-to-person 
transfers. See comment 61(a)(2)-2 for guidance on when draws or 
transfers of credit can occur in the course of authorizing, 
settling, or otherwise completing a transaction described in Sec.  
1026.61(a)(2)(i). In this case, the separate credit feature is a 
covered separate credit feature accessible by a hybrid prepaid-
credit card under Sec.  1026.61(a)(2)(i).
    ii. A prepaid card is a hybrid prepaid-credit card with respect 
to a covered separate credit feature regardless of whether:
    A. The credit is pushed from the covered separate credit feature 
to the asset feature of the prepaid account in the course of 
authorizing, settling, or otherwise completing transactions 
conducted with the card to obtain goods or services, obtain cash, or 
conduct person-to-person transfers; or
    B. The credit is pulled from the covered separate credit feature 
to the asset feature of the prepaid account in the course of 
authorizing, settling, or otherwise completing transactions 
conducted with the card to obtain goods or services, obtain cash, or 
conduct person-to-person transfers.
    iii. A prepaid card is a hybrid prepaid-credit card with respect 
to a covered separate credit feature regardless of whether the 
covered separate credit feature can only be used as an overdraft 
credit feature, solely accessible by the hybrid prepaid-credit card, 
or whether it is a general line of credit that can be accessed in 
other ways.
    2. Credit that can be accessed from a separate credit feature in 
the course of authorizing, settling, or otherwise completing a 
transaction. i. Under Sec.  1026.61(a)(2)(i), a prepaid card is a 
hybrid prepaid-credit card when the card can be used from time to 
time to access a separate credit feature that is offered by the 
prepaid account issuer, its affiliate, or its business partner and 
can be used to access credit in the course of authorizing, settling, 
or otherwise completing transactions conducted with the card to 
obtain goods or services, obtain cash, or conduct person-to-person 
transfers. A draw, transfer, or authorization of a draw or transfer 
from a separate credit feature is deemed to be in the ``course of 
authorizing, settling, or otherwise completing'' a transaction if it 
occurs during the authorization phase of the transaction as 
discussed in comment 61(a)(2)-2.ii or in later periods up to the 
settlement of the transaction, as discussed in comment 61(a)(2)-
2.iii.
    ii. The following examples illustrate transactions where credit 
can be drawn, transferred, or authorized to be drawn or transferred 
from a separate credit feature in the course of authorizing a 
transaction.
    A. A transaction initiated using a prepaid card when there are 
insufficient or unavailable funds in the asset feature of the 
prepaid account at the time the transaction is initiated and credit 
is transferred from the credit feature to the asset feature at the 
time the transaction is authorized to complete the transaction.
    B. A transaction initiated using a prepaid card when there are 
insufficient or unavailable funds in the asset feature of the 
prepaid account at the time the transaction is initiated and credit 
is directly drawn from the credit feature to complete the 
transaction, without transferring funds into the prepaid account.
    iii. The following examples illustrate transactions where credit 
can be drawn, transferred, or authorized to be drawn or transferred, 
in the course of settling a transaction.
    A. A transaction initiated using a prepaid card when there are 
sufficient or available funds in the asset feature of the prepaid 
account at the time of authorization to cover the amount of the 
transaction but where the consumer does not have sufficient or 
available funds in the asset feature to cover the transaction at the 
time of settlement. Credit automatically is drawn, transferred, or 
authorized to be drawn or transferred from the credit feature at 
settlement to pay the transaction.
    B. A transaction that was not authorized in advance where the 
consumer does not have sufficient or available funds in the asset 
feature to cover the transaction at the time of settlement. Credit 
automatically is drawn, transferred, or authorized to be drawn or 
transferred from the credit feature at settlement to pay the 
transaction.
    3. Accessing credit when the asset feature has sufficient funds. 
Section 1026.61(a)(2)(i) applies where the prepaid card can be used 
from time to time to draw funds from a covered separate credit 
feature that is offered by a prepaid account issuer, its affiliate, 
or its business partner in the course of authorizing, settling, or 
otherwise completing transactions conducted with the card to obtain 
goods or services, obtain cash, or conduct person-to-person 
transfers, even if there are sufficient or available funds in the 
asset feature of the prepaid account to complete the transaction. 
For example, the following separate credit feature would meet the 
conditions of Sec.  1026.61(a)(2)(i).
    i. The prepaid card can be used from time to time both to access 
the asset feature of a

[[Page 84384]]

prepaid account and to draw on the covered separate credit feature 
in the course of a transaction independent of whether there are 
sufficient or available funds in the asset feature to complete the 
transaction. For example, assume that a consumer has $50 available 
funds in her prepaid account. The consumer initiates a $25 
transaction with the card to purchase goods and services. If the 
consumer chooses at the time the transaction is initiated to use the 
card to access the prepaid account, the card will draw on the funds 
in the asset feature of the prepaid account to complete the 
transaction. If the consumer chooses at the time the transaction is 
initiated to use the card to access the credit feature, the card 
will draw on credit from the credit feature to complete the 
transaction, regardless of the fact that there were sufficient or 
available funds the prepaid account to complete the transaction.
    4. Covered separate credit features. i. Under Sec.  
1026.61(a)(2)(i), a separate credit feature that meets the 
conditions of Sec.  1026.61(a)(2)(i) is defined as a covered 
separate credit feature. In this case, the hybrid prepaid-credit 
card can access both the covered separate credit feature and the 
asset feature of the prepaid account. Section 1026.61 and other 
provisions in the regulation and commentary related to hybrid 
prepaid-credit cards refer to this credit feature either as a 
covered separate credit feature or a covered separate credit feature 
accessible by a hybrid prepaid-credit card. See, e.g., Sec. Sec.  
1026.4(c)(4), 1026.7(b)(11)(ii)(A), 1026.12(d)(3)(ii), and 
1026.60(a)(5)(iv) and (b). In addition, several provisions in the 
regulation and commentary also describe this arrangement as one 
where a covered separate credit feature and an asset feature on a 
prepaid account are both accessible by a hybrid prepaid-credit card 
as defined in Sec.  1026.61. See, e.g., Sec. Sec.  1026.4(b)(11), 
1026.6(b)(3)(iii)(D), and 1026.13(i)(2).
    ii. If a prepaid card is capable of drawing or transferring 
credit, or authorizing either, from a separate credit feature 
offered by the prepaid account issuer, its affiliate, or its 
business partner in the course of authorizing, settling, or 
otherwise completing transactions conducted with the prepaid card to 
obtain goods or services, obtain cash, or conduct a person-to-person 
transfer, the credit feature is a covered separate credit feature 
accessible by a hybrid prepaid-credit card, even with respect to 
credit that is drawn or transferred, or authorized to be drawn or 
transferred, from the credit feature outside the course of a 
transaction conducted with the card to obtain goods or services, 
obtain cash, or conduct person-to-person transfers. For example, 
with respect to a covered separate credit feature, a consumer may 
use the prepaid card at the prepaid account issuer's Web site to 
load funds from the covered separate credit feature outside the 
course of a transaction conducted with the card to obtain goods or 
services, obtain cash, or conduct person-to-person transfers. This 
credit transaction is considered a credit transaction on a covered 
separate credit feature accessible by a hybrid prepaid-credit card, 
even though the load or transfer of funds occurred outside the 
course of a transaction conducted with the card to obtain goods or 
services, obtain cash, or conduct person-to-person transfers.
    5. Non-covered separate credit features. A separate credit 
feature that does not meet the conditions set forth in Sec.  
1026.61(a)(2)(i) is defined as a non-covered separate credit feature 
as described in Sec.  1026.61(a)(2)(ii). A prepaid card is not a 
hybrid prepaid-credit card with respect to a non-covered separate 
credit feature. To illustrate:
    i. A prepaid card is not a hybrid prepaid-credit card under 
Sec.  1026.61(a)(2)(i) with respect to a separate credit feature if 
the credit feature is not offered by the prepaid account issuer, its 
affiliate, or its business partner. This is true even if the draw or 
transfer of credit, or authorization of either, occurs during the 
course of authorizing, settling, or otherwise completing 
transactions to obtain goods or services, obtain cash, or conduct 
person-to-person transfers. For example, assume a consumer links her 
prepaid account to a credit card issued by a card issuer that is not 
the prepaid account issuer, its affiliate, or its business partner 
so that credit is drawn automatically into the asset feature of the 
prepaid account in the course of authorizing, settling, or otherwise 
completing transactions conducted with the prepaid card for which 
there are insufficient funds in the asset feature. In this case, the 
separate credit feature is a non-covered separate credit feature 
under Sec.  1026.61(a)(2)(ii). In this situation, the prepaid card 
is not a hybrid prepaid-credit card with respect to the separate 
credit feature offered by the unrelated third-party card issuer.
    ii. Even if a separate credit feature is offered by the prepaid 
account issuer, its affiliate, or its business partner, a prepaid 
card is not a hybrid prepaid-credit card under Sec.  
1026.61(a)(2)(i) with respect to that separate credit feature if the 
separate credit feature cannot be accessed within the course of 
authorizing, settling, or otherwise completing transactions to 
obtain goods or services, obtain cash, or conduct person-to-person 
transfers. For example, assume that a consumer can only conduct a 
draw or transfer of credit, or authorization of either, from a 
separate credit feature to a prepaid account at the prepaid account 
issuer's Web site, and these draws, transfers, or authorizations of 
either, cannot occur in the course of authorizing, settling, or 
otherwise completing transactions at the Web site to obtain goods or 
services, obtain cash, or conduct person-to-person transfers. In 
this case, the separate credit feature is a non-covered separate 
credit feature under Sec.  1026.61(a)(2)(ii). In this situation, the 
prepaid card is not a hybrid prepaid-credit card with respect to 
this non-covered separate credit feature.
    iii. The person offering the non-covered separate credit feature 
does not become a card issuer under Sec.  1026.2(a)(7) and thus does 
not become a creditor under Sec.  1026.2(a)(17)(iii) or (iv) because 
the prepaid card can be used to access credit from the non-covered 
separate credit feature. The person offering the non-covered 
separate credit feature, however, may already have obligations under 
this regulation with respect to that separate credit feature. For 
example, if the non-covered separate credit feature is an open-end 
credit card account offered by an unrelated third-party creditor 
that is not an affiliate or business partner of the prepaid account 
issuer, the person already will be a card issuer under Sec.  
1026.2(a)(7) and a creditor under Sec.  1026.2(a)(17)(iii). 
Nonetheless, in that case, the person does not need to comply with 
the provisions in the regulation applicable to hybrid prepaid-credit 
cards even though the prepaid card can access credit from the non-
covered separate credit feature. The obligations under this 
regulation that apply to a non-covered separate credit feature are 
not affected by the fact that the prepaid card can access credit 
from the non-covered separate credit feature. See Sec.  
1026.6(b)(3)(iii)(E) and comments 4(b)(11)-1.ii, 6(b)(2)-2, 
6(b)(3)(iii)(E)-1, 12(d)(3)-2.iii, 52(a)(2)-3, 52(b)-4, 55(a)-4, and 
60(b)-4.
    6. Prepaid card that can access multiple separate credit 
features. i. Even if a prepaid card is a hybrid prepaid-credit card 
with respect to a covered separate credit feature, it is not a 
hybrid prepaid-credit card with respect to any non-covered separate 
credit features.
    ii. For example, assume that a prepaid card can access 
``Separate Credit Feature A'' where the card can be used from time 
to time to access credit from a separate credit feature that is 
offered by the prepaid account issuer, its affiliate, or its 
business partner in the course of authorizing, settling, or 
otherwise completing transactions conducted with the card to obtain 
goods or services, obtain cash, or conduct person-to-person 
transfers. In addition, assume that the prepaid card can also access 
``Separate Credit Feature B'' but that credit feature is being 
offered by an unrelated third-party creditor that is not the prepaid 
account issuer, its affiliate, or its business partner. The prepaid 
card is a hybrid prepaid-credit card with respect to Separate Credit 
Feature A because it is a covered separate credit feature. The 
prepaid card, however, is not a hybrid prepaid-credit card with 
respect to Separate Credit Feature B because it is a non-covered 
separate credit feature.

61(a)(3) Prepaid Card Can Access Credit Extended Through a Negative 
Balance on the Asset Feature

61(a)(3)(i) In General

    1. Credit accessed on an asset feature of a prepaid account. i. 
See comment 2(a)(14)-3 for examples of when transactions authorized 
or paid on the asset feature of a prepaid account meet the 
definition of credit under Sec.  1026.2(a)(14).
    ii. Except as provided in Sec.  1026.61(a)(4), a prepaid card 
would trigger coverage as a hybrid prepaid-credit card if it is a 
single device that can be used from time to time to access credit 
that can be extended through a negative balance on the asset feature 
of the prepaid account. (However, unless the only credit offered 
meets the requirements of Sec.  1026.61(a)(4), such a product 
structure would violate the rules under Sec.  1026.61(b).) A credit 
extension through a negative balance on the asset feature of a 
prepaid account can occur during the authorization phase of the 
transaction as discussed in comment

[[Page 84385]]

61(a)(3)(i)-1.iii or in later periods up to the settlement of the 
transaction, as discussed in comment 61(a)(2)(i)-1.iv.
    iii. The following example illustrates transactions where a 
credit extension occurs during the course of authorizing a 
transaction.
    A. A transaction initiated using a prepaid card when there are 
insufficient or unavailable funds in the asset feature of the 
prepaid account at the time the transaction is initiated and credit 
is extended through a negative balance on the asset feature of the 
prepaid account when the transaction is authorized.
    iv. The following examples illustrate transactions where a 
credit extension occurs at settlement.
    A. Transactions that occur when there are sufficient or 
available funds in the asset feature of the prepaid account at the 
time of authorization to cover the amount of the transaction but 
where the consumer does not have sufficient or available funds in 
the asset feature to cover the transaction at the time of 
settlement. Credit is extended through a negative balance on the 
asset feature at settlement to pay those transactions.
    B. Transactions that settle even though they were not authorized 
in advance where credit is extended through a negative balance on 
the asset feature at settlement to pay those transactions.

61(a)(3)(ii) Negative Asset Balances

    1. Credit extended on the asset feature of the prepaid account. 
Section 1026.61(a)(3)(i) determines whether a prepaid card triggers 
coverage as a hybrid prepaid-credit card under Sec.  1026.61(a), and 
thus, whether a prepaid account issuer is a card issuer under Sec.  
1026.2(a)(7) subject to this regulation, including Sec.  1026.61(b). 
However, Sec.  1026.61(b) requires that any credit feature 
accessible by a hybrid prepaid-credit card must be structured as a 
separate credit feature using either a credit subaccount of the 
prepaid account or a separate credit account. In that case, a card 
issuer would violate Sec.  1026.61(b) if it structures the credit 
feature as a negative balance on the asset feature of the prepaid 
account, unless the only credit offered in connection with the 
prepaid account satisfies Sec.  1026.61(a)(4). A prepaid account 
issuer can use a negative asset balance structure to extend credit 
on a prepaid account if the prepaid card is not a hybrid prepaid-
credit card as described in Sec.  1026.61(a)(4).

61(a)(4) Exception

    1. Prepaid card that is not a hybrid prepaid-credit card. i. A 
prepaid card that is not a hybrid prepaid-credit card as described 
in Sec.  1026.61(a) is not a credit card under this regulation. A 
prepaid card is not a hybrid prepaid-credit card if:
    A. The card cannot access credit from a covered separate credit 
feature under Sec.  1026.61(a)(2)(i), though it is permissible for 
it to access credit from a non-covered separate credit feature as 
described under Sec.  1026.61(a)(2)(ii); and
    B. The card can only access credit extended through a negative 
balance on the asset feature of the prepaid account in accordance 
with both the conditions set forth in Sec.  1026.61(a)(4)(ii)(A) and 
(B).
    ii. Below is an example of when a prepaid card is not a hybrid 
prepaid-credit card because the conditions set forth in Sec.  
1026.61(a)(4) have been met.
    A. The prepaid card can only access credit extended through a 
negative balance on the asset feature of the prepaid account in 
accordance with both the conditions set forth in Sec.  
1026.61(a)(4)(ii)(A) and (B). The card can access credit from a non-
covered separate credit feature as defined in Sec.  
1026.61(a)(2)(ii), but cannot access credit for a covered separate 
credit feature as defined in Sec.  1026.61(a)(2)(i).
    iii. Below is an example of when a prepaid card is a hybrid 
prepaid-credit card because the conditions set forth in Sec.  
1026.61(a)(4) have not been met.
    A. When there is insufficient or unavailable funds in the asset 
feature of the prepaid account at the time a transaction is 
initiated, the card can be used to draw, transfer, or authorize the 
draw or transfer of credit from a covered separate credit feature 
offered by the prepaid account issuer, its affiliate, or its 
business partner during the authorization phase to complete the 
transaction so that credit is not extended on the asset feature of 
the prepaid account. The card is a hybrid prepaid-credit card 
because it can be used to draw, transfer, or authorize the draw or 
transfer of credit from a separate credit feature in the 
circumstances set forth in Sec.  1026.61(a)(2)(i).
    iv. In the case where a prepaid card is not a hybrid prepaid-
credit card because the only credit it can access meets the 
conditions set forth in Sec.  1026.61(a)(4):
    A. The prepaid account issuer is not a card issuer under Sec.  
1026.2(a)(7) with respect to the prepaid card. The prepaid account 
issuer also is not a creditor under Sec.  1026.2(a)(17)(iii) or (iv) 
because it is not a card issuer under Sec.  1026.2(a)(7) with 
respect to the prepaid card. The prepaid account issuer also is not 
a creditor under Sec.  1026.2(a)(17)(i) as a result of imposing fees 
on the prepaid account because those fees are not finance charges. 
See comment 4(b)(11)-1.iii.

Paragraph 61(a)(4)(ii)(A)

    1. Authorization not required for every transaction. The prepaid 
account issuer is not required to receive an authorization request 
for each transaction to comply with Sec.  1026.61(a)(4)(ii)(A). 
Nonetheless, the prepaid account issuer generally must establish an 
authorization policy as described in Sec.  1026.61(a)(4)(ii)(A) and 
have reasonable practices in place to comply with its established 
policy with respect to the authorization requests it receives. In 
that case, a prepaid account issuer is deemed to satisfy Sec.  
1026.61(a)(4)(ii)(A) even if a negative balance results on the 
prepaid account when a transaction is settled.
    2. Provisional credit. A prepaid account issuer may still 
satisfy the requirements set forth in Sec.  1026.61(a)(4)(ii)(A) 
even if a negative balance results on the asset feature of the 
prepaid account because the prepaid account issuer debits the amount 
of any provisional credit that was previously granted on the prepaid 
account as specified in Regulation E, 12 CFR 1005.11, so long as the 
prepaid account issuer otherwise complies with the conditions set 
forth in Sec.  1026.61(a)(4). For example, under Sec.  
1026.61(a)(4), a prepaid account issuer may not impose a fee or 
charge enumerated under Sec.  1026.61(a)(4)(ii)(B) with respect to 
this negative balance.
    3. Delayed load cushion. i. Incoming fund transfers. For 
purposes of Sec.  1026.61(a)(4)(ii)(A)(2), cases where the prepaid 
account issuer has received an instruction or confirmation for an 
incoming electronic fund transfer originated from a separate asset 
account to load funds to the prepaid account include a direct 
deposit of salary from an employer and a direct deposit of 
government benefits.
    ii. Consumer requests. For purposes of Sec.  
1026.61(a)(4)(ii)(A)(2), cases where the prepaid account issuer has 
received a request from the consumer to load funds to the prepaid 
account from a separate asset account include where the consumer, in 
the course of a transaction, requests a load from a deposit account 
or uses a debit card to cover the amount of the transaction if there 
are insufficient funds in the asset feature of the prepaid account 
to pay for the transaction.
    4. Permitted authorization circumstances are not mutually 
exclusive. The two circumstances set forth in Sec.  
1026.61(a)(4)(ii)(A)(1) and (2) are not mutually exclusive. For 
example, assume a prepaid account issuer has adopted the $10 cushion 
described in Sec.  1026.61(a)(4)(ii)(A)(1), and the delayed load 
cushion described in Sec.  1026.61(a)(4)(ii)(A)(2). Also, assume the 
prepaid account issuer has received an instruction or confirmation 
for an incoming electronic fund transfer originated from a separate 
asset account to load funds to the prepaid account but the prepaid 
account issuer has not received the funds from the separate asset 
account. In this case, a prepaid account issuer satisfies Sec.  
1026.61(a)(4)(iii)(A) if the amount of a transaction at 
authorization will not cause the prepaid account balance to become 
negative at the time of the authorization by more than the requested 
load amount plus the $10 cushion.

Paragraph 61(a)(4)(ii)(B)

    1. Different terms on different prepaid account programs. 
Section 1026.61(a)(4)(ii)(B) does not prohibit a prepaid account 
issuer from charging different terms on different prepaid account 
programs. For example, the terms may differ between a prepaid 
account program where a covered separate credit feature accessible 
by a hybrid prepaid-credit card is not offered in connection with 
any prepaid accounts within the prepaid account program, and a 
prepaid account program where a covered separate credit feature 
accessible by a hybrid prepaid-credit card may be offered to some 
consumers in connection with their prepaid accounts.

Paragraph 61(a)(4)(ii)(B)(1)

    1. Fees or charges covered by Sec.  1026.61(a)(4)(ii)(B)(1). To 
qualify for the exception in Sec.  1026.61(a)(4)(ii)(B), the prepaid 
account issuer may not impose any fees or charges for opening, 
issuing, or holding a negative balance on the asset feature, or for 
the availability of credit, whether imposed on a one-time or 
periodic

[[Page 84386]]

basis. Section 1026.61(a)(4)(ii)(B)(1) does not include fees or 
charges to open, issue, or hold the prepaid account where the amount 
of the fee or charge imposed on the asset feature is not higher 
based on whether credit might be offered or has been accepted, 
whether or how much credit the consumer has accessed, or the amount 
of credit available.
    i. The types of fees or charges prohibited by Sec.  
1026.61(a)(4)(ii)(B)(1) include:
    A. A daily, weekly, monthly, or other periodic fee assessed each 
period a prepaid account has a negative balance or is in 
``overdraft'' status; and
    B. A daily, weekly, monthly or other periodic fee to hold the 
prepaid account where the amount of the fee that applies each period 
is higher if the consumer is enrolled in a purchase cushion as 
described in Sec.  1026.61(a)(4)(ii)(A)(1) or a delayed load cushion 
as described in Sec.  1026.61(a)(4)(A)(ii)(2) during that period. 
For example, assume that a consumer will pay a fee to hold the 
prepaid account of $10 if the consumer is not enrolled in a purchase 
cushion as described in Sec.  1026.61(a)(4)(ii)(A)(1) or a delayed 
load cushion as described in Sec.  1026.61(a)(4)(A)(ii)(2) during 
that month, and will pay a fee to hold the prepaid account of $15 if 
the consumer is enrolled in a purchase cushion or delayed load 
cushion that period. The $15 charge is a charge described in Sec.  
1026.61(a)(4)(ii)(B)(1) because the amount of the fee to hold the 
prepaid account is higher based on whether the consumer is 
participating in the payment cushion or delayed load cushion during 
that period.
    ii. Fees or charges described in Sec.  1026.61(a)(4)(ii)(B) do 
not include:
    A. A daily, weekly, monthly, or other periodic fee to hold the 
prepaid account where the amount of the fee is not higher based on 
whether the consumer is enrolled in a purchase cushion as described 
in Sec.  1026.61(a)(4)(ii)(A)(1) or a delayed load cushion as 
described in Sec.  1026.61(a)(4)(A)(ii)(2) during that period, 
whether or how much credit has been extended during that period, or 
the amount of credit that is available during that period.

Paragraph 61(a)(4)(ii)(B)(2)

    1. Fees or charges covered by Sec.  1026.61(a)(4)(ii)(B)(2). To 
qualify for the exception in Sec.  1026.61(a)(4)(ii)(B), the prepaid 
account issuer may not impose any fees or charges on the asset 
feature of the prepaid account that will be imposed only when credit 
is extended on the asset feature or when there is a negative balance 
on the asset feature.
    i. These types of fees or charges include:
    A. A fee imposed because the balance on the prepaid account 
becomes negative;
    B. Interest charges attributable to a periodic rate that applies 
to the negative balance;
    C. Any fees for delinquency, default, or a similar occurrences 
that result from the prepaid account having a negative balance or 
being in ``overdraft'' status, except that the actual costs to 
collect the credit may be imposed if otherwise permitted by law; and
    D. Late payment fees.
    ii. Fees or charges described in Sec.  1026.61(a)(4)(ii)(B) do 
not include:
    A. Fees for actual collection costs, including attorney's fees, 
to collect any credit extended on the prepaid account if otherwise 
permitted by law. Late payment fees are not considered fees imposed 
for actual collection costs. See comment 61(a)(4)(ii)(B)(2)-1.i.D.

Paragraph 61(a)(4)(ii)(B)(3)

    1. Fees or charges covered by Sec.  1026.61(a)(4)(ii)(B)(3). i. 
To qualify for the exception in Sec.  1026.61(a)(4)(ii)(B), the 
prepaid account issuer may not impose any fees or charges on the 
asset feature of the prepaid account that are higher when credit is 
extended on the asset feature or when there is a negative balance on 
the asset feature. These types of fees or charges include:
    A. Transaction fees where the amount of the fee is higher based 
on whether the transaction accesses only asset funds in the asset 
feature or accesses credit. For example, a $15 transaction charge is 
imposed on the asset feature each time a transaction is authorized 
or paid when there are insufficient or unavailable funds in the 
asset feature at the time of the authorization or settlement. A 
$1.50 fee is imposed each time a transaction only accesses funds in 
the asset feature. The $15 charge is a charge described in Sec.  
1026.61(a)(4)(ii)(B)(3) because the amount of the transaction fee is 
higher when the transaction accesses credit than the amount of the 
fee that applies when the transaction accesses only asset funds in 
the asset feature; and
    B. A fee for a service on the prepaid account where the amount 
of the fee is higher based on whether the service is requested when 
the asset feature has a negative balance. For example, if a prepaid 
account issuer charges a higher fee for an ATM balance inquiry 
requested on the prepaid account if the balance inquiry is requested 
when there is a negative balance on the asset feature than the 
amount of fee imposed when there is a positive balance on the asset 
feature, the balance inquiry fee is a fee described in Sec.  
1026.61(a)(4)(ii)(B)(3) because the amount of the fee is higher 
based on whether it is imposed when there is a negative balance on 
the asset feature.
    ii. Fees or charges described in Sec.  1026.61(a)(4)(ii)(B) do 
not include:
    A. Transaction fees on the prepaid account where the amount of 
the fee imposed when the transaction accesses credit does not exceed 
the amount of the fee imposed when the transaction only accesses 
asset funds in the prepaid account. For example, assume a $1.50 
transaction charge is imposed on the prepaid account for each paid 
transaction that is made with the prepaid card, including 
transactions that only access asset funds, transactions that take 
the account balance negative, and transactions that occur when the 
account balance is already negative. The $1.50 transaction charge 
imposed on the prepaid account is not a fee described in Sec.  
1026.61(a)(4)(ii)(B); and
    B. A fee for a service on the prepaid account where the amount 
of the fee is not higher based on whether the service is requested 
when the asset feature has a negative balance. For example, if a 
prepaid account issuer charges the same amount of fee for an ATM 
balance inquiry regardless of whether there is a positive or 
negative balance on the asset feature, the balance inquiry fee is 
not a fee described in Sec.  1026.61(a)(4)(ii)(B).

Paragraph 61(a)(4)(ii)(C)

    1. Fees or charges not covered by Sec.  1026.61(a)(4)(ii)(B). 
Under Sec.  1026.61(a)(4)(ii)(C), a prepaid account issuer may still 
satisfy the exception in Sec.  1026.61(a)(4) even if it debits fees 
or charges from the prepaid account when there are insufficient or 
unavailable funds in the asset feature of the prepaid account to 
cover those fees or charges at the time they are imposed, so long as 
those fees or charges are not the type of fees or charges enumerated 
in Sec.  1026.61(a)(4)(ii)(B). A fee or charge not otherwise covered 
by Sec.  1026.61(a)(4)(ii)(B) does not become covered by that 
provision simply because there are insufficient or unavailable funds 
in the asset feature of the prepaid account to pay the fee when it 
is imposed. For example, assume that a prepaid account issuer 
imposes a fee for an ATM balance inquiry and the amount of the fee 
is not higher based on whether credit is extended or whether there 
is a negative balance on the prepaid account. Also assume that when 
the fee is imposed, there are insufficient or unavailable funds in 
the asset feature of the prepaid account to pay the fee. The ATM 
balance inquiry fee does not become a fee covered by Sec.  
1026.61(a)(4)(ii)(B) because the fee is debited from the prepaid 
account balance when there are insufficient or unavailable funds in 
the asset feature of the prepaid account to cover the fee at the 
time it is imposed.

61(a)(5) Definitions

Paragraph 61(a)(5)(iii)

    1. Arrangement. A person (other than the prepaid account issuer 
or its affiliates) that can extend credit through a separate credit 
feature is a business partner of a prepaid account issuer where the 
person that can extend credit or its affiliate has an arrangement 
with a prepaid account issuer or its affiliate. A person (other than 
the prepaid account issuer or its affiliates) that can extend credit 
through a separate credit feature or the person's affiliate has an 
arrangement with a prepaid account issuer or its affiliate for 
purposes of Sec.  1026.61(a)(5)(iii) if the circumstances in either 
paragraph i or ii are met:
    i. A person that can extend credit or its affiliate has an 
arrangement with a prepaid account issuer or its affiliate if the 
prepaid account issuer or its affiliate has an agreement with the 
person that can extend credit or its affiliate that allows a prepaid 
card from time to time to draw, transfer, or authorize a draw or 
transfer of credit from a credit feature offered by the person that 
can extend credit in the course of authorizing, settling, or 
otherwise completing transactions conducted with the card to obtain 
goods or services, obtain cash, or conduct person-to-person 
transfers. However, the parties are not considered to have such an 
agreement merely because the parties participate in a card network 
or payment network.
    ii. A person that can extend credit or its affiliate has an 
arrangement with a prepaid

[[Page 84387]]

account issuer or its affiliate if the prepaid account issuer or its 
affiliate:
    A. Has a business, marketing, or promotional agreement or other 
arrangement with the person that can extend credit or its affiliate 
where the agreement or arrangement provides that:
    1. Prepaid accounts offered by the prepaid account issuer will 
be marketed to the customers of the person that can extend credit; 
or
    2. The credit feature will be marketed to the holders of prepaid 
accounts offered by the prepaid account issuer (including any 
marketing to customers to link the separate credit feature to the 
prepaid account to be used as an overdraft credit feature); and
    B. At the time of the marketing agreement or arrangement 
described in comment 61(a)(5)(iii)-1.ii.A, or at any time 
afterwards, the prepaid card from time to time can draw, transfer, 
or authorize the draw or transfer of credit from the credit feature 
in the course of transactions conducted with the card to obtain 
goods or services, obtain cash, or conduct person-to-person 
transfers. This requirement is satisfied even if there is no 
specific agreement, as described in comment 61(a)(5)(iii)-1.i, 
between the parties that the card can access the credit feature. For 
example, this requirement is satisfied even if the draw, transfer, 
or authorization of the draw or transfer from the credit feature is 
effectuated through a card network or payment network.
    2. Relationship to prepaid account issuer. A person (other than 
a prepaid account issuer or its affiliates) that can extend credit 
through a separate credit feature will be deemed to have an 
arrangement with the prepaid account issuer if the person that can 
extend credit, its service provider, or the person's affiliate has 
an arrangement with the prepaid account issuer, its service provider 
such as a program manager, or the issuer's affiliate. In that case, 
the person that can extend credit will be a business partner of the 
prepaid account issuer. For example, if the affiliate of the person 
that can extend credit has an arrangement with the prepaid account 
issuer's affiliate, the person that can extend credit will be the 
business partner of the prepaid account issuer.

Paragraph 61(a)(5)(iv)

    1. Applicability of credit feature definition. The definition of 
credit feature set forth in Sec.  1026.61(a)(5)(iv) only defines 
that term for purposes of this regulation in relation to credit in 
connection with a prepaid account or prepaid card. This definition 
does not impact when an account, subaccount or negative balance is a 
credit feature under the regulation with respect to credit in 
relation to a checking account or other transaction account that is 
not a prepaid account, or a debit card. See, e.g., comments 
2(a)(15)-2.ii.A and 4(b)(2)-1 for where the term credit feature is 
used in relation to a debit card or asset account other than a 
prepaid account.
    2. Asset account other than a prepaid account. A credit feature 
for purposes of Sec.  1026.61(a)(5)(iv) does not include an asset 
account other than a prepaid account that has an attached overdraft 
feature. For example, assume that funds are loaded or transferred to 
a prepaid account from an asset account (other than a prepaid 
account) on which an overdraft feature is attached. The asset 
account is not a credit feature under Sec.  1026.61(a)(5)(iv) even 
if the load or transfer of funds to the prepaid account triggers the 
overdraft feature that is attached to the asset account.

Paragraph 61(a)(5)(vii)

    1. Definition of prepaid card. The term ``prepaid card'' in 
Sec.  1026.61(a)(5)(vii) includes any card, code, or other device 
that can be used to access a prepaid account, including a prepaid 
account number or other code.

61(b) Structure of Credit Features Accessible by Hybrid Prepaid-Credit 
Cards

    1. Credit subaccount on a prepaid account. If a credit feature 
that is accessible by a hybrid prepaid-credit card is structured as 
a subaccount of the prepaid account, the credit feature must be set 
up as a separate balance on the prepaid account such that there are 
at least two balances on the prepaid account--the asset account 
balance and the credit account balance.
    2. Credit extended on a credit subaccount or a separate credit 
account. Under Sec.  1026.61(b), with respect to a credit feature 
that is assessed by a hybrid prepaid-credit card, a card issuer at 
its option may structure the credit feature as a separate credit 
feature, either as a subaccount on the prepaid account that is 
separate from the asset feature or as a separate credit account. The 
separate credit feature would be a covered separate credit feature 
accessible by a hybrid prepaid-credit card under Sec.  
1026.61(a)(2)(i). Regardless of whether the card issuer is 
structuring its covered separate credit feature as a subaccount of 
the prepaid account or as a separate credit account:
    i. If at the time a prepaid card transaction is initiated there 
are insufficient or unavailable funds in the asset feature of the 
prepaid account to complete the transaction, credit must be drawn, 
transferred or authorized to be drawn or transferred, from the 
covered separate credit feature at the time the transaction is 
authorized. The card issuer may not allow the asset feature on the 
prepaid account to become negative and draw or transfer the credit 
from the covered separate credit feature at a later time, such as at 
the end of the day. The card issuer must comply with the applicable 
provisions of this regulation with respect to the credit extension 
from the time the prepaid card transaction is authorized.
    ii. For transactions where there are insufficient or unavailable 
funds in the asset feature of the prepaid account to cover that 
transaction at the time it settles and the prepaid transaction 
either was not authorized in advance or the transaction was 
authorized and there were sufficient or available funds in the 
prepaid account at the time of authorization to cover the 
transaction, credit must be drawn from the covered separate credit 
feature to settle these transactions. The card issuer may not allow 
the asset feature on the prepaid account to become negative. The 
card issuer must comply with the applicable provisions of this 
regulation from the time the transaction is settled.
    iii. If a negative balance would result on the asset feature in 
circumstances other than those described in comment 61(b)-2.i and 
ii, credit must be drawn from the covered separate credit feature to 
avoid the negative balance. The card issuer may not allow the asset 
feature on the prepaid account to become negative. The card issuer 
must comply with the applicable provisions in this regulation from 
the time credit is drawn from the covered separate credit feature. 
For example, assume that a fee for an ATM balance inquiry is imposed 
on the prepaid account when there are insufficient or unavailable 
funds to cover the amount of the fee when it is imposed. Credit must 
be drawn from the covered separate credit feature to avoid a 
negative balance.

61(c) Timing Requirement for Solicitation or Application With Respect 
to Hybrid Prepaid-Credit Cards

    1. Meaning of registration of a prepaid card or prepaid account. 
A prepaid card or prepaid account is registered, such that the 30-
day timing requirement required by Sec.  1026.61(c) begins, when the 
prepaid account issuer successfully completes its collection of 
consumer identifying information and identity verification in 
accordance with the requirements of applicable Federal and state 
law. The beginning of the required 30-day timing requirement is 
triggered by successful completion of collection of consumer 
identifying information and identity verification, not by the 
consumer's mere purchase or obtaining of the card. With respect to a 
prepaid account for which customer identification and verification 
are completed before the account is opened, the 30-day timing 
requirement begins on the day the prepaid account is opened.
    2. Unsolicited issuance of credit cards and disclosures related 
to applications or solicitations for credit or charge card accounts. 
See Sec.  1026.12(a)(1) and comment 12(a)(1)-7.ii for additional 
rules that apply to the addition of a credit card or charge card 
account to a previously-issued prepaid account. See also Sec.  
1026.60 and related commentary for disclosures that generally must 
be provided on or with applications or solicitations to open a 
credit or charge card account.
    3. Replacement or substitute cards. A card issuer is not 
required to comply with Sec.  1026.61(c) when a hybrid prepaid-
credit card is permitted to be replaced, or substituted, for another 
hybrid prepaid-credit card without a request or application under 
Sec.  1026.12(a)(2) and related commentary. For example, Sec.  
1026.61(c) does not apply to situations where a prepaid account or 
credit feature that is accessible by a hybrid prepaid-credit card is 
replaced because of security concerns and a new hybrid prepaid-
credit card is issued to access the new prepaid account or covered 
separate credit feature without a request or application under Sec.  
1026.12(a)(2).
* * * * *

    Dated: October 3, 2016.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2016-24503 Filed 11-21-16; 8:45 am]
 BILLING CODE 4810-AM-P