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Transaction Processors to CFPB: Proposed Regulation Could Cut Off Access and Innovation in Prepaid Industry
March 24, 2015
ATLANTA (March 24, 2015)—A leading industry association of payment processors is warning federal regulators that a proposed rule on prepaid accounts could severely limit consumer access and stifle innovation in the financial technology sector, if approved as written.
The American Transaction Processors Coalition (ATPC) submitted comments to the Consumer Financial Protection Bureau (CFPB) in response to the regulator’s proposed new rules for prepaid accounts.
“While we applaud the CFPB’s intentions to protect consumers, we are highly concerned that the proposed regulation will actually have the reverse effect by cutting off consumer access and stifling innovation,” said ATPC Executive Director H. West Richards. “Prepaid accounts are increasingly important tools for consumers and businesses alike. The CFPB needs to take the time to fully understand the potential unintended consequences of these rules before moving forward.”
The ATPC has also engaged Congress on behalf of the industry, forging a bipartisan consensus within Georgia’s Congressional Delegation that the proposed regulations could overly burden the state’s transaction processing industry. Members of the delegation have challenged the CFPB and the U.S. Treasury to fully study the risk of unintended consequences on consumers and the industry before finalizing the rule.
The full text of the ATPC letter follows:
March 23, 2015
Office of the Executive Secretary
Consumer Financial Protection Bureau
1700 G Street, NW
Washington, D.C. 20552
Re: Comment Letter in Response to Notice of Proposed Rulemaking on Prepaid Accounts [Docket No. CFPB–2014–0031]
Dear Ms. Jackson:
This Comment Letter is submitted to the Consumer Financial Protection Bureau (the "Bureau") on behalf of the American Transaction Processors Coalition ("ATPC") in response to the Notice of Proposed Rulemaking with Request for Public Comment regarding Prepaid Accounts under the Electronic Funds Transfer Act (Regulation E) and the Truth in Lending Act (Regulation Z), which was published in the Federal Register on December 23, 2014, at 79 Fed. Reg. 77102 (the "Proposed Rule"). The ATPC was created to protect, promote and preserve the interests of the transaction processing industry through proactive public relations and government affairs activities. Our member companies include Worldpay US; Elavon; FIS; InComm; Merchant e-Solutions (a Cielo Company); Ingenico; Bluefin; and Vesta. Sponsors include: Hunton & Williams (Founding sponsor); VCE; and Brightwell Payments.
Throughout the comment period, we have worked closely with several other trade groups including the Network Branded Prepaid Card Association (“NBPCA”) and have shared out collective concerns about the impacts of the Proposed Rule. In addition, we have carefully reviewed the comprehensive NBPCA comment letter filed today and concur with the concerns raised in that letter. We would also like to provide some additional thoughts on areas of particular concern to our membership.
OVERLY BROAD DEFINITION OF PREPAID ACCOUNT
The definition of “Prepaid Accounts” in the Proposed Rule goes well beyond anything suggested in the Bureau’s May 2012 Advanced Notice of Proposed Rulemaking on general purpose reloadable cards (“GPR Cards”). While we generally agree that it is appropriate to provide many of the same protections to GPR Cards as are provided to payroll cards under Regulation E, we don’t believe that the same Regulation E protections should apply to many of the other prepaid products included in the definition of “Prepaid Accounts” in the Proposed Rule. In fact, we would urge the bureau to limit the coverage of the Proposed Rule solely to reloadable prepaid accounts that are used by consumers as consumer asset accounts. We don’t believe that any other Prepaid Accounts warrant coverage under the Proposed Rule and including those other products under the Proposed Rule would likely stifle innovation, reduce consumer access to these valuable products and potentially remove them from the marketplace altogether.
PRE-ACQUISITION DISCLOSURE REQUIREMENTS NEED MORE FLEXIBILITY
We agree that the material fees for using a Prepaid Account should be disclosed prior to acquisition of the Prepaid Account. However, we don’t agree with the overly prescriptive nature of what needs to be disclosed in the short form disclosure or the need for the long form disclosure. We also don’t agree with the requirement to include incidence-based fees on the short form disclosure that have to be updated annually. When a consumer also receives a cardholder agreement with the card packaging materials which includes all of the applicable cardholder fees and the consumer has the ability to access the same information regarding cardholder fees in the cardholder agreement posted on both the CFPB’s website and the issuer’s website, we fail to see the utility of providing incidence-based fees on the short form disclosure. We are also concerned about the huge cost and administrative burdens of compliance with the incidence-based fee disclosure requirement.
For many of the same reasons, we strongly support removing the long form disclosure requirement in the final rule. With multiple other avenues for full and complete fee disclosure, yet another document will likely confuse consumers and increase costs to the industry without any corresponding consumer benefit. The Bureau expressed many of the same thoughts in the Proposed Rule when it stated “[t]he Bureau believes that the potential size and complexity of the long form might overwhelm and lead consumers to disregard the disclosure and also not use it to comparison shop across products or even to evaluate a single product.”
OVERDRAFT AND CREDIT FEATURES
The ATPC has serious concerns that regulating prepaid cards with overdraft and credit features under Regulation Z will likely eliminate these features from the prepaid card market. Overdraft features are highly desirable tools for several consumers who need a small advance in order to get to their next paycheck. These tools are often used for items such as groceries or gas to enable the consumer to travel to work in order to earn wages. Without overdraft features on prepaid cards, many consumers may be forced off the grid to much more expensive alternatives with much fewer consumer protections. GPR cards provide consumers with safe and convenient access to their funds and pricing that is often less than functionally similar financial tools. These benefits have been key drivers of the popularity of GPR Cards, which are particularly appealing to the approximately 67 million Americans who are unbanked or under-banked, who have limited or no access to bank branches or ATMs in their neighborhoods, cannot meet the eligibility or minimum balance thresholds required to qualify for traditional bank accounts (e.g., checking and savings accounts) or simply do not want a traditional bank account. The convenience, pricing and security of GPR Cards is also attractive to many members of Generation Y, who see little use for the infrastructure of traditional bank branches and paper checks. These consumers use prepaid cards for basic financial services allowing them to access the increasingly card based economy. Overdraft protection is an optional, valuable tool to for these GPR consumers if an emergency arises and they have no other avenue for covering a bill for a short period of time. These deserving consumers should not be disadvantaged just because they choose a GPR card to transact financial services.
Based on our member feedback, the ATPC believes that 9 months is not nearly enough time to implement such broad sweeping proposed rules. With all of the operational challenges and system updates that will be required, our members strongly believe that two years is a much more appropriate timeframe for implementation.
We appreciate the opportunity to comment on the Proposed Rule and look forward to working with the Bureau to develop common sense rules that will not restrict consumer choice, which is the likely result if prepaid card products and providers leave the market because of the overly-burdensome regulatory regime set forth in the Proposed Rule. If you have any questions or require further information, please do not hesitate to contact us.
H. West Richards
About the American Transaction Processors Coalition
The ATPC was created to protect, promote and preserve the interests of this critical Georgia industry through proactive public relations and government affairs activities. Member companies include: Worldpay US; Elavon; FIS; InComm; Merchant e-Solutions (a Cielo Company); Ingenico; Bluefin; and Vesta. Sponsors include: Hunton & Williams (Founding sponsor); VCE; and Brightwell Payments. Learn more at www.atpcoalition.org.