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Prepaid Card Firms Make Final Push to Change CFPB Rule
Wednesday, April 27, 2016 6:30 AM

The prepaid card industry is ramping up its advocacy efforts on Capitol Hill as the Consumer Financial Protection Bureau readies a final rule targeting such products.

The agency unveiled a proposal in 2014 that would regulate the industry in a number of ways, but one that has proved to be particularly sensitive is treating overdraft features on prepaid cards as "open-end credit," putting them under the same rules as credit cards.

"It becomes challenging to continue to offer that product" if that provision is kept as part of the final rule, said Chuck Harris, president of the prepaid card manager NetSpend. "At the end of the day, we built the feature for a very important need of our customer… that really fits in a market or segment where there is a gap."

The CFPB's proposal would require prepaid cards with overdraft fees to comply with Regulation Z, the same rule that credit cards must follow. Under that rule, firms must first conduct an assessment to ensure borrowers have the "ability to repay" any overdraft, a move that makes compliance more expensive. Traditional overdraft fees fall under Regulation E, which carries less compliance costs.

The CFPB was initially expected to finalize the rule earlier this year, but its release date was pushed back. Businesses such as NetSpend are using the extra time to pressure lawmakers to weigh in on their behalf. They are hoping to persuade the CFPB to make an exception to the Regulation Z requirement.

"There is still time on the clock, so we are going to play and play hard until the rule is final and try and find a workable compromise," Harris said.

Read more at CU Journal.