After several delays, on April 1, 2019, the Consumer Financial Protection Bureau (CFPB) Prepaid Accounts Rule (also known as the Prepaid Cards Rule) went into effect. This Rule requires specific upfront disclosures when it comes to prepaid cards, provides protection against unauthorized charges and errors, and makes using a prepaid card safer for consumers. The new Rule also provides powerful remedies for legal violations.
Read on to learn about what kinds of consumer protections and private remedies are available under the Prepaid Accounts Rule.
With a prepaid card, you (or perhaps your employer or the government), load money onto a card using direct deposit, checks, or cash. You can then use the card to pay for goods or services, withdraw cash from ATMs, or pay for healthcare costs.
Prepaid cards are generally the same shape and size as a credit card, and are sometimes associated with a bank or credit card name brand, like American Express, Visa, or MasterCard. But, unlike a credit card, when you use a prepaid card, you use the money that's already deposited into the account.
The Prepaid Accounts Rule covers most types of prepaid cards, including prepaid debit cards and payroll cards. A few entities that offer prepaid accounts include various banks, credit unions, American Express, NetSpend, Green Dot, Vanilla, as well as the payroll processor ADP. But some kinds of cards—like store gift cards and disaster relief cards—don’t fall under the Rule.
When applicable, the Prepaid Accounts Rule requires financial institutions that issue prepaid cards to:
To learn more about these protections, see Consumer Protections for Prepaid Cards.
The Prepaid Accounts Rule amends the Electronic Fund Transfers Act’s (EFTA) Regulation E and Truth in Lending Act’s (TILA) Regulation Z. Violations can lead to private remedies under these laws.
Violations of the EFTA can result in liability for actual damages, statutory damages not less than $100 nor greater than $1,000, plus costs and reasonable attorneys’ fees. For a class action suit, the maximum is the lesser of $500,000 or 1% of the defendant’s net worth, plus costs of the action and reasonable attorneys’ fees. (15 U.S.C. § 1693m). Also, some violations concerning error resolutions can result in treble damages. (15 U.S.C. § 1693f(e)).
Failure to comply with Regulation Z provisions may result in TILA remedies, including actual damages, costs, and attorneys’ fees. (15 U.S.C. § 1640(a)). Some violations may result in statutory damages of between $500 and $5,000, or to such higher amount as might be appropriate in the case of an established pattern or practice of noncompliance. (15 U.S.C. § 1640(a)(2)(A)(iii)).
If you think the issuer of a prepaid card has violated the law and you want to learn more about your rights and potential remedies, consider talking to a consumer protection lawyer. Be aware, though, that merchants may continue to sell the noncompliant cards that they have in stock that were manufactured before the law’s effective date. Also, some Rule provisions have a later effective date. An attorney can further discuss these limitations with you.
Effective date: April 1, 2019