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Don’t let the new prepaid card rules be a surprise
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Page 1: Don’t let the new prepaid card rules be a surprise · Where are prepaid cards used? General purpose reloadable prepaid cards Federal Reserve Bank of Kansas City, February 2014 Transaction

Don’t let the new prepaid card rules be a surprise

Page 2: Don’t let the new prepaid card rules be a surprise · Where are prepaid cards used? General purpose reloadable prepaid cards Federal Reserve Bank of Kansas City, February 2014 Transaction

Introducing:

Rod EversonExperian

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1. Prepaid card market

2. The new prepaid rule

3. Customer Identification Program (CIP), Bank Secrecy Act and Anti Money Laundering

4. Action plan

Contents

5/3/2017 Experian Public Vision 2017

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©Experian 4

Prepaid card market

5/3/2017 Experian Public Vision 2017

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Credit cardAttached to an open end line of credit from which the consumer can borrower money

Debit card Attached to a deposit account from which funds are withdrawn

Prepaid card (closed loop)Attached to an amount of “prepaid” funds that may only be used at affiliated merchants

Prepaid Card (open loop)Prepaid account that may be used at multiple, unaffiliated merchants for goods or services, or at ATM’s, or to conduct PTP transfers, usually reloadable (i.e. “GPR” – general purpose reloadable)

Types of cards, generally

5/3/2017 Experian Public Vision 2017

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All prepaid and debit cards

• 2015

– Grew to 69.5 billion payments with a value of $2.56 trillion

• 2012 through 2015

– Up13.0 billion payments (7.1 % annually)

– $460 billion in value (6.8% annually)

• Debit card payments led growth

Debit and prepaid card market growthThe Federal Reserve Payments Study 2016

5/3/2017 Experian Public Vision 2017

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Prepaid cards (open and closed loop)

• 2015

– Grew to 9.9 billion payments with a value of $270 billion

• 2012 through 2015

– Up 0.6 billion payments (2.3% annually)

– Up $40 billion in value (5.5% annually)

• Majority of growth in general purpose (open loop) prepaid cards

Prepaid card market growthThe Federal Reserve Payments Study 2016

5/3/2017 Experian Public Vision 2017

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General purpose prepaid cards (open loop)

• 2015

– Grew to 3.7 billion by number with a value of $120 billion

• 2012 through 2015

– Up 0.6 billion by number (5.6% annually)

– Up $20 billion in value (4.4% annually)

• Much slower than 2009 to 2012 growth rate

General purpose prepaid card market growthThe Federal Reserve Payments Study 2016

5/3/2017 Experian Public Vision 2017

CAGR is compound annual growth rate.

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Where are prepaid cards used?General purpose reloadable prepaid cardsFederal Reserve Bank of Kansas City, February 2014

Transaction share (%)

Rank Merchant category Volume Value Average ticket

1 Grocery stores 13.7 19.2 $52.52

2 Gas stations 18.8 8.0 $16.02

3 Telecommunications 3.4 6.5 $70.87

4 Cable 1.7 5.0 $112.03

5 Utilities 1.6 4.9 $112.20

6 Fast food restaurants 14.8 3.7 $9.34

7 Restaurants 5.9 3.6 $22.55

8 Discount stores 3.7 3.4 $35.26

9 Insurance 1.0 3.1 $113.36

10 Auto dealers 0.5 2.8 $225.76

Primarily used

for necessities

• Grocery, fast food, and

restaurants represent

almost 50% of transactions

• Gas almost another 20%

• Not listed are “cash

withdrawals” which

represent up to 50%

of funds withdrawn

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Prepaid card user profileWhy Americans Use Prepaid Cards: Pew Charitable Trust – February 2014

5/3/2017 Experian Public Vision 2017

Prepaid card users (%) U.S. population (%)

Renters 48 35

Homeowners 49 65

Single 45 31

Married 35 50

Separated / divorced 15 13

Widowed 3 6

Employed 62 59

Full-time 45 N/A

Part-time 17

Unemployed 8 8

Disabled 7 N/A

Retired 8 23

Homemaker 7 6

Student 6 5

Income less than $15,000 22 13

$15,000 to under $25,000 16 11

$25,000 to under $30,000 9 25

$30,000 to under $40,000 8

$40,000 to under $50,000 7

$50,000 to under $75,000 11 19

$57,000 to under $100,000 6 12

$100,000+ 8 21

Don’t know / refused to answer 13 N/A

Prepaid card users (%) U.S. population (%)

White (non-Hispanic) 52 64

African-American (non-Hispanic) 24 12

Hispanic 12 16

Other race / ethnicity 9 8

Ages 18-29 27 22

Ages 30-49 46 37

Ages 50-64 21 25

Ages 65+ 5 17

Parent 34 30

Not a parent 66 70

Less than high school 14 15

High school 34 29

Some college 28 30

College 12 16

Postgraduate 7 9

Male 48 49

Female 52 51

Northeast 16 18

South 42 37

Midwest 24 22

West 18 23

Unbanked: Study also

showed that 41% do not

have checking accounts,

and 33% have never had

a credit card!

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Prepaid card complaints

• CFPB has handled approximately 6,000 prepaid complaints since July 21, 2011

• Common complaints noted by CFPB

– Questionable transactions on card

– Lost access to funds without notification after submitting a dispute

– Numerous contacts before a new card was issued

– Difficulty using cards after purchase

– Cards issued without proper verification resulting in theft of funds

– Unable to check their balance and transaction history online or were not provided with statements

Prepaid card consumer complaintsCFPB: Monthly Complaint Report – October 2016

5/3/2017 Experian Public Vision 2017

CAGR is compound annual growth rate

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• February 1, 2017 – CFPB orders payment of $13 million in restitution and fines

– Technological breakdowns left tens of thousands unable to access their money and without customer support

• November 10, 2016 – FTC sues prepaid card vendor for marketing and operational practices

– Settled on March 31, 2017 for $53 million

Enforcement actions

5/3/2017 Experian Public Vision 2017

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New prepaid rule

5/3/2017 Experian Public Vision 2017

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October 5, 2016: Consumer Financial Protection Bureau (CFPB) issued the final Prepaid Rule

• April 20, 2017 CFPB officially delayed the effective date until April 1, 2018

– More time to pull and replace packaging

– CFPB reserved the right to make changes to the rule during the extended period

• Linking of credit cards to digital wallets that are capable of storing funds

• Error resolution and limitations on liability for prepaid accounts that haven’t been registered

Effective date

5/3/2017 Experian Public Vision 2017

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1. Payroll card accounts and government benefit accounts (like SNAP, Social Security…)

2. Includes a product that is either of the following, unless a specific exclusion applies:

A. An account that is marketed or labeled as “prepaid” and is redeemable upon presentation at multiple, unaffiliated merchants for goods and services or usable at automated teller machines (ATMs); or

B. An account that meets all of the following:

a. Is issued on a prepaid basis in a specified amount or is capable of being loaded with funds after issuance;

b. Whose primary function is to conduct transactions with multiple, unaffiliated merchants for goods or services, to conduct transactions at ATMs, or to conduct person-to-person (P2P) transfers; and

c. Is not a checking account, a share draft account, or a negotiable order of withdrawal (NOW) account

Do you have prepaid accounts?Regulation E definition of “prepaid account”

5/3/2017 Experian Public Vision 2017

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Not a prepaid account if any of the following are met:

• An account loaded only with funds from a HSA, flexible spending arrangement, medical savings account, health reimbursement arrangement, dependent care assistance program, or transit or parking reimbursement arrangement

• An account loaded only with qualified disaster relief payments

• A gift certificate

• A store gift card

• A loyalty, award, or promotional gift card

• A general-use prepaid card that is both marketed and labeled as a gift card or gift certificate

• An account established for distributing needs-tested benefits

• An account established for a commercial purpose

Do you have prepaid accounts?Regulation E exclusions

5/3/2017 Experian Public Vision 2017

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Modifies Regulation E requirements provisions governing

• Disclosures

• Limited liability and error resolution, and

• Periodic statements.

• Internet posting and submission to the CFPB of prepaid account agreements

Modifies Regulation Z requirements provisions governing

• Overdraft credit features that may be offered in conjunction with prepaid accounts

Rules governing prepaid accounts

5/3/2017 Experian Public Vision 2017

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Pre-acquisition disclosure requirements for prepaid accounts

• Must provide a consumer with the following before the consumer acquires the prepaid account:

– A short form disclosure;

– Outside but in close proximity to the short form disclosure, a financial institution must disclose its name, the name of the prepaid account program, any purchase price for the prepaid account, and any fee for activating the prepaid account; and

– A long form disclosure must be available.

• Must be in a specific format

• Model forms are available

Disclosures

5/3/2017 Experian Public Vision 2017

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The short form disclosure must contain:

• For payroll card accounts only, a statement that the consumer does not have to accept the payroll card account (similar rule for government benefit account)

• “Static fees” – i.e. periodic fee, per purchase fee, ATM fees, cash reload fee, customer service fees, and inactivity fee

– Must be listed, even if $0

• Number of fee types in addition to the static fees

– With limited exceptions, the two additional fee types that generated the highest revenue during the previous 24 months.

• Exclude any fee type that generated less than 5% of the total revenue from consumers

• Statements regarding:

– Linked overdraft credit features

– Registration and FDIC / NCUA insurance

– URL for the CFPB’s website about prepaid accounts, and

– Where the consumer can find the long form disclosure

Short form disclosures

5/3/2017 Experian Public Vision 2017

A-10(B) – Sample form for Short Form Disclosures for payroll card accounts

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The long form disclosure must contain:

• A title, including the name of the prepaid account program

• Information about all fees that may be imposed in connection with the prepaid account (not just fees for electronic fund transfers) and the conditions under which they may be imposed

• Additional disclosures:

– Registration and FDIC / NCUA insurance

– Linked overdraft credit features

– The financial institution’s contact information

– cfpb.gov / prepaid website for information about prepaid accounts

– cfpb.gov/complaint and the Bureau’s telephone number (1-855-411-2372) to submit a complaint related to a prepaid account

– For prepaid accounts offering an overdraft credit feature, must also include the Regulation Z disclosures described in §1026.60(e)(1)

Long form disclosures

5/3/2017 Experian Public Vision 2017

A-10(F) – Sample form for Long Form Disclosures for prepaid accounts

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Disclosures must be provided before a consumer acquires a prepaid account

• Prepaid accounts sold at retail locations

– May provide the long form disclosure after acquisition if the short form disclosure contains information enabling the consumer to access the long form disclosure by telephone, or on a website

– Similar accommodation is made if acquired orally by telephone

Requires financial institutions to provide the pre-acquisition disclosures electronically for prepaid accounts that are acquired online or via a mobile device

• Permits providing without E-Sign consent

When and how?Providing disclosures

5/3/2017 Experian Public Vision 2017

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May require disclosures to be provided in a foreign language, as well as in English

• Language used in packaging, advertisement or when acquired by phone or electronically

Make certain disclosures on the access device such as a card

• Institution name, website and telephone

– If no physical access device, disclosures must be on the website, mobile application, or where the prepaid account is accessed

Regulation E initial disclosures for prepaid accounts

• Must include all of the information in the long form disclosure

When and how?Providing disclosures

5/3/2017 Experian Public Vision 2017

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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

– Does not require provisional credit for unverified accounts

– Once verified, the financial institution generally may take longer than 10 days to investigate and determine whether an error occurred

• Only if it provisionally credits the consumer’s account in the amount of the alleged error, minus a maximum of $50

Error resolution and limitations on liability

5/3/2017 Experian Public Vision 2017

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Requires periodic statements for prepaid accounts

Alternative to periodic statements allowed if all of the following is provided:

• Account balance information is available by telephone;

• Electronic account transaction histories

– Must cover at least 12 months preceding the date on which the consumer electronically accesses the prepaid account; and

• Written account transaction histories are available upon request

– Must cover at least 24 months preceding the dateof the request

Periodic statements and account transaction histories must display

• A summary total of the amount of all fees assessed for the prior calendar month

• For the calendar year to date

Periodic statements and the periodic statement alternative

5/3/2017 Experian Public Vision 2017

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Requires issuers to submit to the CFPB new and amended prepaid account agreements and notification of withdrawn agreements

• Must submit no later than 30 days after the issuer offers, amends, or ceases to offer the agreement

• Issuer must also post the account agreement in a prominent and readily accessible location on its website

– If not posted on the issuer’s website, the issuer must provide a consumer with a copy of the consumer’s prepaid account agreement no later than 5 business days after the issuer receives the consumer’s request for the agreement

Internet posting and submission of prepaid account agreements

5/3/2017 Experian Public Vision 2017

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A prepaid card is a hybrid prepaid-credit card under Regulation Z if:

• The card can be used from time-to-time to access credit from a separate credit account (separate credit feature);

• The separate credit feature is offered by the prepaid account issuer, its affiliate, or its business partner; and

• The card can be used to access the separate credit feature in the course of authorizing, settling, or otherwise completing transactions

Overdraft credit featureshybrid prepaid-credit card

5/3/2017 Experian Public Vision 2017

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A prepaid card is a also a hybrid prepaid-credit card if:

• If it is a single device that can be used from time to time to access credit through a negative balance on the prepaid account’s asset feature unless:

– The prepaid account issuer has a policy and practice of declining to authorize transactions where:

• The consumer has insufficient funds to cover the transactions; or

• Declining to authorize such transactions except when the amount of the transaction will not cause the account to be negative by more than $10; or

• The transaction is conducted when incoming deposits to the prepaid account are pending

– Issuer does not charge certain credit-related fees; and

– The prepaid card cannot access credit from a covered separate credit feature (previous slide)

Rule generally requires issuers to structure an overdraft credit feature accessible by a hybrid prepaid-credit card as a separate credit feature

• Discourages a negative balance to a prepaid account

Overdraft credit featuresNegative account balances

5/3/2017 Experian Public Vision 2017

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Linking to separate credit feature:

• Must wait at least 30 days after the prepaid account is registered before soliciting a consumer to link a covered separate credit feature to a prepaid account

– Must obtain consumer consent to link such a credit feature to the prepaid account

Offset

• Permitted to deduct all or part of the cardholder’s debt on a covered separate credit feature automatically from the prepaid account or other deposit account held by the card issuer

– But, no more frequently than once per month; and

– Only pursuant to a cardholder’s signed written authorization

Overdraft credit featuresAdditional rules

5/3/2017 Experian Public Vision 2017

Payments

• Must allow consumers to have at least 21 days to repay the debt incurred in connection with the use of such covered separate credit features that are open-end (not home-secured) consumer credit plans

Ability to Repay (CARD Act)

• Applies to hybrid prepaid-credit cards – may use “modeled income” for debt to income

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Customer Identification Program (CIP) and Bank Secrecy Act (BSA)

5/3/2017 Experian Public Vision 2017

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March 21, 2016 –Interagency Guidance to Issuing Banks on Applying Customer Identification Program: Requirements to Holders of Prepaid Cards

Clarifies that CIP applies to the cardholders of certain prepaid cards by “issuing banks”

• Determine if an “account” is established as defined under CIP

– Prepaid cards that are also accounts includes those with:

• The ability to reload funds; or

• Access to credit or overdraft features

• Requirements under CIP

– Must verify the identify the customer

Identity verificationCustomer Identification Program (CIP)

5/3/2017 Experian Public Vision 2017

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FinCEN: Prepaid Access Rule: 31 CFR 1010

• Generally prepaid access is subject to the BSA / AML rules

– Number of exceptions

• Closed loop programs where $2,000 per day limit

• Government and health benefit and payroll cards

• No more that $1,000 may be loaded, used or withdrawn each day; and the following are not allowed:

– Funds or value to be transmitted internationally;

– Transfers between users of prepaid access within a program; or

– Loading additional funds from non-depository sources

• All participants within a prepaid program must determine a single participant to be the provider of prepaid access

– Otherwise falls into who has “principal oversight and control”

• Sellers (re-loaders) may also be subject to the rules

Bank Secrecy Act (BSA) / Anti-Money Laundering

5/3/2017 Experian Public Vision 2017

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Action plan

5/3/2017 Experian Public Vision 2017

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Immediately audit and identify whether or not you offer prepaid accounts as subject to the rule in your organization

• Also determine if you may offer “hybrid prepaid-credit cards”

• Research negative balance policies and practices on prepaid accounts

If identified then conduct operation review and prepare

• Disclosures

• Limited liability and error resolution

• Periodic statements

• Internet posting and submission to the CFPB of prepaid account agreements

Ensure compliance with CIP / BSA for new prepaid accounts

• Ensure this is in place immediately!

Don’t be surprised!

5/3/2017 Experian Public Vision 2017

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Experian contact:

Rod EversonSenior Product ManagerDecision Analytics/Decision Science Solutions

[email protected]

Questions and answers

5/3/2017 Experian Public Vision 2017

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Share your thoughts about Vision 2017!

5/3/2017 Experian Public Vision 2017

Please take the time now to give us your feedback about this session.

You can complete the survey at the kiosk outside.

How would you rate both the Speaker and Content?

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