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Banking and Finance

CFPB Gathers Comments in Advance of Potential Regulation of General Use Prepaid Reloadable Cards


The Consumer Financial Protection Bureau has begun the process of issuing new rules to govern the booming, multi-billion dollar market in certain reloadable debit cards. On May 24, 2012, the Bureau issued an Advanced Notice of Proposed Rule-making (the "Advanced Notice") to solicit public comments on several aspects of potential future regulation of general use prepaid reloadable cards. By the time the comment period closed on July 23, 2012, the Bureau received over 200 comments from trade associations, consumer groups, and individuals.

In the Advanced Notice, the Bureau indicated that it will focus new rules on a particular type of prepaid card, called a "general purpose reloadable card" (or "GPR card"). The Advance Notice explained how these cards work:

A GPR card is issued for a set amount in exchange for payment made by a consumer. A GPR card is reloadable, meaning the consumer can add funds to the card.

Although the Bureau uses the term "card", the proposed rules may cover other devices with this same functionality, including key fobs or cell phone apps used to access a customer's financial account.

The Advanced Notice did not solicit comments on the following: "'closed loop' cards, debit cards linked to a traditional checking account, non-reloadable cards, payroll cards, electronic benefit transfers (EBTs), or gift cards." This signals that the forthcoming rules will not cover these products. The Bureau explained the difference between closed loop cards (which are not covered by the Advance Notice) and "open loop" cards (which are covered). Closed-loop cards can only be used by consumers, at a specific merchant or group of merchants. Other cards are "open-loop cards," which a consumer can use anywhere that accepts payment from a retail electronic payments network, such as Visa, MasterCard, American Express, or Discover.

In the Advanced Notice, the Bureau noted that GPR cards are not currently covered by Regulation E. The Advanced Notice highlighted several regulatory concerns of the Bureau with respect to these products in light of this relative lack of regulation. [footnotes omitted]

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