Office of the Executive Secretary Consumer Financial Protection Bureau 1700 G Street, NW Washington, DC 20552 Re: Amendments to Rules Concerning Prepaid Accounts Under the Electronic Fund Transfer Act and the Truth in Lending Act, Docket No. CFPB-2017-0015 Dear Ms. Jackson: The U.S. Chamber of Commerce (the Chamber ) is the world s largest business federation; representing the interests of more than three million companies of every size, sector, and region. The Chamber created the Center for Capital Markets Competitiveness ( CCMC ) to promote a modern and effective regulatory structure for capital markets to fully function in a 21 st century economy. CCMC appreciates the opportunity to comment on the proposed rule regarding prepaid accounts, prepaid cards, and virtual wallets ( prepaid cards ). The Consumer Financial Protection Bureau (the Bureau ) has rightly recognized the importance of the prepaid card market to a wide range of American consumers. Prepaid products play an important part in the financial lives of many Americans, allowing countless consumers to receive their paychecks or benefits safely and conveniently, and giving others the flexibility and services they need in today s economy. These products are particularly widely used by unbanked and underbanked Americans, as they give them access to mainstream financial services and thereby facilitate their participation in our increasingly digital world. As we have explained previously, industry competition in a dynamic marketplace, coupled with existing state and federal regulation, has led to the development of prepaid cards with terms and features that are very favorable to consumers. For example, prepaid card issuers already typically provide consumers with clear disclosures, low fees, and services such as fraud monitoring and error
Page 2 resolution. As such, large portions of the Bureau s final rule governing prepaid accounts (the Prepaid Rule or Rule ) confirm existing industry practices. 1 We continue to be concerned, however, about the complexity of the Prepaid Rule and the resulting compliance challenges for businesses. The Prepaid Rule amends two separate regulatory regimes in significant ways, creating complexities and questions that businesses are still working through. Based on the Bureau s current proposal, we gather that the Bureau appreciates this complexity and the substantial compliance challenges that even slightly miscalibrated regulations will impose. We hope that the Bureau likewise agrees that it is crucial to take the time reasonably necessary to get the Prepaid Rule right before it goes into effect. The Bureau s present proposal is designed to resolve issues that have come to light since issuance of what was intended to be the final version of the Prepaid Rule. 2 We appreciate that the Bureau listened to feedback and subsequently released the proposal to make much needed improvements to the Rule. We also were pleased to see the Bureau s changes where the prepaid accounts are the only means of access and the changes regarding the reporting of relevant parties. This type of collaboration furthers an important dialogue between the Bureau and stakeholders that we hope will facilitate the effective implementation of this complex regulatory regime. We remain concerned, however, that the Bureau is moving too quickly. The stakes are high: get the rule wrong and businesses will bear unreasonable compliance burdens that will make products unduly expensive or unavailable to the consumers that want them. There is no good reason to risk such an outcome here by rushing the process and prematurely implementing the Rule. The Bureau instead should take the time necessary to ensure that compliance with the Prepaid Rule is reasonably achievable, both by allowing more time for compliance generally and by addressing the specific compliance challenges that arise for issuers across the many different categories of covered products. We accordingly write to emphasize four points: The Bureau should delay the Prepaid Rule s effective date by one year; 1 We use the phrase Prepaid Rule to refer to the final rule issued on November 22, 2016, as amended on April 25, 2017. See Prepaid Accounts Under the Electronic Fund Transfer Act (Regulation E) and the Truth In Lending Act (Regulation Z), 81 Fed. Reg. 83934 (Nov. 22, 2016) (individually, the 2016 Final Rule ), Prepaid Accounts Under the Electronic Fund Transfer Act (Regulation E) and the Truth in Lending Act (Regulation Z); Delay of Effective Date, 82 Fed. Reg. 18975 (April 25, 2017) (individually, the 2017 Effective Date Final Rule ). 2 See Amendments to Rules Concerning Prepaid Accounts Under the Electronic Fund Transfer Act (Regulation E) and the Truth in Lending Act (Regulation Z), 82 Fed. Reg. 29630 (June 29, 2017).
Page 3 The Bureau should use clear guidance and no-action letters to support compliance; The Bureau should confirm that the business partner exception allows for electronic signatures and that its authorization requirement does not apply retroactively; The Bureau should not proceed with the proposed error resolution look back requirement at this time; Discussion (1) The Bureau Should Delay the Prepaid Rule s Effective Date by One Year. The Bureau s current proposal is the latest step in the complex process of developing a new regulatory structure to govern the prepaid account market. To recap, the Bureau first issued an advanced notice of proposed rulemaking and request for public comment in 2012. 3 The Bureau then released a proposed rule regulating prepaid accounts under Regulation E and Regulation Z in 2014. 4 The proposed rule called for public comment on a variety of issues and received numerous detailed responses from industry and other stakeholders. The Chamber submitted a comment urging the Bureau to, among other things, avoid imposing a de facto ban on overdraft protections, avoid sweeping innovative financial services into an ill-fitting regulatory regime, and provide an adequate implementation period between finalization of the rule and its effective date. 5 The 2016 Final Rule diverged from the Bureau s proposed rule in significant respects. These divergences in large part reflected the Bureau s attempts to respond to stakeholders comments and concerns. As the Bureau itself recognizes, 6 however, these changes created issues that institutions had not been able to anticipate or respond to in their 2016 comments. This was for good reason, as the Bureau substantially changed large portions of the rule from the proposal. While many of the concepts remained the same, for example, the portions of the rule amending Regulation Z were a substantial rewrite from the proposal, requiring an entire new 3 Electronic Fund Transfers (Regulation E), 77 Fed. Reg. 30923 (May 24, 2012). 4 Prepaid Accounts Under the Electronic Fund Transfer Act (Regulation E) and the Truth in Lending Act (Regulation Z), 79 Fed. Reg. 77102 (Dec. 23, 2014). 5 See Letter from Jess Sharp to Monica Jackson, http://www.centerforcapitalmarkets.com/wpcontent/uploads/2015/03/2015-3.23-cfpb-prepaid-comment-letter.pdf (Mar. 23, 2015). 6 See 82 Fed. Reg. at 29630.
Page 4 period of evaluation from affected stakeholders. Presumably recognizing the resulting need for further stakeholder input, the Bureau issued the 2017 Effective Date Final Rule, 7 which delayed the effective date by six months, to April 1, 2018. The Bureau s present proposal includes additional amendments to the Prepaid Rule that may create new complexity and therefore further complicate an already difficult implementation process. This is especially problematic because the comments responding to this proposal must be reviewed and a final rule must be written. This process is transpiring as institutions are racing to implement by April 1, 2018, even though the Prepaid Rule might change in response to this proposal. The Bureau consequently should delay the effective date of the Prepaid Rule to April 1, 2019 so that industry participants can ensure full compliance prior to the effective date. As some commentators noted in response to the Bureau s April 2017 inquiry, an extension to April 1, 2018, is not sufficient to account for the significant implementation challenges facing the industry including, among other things, the packaging changes, employee training, and system updates required by the Prepaid Rule. Concerns that were raised at the time included: The necessity of working with the wide array of industry providers (vendors, distribution partners, issuing banks, etc.) that support the function of a prepaid-card program; The fact that prepaid card providers offer a wide variety of products which must be closely reviewed to determine the Prepaid Rule s applicability (or non-applicability) to each individual product; The significant amount of new disclosures required by the Prepaid Rule, including the Short-Form Disclosure and the Long-Form Disclosure, in addition to the need to make changes to Cardholder Agreements and prepaid account program collateral; The disruption of compliance review and revisions due to increased production and sales during the Holiday season a peak time for prepaid card distribution; In addition to these preexisting difficulties, the amendments that the Bureau is now proposing will require further implementation, training, and system changes. For example, the proposed changes to the error resolution and limited liability framework 7 82 Fed. Reg. at 18975.
Page 5 in Regulation E include disclosure requirements that will require alterations in compliance efforts that Chamber members have already planned or completed in preparation for the Prepaid Rule. 8 Making such changes will require the investment of substantial time and resources, as well as significant coordination across entities. Moreover, the ongoing uncertainty over the exact requirements of the Prepaid Rule continues to complicate compliance efforts: Chamber members cannot finalize their compliance plans until the final version of the rule is issued, and as noted above, the comment and rule-writing process will consume numerous months before institutions will be notified of the exact standard to implement. 9 And of course, for practical purposes, such compliance efforts should be built around the realities of the retail market in which prepaid cards are so commonly distributed. To that end, we understand from Chamber members that only delaying the April 2018 implementation deadline by less than a full year would conflict with the demands of the 2018 holiday season. Put simply, delaying the implementation date by only six months or fewer will land the date right at the start of holiday season when institutions and retailers do not have the ability or bandwidth to make compliance changes. (2) The Bureau Should Use Clear Guidance And No-Action Letters To Support Compliance. The Bureau should support compliance efforts by providing meaningful guidance during the ongoing implementation process. The complexity of implementing the Prepaid Rule demands that the Bureau provide industry stakeholders with meaningful guidance on how to ensure compliance. In this vein, we note that the Bureau s small entity compliance guide for the Prepaid Rule is a start, but is not sufficient. This 160-page document aims to provide additional clarity in lieu of revisions to the regulatory text or commentary. 10 But it specifically disclaims any authority as a definitive interpretation of the Prepaid Rule. Instead, it states that it is only a summary of information that may be helpful. 11 As the guide makes clear, only Regulation E, Regulation Z, the Prepaid Rule, and their official interpretations...are the definitive sources of information regarding their 8 82 Fed. Reg. at 29641. 9 We do not attempt here to catalog all of the compliance questions or challenges that we understand that Chamber members face in meeting the requirements of the Prepaid Rule. We note, however, that these compliance challenges can vary widely across different companies based on factors such as the particular products offered (e.g. government benefit accounts) and the company s pre-existing approach to the ideas reflected in the rule (e.g. whether a company allows a consumer to print certain disclosures on demand). 10 82 Fed. Reg. at 29632. 11 Prepaid Rule: Small Entity Compliance Guide: Prepaid Rule 2.0, 1.1 (June 2017).
Page 6 requirements. 12 In short, the Bureau recognizes and ensures the limited value of the guide for industry compliance efforts. Since the Bureau is mandating these changes, it should issue guidance that industry can rely on instead of only nonbinding clarifications intended for a subset of the marketplace. We urge the Bureau to engage substantively with prepaid card issuers during and after the implementation period for the Prepaid Rule. We see no value in the Bureau bringing future gotcha enforcement actions against companies that will have worked hard to comply with the Prepaid Rule, but that did not succeed because they could not discern what they require. Indeed, the complexity of the Prepaid Rule highlights the need for a meaningful no-action letter process at the CFPB, similar to the practice at numerous other regulators. A robust process that allowed the Bureau to issue no-action letters, as well as advisory opinions, would be invaluable to implementation of the Prepaid Rule by allowing companies to bring innovative solutions and approaches to the Bureau without threat of retribution and the confidence they will not face private or public legal actions for new approaches to compliance. 13 As we have explained previously, many other regulators have used such processes to great success. We continue to hope that the Bureau will learn from their models and establish a similar process, instead of the current format that is intentionally constrained by unnecessary and counterproductive limitations. (3) The Bureau Should Confirm That The Business Partner Exception Allows For Electronic Signatures And That Its Authorization Requirement Does Not Apply Retroactively. We commend the Bureau for proposing an exception to the credit-related provisions in Regulation Z for certain business arrangements between prepaid account issuers and credit card issuers. As the Bureau rightly recognizes, 14 this exception is necessary to resolve the difficulties inherent in applying the credit-related provisions to credit card accounts that are linked to digital wallets, a product that is designed to facilitate the use of multiple payment options and thus does not fit neatly within the Rule s broader overdraft-protection regulations. To ensure that the 12 Id. 13 We have previously written to the Bureau urging it to limit the restrictions on its no-action letter process as well as to issue advisory opinions in keeping with the approaches adopted by fellow regulators. For example, see Letter from Jess Sharp to Dan Quan, http://www.centerforcapitalmarkets.com/letter-to-cfpb-regarding-proposed-policy-on-no-actionletters-121514/ (Dec. 15, 2014). 14 82 Fed. Reg. at 29632.
Page 7 benefits of this exception are realized, we would urge the Bureau to make two changes to the final version of the exception: First, the Bureau should confirm that a written request 15 for a prepaid card to access credit from a linked credit card account may be made electronically. Judging by the language of the E-Sign Act, 16 it is only logical that a customer should be able to provide his or her signature or initialization by E-signature. Not only does it align directly with the statute, this approach would satisfy the Bureau s goals of ensuring that customers are not pressured to link accounts and promoting deliberate affirmative decision-making, 17 without disrupting the industry practice of obtaining consent through electronic means. By contrast, demanding hard-copy consent forms would require businesses that are already successfully using electronic consent forms to develop and implement a hard-copy consent process for the purpose of complying with the Prepaid Rule. Developing such a process would be enormously costly for businesses without affording any meaningful benefits to consumers. Indeed, requiring the submission of a hard-copy signature would be disruptive for consumers, who are accustomed to using E-signatures for their own convenience. E-signatures are employed in connection with numerous financial products other than prepaid cards, as indicated by the enactment of the E-Sign Act 17 years ago. We are not aware of any data that would support the Bureau singling out prepaid cards by imposing signature requirements that are different than those of other financial products. Second, the authorization requirement should not apply retroactively to cardholders who obtained their prepaid cards before the Prepaid Rule s effective date. Requiring providers to retroactively obtain a written request from consumers who are currently receiving such services will disrupt the industry in several respects. Providers faced with the necessity of reaching out to existing consumers and requesting their affirmative signature will incur costs both in designing and implementing the new process, and in following up with consumers who do not initially respond. Consumers will be inconvenienced by being forced to respond to their providers inquiry in order to continue to receive a service they selected when they chose their prepaid account. Additionally, consumers may be subjected to service disruption if they fail to promptly submit their written consent. 18 15 Id. at 29666. 16 15 U.S.C 7001(a). 17 See id. at 29652. 18 The risk of disruption of service due to a consumer s failure to respond would be particularly high if the Bureau required hard-copy consent as described above.
Page 8 (4) The Bureau Should Not Proceed With The Proposed Error Resolution Look Back Requirement At This Time. We welcome the Bureau s revision providing that financial institutions will not be required to resolve errors or limit customers liability on unverified prepaid accounts. 19 This approach is a step in the right direction, as requiring verification prior to initiating fraud and error protections reduces the risk of fraud loss to Chamber members that would otherwise have difficulty (a) investigating claims on an anonymous account; or (b) preventing repeated fraudulent claims brought by a single individual. We are concerned, however, that the Bureau proposes for this error resolution requirement to apply retroactively. Under this proposed look back provision, financial institutions would be required to resolve errors relating to disputed transactions that occurred prior to the consumer s verification of his or her identity. But this approach undermines the consumer s incentive to verify the account. A consumer could simply wait to verify the account until after fraudulent activity occurs. This increases the risk of fraud loss for issuers because it is more difficult to detect and prevent fraud without the information provided as part of the verification process. Issuers already engage in a variety of fraud monitoring efforts in connection with prepaid cards, such as tracking performance metrics, flagging metrics that deviate beyond pre-defined risk thresholds, reviewing daily exception reports, and sharing information among industry participants to better identify and stop fraudulent activity. After a prepaid card has been verified, the issuer has the information it needs to detect fraud, stop fraud, and engage in other risk-management practices. Before verification, however, issuers are at an information disadvantage that inhibits their ability to effectively engage in these risk-management practices. 20 These increased risks inherent in the pre-verification phase make a look back provision unwise. It also could prove unfair, as providers may well decide to resolve pre-verification issues in consumers favor (even when there is no basis for doing so) rather than attempt to resolve them without reasonable access to the necessary facts. Absent a compelling reason to impose such burdens on issuers, the Bureau should focus on encouraging consumers to verify their cards as soon as possible. Verification benefits consumers 19 82 Fed. Reg. at 29630. 20 Although the look back period is limited by the 60-day limit contained in Electronic Fund Transfer Act 908(a), a 60-day period is sufficient for significant fraud losses to occur should they go undetected. Incentivizing early verification will reduce fraud generally, ultimately benefiting consumers.
Page 9 as well as issuers, as issuers can provide better, more complete service to verified customers. The Bureau should encourage consumers to take that important step. We thank you for the opportunity to submit these comments and would be happy to discuss these issues further. Sincerely, David Hirschmann