As CFPB Monitor reported, the Consumer Financial Protection Bureau isn't expected to release its final ruling regarding prepaid cards until May or June. This leaves many industry insiders unsure of how they'll have to adapt their businesses.
One such set of insiders is the Network Branded Prepaid Card Association. The group is open to all businesses that provide branded preloadable cards – those with a logo from MasterCard, Visa, American Express or Discover – to individuals and organizations such as businesses or government agencies. The NBPCA believes open-loop prepaid cards are a valuable asset allowing consumers to make electronic payments.
Unfortunately, because of the delayed rulings, the NBPCA and other members of the preloadable card industry are in the dark as to how they should continue to do business. The CFPB's decisions will obviously affect certain policies, but as Paybefore wrote, there are other issues to consider.
"We are in limbo," Brad Fauss, president and CEO of the NBPCA, said during the All Payments Expo according to Paybefore.
Fauss made this comment at an expo event called "The Prepaid Industry's Response to the New Regulatory Regime." This session was designed for professionals to ask experts about the CFPB's 870-page proposed rule changes, which were originally released in November 2014. Some attendees discussed how the frequent delays affected their operations: One commented on how a lack of a decision impacts logistics for card providers. Companies need to take government rulings into account when ordering physical cards from their suppliers. With no official decision made, businesses might order a large number of cards only to have to throw them out because they aren't compliant. Meanwhile, others complained the proposal itself sets up negative consequences for their businesses. The document called for card issuers to publish all of their cardholder agreements. Not only does this require these companies to distribute tens of thousands of documents – a feat one issuer called "impractical" – it also hurts competition.
A timeline of CFPB prepaid card decisions
The CFPB has worked on its ruling regarding prepaid cards for some time. According to a separate Paybefore article, the government agency first approached the topic in 2012 when it released an Advanced Notice of Proposed Rulemaking. A field hearing was schedule for the end of 2014. That November, just before the hearing, the CFPB asked the prepaid card industry for comments on its rule proposal. Originally, the final ruling was supposed to be released in January 2016. That date was pushed back March 2016 and again to May-June.
Not only do these delays hurt businesses, but they hurt consumers as well. Prepaid cards are a proven money-management tool for millennial consumers and the un- and underbanked. They bring electronic payments and banking capabilities to people without traditional financial services, and unlike credit cards, they prevent overspending.
What's more, it's been proven that people enjoy prepaid cards. According to The Nilson Report, their use increased more than 182 percent between 2010 and 2015. If a final ruling comes unexpectedly, businesses will suddenly have to shift their practices. This will be frustrating for consumers, who will then have to accept new terms and conditions or other consequences.
This information should not discourage businesses from issuing cards to businesses, employees, customers or other individuals and organizations, however. Prepaid cards are an easy and efficient way to make bulk payments for expenditures like refunds, prizes and payroll. Companies should continue to match consumer preferences and use prepaid cards while keeping an eye on any final rulings from the CFPB.