This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

30923 

Vol. 77, No. 101 

Thursday, May 24, 2012 

1Mercator Advisory Group, Prepaid Card Market 

Forecast, November 2011. 

2 ld. 

3NetSpend Holdings, Inc. Form 10–Q, filed May 

8, 2012 for the period ending March 31, 2012; 

NetSpend Holdings, Inc. Form S–1, filed July 15, 

2010; Green Dot Corporation Form 10–Q, filed May 

10, 2012 for the period ending March 31, 2012; 

Green Dot Corporation Form S–1/A, filed June 2, 

2010. 

BUREAU OF CONSUMER FINANCIAL 

PROTECTION 

12 CFR Part 1005 

[Docket No. CFPB–2012–0019] 

RIN 3170–AA22 

Electronic Fund Transfers 

(Regulation E) 

AGENCY: Bureau of Consumer Financial 

Protection. 

ACTION: Advance notice of proposed 

rulemaking. 

SUMMARY: The Consumer Financial 

Protection Bureau (CFPB or the Bureau) 

is seeking comment, data, and 

information from the public about 

general purpose reloadable (GPR) 

prepaid cards (GPR cards). GPR cards 

are a prepaid financial product that 

have been increasing in popularity and 

that some consumers now use in a 

manner similar to a debit card that is 

linked to a traditional checking account. 

The Bureau is particularly interested in 

learning more about this product, 

including its costs, benefits, and risks to 

consumers. The Bureau intends to issue 

a proposal to extend the Regulation E 

protections to GPR cards. Your 

comments, in conjunction with other 

outreach and analysis, will help the 

Bureau better understand and evaluate 

any potential consumer protection 

issues raised by the current design, 

marketing, and use of this product. This 

advance notice of proposed rulemaking 

(ANPR) asks ten broad questions about 

GPR cards. 

DATES: Comments on this ANPR must be 

received by July 23, 2012. 

ADDRESSES: You may submit comments, 

identified by Docket No. CFPB– 

20120019 or Regulatory Identification 

Number (RIN) 3170–AA22, by any of the 

following methods: 

• Electronic: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Mail: Monica Jackson, Office of the 

Executive Secretary, Bureau of 

Consumer Financial Protection, 1700 G 

Street NW., Washington, DC 20552. 

• Hand Delivery/Courier in Lieu of 

Mail: Monica Jackson, Office of the 

Executive Secretary, Bureau of 

Consumer Financial Protection, 1700 G 

Street NW., Washington, DC 20552. 

Instructions: All submissions must 

include the agency name and docket 

number or RIN for this rulemaking. In 

general, all comments received will be 

posted without change to http:// 

www.regulations.gov. In addition, 

comments will be available for public 

inspection and copying at 1700 G Street 

NW., Washington, DC 20552, on official 

business days between the hours of 

10 a.m. and 5 p.m. Eastern Time. You 

can make an appointment to inspect the 

documents by calling (202) 435–7275. 

All comments, including attachments 

and other supporting materials, will 

become part of the public record and 

subject to public disclosure. Sensitive 

personal information, such as account 

numbers or social security numbers, 

should not be included. Comments will 

not be edited to remove any identifying 

or contact information. 

FOR FURTHER INFORMATION CONTACT: Dan 

Quan, Financial Analyst; Gregory Evans, 

Counsel; Bureau of Consumer Financial 

Protection, 1700 G Street NW., 

Washington, DC 20552, at (202) 435– 

7700. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. General Purpose Reloadable Prepaid 

Cards 

Prepaid cards are one of the fastest 

growing payment instruments in the 

United States. The prepaid card market 

consists of a wide variety of products. 

Some cards are ‘‘closed-loop cards,’’ 

which a consumer can use only 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. A prepaid card 

also may or may not be ‘‘reloadable,’’ 

meaning that the consumer, or other 

authorized party, can add money to the 

card after the card is issued. 

This ANPR is seeking information 

about a specific type of prepaid card 

known as a general purpose reloadable 

(GPR) card (GPR card). According to 

projections by the Mercator Advisory 

Group, the total dollar value of amounts 

loaded onto GPR cards is expected to 

reach $167 billion in 2014, far in excess 

of the amount for 2007 of $12 billion.1

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. While this ANPR refers to a 

‘‘card,’’ these devices may include other 

mechanisms, such as a key fob or cell 

phone application, that access a 

financial account. This ANPR does not 

seek information about ‘‘closed loop’’ 

cards, debit cards linked to a traditional 

checking account, non-reloadable cards, 

payroll cards, electronic benefit 

transfers (EBTs), or gift cards. 

The GPR card market is one of the 

fastest growing segments of the overall 

prepaid market. According to the 

Mercator Advisory Group, the total 

dollar value of funds loaded to GPR 

cards is expected to grow at an average 

annual rate of 42% from 2010 to 2014.2

Both depository and non-depository 

institutions participate in the GPR card 

market. Recently, the GPR card market 

has benefited from competition and 

economies of scale, leading many 

market participants to voluntarily 

provide some protections for 

consumers. The Bureau is gathering 

information about GPR cards, however, 

in order to ensure that consumers are 

protected regardless of the economic 

environment. Three factors in particular 

command greater attention to GPR 

cards: The growth of the market for GPR 

cards, consumer use, and the lack of 

comprehensive federal regulation. First, 

the number of GPR card users is 

growing rapidly, as the two largest 

issuers report that the number of active 

GPR cards more than doubled from 

nearly 3.4 million cards active as of the 

first quarter of 2009 to over 7.0 million 

active cards as of the first quarter of 

2012.3 Given this rapid growth and 

projections for continued growth, the 


srobinson on DSK4SPTVN1PROD with PROPOSALS
30924 Federal Register / Vol. 77, No. 101 / Thursday, May 24, 2012 / Proposed Rules 

4NetSpend Holdings, Inc. Form 10–K, filed 

February 4, 2012 for the period ending December 

31, 2011, available at http://files.shareholder.com/ 

downloads/ABEA-56BIQV/ 

1684506713x0xS1047469-12-1472/1496623/ 

filing.pdf; NetSpend Holdings, Inc. Form 10–K, 

filed March 2, 2011 for the period ending December 

31, 2010, available at http://files.shareholder.com/ 

downloads/ABEA-56BIQV/ 

1684506713x0xS1047469-11-1638/1496623/ 

filing.pdf. 

5 Green Dot Corporation, Q4 2011 Earnings 

Conference Call Supplemental Materials, January 

26, 2012, available at http://ir.greendot.com/ 

phoenix.zhtml?c=235286&p=irolEventDetails&EventId=4701441. 

6The Dodd-Frank Act generally excludes from 

this transfer of authority, subject to certain 

exceptions, any rulemaking authority over a motor 

vehicle dealer that is predominantly engaged in the 

sale and servicing of motor vehicles, the leasing and 

servicing of motor vehicles, or both. See DoddFrank Act, sections 1029, 1084(3). The Dodd-Frank 

Act also leaves to the Board rulemaking authority 

under section 920 of EFTA, which deals with debit 

card interchange fees, network arrangements, and 

routing restrictions. See Dodd-Frank Act, sections 

1002(12)(C), 1084(3); 12 CFR part 235. 

need to evaluate and address potential 

risks to consumers will increase. 

Second, some consumers may view 

and use GPR cards as an alternative to 

traditional checking accounts. This 

possibility is reflected in the increase in 

the number of GPR cards that 

consumers are loading through direct 

deposit. The second largest GPR card 

program manager reported that nearly 

42% of its cardholders had direct 

deposit as of December 31, 2011, as 

compared to about 14% as of December 

31, 2007.4 The largest GPR card program 

manager reported a 69% year-over-year 

increase in the funds loaded via direct 

deposit during the fourth quarter of 

2011.5 The Bureau has also observed 

some GPR cards marketed as a 

substitute for a checking account. While 

consumers may be using GPR cards as 

a substitute for checking accounts, GPR 

cards do not carry the same protections 

given to checking accounts and 

electronic transactions involving 

checking accounts under federal law. 

Third, the lack of a comprehensive 

federal regulatory regime may 

contribute to market distortions, 

misaligned incentives, or consumer 

confusion, as GPR card consumers may 

mistakenly assume that they possess 

rights enforceable under federal law. 

Unlike some other ‘‘general-use prepaid 

cards’’ such as payroll cards, Regulation 

E generally does not apply to GPR cards. 

Many GPR card market participants 

offer contractual protections similar to 

those provided in Regulation E for 

payroll cards, though such provisions 

may vary, and are subject to unilateral 

change. 

Given the growth in the GPR card 

market and risk of consumer harm, the 

Bureau is seeking information to 

determine how best to implement 

consumer protection rules for this 

product. This information will help 

inform the Bureau as to the contours of 

any proposed rulemaking concerning 

GPR cards. 

B. Current Regulation 

The Electronic Fund Transfer Act (15 

U.S.C. 1693 et seq.) (EFTA), enacted in 

1978, provides a basic framework 

establishing the rights, liabilities, and 

responsibilities of participants in 

electronic fund transfer (EFT) systems. 

Historically, the EFTA was 

implemented in Regulation E of the 

Board of Governors of the Federal 

Reserve System (Board), 12 CFR part 

205. The Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

(Dodd-Frank Act) amended a number of 

consumer financial protection laws, 

including the EFTA. Public Law 111– 

203,124 Stat. 1376 (2010). In addition to 

certain substantive amendments, the 

Dodd-Frank Act generally transferred 

the Board’s rulemaking authority for the 

EFTA to the Bureau, effective July 21, 

2011.6 See sections 1061 and 1084 of the 

Dodd-Frank Act. Pursuant to the DoddFrank Act and EFTA, as amended, in 

December 2011 the Bureau republished 

Regulation E as an interim final rule, 12 

CFR part 1005. 76 FR 81020 (Dec. 27, 

2011). 

Regulation E generally applies to 

electronic fund transfers authorizing a 

financial institution to debit or credit a 

consumer’s account. Examples of types 

of transfers covered by the Act and 

regulation include transfers initiated 

through an automated teller machine 

(ATM), point-of-sale (POS) terminal, 

automated clearinghouse (ACH) 

transactions, telephone bill-payment 

plans, and remote banking service. 

Regulation E defines an ‘‘account’’ as ‘‘a 

demand deposit (checking), savings, or 

other consumer asset account (other 

than an occasional or incidental credit 

balance in a credit plan) held directly or 

indirectly by a financial institution and 

established primarily for personal, 

family, or household purposes.’’ 12 CFR 

1005.2(b)(1). 

In March 1994, the Board amended 

Regulation E to extend coverage to 

electronic benefit transfers (EBTs) 

issued by government agencies. 59 FR 

10678 (March 7, 1994). The Board also 

amended Regulation E to deem a 

government agency an ‘‘institution’’ for 

purposes of the regulation. 12 CFR 

1005.15(a). While EBTs became subject 

to most of the requirements of 

Regulation E, the Board exempted 

government agencies providing EBTs 

from the requirement of providing a 

periodic statement, so long as the 

agency makes the consumer’s account 

balance readily available by telephone 

line and electronically, and the agency 

provides a written sixty day account 

history upon request. In response to the 

Work Opportunity Reconciliation Act of 

1996, the Board published a final rule 

in August 1997 to exempt needs-tested 

benefits, those based on a person or 

family’s income, from Regulation E. 

Public Law 104–193, 110 Stat. 2105 

(1996); 62 FR 43467, 43468 (Aug. 14, 

1997). 

In August 2006, the Board published 

a final rule amending Regulation E to 

address payroll card accounts. 71 FR 

51437 (Aug. 30, 2006); 12 CFR 

1005.2(b)(2). The Board’s final rule 

generally did not define employers and 

third-party service providers as 

‘‘financial institutions.’’ The Board’s 

final rule limited Regulation E’s 

applicability to payroll card accounts to 

those established directly or indirectly 

through an employer. 12 CFR 

1005.2(b)(2). While the Board received 

comments from consumer groups 

‘‘urg[ing] the Board to initiate a separate 

rulemaking to cover additional cards 

used to deliver important household 

funds, such as emergency benefit 

payments, income tax refunds, or loan 

proceeds, as well as other cards 

marketed or used as deposit account 

substitutes,’’ the Board elected not to do 

so. The Board was of the view that GPR 

cards ‘‘may only be used for limited 

purposes or on a short-term basis, and 

* * * may hold minimal funds’’ and 

based on that premise the Board 

reasoned that ‘‘[c]onsumers would 

derive little benefit from receiving full 

Regulation E protections for cards 

* * *, while the issuer’s costs of 

compliance with Regulation E might be 

significant.’’ 71 FR 51437, 51440–41. 

Thus, GPR cards were not included 

within the definition of ‘‘account.’’ 

On May 22, 2009, the Credit Card 

Accountability Responsibility and 

Disclosure Act of 2009 (CARD Act) was 

signed into law. Public Law 111–24, 123 

Stat. 1734 (2009). The CARD Act 

amended the EFTA to impose 

restrictions on a person’s ability to 

impose dormancy fees, service fees, or 

expiration dates on gift cards, which 

might take the form of a gift certificate, 

store gift card, or what was termed a 

general-use prepaid card. In April 2010, 

the Board published a final rule to 

implement these provisions. 75 FR 

16580 (Aug. 22, 2010). The Board 

defined the term ‘‘general-use prepaid 

card,’’ as a ‘‘a card, code, or other device 

that is: (i) [I]ssued on a prepaid basis 

primarily for personal, family, or 

household purposes to a consumer in a 


srobinson on DSK4SPTVN1PROD with PROPOSALS
Federal Register / Vol. 77, No. 101 / Thursday, May 24, 2012 / Proposed Rules 30925 

7 See FDIC General Counsel’s Opinion Number 

8, 74 FR 67155, available at http://www.fdic.gov/ 

regulations/laws/rules/5500-500.html. 

specified amount, whether or not that 

amount may be increased or reloaded, 

in exchange for payment; and (ii) 

[r]edeemable upon presentation at 

multiple, unaffiliated merchants for 

goods or services, or usable at 

automated teller machines.’’ EFTA 

Section 915(a)(2)(A); 12 CFR 

1005.20(a)(3)(i)–(ii). Because the CARD 

Act restrictions applied only to gift 

cards, however, the Board was careful to 

note that a general-use prepaid card did 

not include a device that was 

‘‘[r]eloadable and not marketed or 

labeled as a gift card or gift certificate.’’ 

12 CFR 1005.20(b)(2). Thus, the CARD 

Act restrictions regarding dormancy 

fees, service fees, or expiration dates on 

gift cards applied solely to generalpurpose cards intended as gifts, not to 

those used more generally as 

replacement products for checking or 

deposit accounts. Moreover, the 

definition of ‘‘account’’ in Regulation E 

remained unaltered. 

II. Request for Comment 

The Bureau is seeking information 

from the public with respect to GPR 

cards, including their costs, benefits, 

and risks to consumers. These 

comments, in conjunction with other 

outreach and analysis, will help the 

Bureau better understand and evaluate 

potential consumer protection issues for 

this product. The Bureau will carefully 

consider the public’s input as it 

formulates a proposal to regulate GPR 

cards. The Bureau’s goals are to ensure 

that consistent minimum standards 

apply across similar consumer financial 

products, to allow consumers to easily 

compare financial products by ensuring 

transparent fee disclosure, and to 

allocate the risks of fraud or loss 

appropriately. In pursuing these goals, 

the Bureau will be mindful of avoiding 

any unnecessary burden on industry. 

The Bureau has grouped questions on 

GPR cards into four broad categories: 

(A) Regulatory coverage of products by 

some or all of Regulation E, (B) product 

fees and disclosures, (C) product 

features, and (D) other information on 

GPR cards. 

A. Regulatory Coverage of Products 

1. How should the CFPB define GPR 

cards in the context of Regulation E? 

Should certain prepaid products not be 

included in this definition, such as 

cards that may serve a limited purpose 

(e.g., university cards or health 

spending cards)? Why or why not? 

2. Should only certain aspects of 

Regulation E be applied to GPR cards? 

For example, as Regulation E is 

currently applied to payroll cards, 

consumers are not guaranteed a periodic 

paper statement. If possible, please 

explain why a GPR card’s use or 

structure makes any such modification 

appropriate. If the Bureau were to 

propose modifications to the Regulation 

E protections, what alternative 

protections or requirements, if any, 

should the Bureau propose? 

B. Product Fees and Disclosures 

3. What steps could the Bureau take 

to most effectively regulate these 

products to provide the consumer with 

transparent, useful, and timely fee 

disclosures? Should market participants 

be required to provide disclosure presale, post-sale, or both? 

4. How can the Bureau best enable a 

consumer to compare various GPR 

cards, or other payment products, that 

may have different fee structures or be 

offered through various distribution 

channels? Many GPR cards offer limited 

space to disclose contract terms. How 

should market participants convey the 

most important contractual terms to 

consumers to enable them to make 

educated purchase decisions? 

5. Many, but not all, GPR card 

accounts are insured by Federal Deposit 

Insurance Corporation (FDIC) passthrough insurance (coverage that 

‘‘passes through’’ the agent to the 

holders of the accounts).7 Other GPR 

cards may provide alternative security 

mechanisms, but do not offer FDIC passthrough insurance. Should the 

existence, or lack thereof, of FDIC passthrough insurance associated with a 

GPR card be disclosed to the consumer? 

If so, how and when should the 

existence of FDIC pass-through 

insurance be disclosed? 

C. Product Features 

6. Currently, most GPR cards do not 

offer credit features, such as an 

‘‘overdraft’’ feature that may be offered 

with a debit card that is linked to a 

traditional checking account. While an 

overdraft can occur in unusual 

circumstances, as when a small-item 

transaction is submitted for settlement 

without prior authorization or when a 

submitted transaction exceeds the 

authorized amount, generally speaking 

most GPR cardholders may not be able 

to withdraw or spend more than the 

funds loaded on the card. Nonetheless, 

some GPR card programs do allow 

cardholders to opt in to an overdraft 

program in which the issuer may 

authorize overdrafts and charges an 

overdraft transaction fee. The Bureau 

seeks public input on the costs, benefits, 

and consumer protection issues related 

to any credit features that may be 

offered by GPR cards. 

7. Currently, most GPR cards do not 

offer a savings account associated with 

the card. The Bureau seeks public input 

on the costs, and benefits, and consumer 

protection issues related to savings 

features offered with GPR cards. 

8. Currently some GPR cards include 

a feature that claims to offer consumers 

the opportunity to improve or build 

credit. Consumers generally need to opt 

in to this feature, which involves the 

reporting of certain information to credit 

reporting agencies. The Bureau seeks 

public input and data concerning the 

efficacy of credit reporting features on 

GPR cards in enabling consumers to 

improve or build credit. The Bureau 

also seeks information on whether 

regulatory provisions should address 

how such services are marketed to 

consumers. 

D. Other Information on GPR Cards 

9. Through what methods, and under 

what circumstances, do market 

participants communicate a change of 

contract terms, or other information, to 

cardholders? Are there inventory 

replacement cycles that drive the 

printing of cards to stock distribution 

outlets? Do market participants conduct 

periodic maintenance of systems during 

which updating compliance systems 

would impose less of a burden? If so, 

how often does this maintenance occur? 

Are there other issues with respect to 

the cost of regulatory compliance about 

which the CFPB should be aware? 

10. Is there any other information 

relevant to GPR cards that will help 

inform the Bureau as it considers how 

best to address these products or other 

issues the Bureau should consider in 

this regard? 

Dated: May 17, 2012. 

Richard Cordray, 

Director, Bureau of Consumer Financial 

Protection. 

[FR Doc. 2012–12565 Filed 5–23–12; 8:45 am] 

BILLING CODE 4810–AM–P 


srobinson on DSK4SPTVN1PROD with PROPOSALS