United States

Prepaid account requirements and new examination procedures


On Nov. 8, 2016, the Federal Deposit Insurance Corp.(FDIC) issued the Financial Institution Letter (FIL-76-2016) relating to the final rule that creates new prepaid account requirements. These requirements provide clarity to prepaid account products, related disclosures, and liability and error resolution procedures. Subsequently, on Feb. 22, 2019, the FDIC issued the Financial Institution Letter (FIL-9-2019) relating to examination procedures. These examination procedures become effective April 1, 2019.

Initially proposed in May 2012, this long-awaited rule went into effect Oct. 1, 2017, with certain provisions effective Oct. 1, 2018. All financial institutions that issue prepaid accounts are required to comply with this rule. Prepaid accounts include the following and are covered by the rule: traditional prepaid cards, payroll cards, student financial aid disbursement cards, certain government benefit cards, mobile wallets, person-to-person payment products and other electronic prepaid accounts that can store funds. Part of the changes relates to prepaid accounts that can both be prepaid (debit) and then can exceed the limit which the prepaid account was initially funded (credit). These types of accounts are referred to as “hybrid prepaid-credit cards.” The combination of this type of product requires both Regulation E (Electronic Funds Transfer Act) and Regulation Z (Truth in Lending Act) to not only be amended, but work in concert with one another. The result is the final prepaid account requirement.

The examination procedures issued by the FDIC for Regulation Z include an expansion in the coverage of the term “credit card” (which now includes “hybrid prepaid-credit card as defined by 12 CFR 1026.61). The exam procedures include details relating to fees during the first year after account opening (12 CFR 1026.52(a), limitations on penalty fees (b) and a detailed explanation of the features of hybrid prepaid-credit cards).

The examination procedures issued by the FDIC for Regulation E include the disclosure requirements for prepaid accounts accessible by hybrid prepaid-credit cards (12 CFR 1005.18(g)). The exam procedures do clarify the exclusion of hybrid prepaid-credit cards from overdraft service coverage. The requirements of the disclosures are largely in line with previous Regulation E prepaid account disclosure requirements.

Financial institutions should review the product types currently offered and determine if the new prepaid account rules apply. If financial institutions are considering rolling out a new product type that may be a prepaid account or a hybrid prepaid-credit card, a review of the examination procedures before rollout is highly recommended.