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From Banking and Finance Law Daily, April 6, 2017

State attorneys general urge Congress to preserve CFPB’s ‘prepaid accounts rule’

By Thomas G. Wolfe, J.D.

Attorneys general from 17 states and the District of Columbia have submitted a letter to congressional leaders, urging them to oppose House and Senate resolutions that would nullify the Consumer Financial Protection Bureau’s "prepaid accounts rule." In their April 5, 2017, letter, the state attorneys general maintain that the legislative resolutions (S.J. Res. 19, H.J. Res. 62, and H.J. Res. 73) would "eradicate important protections that have been proposed for consumers who use prepaid cards … to receive wages, make purchases, or pay their bills."

As previously reported, in October 2016, the CFPB adopted its final prepaid accounts rule, which amends Regulation E—Electronic Fund Transfers (12 CFR Part 1005) and Regulation Z—Truth in Lending (12 CFR Part 1026), to provide users of prepaid accounts with stronger consumer protections similar to those associated with checking accounts and credit card accounts (see Banking and Finance Law Daily, Oct. 5, 2016). Recently, the CFPB proposed an extension of the rule’s effective date to April, 1, 2018, to allow more time for industry members to comply with the final rule (see Banking and Finance Law Daily, March 10, 2017).

Meanwhile, those introducing the congressional resolutions (S.J. Res. 19H.J. Res. 62, and H.J. Res. 73), disapproving of the CFPB’s prepaid accounts rule, have invoked the Congressional Review Act as the primary source of empowerment for undoing the rule (see Banking and Finance Law Daily, Feb. 16, 2017). Although the state attorneys general (AGs) characterize these congressional resolutions as a "misplaced effort," the AGs acknowledge that the Congressional Review Act "gives Congress, with the President’s signature, a window to veto a rule from going into effect."

AGs’ letter. Expressing their support for the CFPB’s prepaid accounts rule in their letter, the AGs for the District of Columbia, California, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Minnesota, Mississippi, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont, Virginia, and Washington, along with the Executive Director of the Hawaii Office of Consumer Protection, note that prepaid cards are often used by "vulnerable consumers" who have limited or no access to a traditional bank account.

Moreover, the AGs’ letter underscores that the consumer protections provided by the CFPB’s rule are important because, among other things, "consumers frequently report concerns about hidden and abusive fees as well as fraudulent transactions that unfairly deplete the funds loaded onto prepaid cards." Urging the congressional leaders to "oppose S.J. Res. 19, H.J. Res. 62, and H.J. Res. 73," the AGs assert that the rule’s "common-sense protections" not only will combat abuses, the protections "are increasingly important as the use of these cards expands in the marketplace."

AGs’ remarks. Accentuating the point that theCFPB’s prepaid accounts rule will provide needed consumer protections, California Attorney General Xavier Becerra stated that prepaid cards typically "come with high and poorly disclosed fees and other predatory terms." Likewise, Illinois Attorney General Lisa Madigan commented, "Federal protections on prepaid cards are critical to help consumers avoid fraud, hidden fees, and unauthorized charges."

Stating that Congress should let the "CFPB’s common-sense final rule stand," New York Attorney General Eric Schneiderman remarked, "No consumer should be charged fees just to receive their paycheck." Similarly, Rhode Island Attorney General Peter Kilmartin cautioned Congress against unraveling the consumer protections afforded by the CFPB’s rule. Kilmartin stated that "pre-paid debit cards are the preferred method of currency for scam artists and thieves."

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