Cardholder Protections
Issue
Cardholder Protections
NBPCA Position
The NBPCA supports protection of consumers’ funds through Regulation E type protections and FDIC insurance. These protections include
- Regulation E-type protections – includes things such as error resolution services and useful account information provided to the consumer electronically – to identifiable holders of reloadable, consumer-funded prepaid cards where there is an ongoing relationship between the consumer and the issuer.
- FDIC protections- offering of pass through insurance for holders of general purpose reloadable cards who opt-in to the collection of their personal identifying information. For other kinds of prepaid cards, like low-balance gift cards and non-reloadable cards, pass-through insurance requirements would place an unwarranted burden on consumers to provide personal information and retailers to collect that information at the point of sale.
Explanation
Regulation E establishes the basic rights, liabilities, and responsibilities of consumers who use electronic fund transfer in connection with consumer asset accounts. It governs numerous aspects of the ongoing relationship between the financial institution and the account owner, such as disclosures and annual notices, liability for unauthorized transfers, stop payment rights, error resolution procedures and periodic statements.
However, prepaid cards have a broad menu of offerings, which differ widely in how the consumers use the products. The industry has developed numerous product types, many of which do not resemble the kind of consumer asset accounts currently covered under Regulation E.
For example, coverage under Regulation E for non-personalized cards or small-value, non-reloadable card products is not practical and, in some cases, may be impossible. As the Federal Reserve noted when it issued the payroll card final rule: “Consumers would derive little benefit from receiving full Regulation E protections for cards that may only be used for limited purposes or on a short-term basis, and which may hold minimal funds, while the issuer’s costs of compliance with Regulation E might be significant.” The NBPCA agrees that holders of non-personalized cards and small-value, non-reloadable cards would derive little benefit at substantial cost from the types of protections afforded under Regulation E.
Similarly, cards onto which funds are loaded by a party other than the consumer, one-time for example, loyalty, rewards and promotional cards, are not relied upon by consumers as a principal transaction account and are low balance and short term – should not be covered by Regulation E.
However, identifiable holders of reloadable, consumer-funded prepaid cards1 may use prepaid cards as a principal transaction account and hold significant funds for an extended period of time. Some cardholders may rely on these types of cards as a regular and recurrent means of accessing funds electronically. Costs associated with providing Regulation E-type protections are not insignificant, but in connection with these types of cardholders, appropriate Regulation E-type protections make sense, including electronic access to account information in connection with error resolution procedures.
Network branded prepaid cards are subject to card network rules that provide zero-liability protection and chargeback rights, services that shield cardholders from liability in the event a card is lost or stolen and enable cardholders to dispute erroneous charges.
Consumer surveys indicate that most cardholders prefer electronic access to account information, at a time most convenient for them (often at/near time of transaction). According to the Federal Reserve focus group results: “Most focus group participants who received paper periodic statements stated that they generally kept their statements as a record of account activity but otherwise rarely used them to track transactions or look for errors. Participants generally attributed their lack of statement use to the fact that they monitored their account information frequently during the month by the telephone or on-line. While a few participants wanted to receive paper statements, most indicated a clear preference for using alternative means of monitoring account activity, in particular by phone and on-line.... The Board is persuaded that the alternative methods of providing account transaction information currently used by many payroll card providers are comparable to, and in some respects, better than, paper periodic statements.”
The NBPCA supports providing electronic access without a fee in connection with access of account information online, via text message or through automated telephone interaction. Consumers should also be permitted to opt-in to receive paper statements for a fee. In situations involving error resolution, the NBPCA also supports no-fee access to paper statements and live customer service calls.
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