Newsroom

March 23, 2015

'Finance charge' changes in CFPB prepaids proposal raise concerns, NAFCU says

NAFCU Regulatory Affairs Counsel Alexander Monterrubio raised concerns with CFPB about changes to the definition of a "finance charge" in the bureau's proposed rule on prepaid accounts under the Electronic Fund Transfer Act and the Truth in Lending Act.

CFPB's proposal would amend Regulations E and Z by redefining a "credit card account" and "finance charge," respectively, to include overdraft charges and credit fees associated with prepaid accounts. The proposed rule would treat overdraft services accessed by a prepaid card as "open-end credit." This change may result in unintended consequences:

"If the CFPB's proposed definition of finance charge is finalized, this will impact credit unions' interest/fee calculations for prepaid products and might result in credit unions being unable to offer the existing products and services that consumers are accustomed to and demand," Monterrubio wrote. He said NAFCU "does not believe it is appropriate to treat overdraft services offered on prepaid accounts as open-end credit."

Monterrubio also took issue with the proposal's complicated disclosure mandates and excessive periodic statement requirements, and he recommended raising the de minimis exeption for small institutions from 3,000 to 10,000 prepaid accounts. He also noted that the CFPB's credit card agreement submission mechanism should be thoroughly developed and launched before any final prepaid rule.

NAFCU also signed onto a joint letter from seven financial trade associations, which raises concerns about the potential cost increases for consumers. The letter highlighted the possibility of the proposal leading to limited consumer access to credit and stifling innovation in terms of products and services. The signers included the Financial Services Roundtable, the American Bankers Association, CUNA and Electronic Transactions Association.