The CFPB’s Final Rule on prepaid cards includes, in addition to the long form disclosure requirements discussed in our November 21st blog post, highly detailed requirements for providing “preacquisition” disclosures to consumers of the basic terms of the prepaid card account. These “Know Before You Owe” disclosures are set to go into force on October 1, 2017. For consumers who pick up a prepaid card at a retail storefront, these disclosures will appear on the packaging of the card itself, while for consumers who obtain their cards or accounts online, the disclosures will be provided to them electronically. Unlike the long form disclosures, there are no major exceptions to the requirement to provide the short form disclosures prior to opening a prepaid account. And whereas the long form disclosures are intended as a full accounting of the fee programs applicable to an account, the short form disclosures are carefully designed by regulation to highlight what the CFPB has deemed to be the most important fees for consumers in comparing prepaid products.

The short form disclosures can be roughly broken up into two groups: top line and below the line disclosures. The top line disclosures are presented in large text and represent the four key groups of fees that must be disclosed, regardless of whether any fee is being charged. These top line fee disclosures are the “periodic fees” or fees charged on a recurring basis, fees charged on purchases, any fees associated with making ATM withdrawals, and “cash reload” fees. The “cash reload” fee must include all charges imposed by both the financial institution and any third parties.

Below these disclosures are a listing of a few other fees that must also be disclosed, regardless of whether a fee is charged. These second grouping of fees are ATM balance inquiry fees, customer service fees, and inactivity fees.

Next, are a distinct class of “incidental fees.” The disclosure must include a statement of how many other fee types exist for the prepaid account. Although all the remaining fee types need not be listed, the two fee types not already disclosed that generate the highest revenue from the consumer must be, so long as they generate at least 5% of revenue for the prepaid account program.

Whenever the amount of a fee may vary, the rule generally requires that the highest price for that service be disclosed, but the disclosure may include a symbol, like an asterisk, to indicate that the fee may vary. That indication must consist of a statement substantially similar to the phrase “This fee can be lower depending on how and where the card is used.” Similarly, the “periodic fee” may separately include a different symbol indicating what may cause that fee to vary.

Underlying the “incidental fee” disclosure requirement is a 24-month “look-back” assessment period for determining the highest revenue-generating fees, over which the business must renew its calculations for all programs. The revenue calculations may group together types of fees that shared the same schedule. When a program has not been in effect for 24 months at the time the initial assessment must be performed, businesses are expected to make a reasonable projection of future fee generation.

The short form disclosure must also include FDIC insurance disclosure and registration statements. Although the rules go into effect October 1, 2017 with respect to both long and short form disclosures, for cards sold in retail stores, packaging produced “in the normal course of business” prior to that date need not be pulled and replaced, so long as consumers are provided with the disclosures within 30 days of obtaining their account information.

The final Prepaid Card Rule requires not only so-called “packaging” or short form disclosures prior to acquisition of the prepaid card account, but also that a long form disclosure be provided to the consumer. Whereas the short form disclosures are intended to aid in comparison-shopping, the long form disclosure provides the complete, unabridged itemization of fees and program information.

The long form disclosure is required to include: a title, with the name of the prepaid account program; information on fees that may be imposed and the conditions under which they may be imposed; a statement regarding registration and FDIC/NCUA insurance; a statement regarding linked overdraft credit features; a statement containing the financial institution’s contact information; a statement directing the consumer to the CFPB’s website for general information on prepaid accounts; and a statement directing the consumer to the CFPB to submit complaints related to prepaid accounts.

The rule allows some leeway on the requirement that the long form disclosure be provided “preacquisition.” “Preacquisition” occurs generally as when the account is opened, the card is sold to the consumer, or where the consumer agrees to accept payment to the account. For prepaid cards sold at retail locations where the short form disclosures are provided on the packaging, and where the packaging indicates how to access the long form disclosure by phone and through a website, it is permissible to provide the long form disclosure after the card is purchased. Similarly, for a prepaid card account obtained by phone, the business must tell the consumer prior to opening the prepaid account that the long form disclosure is available by phone and on the web. The long form disclosure must then be provided to the consumer after he or she opens the prepaid account and must be made available by phone and online.

Notably, when disclosures are provided electronically, there is no need to comply with the full requirements of E-Sign, and the company may provide the disclosures to the consumer without E-Sign consent, generally in a manner that is reasonable based on how the consumer opened the account and in a manner that the consumer may keep.

While the original draft rule required that the long form disclosure appear “substantially similar” to the CFPB’s sample disclosure, that requirement was dropped from the final rule due to the wide variety of different structures and account conditions that a financial institution may have in place. The sample now serves as a template for, but not a firm requirement, as to how the long form disclosure must be designed.

On August 26, 2014, the CFPB staff and Federal Reserve Board co-hosted a webinar and addressed questions about the final TILA-RESPA Integrated Disclosures Rule that will be effective for applications received by creditors or mortgage brokers on or after August 1, 2015.  The webinar is the second in a planned series intended to address the new rule.  In the initial webinar the CFPB staff provided a basic overview of the final rule and new disclosures that we have previously covered.

According to the CFPB staff, this webinar and the ones that will follow will be in the format of a spoken Q&A to answer questions that have been posed to the CFPB.  Although the CFPB staff does not plan to issue written Q&A, the staff believes this approach will help facilitate clear guidance on the new rules in an accessible way.  Industry members, however, would prefer written guidance.  Note that the American Bankers Association (ABA) has released a transcript of the CFPB’s webinar that is available to ABA members.

During the remarks, the CFPB staff announced that the CFPB will soon release additional guidance material on its website, including a timing calendar to illustrate the various timing requirements under the new rule.  In addition, the next webinar in the series is tentatively scheduled for October 1, 2014, and will cover Loan Estimate and Closing Disclosure content questions.

Below is a summary of various answers to questions provided by the CFPB staff.  The topics covered include: (1) the receipt of an application, (2) whether new disclosures will be required for assumptions, (3) record retention, (4) the tolerance applicable to owner’s title insurance, and (5) the timing for the initial and revised  Loan Estimates.  Continue Reading CFPB Answers FAQ on the TILA-RESPA Integrated Disclosures Rule

The CFPB recently issued an 89-page small entity compliance guide for the TILA-RESPA Integrated Disclosure Rule (the “Guide”).  As we reported previously, the CFPB issued the final rule in November 2013 to integrate the initial and final mortgage loan disclosures under the Truth in Lending Act and RESPA.  The final rule appeared in the December 31, 2013 Federal Register, and the rule becomes effective August 1, 2015. 

The Guide is divided into 17 main sections, and initially provides an overview of the final rule and its scope.  The Guide addresses the initial disclosure—the Loan Estimate—including the requirements for delivery, content and revisions, and the limits on the amount charges disclosed in the Loan Estimate may increase.  It also addresses the final disclosure—the Closing Disclosure—including requirements for delivery, content and revisions. The Guide makes clear that the integrated disclosures provided for in the rule may not be implemented before
August 1, 2015.  

The Guide includes information about two separate disclosure requirements—the escrow closing notice for cases in which a required escrow account will be terminated, and the disclosure of a lender’s applicable policies regarding acceptance of partial payments that must be included in a mortgage transfer notice. 

The Guide concludes by addressing practical implementation and compliance issues, and providing information on obtaining a copy of the final rule and additional guidance.  While the final rule is detailed and the preamble to the final rule is lengthy, it is likely that the CFPB will need to provide significant additional guidance to the industry as it moves forward to implement the rule.

The CFPB seems to be feeling defensive about the length of its recently-issued proposal  that combines the separate application disclosures and the separate closing disclosures required by the Real Estate Settlement Procedures Act and Truth in Lending Act into a single application disclosure and a single closing disclosure. 

The CFPB has put a new post on its blog titled “Explainer: Why did it take 1,099 pages to propose a three-page mortgage disclosure?”  The post purports to respond to a “Dear CFPB” inquiry from someone identifying him/herself as “Interested in your regulations” who asks “why does it take so many pages to create something that’s supposed to be easy to use and understand?” (CFPB Director Cordray was asked similar questions about the proposal’s length by committee members when he recently testified before the House Committee on Oversight & Government Reform on the CFPB’s impact on credit access.) 

After telling “Dear Interested” that he/she has asked “a great question” and that he/she is “not alone in asking,”  the CFPB observes that new regulations were “only a small part” of the proposal and that most of the pages “explain what we are doing and why we are doing it.”  The blog post contains a chart that shows how many pages were devoted to each section of the proposal.   To explain why a 684-page preamble was needed, the CFPB says that “some of it is required by law,” some was due to the CFPB’s “commitment to open government” and some was to provide context that “can lead to more informative comments.”