My first article laid out some basic facts and initial reactions to the prepaid card rules issued by the Consumer Financial Protection Bureau (CFPB), which will go into effect Oct. 1, 2017. This second article focuses on foreseeable consequences of these new rules.
Essentially everyone in the prepaid industry – issuers, program managers, processors – will be affected by these new rules. Yes, processors like FIS will be pressured to ensure their platforms conform to the new rules; however, I foresee that issuers and program managers will feel the worst of it. After all, they are the parties charged with implementing numerous tactics in a short amount of time.
What Are the Consequences?
When I look at the list of “to-dos” required to comply with the new prepaid rules, I see that the biggest issue for most players will be the large cost, which can’t be directly offset. There are a few companies offering overdraft protection, but these companies will suffer the same cost burden as players not offering overdraft protection, plus their revenue will shrink substantially. For example, NetSpend estimated a loss of annual revenue between $80 million and $85 million from new rules limiting fees associated with overdraft protection in its Q3 earnings report.
Will rising costs and perhaps declining revenues be onerous enough to drive small players out of the market or to merge with others? We haven’t heard that yet, but one consequence of the new rules could be narrowing the field to fewer players down the road.
Changes will be required for product, packaging, content and communications vehicles, including websites. There will be long and short forms to distribute, which could translate into the replacement of inventory for prepaid cards displayed on J-hooks. There also will be costs for modifying consumer communications and websites. And, for providers offering advances, there will be costs associated with evaluating credit worthiness, providing monthly billing statements and advance notices of interest increases.
When you think about the time that it takes to accomplish these and other tasks and ensure compliance, it’s clear that the allotted one year is far too short for implementation.
Another concern expressed by some industry players is that new rules not previewed in the initial proposal have been published by the CFPB. This has left many companies feeling that they haven’t been given a chance to provide feedback to new information. To be fair, however, the CFPB has indicated that it remains open to input from the industry, although the window is closing soon.
What Actions Do Industry Players Need to Take Now?
The CFPB requires that any input from its Oct. 5 ruling must be received within 90 days. That means the deadline is Jan. 3, 2017. So there’s no time to wait!
For those providing feedback to the CFBP, I believe in addition to your direct feedback, you should also:
- Leverage the power of the Network Branded Prepaid Card Association (NBPCA) to speak with one voice.
- Provide detailed input about difficulties you anticipate encountering in attempting to implement the new rules within the narrow window outlined by the CFPB.
If you need clarification on rules, ask your compliance department for additional help crafting questions.
Finally, I also strongly recommend you have a discussion early on with your processor to ensure alignment from a platform perspective.