Regulation Z Prepaid Supporting Statement 1-2-15 final

BUREAU OF CONSUMER FINANCIAL PROTECTION
PAPERWORK REDUCTION ACT SUBMISSION
INFORMATION COLLECTION REQUEST
SUPPORTING STATEMENT PART A
TRUTH IN LENDING ACT (REGULATION Z) 12 CFR 1026
(OMB CONTROL NUMBER: 3170-00XX)
RIN#3170-AA22
The Bureau of Consumer Financial Protection (Bureau or CFPB) is dividing certain proposals to amend
the Bureau’s Regulations Z into separate Information Collection Requests (ICRs) in the Office of
Management and Budget (OMB) system (accessible at www.reginfo.gov) to ease the public’s ability to
view and understand the individual proposals. Subsequent to the finalization of the rules, the CFPB
anticipates that it will recombine the portions of Regulations Z that are broken out in the reginfo.gov
system into the existing control numbers for Regulations Z. CFPB respondents should continue to use the
- 3170-0015 control number for Regulation Z throughout this time.
OMB TERMS OF CLEARANCE: Not applicable. This is a request for a new OMB control number
ABSTRACT: The Bureau is proposing to amend Regulation E, which implements the Electronic Fund
Transfer Act (EFTA); Regulation Z, which implements the Truth in Lending Act (TILA); and the official
interpretation to the regulations. The proposal would create comprehensive consumer protection for
prepaid financial products. It would expressly bring such products under the ambit of Regulation E as
prepaid accounts and create new provisions specific to these accounts. The proposal would also include
in Regulation E those prepaid accounts that share key characteristics, including cards, codes, or other
devices capable of being loaded with funds and usable at a wide variety of unaffiliated merchants or for
person-to-person transfers. The proposal would further modify certain Regulation E provisions to
address how such accounts are marketed by financial institutions and used by consumers. These
proposed modifications would establish disclosure requirements specific to prepaid accounts that would
require financial institutions to provide certain disclosures to consumers prior to and after the acquisition
of a prepaid account. The proposal also includes an option for an alternative to Regulation E’s periodic
statement requirement that would permit prepaid product providers to make available certain methods for
access to account information for free in lieu of sending periodic statements. Additionally, it would
apply Regulation E’s limited liability and error resolution provisions to prepaid accounts, with certain
modifications. Moreover, the proposal would also contain amendments to Regulations Z and E to
regulate prepaid accounts with overdraft services or other credit features. Finally, the proposal would
require prepaid account issuers to provide the Bureau with terms and conditions for prepaid accounts,
which the Bureau would post on its website. Relatedly, issuers would also be required to post the terms
and conditions on their own websites. To accommodate these changes, the Bureau is also proposing to
make corresponding changes to various provisions in Regulations Z and E.
A. JUSTIFICATION
1. Circumstances Necessitating the Data Collection

The purpose of TILA is to assure a meaningful disclosure of credit terms so that the consumer
will be able to compare more readily the various credit terms available to him and avoid the uninformed
use of credit, and to protect the consumer against inaccurate and unfair credit billing and credit card
practices. 15 U.S.C. 1601(a). Creditors are subject to disclosure and other requirements that apply to
open-end credit (e.g., revolving credit or credit lines) and closed-end credit (e.g., installment financing).
TILA imposes disclosure requirements on all types of creditors in connection with consumer credit,
including mortgage companies, finance companies, retailers, and credit card issuers, to ensure that
consumers are fully apprised of the terms of financing prior to consummation of the transaction and, in
some instances, during the loan term. It also imposes advertising disclosure requirements on advertisers
of consumer credit. TILA also establishes billing error resolution procedures for open-end credit and
limits consumer liability for the unauthorized use of credit cards.
The Bureau promulgated Regulation Z to implement TILA, as required by the statute. The
CFPB enforces TILA as to certain creditors and advertisers. TILA also contains a private right of
action for consumers.
Recordkeeping
Section 1026.25(a) of Regulation Z requires creditors to retain evidence of compliance with the
regulation (other than the advertising requirements and certain requirements for mortgage loans) for two
years after the date disclosures are required to be made or other action is required to be taken.
Regulation Z also provides that the FTC (and other administrative agencies responsible for enforcing
TILA) may require creditors under their jurisdictions to retain records for a longer period if necessary to
carry out their enforcement responsibilities under TILA. The recordkeeping requirement ensures that
records that might contain evidence of violations of TILA remain available to the FTC and other
agencies, as well as to private litigants.
Disclosure
The disclosures required by Regulation Z are derived from statutory provisions under TILA. See
e.g., 12 CFR 1026.9(e)-(f), and .60, 15 U.S.C. 1637(c)-(g); 12 CFR 1026.40, 15 U.S.C. 1637a and 1647;
12 CFR 1026.6, 15 U.S.C. 1637(a); 12 CFR 1026.7, 15 U.S.C. 1637(b) (various open-end disclosures);
12 CFR 1026.18, 15 U.S.C. 1638; 12 CFR 1026.33, 15 U.S.C. 1648 (various closed-end credit and
reverse mortgage disclosures); 12 CFR 1026.32 and 1026.34, 15 U.S.C. 1639 (various high-cost
mortgage loan disclosures).
Regulation Z includes model forms and clauses that can be used to comply with the written
disclosure (non-advertising) requirements of TILA and Regulation Z. See, e.g., Appendices D-H and KL to Regulation Z. Correct use of these model forms and clauses insulates creditors from liability under
TILA and Regulation Z. See Official Commentary to Regulation Z (Commentary), comment app. G and
H-1.
The Bureau is proposing changes to Regulation Z so that prepaid account issuers that offer
overdraft services or other credit features in connection with such accounts and charge a fee for the
service (such as interest, transaction fees, annual fees, or other participation fees) generally would be
2

subject to Regulation Z’s credit card rules and disclosure requirements for open-end (not home-secured)
consumer credit plans. In addition, the Bureau proposes to revise Regulation Z so that Regulation Z’s
credit card rules would apply to such features that are linked to prepaid accounts. The proposal would
also require that an issuer must obtain consumer consent before adding overdraft services and credit
features to a prepaid account and would prohibit the issuer from adding such features until at least 30
calendar days after a prepaid account has been registered. Moreover, the proposal would amend
Regulation Z as it pertains to credit on prepaid accounts to provide that a consumer would have 21 days
to repay the debt the consumer incurred in connection with using the overdraft service or credit feature.
In most cases, the proposal would also prevent an issuer from immediately taking incoming payments to
a prepaid account such as cash loads or direct deposits to repay and replenish the credit line.

2. Use of the Information
Consumers rely on the disclosures required by TILA and Regulation Z to shop among options
and to facilitate informed credit decision making. Without this information, consumers would be
severely hindered in their ability to assess the true costs and terms of financing offered. Also, without
the special billing error information, consumers would be unable to detect and correct errors or
fraudulent charges on their open-end credit accounts. Additionally, enforcement agencies and private
litigants need the information in these disclosures to enforce TILA and Regulation Z. See 15 U.S.C.
1607, 1640.
3. Use of Information Technology
Regulation Z contains rules to establish uniform standards for using electronic communication to
deliver disclosures required under Regulation Z, within the context of the Electronic Signatures in Global
and National Commerce Act (ESIGN), 15 U.S.C. 7001(c) et seq. 12 CFR 1026.5(a)(1)(iii),
1026.17(a)(1). These rules enable businesses to utilize electronic disclosures and compliance, consistent
with the requirements of ESIGN. Use of such electronic communications is also consistent with the
Government Paperwork Elimination Act (GPEA), Title XVII of Pub. L. 105-277, codified at 44 U.S.C.
3504, note. ESIGN and GPEA serve to reduce businesses’ compliance burden related to federal
requirements, including Regulation Z, by enabling businesses to use more efficient electronic media for
disclosures and compliance.
Regulation Z also permits creditors to retain records on - any -method that reproduces records
accurately, including computer programs. Creditors need only retain enough information to reconstruct
the required disclosure or other records. Comment 25(a)-2.
4. Efforts to Identify Duplication
The recordkeeping requirement of Regulation Z preserves the information used by the creditor in
making disclosures (and underlying calculations) of the terms of consumer credit and other required
actions. The creditor is the only source of this information. No other federal law mandates these
disclosures and other required actions. No state law known to the CFPB imposes these requirements,
3

although some states may have other rules applicable to consumer credit transactions.
Similarly, the disclosures required by TILA and Regulation Z are not otherwise available.
Although some credit cost information is contained in contractual documents, the information is not
standardized. As a result, consumers cannot use it efficiently to shop or to appreciate fully the credit
terms they are considering. The creditor (and/or advertiser) is the only source of this information. No
other federal law mandates these disclosures. State laws do not duplicate these requirements, although
some states may have other rules applicable to consumer credit transactions. There may, however, be
issuers under Regulation Z that are also issuers under Regulation E that would be required to submit
account agreements to the Bureau twice, once pursuant to 12 CFR 1005.19(b) and also pursuant to 12
CFR 1026.58(c). The Bureau has not yet developed submission methods for prepaid account
agreements. The Bureau will make efforts to streamline and harmonize submission requirements to
avoid duplication, if possible. The Bureau solicited comment on duplicate submission in the proposal
and expects to revisit this issue in its final rule.
5. Efforts to Minimize Burdens on Small Entities
TILA and Regulation Z recordkeeping and disclosure requirements are imposed on all creditors.
The recordkeeping requirement is mandated by Regulation Z. The disclosure requirements are
mandated jointly by TILA and Regulation Z.
Most lenders today use some degree of computerization in their business, and Regulation Z
permits businesses to rely on computer support, among other alternatives, to meet their recordkeeping
and disclosure requirements. This flexibility yields reduced recordkeeping and disclosure costs. (See #3
above) Moreover, as noted previously, Regulation Z provides model forms and clauses that may be used
in compliance with its requirements. Correct use of these forms and clauses insulates a creditor from
liability as to proper format.
6. Consequences of Less Frequent Collection and Obstacles to Burden Reduction
As noted, the disclosure requirements are needed to facilitate comparison cost shopping and to
spur informed credit decision making. Without these requirements, consumers would not have access to
this critical information. Their right to sue under TILA would be undermined, and enforcement agencies
could not fulfill their mandate to enforce TILA.
7. Circumstances Requiring Special Information Collection
The collections of information in Regulation Z are consistent with the applicable
guidelines contained in 5 CFR 1320.5(d)(2).
8. Consultation Outside the Agency
In accordance with 5 CFR 1320.11, the Bureau has published a notice of proposed rulemaking in
the Federal Register inviting the public to comment on the information collection requirements contained
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in the proposed rule. Comments received in response to the notice of proposed rulemaking will be
addressed in the preamble to the final rule.
9. Payments or Gifts to Respondents
Not applicable.
10. Assurances of Confidentiality
The disclosures also contain private financial information about persons who use consumer credit
that is protected by the Right to Financial Privacy Act, 12 U.S.C. 3401 et seq. Such records may also
constitute confidential customer lists. Any of these records provided to the CFPB would be covered by
the protections of the CFPB’s rules on Disclosure of Records and Information, 12 CFR Part 1070, and by
the exemptions of the Freedom of Information Act, 5 U.S.C. 552(b), as applicable.
11. Justification for Sensitive Questions
Not applicable.
12. Estimated Burden of Information Collection
Total Hours: 3,013
Total Associated Labor Costs: $91,165
Using the Bureau’s burden estimation methodology discussed below, the estimated burden for
two non-depository institutions subject to the proposal would be one-time burden of 384 hours and
ongoing burden of 5,641 hours. The Bureau allocates to itself half of both these burden estimates (192
hours and 2,821 hours, respectively, for a total of 3,013 hours) and half to the FTC. The Bureau
calculated labor costs by applying the average hourly cost figure used in the Bureau’s other supporting
statements for Regulation Z ($30.26) to the burden hours described above.
CFPB’s Burden, By Information Collection:
One-Time Burden

CFR

Information
Collection
Requirement

No. of
Annual
Average
Respondents Responses Response
Time
(hours)

5

Total
OneTime
Burden
(hours)

CFPB
OneTime
Burden
(hours)

1026.6(b)

Account opening
disclosures
1026.7(b)
Periodic statements
1026.9
Change in terms
1026.13
Error resolution
1026.16
Advertising
1026.58
Internet posting of
credit card
agreements
1026.60(a)(2) Application and
solicitation
disclosures

2

1

8

16

8

2
2
2
2
2

1
1
1
1
1

80
8
8
40
40

160
16
16
80
80

80
8
8
40
40

2

1

8

16

8

Total CFPB One-Time Burden: 192 hours 1
Ongoing Burden
CFR

1026.6(b)

Information
Collection
Requirement

Account opening
disclosures
1026.7(b)
Periodic statements
1026.9
Change in terms
1026.13
Error resolution
1026.16
Advertising
1026.58
Internet posting of
credit card
agreements
1026.60(a)(2) Application and
solicitation
disclosures

No. of
Annual
Respondents Responses

2

102,500

Average
Response
Time
(minutes)
0.25

Total
Ongoing
Burden
(hours)
854.17

CFPB
Ongoing
Burden
(hours)
427.08

2
2
2
2
2

1,230,000
102,500
1,538
5
4

0.0625
0.125
30
25
480

2,562.50
427.08
1,537.50
4.17
64.00

1281.25
213.54
768.75
2.08
32.00

2

12

480

192.00

96.00

Total CFPB Ongoing Burden: 2,821 hours
For the proposed requirements under Regulation Z, the Bureau understands that approximately
205,000 consumers currently have a form of overdraft protection on their GPR and payroll cards. 2 The
1

Individual entries may not sum to the one-time burden total due to rounding. Similarly, individual entries for the ongoing
burden may not sum to the total due to rounding.
2

The Bureau is aware of two providers of overdraft services or credit features on prepaid accounts and believes that NetSpend
is the only significant provider. NetSpend is an operating segment of TSYS, Inc., for which the10-Q report for the quarter
ending June 20, 2014 states that NetSpend has approximately 3.4 million active cards; See Total Sys. Serv. Inc., Form 10-Q,

6

Bureau’s PRA estimation methodology assumes that the same number would use a credit feature if the
proposed rule were finalized. 3 Further, the methodology generally assumes that the per-respondent and
per-transaction burdens would be consistent with those currently reported for credit card accounts in
Regulation Z.
Under the proposed rule, if adopted, the Bureau anticipates that most overdraft services and credit
features offered in connection with a prepaid account, including where extensions of credit are only
permitted to be deposited into particular prepaid accounts specified by the creditor, would meet the
definition of “open-end credit.” 4 In addition, under the proposal, a prepaid account that accesses such an
overdraft service or credit plan generally would be a “credit card” under Regulation Z. Under the
proposal, the overdraft services or other credit card plans described above would be governed by subparts
A, B, D and G of Regulation Z. 5 Pursuant to Regulation Z, persons offering such plans would be
required to comply with the requirements governing information collections. These requirements are as
follows.
Persons offering an overdraft service or other credit feature in connection with a prepaid account
would be required to inform consumers of costs and terms before they use the plan and in general to
inform them of certain subsequent changes in the terms of the plan. Initial information would need to
include certain finance charges and other charges imposed as part of the credit plan, annual percentage
rates (APRs) applicable to the plan, a description of how balances on which a finance charge is based
would be calculated, and any collateral that would secure repayment. If the card issuer makes a
significant change in account terms, a creditor generally must provide a written notice of the change at
least 45 days prior to the effective date of the change to each consumer who may be affected. Consistent
with estimates currently reported for credit card accounts in Regulation Z, the Bureau estimates 8 hours
of one-time burden per respondent to develop these disclosures and a small ongoing burden per account.

available at http://www.sec.gov/Archives/edgar/data/721683/000119312514300851/d737574d10q.htm. In a recent news
article, NetSpend reported that only about six percent of its customers regularly use overdraft. See Suzanne Kapner, Prepaid
Plastic is Creeping Into Credit, Wall Street J. (Sept. 5, 2012),
http://online.wsj.com/news/articles/SB10000872396390443686004577633472358255602. Assuming each NetSpend
customer has overdraft protection on only one account, there are 204,000 prepaid accounts with overdraft protection. No data
is available for the second provider, Insight Card Services. The Bureau believes, based on industry data, that the median
provider of prepaid accounts likely has about 10,000 customers. Assuming 10% have an overdraft service or credit feature on
one prepaid account gives an additional 1,000 accounts with overdraft protection.
3
Current data on the size of the market for credit features on prepaid accounts has limited usefulness in predicting the size of
the market if the proposal is finalized, since both eligibility criteria and credit features may change as a result. See the
previous discussions in this preamble.
4
This would apply if the creditor establishes a program where the creditor extends consumer credit under a plan where the
creditor reasonably contemplates repeated transactions, may impose finance charges from time to time on an outstanding
unpaid balance for credit, and amount of credit that may be extended to the consumer during the term of the plan (up to any
limit set by the creditor) is generally made available to the extent that any outstanding balance is repaid.
5
Transactions that are authorized on a prepaid account when the consumer has insufficient or unavailable funds at the time of
authorization as well as transactions that are paid from a prepaid account when the consumer has insufficient or unavailable
funds at the time of payment would generally be considered to be credit under Regulation Z. However, under the proposal,
Regulation Z would not apply to overdraft services or other credit plans that are accessed by a prepaid card if the prepaid card
only accesses credit that is not subject to any finance charge described in 12 CFR 1026.4 or a fee described in 12 CFR
1026.4(c) and is not payable by written agreement in more than four installments.

7

The Bureau also assumes that for these accounts, the number of account opening disclosures equals the
number of accounts in any year. 6
Card issuers would be required to provide a written statement of activity for each billing cycle.
The statement would have to be provided for each account that has a balance of more than $1 or on
which a finance charge is imposed, and it would have to include a description of activity on the account,
opening and closing balances, interest charges and fees imposed, and payment information. Consistent
with estimates currently reported for credit card accounts in Regulation Z, the Bureau estimates 80 hours
of one-time burden per respondent to develop these disclosures and a small ongoing burden per account.
Card issuers would be required to notify consumers about their rights and responsibilities
regarding billing problems. Card issuers would have to provide either a complete statement of billing
rights each year or a summary on each periodic statement. If a consumer alleged a billing error, the card
issuer would need to provide an acknowledgment, within thirty days of receipt, that the card issuer
received the consumer’s error notice and would need to report on the results of its investigation within
two complete billing cycles (but no later than ninety days). If a billing error did not occur, the card issuer
would need to provide an explanation as to why the card issuer believed an error did not occur and
provide documentary evidence to the consumer upon request. The card issuer would also have to give
notice of the portion of the disputed amount and related finance or other charges that the consumer still
owed and notice of when payment was due. The Bureau estimates 8 hours of one-time burden per
respondent to develop these disclosures and a small ongoing burden per account. The Bureau further
assumes, based on discussions with industry, that in any year 1.5 percent of customers will assert errors
that require significant time from customer service representatives.
Persons offering an overdraft service or other credit feature in connection with a prepaid account
would be required, when advertising their product, to include certain basic credit information if the
advertisement refers to specified credit terms or costs. The Bureau estimates 8 hours of one-time burden
per respondent to develop these disclosures and small ongoing burden to maintain or revise these
disclosures.
Persons offering an overdraft service or other credit feature in connection with a prepaid account
would be required to send the Bureau copies of the overdraft service or program agreement. The Bureau
estimates each issuer would take on average 40 hours one-time to upload agreements and then 8 hours
each quarter on an ongoing basis.
Finally, persons offering a credit feature in connection with a prepaid account would also need to
provide additional disclosures on or with solicitations and applications to open the credit feature. Such
persons would need to disclose key terms of the account, such as APRs, information about variable rates,
and fees such as annual fees, minimum finance charges, and transaction fees for purchases. The Bureau
estimates 8 hours of one-time burden per respondent to develop these disclosures and small ongoing
burden to maintain or revise these disclosures. 7
6

In one recent analysis, the median life span for GPR cards with occasional reloads was 330 days and 570 days for GPR cards
with periodic non-government direct deposit. See Fumiko Hayashi and Emily Cuddy, General Purpose Reloadable Prepaid
Cards: Penetration, Use, Fees, and Fraud Risks, Federal Reserve Bank of Kansas City, February 2014, at 47.
7
The recordkeeping requirement in § 1026.25 does not specify the kind of records that must be retained, so for purposes of
PRA the paperwork burden is minimal.

8

13. Estimated Total Annual Cost Burden to Respondents or Recordkeepers
As suggested by OMB, our Federal Register notice dated January 19, 2012, requested public
comments on estimates of cost burden that are not captured in the estimates of burden hours, i.e.,
estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to
provide information. However, we did not receive any responses from individuals on this subject. As a
result, estimates of these cost burdens are not available at this time.
14. Estimated Cost to the Federal Government
The Bureau is proposing that persons offering overdraft services or other credit features in
connection with a prepaid account would be required to send the Bureau copies of the overdraft service
or credit feature program agreement. The Bureau would incur costs in processing and reviewing any
overdraft service or credit feature program agreements that persons offering such a service would send in
compliance with the proposal.
15. Program Changes or Adjustments
Summary of Burden Changes

Annual
Burden
Responses
Hours
2,873,131
Total Annual Burden
Requested
Current OMB Inventory
Difference (+/-)
Program Change
Discretionary
Due to New Statute
Violation
Adjustment

Cost Burden (O & M)
3,013
N/A

N/A
+2,873,131
2,873,131

3,013

0
0
0
0

0
0
0

0
0
0

+3013

0
0
0

The Bureau is requesting a program change of 3,013 hours This change in burden results from the
proposed amendments to 12 CFR Part 1026 (“Regulation Z”).

This is a request for a new OMB control number that adds information collections to Regulation Z but
does not alter any existing collections. The new collections will require 2,873,131 responses and add 3013,
hours of burden
16. Plans for Tabulation, Statistical Analysis, and Publication

Not applicable.
9

17. Display of Expiration Date
The OMB number will be displayed in the PRA section of the notice of final rulemaking and in the
codified version of the Code of Federal Regulations. Further, the OMB control number and expiration
date will be displayed on OMB’s public PRA docket at www.reginfo.gov.
18. Exceptions to the Certification Requirement
The Bureau certifies that this collection of information is consistent with the requirements of 5 CFR
1320.9, and the related provisions of 5 CFR 1320.8(b)(3) and is not seeking an exemption to these
certification requirements.

10