{"id":2539,"date":"2016-11-02T23:24:36","date_gmt":"2016-11-02T23:24:36","guid":{"rendered":"http:\/\/paymentfac.wpengine.com\/?p=2539"},"modified":"2022-02-24T22:08:18","modified_gmt":"2022-02-24T22:08:18","slug":"digital-wallets-a-deep-dive-into-the-new-cfpb-rule","status":"publish","type":"post","link":"http:\/\/infinicept.com\/payment-facilitator\/archive\/digital-wallets-a-deep-dive-into-the-new-cfpb-rule\/","title":{"rendered":"Digital Wallets: A Deep Dive into the New CFPB Rule"},"content":{"rendered":"

Lori Breitzke, E&S Consulting LLC, Double Diamond Group<\/em><\/p>\n

Buried within the 1,689-page Consumer Financial Protection Bureau (CFPB) \u201cfinal rule,\u201d or Prepaid Access Rule, are provisos that pertain to digital wallets. In a previous <\/strong>article<\/strong>, I shared the basic outlines of the rule itself and how it relates to digital payments. But how worried should payment facilitators who operate a digital wallet be?<\/strong><\/p>\n

Let\u2019s get down to the nitty-gritty of what is actually contained within the portions of the Prepaid Access Rule regarding digital wallets \u2013 and how much concern they should be to payment facilitators. <\/strong><\/p>\n

Let\u2019s do a quick review of this \u201cfinal rule\u201d to put things into context and perspective. The rule, which goes into effect on October 1, 2017, amends the provisos of Regulation E (the Electronic Funds Transfer Act of 1978) and Regulation Z (a component of the Truth in Lending Act of 1968 that promulgates rules designed to protect consumers against misleading practices by the lending industry) to cover not just prepaid and reloadable cards, but also digital wallets, person-to-person (P2P) payment platforms, tax refund cards, payroll cards, cards for student financial aid, and some government benefit cards.<\/p>\n

Exclusions include gift cards that are \u201cmarketed and labeled\u201d as such, merchant-specific store cards, and loyalty\/promotional rewards cards. The rules mandate free consumer access to account information (or periodic statements as with traditional accounts), $50 liability limits for unauthorized transactions on lost or stolen cards when loss or theft is promptly reported, fee disclosures in easy-to-read standard form, and credit protections similar to those of traditional credit cards.<\/p>\n

It Just Doesn\u2019t Compute<\/strong><\/p>\n

In the text of the rule, the CFPB defines both digital wallets and mobile wallets (i.e., digital wallets accessible by consumers using a mobile device, like a smartphone) as \u201csimilarly\u201d storing \u201cone or more\u00a0of the consumer\u2019s payment credentials electronically.\u201d\u00a0Other than this short definition, there is no detail provided about these digital wallets.<\/p>\n

Even more importantly, in order to meet the definition of \u201cprepaid account\u201d\u2014and therefore be subject to the rule\u2014a product, including a digital wallet, must be either an account that is marketed or labeled as \u201cprepaid\u201d and<\/em> is redeemable upon presentation at multiple unaffiliated merchants<\/em> or usable at ATMs.<\/p>\n

Alternatively, it must meet all of these criteria: is issued on a prepaid basis in a specified amount or is capable of being loaded with funds after issuance; has a primary function of enabling consumers to conduct transactions with multiple, unaffiliated merchants for goods or services, to conduct transactions at ATMs, or to conduct person-to-person (P2P) transfers; and is not a checking account, a share draft account, or negotiable order of withdrawal (NOW) account.<\/p>\n

Merchant-specific wallets are not intended for use at multiple unaffiliated merchants\u2014only at one merchant (think WalmartPay, Starbucks, CVSPay, KohlsPay, etc.). So they don\u2019t pass the test.<\/p>\n

What\u2019s more, in the text of the rule, digital wallets and mobile wallets alike are referred to specifically as\u00a0\u201cconsumer<\/em>\u201d\u00a0accounts. The implied concern in the rule is that, were such wallets to fall into the wrong hands, trouble would ensue. There is a section within the ruling where the CFPB states its position that digital wallets that can hold funds operate in large part in a manner similar to physical or online prepaid accounts.<\/p>\n

The CFPB goes on to say that \u201ca consumer can load funds onto a digital wallet, spend the multiple funds at multiple, unaffiliated merchants or conduct peer-to-peer transfers, and reload the account once the funds are depleted.\u201d The text also spells out the bureau\u2019s belief that \u201cconsumers who transact using digital wallets deserve the same protections as consumers who use other prepaid accounts. Indeed, as with other prepaid accounts, a consumer\u2019s digital wallet could fall victim to erroneous or fraudulent transactions.\u201d<\/p>\n

The Bottom Line<\/strong><\/p>\n

The key takeaways here are that not all wallets meet the prepaid definition set forth in the rule, and the rule refers only to consumer<\/em> digital wallets. Consumer digital wallets fall outside the scope of payment facilitators\u2019 responsibilities and functions. PFs are involved only with digital wallets into which proceeds from merchants selling goods or services are deposited. And these merchant-funded wallets simply are not referenced\u2014even in an implied fashion\u2014in the Prepaid Access Rule.<\/p>\n

In short, in my opinion, the rule does not affect payment facilitators because it does not include this type of depository wallet. One word of caution, however\u2014the bureau could extend the rule to other \u201csimilar\u201d digital wallets, ultimately bringing payment facilitators under the Prepaid Access Rule umbrella. But that would mean developing an entirely new set of digital wallet definitions and a new portion of the rule, which could take quite a long time to push through the appropriate channels, if we use the new rule as our guide.<\/p>\n

So when it comes to digital wallets, let\u2019s not sweat it. As I mentioned in my initial blog about the Prepaid Access Rule, I don\u2019t think the rule is going to stymie financial technology (fintech) innovation, but rather, that the thousands of fintech companies out there will be innovating further and looking for prepaid as a base of opportunity.<\/p>\n

Let\u2019s keep our eyes on that ball, and leave the concern about digital wallets to others. As the saying goes, not your monkeys, not your circus.<\/p>\n","protected":false},"excerpt":{"rendered":"

Buried within the 1,689-page Consumer Financial Protection Bureau (CFPB) \u201cfinal rule,\u201d or Prepaid Access Rule, are provisos that pertain to digital wallets. In a previous article, I shared the basic outlines of the rule itself and how it relates to digital payments. But how worried should payment facilitators who operate a digital wallet be?<\/p>\n","protected":false},"author":7,"featured_media":177,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"content-type":"","_FSMCFIC_featured_image_caption":"","_FSMCFIC_featured_image_nocaption":"","_FSMCFIC_featured_image_hide":"","footnotes":""},"categories":[1015],"tags":[161,487,765],"class_list":["post-2539","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-archive","tag-cfpb","tag-lori-breitzke","tag-riskcompliance"],"acf":[],"_links":{"self":[{"href":"http:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/posts\/2539","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/users\/7"}],"replies":[{"embeddable":true,"href":"http:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/comments?post=2539"}],"version-history":[{"count":3,"href":"http:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/posts\/2539\/revisions"}],"predecessor-version":[{"id":7949,"href":"http:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/posts\/2539\/revisions\/7949"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/media\/177"}],"wp:attachment":[{"href":"http:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/media?parent=2539"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/categories?post=2539"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/tags?post=2539"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}