Regulation is a constant concern for the prepaid industry, and compliance departments continuously need to update their knowledge just to stay ahead.
The Network Branded Prepaid Card Association held its first compliance boot camp at the offices of member Womble Bond Dickinson LLP in Atlanta to help industry members stay a step ahead of the challenges posed by the regulatory environment. The day-long session on Sept. 12 included presentations on the final prepaid rule, the balance between regulation at the federal and state level, and how to develop a culture of compliance. In addition, there were presentations on how to handle regulator inquiries and the Telephone Consumer Protection Act. The day closed with a discussion on how the outcomes of the midterms might further change the regulatory environment.
Below is an overview of the day’s insights.
Of course one of the big topics of discussion was the final prepaid rule put out by what was then the Consumer Financial Protection Bureau (now the Bureau of Consumer Financial Protection). In general the consensus of the speakers was that the rule that we have now, including its April 2019 effective date, is the final rule. Companies should make their preparations for compliance based on the rule as it stands today.
While the rule has been finalized, it is not likely to lead to an onslaught of enforcement actions. In the wake of former director Richard Cordray’s departure, the Bureau has been less aggressive in bringing enforcement actions. However, states such as New Jersey and Pennsylvania have created their own versions of the Bureau. This means that companies will need to make sure they are keeping up with compliance at both the state and federal level.
Along with the bureaus, the other banking regulators also pay attention to prepaid. The FDIC caused a stir when it said that prepaid deposits would count as brokered deposits for insurance purposes. While the FDIC director has said she plans to revisit this policy, it is still not clear how the deposits will be treated in the long run.
Because of this uncertainty, the boot camp devoted time to what to do when regulators come knocking. Companies need to make good impressions on regulators and make sure that they educate their regulators about prepaid. If they are facing an enforcement action, it is necessary to respond in a timely and professional manner, educate the regulator on the industry and the product, and work towards a rapid resolution. That resolution might be a closure of the case, a settlement, or litigation where it is important. Prepaid providers also can save themselves headaches by reviewing their advertising at least once a year to make sure that things are up to date and fully compliant.
Regulators aren’t the only ones who knock. Law enforcement also might engage with prepaid providers as the various agencies try to capture criminals. Nathan Kitchen, deputy chief of cyber and intellectual property for the United States Attorney’s Office, said that companies should establish direct contact with their local offices of the Secret Service and the FBI so that is something does happen, they can share information quickly to help stop crime and catch criminals. In addition, law enforcement will share information with companies when it makes sense to help disrupt criminal rings. While much of the cybercrime comes from abroad, agencies in this country work with those around the world and will pursue cases for years to get prosecutions.
Preparing for regulations and possible fraud requires developing a culture of compliance. The best way to do this is to talk about the interconnectivity of the business to make sure that people understand how compliance fits into all aspects of the business from advertising to operations to product design. The goal is to make compliance a partner in all aspects of a business rather than turning it into the department of ‘no.’
Because prepaid is the platform for much of the innovation that takes place, the topic of mobile wallets and mobile contacts came up. A major issue for mobile wallets is whether they will need to comply with regulation E. The determination will be made based on whether or not regulators see them as accounts under the definitions of the rule. In addition, mobile wallet providers will need to take care with how they have users promote their wallets to friends and family. The Telephone Consumer Protection Act still applies to modern devices, and it is critical to make sure that users make the ultimate decision about whether or not to share a text or promotional offer with the contacts in their phones.
Finally, the day ended with a discussion about what the midterm elections might mean for the regulatory environment. The polls and pundits are suggesting that the Democratic Party has a good chance of taking control of the House of Representatives. While this would not likely lead to new legislation or regulation for financial services companies, nonetheless it likely will result in more hearings on financial services. This could affect the way customers and potential customers handle their money and financial lives. Regardless of what way companies and executives want the elections to go, they need to make an effort to engage with their elected officials on the local level. This contact can help prevent bad bills and regulations, but it requires communication with elected officials.
The presentations covered more than can be presented in a single blog, but readers can expect to see the topics revisited with even more depth at the NBPCA’s Power of Prepaid conference in Washington DC, April 9-11, 2019.
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