On an Oct. 25 earnings call, M. Troy Woods shared the “big news” about Netspend, a leading company in the market for reloadable prepaid cards.

It had been 20 days since the Consumer Financial Protection Bureau finalized the first comprehensive rules for the prepaid card industry—a fast-growing market where Netspend has made millions of dollars. While the rule and its tighter restrictions were the “big news,” it wasn't necessarily for good news for Woods, chief executive of Netspend's parent company, Total System Services Inc.

Woods predicted the CFPB's rules—”all 1,689 pages,” he said—would cost the company, based in Columbus, Georgia, between $80 million and $85 million in overdraft and other fee revenue. Woods cited the new rules—they require companies to check the creditworthiness of consumers before providing overdraft services—for the company's decision to “no longer offer optional overdraft protection on our current prepaid card programs.”

Netspend and Total System Services by then had spent hundreds of thousands of dollars lobbying on prepaid card rules and other regulatory matters. Months after that conference call, the two companies are not backing down. Netspend is pushing the CFPB to delay the rule, and on Capitol Hill, Total System Services is jumping into an effort to tear up the new regulation.

Last month, the CFPB proposed delaying the prepaid card rule's effective date by six months—from October 2017 to April 2018—citing industry concerns about complying in time. On April 5, Netspend pushed for a longer delay of 12 months. That extension would push the rule's effective date past July 2018, when CFPB director Richard Cordray's five-year term expires.

Beyond putting limits on overdraft services, the CFPB's prepaid card rule requires companies to provide easy access to account information, make upfront disclosures about fees and cap consumers' losses from fraudulent purchases. The industry caters to millions of consumers, particularly those who have limited or no access to traditional bank accounts.

Netspend said it wanted the additional time to work with its partners and revise its packaging for the cards, which consumers can purchase online or in stores to use for everything from making purchases and ATM withdrawals to receiving direct deposits.

“If new, compliant card packaging cannot be produced prior to the effective date of the rule, consumers would lack access to prepaid products during the gap,” Netspend wrote in a letter to the CFPB. “To the extent the vendors upon which prepaid card program managers rely can only meet a rushed effective date for some prepaid card programs, consumers may be presented with a confusing range of packaging presentations, which would defeat one of the CFPB's purposes in issuing the rule of promoting comparisons between different prepaid cards.”

A Netspend spokesman said thousands of cardholders had previously written the CFPB and urged it to “preserve overdraft as an option for customers.”

“The bureau's prepaid rule is eliminating a valuable tool used by many people to meet basic needs such as buying food, paying for medication or filling their tank with gas so they can get to work. For those struggling families, the prepaid rule is not solving a problem—it is creating one,” the Netspend spokesman said.

Making a case on Capitol Hill

On Capitol Hill, the company is lobbying on legislation that would erase the prepaid card rule under the Congressional Review Act—a statutory tool that, until the Trump administration, had only been used once in its 21-year history to tear up a regulation. With President Donald Trump in the White House, Republican senators have invoked the law to roll back a slew of Obama-era regulations.

Total System Services this month hired CGCN Group—the firm formerly known as Clark Geduldig Cranford & Nielsen—to lobby on “CFPB's rule on prepaid,” including the U.S. House bill that Rep. Roger Williams, R-Texas, proposed, to tear up the regulation. Troutman Sanders Public Affairs Group has also been lobbying for Total System Services, while Netspend has leaned on Brownstein Hyatt Farber Schreck.

Diego M. Radzinschi

In the U.S. Senate, Sen. David Perdue, R-Georgia, has filed a similar proposal to override the prepaid card rule. His bill has picked up the support of U.S. Sens. John McCain and Ted Cruz along with Sen. Johnny Isakson, a fellow Georgia Republican.

Perdue received $15,000 in campaign contributions from Total System Service's political action committee in 2014, when he first won election to the Senate. Between 2013 and 2014, Perdue received another $7,000 from Woods, according to federal election records.

Perdue's office declined to comment. When the CFPB proposed delaying the rule on March 9, Perdue said “the CFPB continues to be a rogue agency.”

“From its initial stages, this rule was shortsighted and so sweeping that it would have stifled innovation in a growing marketplace millions of consumers rely on. Ultimately, the CFPB should scrap this rule altogether and I will continue working to protect consumers,” Perdue said.

On Tuesday, the progressive advocacy group Allied Progress sued the CFPB in Washington for the agency's correspondence with Perdue and the 11 cosponsors of his bill.

Karl Frisch, executive director of Allied Progress, said his group filed the suit “to compel the release of any correspondence that might shed additional light on the shadowy efforts being undertaken to help this predatory company by lobbyists, other senators, and the company itself.”

Hoping to head off Perdue's bill and the similar legislation in the House, Democratic attorneys general from 18 states and the District of Columbia wrote congressional leaders on April 5 to tout the need for protections around prepaid cards. The states, led by District of Columbia Attorney General Karl Racine, described the Senate and House bills as part of a “misplaced effort to undo the CFPB's regulations.”

The state attorneys general said the CFPB's rule “provides commonsense protections to some of the most vulnerable consumers—those who do not have access to bank accounts.” They added: “The final rule also combats abuses that arise when prepaid cards are used by outliers in the prepaid card marketplace, such as payday lenders. The overdraft limits are largely supported by the prepaid card industry with only one major opponent, Netspend, which is seeking to preserve the roughly $50 million in overdraft and other fees it charges to struggling families each year.”

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