Q: To what extent do pre-paid card products fall within the definition of “covered account?”
A: There are various types of pre-paid cards. Whether a certain type of pre-paid card is an “account” and a “covered account” will depend on the specific features of the card and the risks associated with the card.
Some pre-paid cards do not provide for a continuing relationship between a consumer who obtains the card from the issuer and the financial institution that issues the card, or between the person who receives and uses the card and the financial institution. For example, many gift cards are issued without the creation of any record of the person who obtains the card or the recipient of the card. Such gift cards would not establish a continuing relationship with the issuing financial institution, and therefore are generally not “accounts” or “covered accounts.”
By contrast, other pre-paid cards are offered primarily for personal, family, or household purposes, permit multiple transactions, and create a continuing relationship between the person who obtains and/or uses the pre-paid card and the financial institution that issues the card. For example, payroll cards generally meet these criteria and therefore qualify as “covered accounts” under the first part of the definition (set out above under II.B.1).