Appropriate regulation of prepaid cards that does not diminish their availability or usefulness to customers.
ABA generally believes that a prepaid card should be treated the same as cash unless the prepaid card mimics a traditional deposit account. Inappropriate regulation of prepaid cards can raise costs, limit flexibility, inhibit innovation, or otherwise reduce their value to customers.
Certain variations of prepaid card products, such as gift cards, are designed to be treated like cash, while others have deposit account characteristics. Payroll cards, for example, are typically linked to a deposit account with subaccounts in the name of the employees. In contrast, other prepaid cards such as gift cards are designed to act as cash substitutes. These cards typically do not identify the owner of the card and may be transferred.
Regulators are gradually addressing which regulations apply to various prepaid cards, though uncertainties remain. In August 2006, the Federal Reserve Board issued amendments to Regulation E, clarifying that the regulation covers payroll cards but not gift cards. Also, the Comptroller of the Currency and the Office of Thrift Supervision has released disclosure and marketing guidance for gift cards. The purpose of the guidance is to ensure that both purchasers and recipients of gift cards are fully informed of the terms and conditions of the product.
The Credit Accountability, Responsibility and Disclosure Act of 2009 (CARD Act), enacted in May 2009, contained provisions specifically applying to prepaid cards in three categories, general-use prepaid cards, gift certificates, and store gift cards. Among other things, the law prescribed additional obligations regarding disclosure of account terms, stricter regulation of allowable fees, and protection of consumers from losses associated with expiring cards. ABA provided a number of substantial comments to the Board of Governors regarding the proposed rule's new disclosure requirements and fee restrictions.
In July 2011, FinCEN issued a final rule governing prepaid access programs to address regulatory gaps with existing prepaid access programs. In the final rule, FinCEN seeks to balance law enforcement concerns about potential abuse of these products with the need to protect legitimate uses and societal benefits prepaid programs offer. Therefore, certain products were deemed inherently low risk:
- Closed loop products that do not exceed $2,000 in value on any one day.
- Government funded prepaid access products, including federal, state, local, territory, insular possession and tribal government agency products.
- Flexible spending and dependent card funded prepaid access products.
Two other types of products, payroll products and small dollar products, were also deemed low risk provided they cannot be used internationally, are restricted to who may load funds and do not permit person-to-person transfers.
ABA supports allowing banks to determine whether funds are insured based on the structure of the product.