Mercator Perspectives

Which Agency Regulates Prepaid Cards?

Which agency regulates prepaid cards?

At the American Conference Institute’s Seventh National Forum on Prepaid Compliance last week I have learned the answer.

All of them!

The conference kicked off with a Federal Regulatory panel that included the Federal Trade Commission, The Federal Deposit Insurance Corp., three offices from U.S. Treasury Department plus the Office of the Comptroller of the Currency, the Department of Justice, and the Financial Crimes Enforcement Network. Each agency has its own concerns about prepaid cards.

For example, the FTC has jurisdiction over non-bank financial service providers including marketers and advertisers, and this could extend to program managers. FinCEN and the DOJ are concerned with prepaid cards being used for money laundering and other criminal activity, and the FDIC is concerned with third-party risk and the safety and soundness of banks that issue prepaid cards.

At the Department of Treasury, the Office of Foreign Assets Control wants to make sure that prepaid cards aren’t used for criminal activity. The Office of Consumer Policy is monitoring the growth of the industry and thinking about how policy can be created that prevents confusion about prepaid while helping individuals make better financial decisions. Meanwhile, the Financial Management Service is making sure that Federal Benefits only go on cards that meet requirements such as having FDIC insurance. It wants to help the industry identify and return Federal payments such as tax returns that may be fraudulent. In addition, the Office of the Comptroller of the Currency wants to make sure that banks and thrifts manage third-party risk related to prepaid, and that they operate programs in a way that protects the safety and soundness of the institutions.

That was just the first panel of the day. There are also state regulators, including banking departments, commerce departments, and attorneys general.
Of course, to hear prepaid detractors’ tell it, prepaid is an ‘unregulated industry’ for all intents and purposes. Tell that to the sleep-deprived compliance officers.

While all of these regulators go about their business, the lists above ignore the elephant in the room, which is the Consumer Financial Protection Bureau. The CFPB is looking at new regulations on prepaid cards, including requiring Regulation E provisions on general purpose reloadable cards.

So, 2013 will be a busy year in the world of prepaid regulation. What remains to be seen is what shape the industry will be in after all is said and done.

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