This past summer was a rough one for theprepaid industry in terms of regulations. While the FederalReserve’s rules around debit interchange and the exemptions forprepaid got most of the attention after they came out on June 29,those weren’t the only ones that will force the prepaid value chainto change the way it does business.
On June 28, the Office of the Comptroller of the Currency (OCC),which regulates national banks, released guidance on riskmanagement and sound practices for prepaid card programs. Then, thefollowing month, on July 26, the Financial Crimes EnforcementNetwork (FinCEN) issued its final rules on prepaid access andpreventing money laundering and other criminal activity.
This all happened shortly after the Florida Attorney General, PamBondi, announced on May 19 that she was investigating five prepaidcompanies for possible hidden fees and misrepresentations aboutimproving cardholders’ credit scores.
The entire prepaid value chain should be examining theseregulations. Even though the regulations primarily come from bankregulators, they have extended their regulatory reach both directlyby announcing that they have expectations of non-bank prepaidpartners, and indirectly by requiring banks to do more in managingthe risk of their partners.
This flood of regulations effects open-loop prepaid. Theclosed-loop side of prepaid faced its own regulatory troubles withthe CARD Act. Now, it is the network dependent cards that need totake time with dense government documents to figure out what to donext.