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What compliance issues do we have if we offer Stored Value cards?
by Andy Zavoina, Richard Insley and Ken Golliher, BOL Gurus
Guru Bios
Question: What compliance issues do we have if we offer Stored Value cards?
Answer by Andy Zavoina: It depends on the nature of the stored value card. The new Reg. E rules, discussed in this BOL paper, would affect it if it is a payroll card. If it is a card that is recharged, Reg. E could apply when funds are transferred to the card.
At this time these are not considered accounts at the bank for FDIC insurance reasons.
Answer by Richard Insley: As you consider the maximum value that can be stored on a card, don't overlook the possibility that cards can be used to launder money.
Answer by Andy Zavoina: Richard's point is very valid. And while I haven't found the federal report yet, I have seen a press article ( Here is one. ) about it that confirms earlier beliefs that these cards are proving a useful vehicle for drug lords, terrorists financiers and others to move funds. Certainly this could lead to regulatory reactions and may require enhanced recordkeeping.
Answer by Ken Golliher: Some of the banks that sell stored value cards are self-imposing limits on their issuance; e.g. they are not sold to non customers. They are also imposing voluntary record retention requirements that are highly similar to those actually required for monetary instrument sales for cash. Note the voluntary measures mentioned by Brenda C in this thread.
First published on BankersOnline.com 1/30/06
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