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#2003820 - 03/25/15 12:43 PM Pre-paid Access Devices, CIP, and cash monitoring
charlied Offline
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Good Morning,

For anyone out there offering reloadable pre-paid cards, how do you perform CIP on the people you issue cards to? Also, how do you monitor cash activity using cards, particularly how do you monitor cash activity when the cardholder is also an account holder at the bank? Any help is appreciated.

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#2003821 - 03/25/15 12:53 PM Re: Pre-paid Access Devices, CIP, and cash monitoring charlied
Skittles Offline
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We do not issue cards to non-customers and don't monitor cash activity on these cards.
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#2003831 - 03/25/15 01:20 PM Re: Pre-paid Access Devices, CIP, and cash monitoring charlied
rlcarey Online
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don't monitor cash activity on these cards

I agree with the first part but this part might be a little concerning.......
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#2003837 - 03/25/15 01:22 PM Re: Pre-paid Access Devices, CIP, and cash monitoring charlied
Skittles Offline
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I am not the BSA Officer, but don't know how it could be monitored. The cards are through a vendor and we don't have access to their activity. Are we missing something?
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#2003852 - 03/25/15 01:33 PM Re: Pre-paid Access Devices, CIP, and cash monitoring charlied
rlcarey Online
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How do they fund the cards with cash, if not through the bank??
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#2003860 - 03/25/15 01:43 PM Re: Pre-paid Access Devices, CIP, and cash monitoring charlied
Skittles Offline
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Sorry - I 'assumed' (which we all know what that means) the original poster meant the usage, not the funding. The funding is monitored.
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#2003871 - 03/25/15 01:52 PM Re: Pre-paid Access Devices, CIP, and cash monitoring charlied
charlied Offline
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To be fair, I left my wording intentionally vague in case anyone was actually able to monitor usage in addition to funding.

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#2003903 - 03/25/15 02:44 PM Re: Pre-paid Access Devices, CIP, and cash monitoring charlied
charlied Offline
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This information may also be helpful in answering my questions. It is from an FAQ created by the vendor.

Q: Who owns the underlying prepaid account associated with the prepaid card?

A: The account to which all funds associated with the prepaid program are deposited is a "For Benefit Of" account; it is a pooled custodial account titled in the name of the bank issuer. The underlying funds qualify as deposits as defined in the Federal Deposit Insurance Act and consequently the funds will be subject to assessments. The individual holders of the prepaid cards are recognized as ownders of the deposits for purposes of applying the FDIC's insurance limits.

Q: Whose customers are the cardholders?

A: The FI holding the FBO account is the issuer and the cardholders are customers of the issuer. "Vendor Name" is a service provider to the FI.


Other helpful information (as I have heard it proposed):

1. We will be selling cards to customers and non-customers.

2. The three markets we are going for are students (so parents can load their cards for various expenses), businesses as a way to handle payroll (issuing cards to their employees), and people who can't get or don't want a traditional bank account.

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#2004203 - 03/26/15 01:24 PM Re: Pre-paid Access Devices, CIP, and cash monitoring charlied
Elwood P. Dowd Offline
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Quote:
do you perform CIP on the people you issue cards to?


Consider the way the vendor described the account:

Quote:
The account to which all funds associated with the prepaid program are deposited is a "For Benefit Of" account; it is a pooled custodial account titled in the name of the bank issuer.


My personal opinion is that the purchase is not a "customer," he is not opening an account. Thus, the CIP regulation does not apply and you should not use that term to describe your identification process. If the cards you sell are cash equivalents; e.g. they can be sold for large amounts or are reloadable, then you might institute a voluntary record retention effort where you obtain and record identification etc.

"CIP" requires a verification process for the information you obtain. If your normal verification process incorporates the use of a negative data base or other consumer reporting agency, I don't think purchasing a prepaid access device would constitute activity that would give you legal justification for pulling the consumer report.
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#2004254 - 03/26/15 03:01 PM Re: Pre-paid Access Devices, CIP, and cash monitoring charlied
charlied Offline
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The vendor for the cards states that when a customer is issued or activates a card (depending on circumstances), they (or a CSR) has to enter the name, physical address, TIN, and DOB for the cardholder. The vendor then uses a service to verify the name, TIN, and month and day of the DOB against public records. In your opinion, is that adequate enough, or should we do more? Since, the CIP regulation would not apply here, does that mean that if the CSRs do further identity verification, that we would not necessarily have to record the method by which we verified the person's identity (not saying that we wouldn't)?

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#2004256 - 03/26/15 03:13 PM Re: Pre-paid Access Devices, CIP, and cash monitoring charlied
Dani York, CRCM Offline
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If this is the vendor I think it is and your bank is listed as the issuer of the cards, CIP does apply and you will need to address it. You will also need to monitor the cash activity. They should have reporting software for cards issued in your name that you can review on a routine basis.

You will need to treat the vendor as a third-party payment processor and mitigate risk accordingly. Payroll cards only aren't as big of a deal as the cash sales at the teller line, etc.

I'm pretty sure I know who the vendor is. They pitched payroll cards to us, so we wrote a reliance provision into our CIP program to rely on their CIP process to meet the requirements. After doing all of the due diligence, vendor management, and policy adjustments, we ended up not even doing anything with them.

I did have a BSA exam not long after we vetted the vendor and made the policy changes, and the FDIC examiners I had agreed that the vendor should be treated as a TPPP and that the card holders were our customers. Since we were only going to do payroll cards and the vendor limited cash withdrawal activity on a per diem basis, we did not have to address the CTR aspect, but did have to address SARs and investigations of cardholders if suspicious activity was noted.
Last edited by Dani York, CRCM; 03/26/15 03:14 PM.
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#2004290 - 03/26/15 03:48 PM Re: Pre-paid Access Devices, CIP, and cash monitoring charlied
charlied Offline
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So then, if CIP does apply and we choose to do any secondary verification on a potential cardholder, then we would need to record the method and information we used to verify their identity?

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#2004298 - 03/26/15 04:02 PM Re: Pre-paid Access Devices, CIP, and cash monitoring charlied
Dani York, CRCM Offline
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Yes, but depending on what type of cards you will be the issuer for, that may be difficult. It would be easier for you to develop a separate CIP process for the cards issued under your name, provided management is comfortable with the risk associated and you mitigate it.
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#2004353 - 03/26/15 05:47 PM Re: Pre-paid Access Devices, CIP, and cash monitoring charlied
JacF Offline

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I have a copy of the same FAQ, and I will suggest reviewing questions 13 through 18 for CIP requirements and processes.

Regarding the monitoring of cash activity:
The FBO account resides on our core system, so it is subject to the same monitoring as any other account. Accordingly, whenever cash above our trigger amount is deposited to the FBO account to fund a card, our monitoring system generates the appropriate alert. Our process involves noting the cardholder name and/or the card admin number on the deposit record, so I can use that information to further research transactions as needed.

Monitoring usage is a different matter, since the only debits you'll see in the FBO account are the ACH settlement entries from Vendor for the withdrawals, purchases, and fees for that settlement day. What I do here is review the daily transaction report that Vendor provides (our volume is low enough that this is a one page report), further researching any suspicious items (large dollar, questionable merchant, ricky geographic area, etc.). I also have access to the Card Management site where I can look up card transaction histories by card number- much the same as you would review a deposit account history.

I hope this helps!

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#2004515 - 03/27/15 12:25 PM Re: Pre-paid Access Devices, CIP, and cash monitoring charlied
Elwood P. Dowd Offline
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This is a "fact driven" situation and I cannot responsibly assume facts not offered, the identity of the vendor, or any implications that might have. Based on the facts actually offered, the purchaser is not opening an account with this bank and the CIP regulation simply does not apply.

As prepaid access devices can be operated through pooled custodial accounts not held by the issuing bank (the practical equivalent of a payable through account) I heard an Assistant U.S. attorney describe them as the "ideal" tool for laundering money. Banks limit that risk by voluntary internal controls and card features that make them operate less like cash.

Regardless, it's dangerous to confuse "voluntary" with "mandatory."
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#2004524 - 03/27/15 12:48 PM Re: Pre-paid Access Devices, CIP, and cash monitoring charlied
Dani York, CRCM Offline
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Originally Posted By charlied
This information may also be helpful in answering my questions. It is from an FAQ created by the vendor.

Q: Who owns the underlying prepaid account associated with the prepaid card?

A: The account to which all funds associated with the prepaid program are deposited is a "For Benefit Of" account; it is a pooled custodial account titled in the name of the bank issuer. The underlying funds qualify as deposits as defined in the Federal Deposit Insurance Act and consequently the funds will be subject to assessments. The individual holders of the prepaid cards are recognized as ownders of the deposits for purposes of applying the FDIC's insurance limits.

Q: Whose customers are the cardholders?

A: The FI holding the FBO account is the issuer and the cardholders are customers of the issuer. "Vendor Name" is a service provider to the FI.




The vendor acts as a third party service provider for the bank whereby they are only processing the transactions for the bank, basically an outsourced ops department for these accounts (cards). Charlied's bank will be the issuer of the cards and hold the "FBO" account. The vendor contract and all system guides point to the bank "owning" the deposits.

I've seen all the paperwork from this vendor (I confirmed the vendor's identity via PM, just not sure if it is appropriate to share that here in the thread), as they pitched to us a little over 2 years ago. The vendor in effect "borrows" the bank's charter to gain access to processing via the ACH network and acts as an agent of the bank for these card accounts. The bank's ABA routing number is placed on all collateral documents for cards issued through the bank. The vendor will conduct CIP and OFAC, but if there are any "fails", they call the bank for a final decision of whether to open the card or not. Based on everything I saw of this particular vendor's program and paperwork, the bank owns the card accounts and is ultimately responsible for CIP as the cardholders are the bank's customers. The bank can use a reliance provision for the vendor completing CIP if they write into their policy.
Last edited by Dani York, CRCM; 03/27/15 12:50 PM.
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#2004525 - 03/27/15 12:51 PM Re: Pre-paid Access Devices, CIP, and cash monitoring Dani York, CRCM
Elwood P. Dowd Offline
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Different facts, additional facts, oftentimes generate different answers.
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#2004620 - 03/27/15 03:55 PM Re: Pre-paid Access Devices, CIP, and cash monitoring Dani York, CRCM
rlcarey Online
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Originally Posted By Dani York, CRCM
The bank can use a reliance provision for the vendor completing CIP if they write into their policy.


Dani, you might want to review the rules regarding the reliance provision. As the vendor has not been named, I'm not sure they are qualified to be used under the regulatory provisions:

"In order for a bank to rely on the other financial institution, such reliance must be reasonable under the circumstances, and the other financial institution must be subject to a rule implementing the anti-money laundering compliance program requirements of 31 U.S.C. 5318(h) and be regulated by a Federal functional regulator."
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#2004731 - 03/27/15 06:59 PM Re: Pre-paid Access Devices, CIP, and cash monitoring charlied
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However, the vendor can act as an "agent" for the Bank in conducting CIP - much like an automobile dealer acts as an agent for the Bank who is the indirect lender.

The difference is - the Bank is responsible for any mistakes or violations of its agent, whereas the Bank is not responsible for any mistakes of another financial institution when it relies on them for CIP.
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#2004864 - 03/28/15 12:40 AM Re: Pre-paid Access Devices, CIP, and cash monitoring Princess Romeo
Dani York, CRCM Offline
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Originally Posted By Princess Romeo
However, the vendor can act as an "agent" for the Bank in conducting CIP - much like an automobile dealer acts as an agent for the Bank who is the indirect lender.

The difference is - the Bank is responsible for any mistakes or violations of its agent, whereas the Bank is not responsible for any mistakes of another financial institution when it relies on them for CIP.


This is what I was thinking of....the bank being responsible, but the vendor actually collecting on behalf of the bank. The bank would have to be comfortable with the method used by the vendor and all associated risk.
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#2005257 - 03/31/15 04:26 PM Re: Pre-paid Access Devices, CIP, and cash monitoring charlied
charlied Offline
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The vendor in question is a licensed MSB. So, would they qualify under a reliance provision as a financial institution? Or would this be better as a provision relying on the vendor as an agent?

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#2005273 - 03/31/15 04:54 PM Re: Pre-paid Access Devices, CIP, and cash monitoring charlied
Princess Romeo Offline

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The MSB is not regulated by Federal functional regulator. That is one of the requirements in 1020.220 (a) (6) in order to rely on another financial institution.

In plain English - the financial institution must be regulated by FDIC, OCC, FRB, NCUA, or SEC.
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#2005291 - 03/31/15 05:29 PM Re: Pre-paid Access Devices, CIP, and cash monitoring charlied
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