Stored Value Cards

Hopefully someone can help me out:

If we issue stored value cards for a company in a different state that sells the cards to the public, are we required to ensure CIP is performed? The funds are held in a single, pooled account at our FI. Would it make a difference if the cards were non-personalized (PIN based) or personalized (signature based - with name embossed)?

I've been researching this for a while and all I have come up with is a lot of confusion! Thanks for your help!

Does anyone have any experience in this...or have any ideas?


Thanks.

My initial response is no, you don't have to CIP.....but heck, I could be wrong.

Are the cards reloadable?
There was some guidance put out about this, but I'll be darned if I can put my hands on it right now. I'll keep looking unless someone else comes across it first.

Yes, the signature based cards will be reloadable. Thanks for your help! I hope you can find the guidance.

I researched my BSA materials and found a handout where Metavante Regulatory Service (MRS) conducted a webinar in 2007 titled - Stored Value Card/Payroll Cards 2007 Compliance Update.

The handout referenced some OCC guidance available (even if you're not regulated by the OCC, it's still useful):

OCC Bulletin 96-48
Advisory Letter 2004-6

Also the handout stated that technically no CIP is required on stored value cards but is probably a good idea, particularily on payroll cards. And if you sell stored value cards to non-customers (and we do), we gather the CIP info in the event the transaction(s) are reportable (CTR/SAR).

Thanks for the info! I had reviewed 2004-6, but unfortunately all the OCC says in that advisory letter is that whether or not CIP applies is simply an unsettled regulatory issue. I also wasn't able to find anything substantial in the 1996 Bulletin (too early to talk about CIP I guess). It did state in the appendix that the application of the BSA is unclear.
I appreciate the links.

These are not cards that we will be selling directly. We will be issuing them for a company in CA that will be selling them to the public. Does that change any of your thoughts on gathering the information?

See http://files.ots.treas.gov/25254.pdf

If the cards are reloadable, CIP applies.

Thanks!

Retread...OTS now decides to which products CIP applies? Gack. The guidance you pointed us to says: "However, savings associations that issue open system reloadable prepaid cards should develop systems to apply the customer identification program to such gift card products."

My head is swimming on that one. Fortunately my institution isn't regulated by the OTS. Have any of you tried the "this isn't a covered account" argument?

31 CFR 103.121: "Account means a formal banking relationship established to provide or engage in services, dealings, or other financial transactions including a deposit account, a transaction or asset account, a credit account, or other extension of credit. Account also includes a relationship established to provide a safety deposit box or other safekeeping services, or cash management, custodian, and trust services."

I can't help but notice and enjoy the fact that "reloadable gift card" doesn't appear in there (yet). Wouldn't FinCEN's guidance, or lack thereof, supercede the OTS's decision to play it safe and provide their estimated best guess of future regulations that don't exist yet? I thought the decisions on this had been continued to be postponed...with FinCEN not wanting to put the CIP hammer down on a fragile, newborn industry (yet).

Sorry, I missed your comments. I suppose my bank is different than most. We don't always do things just because we have to. We do them to protect our bank. Sometimes we go way above the call of duty, but we know where our risks are, and one of them is stored value cards. I know there is no "black and white" statement that says you have to do CIP on the SVCs, but I think it is just a matter of time before there are some new rules. Probably the first one out will be to reclassify SVCs as monetary instruments so they will be subject to reporting on FinCEN Form 105 and will be subject to forfeiture for failure to file Form 105s. Whether or not CIP is required on SVCs, collecting the CIP information is a sound business practice. We do not want to be the first to appear in the newspapers for selling SVCs to someone we don't know and having those cards used for terrorist financing or a major money laundering operation.

Retread - we also use it as a sound business practice, and voluntarily apply CIP-like procedures, to the extent practicable, to such sales. However, there is a difference between that and being required to apply CIP. I'm sure any reasonable issuer is gathering name, address, and as much identifying information as possible. But when we say "apply CIP" I take that to mean going to the level of obtaining and verifying all (or a sufficient number of ) elements of CIP, the same as we would when opening a deposit account or extending credit.

Failing to do it 1% of the time when doing it voluntarily still represents a great effort. Failing to do it 1% of the time when it is required by the regulations (or regulator) can be an entirely different level of problem. Right now we are trying to get our systems in place before the regulations are issued, but, when regulators come in and ask me for the CIP on SVCs (as they did in the beginning of 2008), I can currently still tell them, "CIP does not apply" and refer them to the regulation (only because my institution is not regulated by the OTS).

I agree - it is just a matter of time before there are some new rules, and I have been working with our third party software provider for over a year in trying to convince them of this inevitability. The problem I am still having is that the third party thinks it is okay for the CIP-related questions to be "optional" in their software, as in, the user is not required to fill out the fields in order to issue the cards - and they currently have no plans to change that. This allows some percentage of cards to be sold with some data that would be a CIP problem if CIP was mandatory, i.e., a P.O. Box listed in the physical address field, or an initial in the first name field rather than a first name. It also allows for the possibility that a teller, in spite of his/her training, could issue a card with a blank ID number or a blank date of birth. We can't have that happen, if CIP is or becomes mandatory.

The difference currently is that the problems can be uncovered through my own reviews and addressed internally, rather than being a sore source of criticisms in examinations.

This is interesting reading for any issuer of stored value cards.

http://www.nbpca.com/docs/NBPCA-AML-Recommended-Practices-080220.pdf

Thanks to everyone for this great discussion!

Thanks Retread for the link to that manual! I am heading into a vendor sales meeting on the payroll cards and now I'm armed with a load of questions!

I second that sentiment - Retread, that manual is a lifesaver! Thanks for posting it!