When it comes to Regulation E of the Electronic Funds Transfer Act, prepaid card issuers have clear guidance with regard to payroll cards. Issuers do not need to provide a paper statement to cardholders unless the cardholder requests it in writing.
The bank must provide account information by telephone and electronically at the customer’s request. How this regulation applies to other forms of reloadable, open-loop prepaid cards is not entirely clear, according to banking executives.
With state laws there is no consistency when it comes to prepaid cards. Abandoned property laws are one area that banks will need to pay attention to going forward, because some states exempt prepaid cards and others require the money to be escheated back to the state after a certain time if the card is not used.
Gift cards may be treated differently than other kinds of prepaid cards because retailers issue them and some states treat them in the same way as they did paper gift certificates, while other states may carve out an exemption for cards.
Banks that plan to issue prepaid cards of any kind should review state laws to make sure their programs comply with any relevant statutes and regulations.A useful resource is a report produced by the Network Branded Prepaid Card Association.
Another legal concern that affects prepaid cards is state payroll laws.Many states have restrictions on how employers can disburse wages. Theunderlying principle behind these laws is that employers cannot compel workers to receive their wages in a way that costs the workers money.
Still product design can help a bank or program manager deal with this issue. For example, when University National Bank wanted to offer payroll cards, it
ran into this problem.
So instead of selling cards to employers as payroll cards, it worked with an independent sales organization to sell cards directly to consumers who then opted to have their wages directly deposited to the cards. Because the employees chose to have their wages deposited to the card, the employer was not forcing them to take their pay in a way that cost them money, and the bank could still assess fees on the cards.
The Credit CARD Act of 2009 was signed into law on May 22. It amended the Electronic Funds Transfer Act and put limits on fees and expiration dates for prepaid cards. While the act excludes a large number of prepaid cards, banks that are considering offering gift cards need to examine the provisions of this law to make sure they are in compliance.
Banks need to stay abreast of changes in regulations, and regulators should make sure that new rules do not unnecessarily stifle growth or innovation in the prepaid industry.