A final rule to prevent prepaid accounts from being used to launder money attempts to balance the concerns of retailers, program providers and law enforcement agencies.
The Financial Crimes Enforcement Network adopted what it calls a "targeted approach" Tuesday to regulating sellers of prepaid products. It will focus on the sale of cards with features or high-dollar amounts that may pose money-laundering risks.
"We had to strike a balance between what law-enforcement [officials] needed and, of course, what the retailers and [prepaid] providers want to deliver in terms of customer service and the ability to continue to innovate," a bureau representative said.
The new rule amends the Bank Secrecy Act, which Congress passed in 1970 and requires financial institutions to assist government agencies with issues pertaining to money laundering. The Credit Card Accountability, Responsibility and Disclosure Act of 2009 required changes to the law.
Opponents of the proposals expressed concerns over a requirement that retailers collect identifying information when selling prepaid cards to customers. The final rule has several exemptions.
Retailers that sell open-loop prepaid cards to consumers in any amount exceeding $1,000 in a single visit must collect a name, address, and other details for law-enforcement officials to access.
The exemption to this requirement applies only if consumers cannot use the cards outside the U.S., the issuer does not allow funds transfers among users and the cards cannot be reloaded from a nondepository source. Closed-loop cards sold in amounts of $2,000 or less are also exempt.
"We tried to keep these thresholds high because we don't want to interfere with the market," the bureau representative says. "We're making it harder for criminals to use the financial system to conduct illicit business."
Government-funded cards, prepaid debit cards linked to health care savings and flexible spending accounts and dependent care-funded cards also are exempt from the rule.
"It appears that, while the final rule still imposes certain obligations upon sellers of prepaid access, FinCEN made modifications to those obligations, and we are still assessing the potential impact of the rule," Kirsten Trusko, president and executive director of the Network Branded Prepaid Card Association, said in an email.
Prepaid providers will be required to register with FinCEN. Retailers that sell prepaid cards are not required to register but must maintain an anti-money-laundering program under some circumstances.
Crooks have certainly misused the cards, but law enforcement agencies rarely provide concrete statistics on the crime, says Ben Jackson, senior analyst at Mercator Advisory Group, says.
"Nobody wants to promote crime, but I'm not sure that the use of prepaid for these type of activities is undoubtedly proven and widespread," he says.
