WASHINGTON - Developers of stored-value smart cards have argued that the products should be treated like cash rather than credit cards or ATM cards. Now some lawmakers are finding value in that argument.
In recent weeks, several members of Congress have introduced legislation to exempt smart cards from the Electronic Funds Transfer Act. The exemption would absolve issuers of responsibility for lost cards and eliminate the requirement of a receipt for each smart card transaction.
Last week the Senate Banking Committee weighed in with an amendment to exempt smart cards from the Electronic Funds Transfer Act, including the measure in a package granting banks relief from burdensome paperwork and reporting requirements.
"These 21st century products provide a convenient alternative to cash, but their development has been hampered by 20th century law," said Sen. Richard C. Shelby, R-Ala., sponsor of the amendment. A stand-alone bill similar to Sen. Shelby's amendment has been introduced by Sen. Robert Bennett, R-Utah.
Sen. Bennett said he expects stored valued cards will be most useful for small transactions that require minimal expense, such as vending machines and parking meters. "Applying the requirements of the Electronic Funds Transfer Act to stored value cared programs would significantly raise the cost and, in some instances, would make such programs economically unfeasible," he said.
Smart card exemptions to the electronic funds law are also included the House Banking Committee's regulatory relief proposal.
Developers of smart cards argue that introduction of the products is likely to be hampered by a Federal Reserve Board decision last year that subjects stored value cards to the liability and error resolution provisions of the Electronic Funds Transfer Act, if the products are used to access deposits.
That interpretation would limit cardholders' losses from misplaced or stolen cards, a condition most smart card developers find unacceptable. "These products have to operate like cash. If you lose the card, it's gone," said Lamar Smith, vice president government relations, Visa U.S.A.
A spokesman for the Federal Reserve Board, however, said the board is preparing a new set of guidelines for stored value cards, and previous interpretations may soon be out of date. Those guidelines are expected to be among the topics discussed at a hearing on currency innovations scheduled for mid-October by the House Banking Committee's domestic and international monetary policy subcommittee.
Developers also want to make sure that receipt and account statement requirements are not expanded beyond transfers from deposits. Mr. Smith said there is little problem issuing receipts and monthly statements for transfers from bank deposits to smart cards. But the industry must be on guard to make sure the reporting rules aren't applied to vending machines and other purchase points.
"It's becoming a question of how you interpret the Electronic Funds Transfer Act and Regulation E," Mr. Smith said. "It would kill (smart cards) if regulations required a Coke machine to issue receipts and it would be physically impossible to send periodic statements," he said.
Other questions regarding smart card rules remain. For instance, banks must turn unclaimed smart card funds to the state, as they are required for other unclaimed accounts. Nonbank smart card issuers may keep unused funds from smart card accounts.
"The issues are very fascinating in terms of who regulates this," said Bill Keenan, senior vice president for marketing and business development at Natwest Bank-Delaware and chairman of the SmartCard Forum's legal and public policy committee.
The action in Congress indicates that the smart card industry has taken steps to inform the public and lawmakers about the new products, but more awareness is needed, Keenan said. "Manufacturers of this technology have to do a better job of educating consumers and congressional leaders," he said.
