Bank Industry Applauds Fed's Plan to Ease Rules For Stored-Value Cards

The banking industry gave a thumbs up to the minimal regulations proposed for stored-valued cards by the Federal Reserve Board.

"The approach is obviously one we applaud," said John L. Burke Jr., partner at the Washington law firm of Foley, Hoag & Eliot.

Industry observers fretted that Regulation E - which provides consumer protection for electronic funds transfers, such as a $50 liability limit in most cases for lost or stolen debit cards - might be a hindrance to progress if applied to the new technology.

"It looks like the Fed doesn't want to impede the development of stored value," said Mr. Burke, who acts as counsel to the Smart Card Forum.

The Fed's proposal, expected to be published for comment in the Federal Register later this week, suggests exemption from Reg E for the majority of stored-value cards, both those with magnetic stripes and those with computer chips, if the card's stored value does not exceed $100. Cards containing more than $100 would be covered by liability limits that have not yet been specified.

Initial disclosure will be required for stored-value cards if balance records are maintained in a central data base.

"I think it's a very good proposal," said John Wright, vice president and senior counsel, Wells Fargo & Co. "The Fed recognizes that there needs to be a light degree of regulation for these types of products at this point."

Mr. Wright, who is co-chairman of the Smart Card Forum's legal and public policy committee, added that "the Fed did a good job of balancing consumer protection issues against the benefits and convenience these products offer."

Consumer activists beg to differ.

Edward Mierzwinski, consumer project director at the U.S. Public Interest Research Group in Washington, called the proposal "another example of the weakening of Reg E by the Federal Reserve Board." He said the proposal amounted to a "whittling away of consumer protection," and he intends to offer comments to the board.

"I'm not surprised to see light regulation," said Ruth Susswein, director of Bankcard Holders of America, a nonprofit consumer group in McLean, Va.

Although time constraints will deter her from registering a formal comment with the Fed, she said, "I'm hopeful to see some regulation when it comes to disclosure and liability."

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