Even partial application of consumer protection rules to stored-value cards could impede development of this new payment system, according to a Federal Reserve Board report.
The study, sent to Congress late Monday, recommends using policy statements and public education campaigns to protect consumers without stalling growth of these cards.
"For providers of electronic stored-valued products, a policy statement or education program could offer solutions that are less costly, less burdensome, and more flexible than mandatory rules to address some concerns about consumer rights, liabilities, and responsibilities when using these products," the Fed said.
Separately, the Fed also sent a study on consumer privacy issues to Capitol Hill. The report concluded the use of personal data about consumers to obtain fraudulent credit cards does not pose a safety-and-soundness threat to banks.
"That is a tremendous acknowledgment," said Marsha Z. Sullivan, vice president of government relations at the Consumer Bankers Association. "They didn't say there is a big problem or that Congress ought to legislate."
Lawmakers requested both studies in the 1996 law capitalizing the thrift insurance fund.
The stored-value report evaluates the effect of either applying all, some, or none of Regulation E's consumer protections to stored-value products.
Applying all of Regulation E's protections would be unworkable, the Fed said. Vending machines, parking meters, and other likely receptacles for stored-value cards are incapable of providing customers with receipts. Also, it would be difficult to limit a consumer's liability for a lost card or mail out periodic statements detailing purchases because most providers do not keep lists of their users.
Regulators could apply parts of Regulation E. For instance, they could require issuers to disclose information about their products when they sell a card. But the Fed said it could prove costly to distribute brochures.
Regulators also could apply some of Regulation E's provisions selectively. For instance, the government could require issuers to reimburse consumers for electronic travelers checks but not for stored- value cards used to buy products from vending machines. But these rules could distort the market by encouraging issuers to offer only unregulated cards, the Fed said.
Alternatively, regulators could refrain from formal rules. In addition to policy statements and education initiatives, the government could use existing contract and product liability laws to ensure issuers act fairly, the Fed explained.
The Fed did warn, however, that waiting too long to impose rules could prove costly because issuers would be forced to adapt existing systems to new requirements.
Nessa E. Feddis, senior federal counsel at the American Bankers Association, praised the report. "They recognized the danger of premature regulation or regulation that is too late," she said. "They recognize how regulations can hinder or foster a new technology."
