The Federal Reserve Board has proposed exempting many types of stored-value cards from electronic funds transfer regulations.
The proposal, expected to be published for comment in the Federal Register next week, would use a "light hand" in applying Regulation E consumer-protection standards to smart cards and similar systems that can automate cash transactions, said Griffith L. Garwood, director of the Fed's division of consumer and community affairs.
The rules "won't unnecessarily impede technological developments" in stored-value cards, Mr. Garwood said during Wednesday's meeting of the Fed board.
The proposal would exempt stored-value cards that aren't linked to a central data base from Reg E liability limits, initial disclosure requirements, and bans on unsolicited issuance.
Stored-value devices that do not require authorization for each transaction but for which balance records are kept in a central data base would also be exempt from most Reg E requirements. Issuing companies would have to disclose the terms and conditions of the account when it is opened. Cards in this class would not require disclosures if they are limited $100 of value or less.
Stored-value cards that, like debit cards, require on-line authorizations at the time of a transaction would be subject to most Regulation E requirements.
Fed Governor Edward W. Kelley Jr. said the proposal overlooked a number of issues, such as whether the value in the cashlike cards is covered by deposit insurance. Mr. Kelley described the proposal as "a first look at the subtleties, complexities, and ambiguities we're going to have to face."
The proposed rule's application of Reg E "may be a tad too light," he added.
William Binzel, director of government relations for MasterCard International, one of numerous companies experimenting with the technology and lobbying against major regulatory action, called the proposal "a good start" that "shows a lot of flexibility."
The Fed also proposed permitting providers of home banking services to fulfill disclosure requirements with on-screen messages, rather than oral or written ones. The public will have at least 60 days from the date of publication to comment.
The governors approved a February 1994 proposal updating and streamlining Regulation E. According to Fed staff, the most significant change increases the asset size of institutions exempt from the regulation to $100 million, from $25 million.