The Office of the Comptroller of the Currency issued a 10-page bulletin Tuesday to national banks outlining risks posed by stored- value cards and encouraging specific consumer disclosures.
The topic is a hot one with regulators. The Federal Deposit Insurance Corp. is holding a public hearing Thursday on stored-value cards, and the Treasury Department is sponsoring a two-day conference next week on the role of government in electronic money and banking.
While the FDIC and Federal Reserve Board have interpreted existing laws' applications to stored-value technology, the OCC bulletin is regulators' first effort to tell the banking industry how safety and soundness exams will be adjusted to account for the new technology's risks.
The bulletin also urged banks to consider a dozen basic consumer disclosures, ranging from directions on how to use the cards to whether the consumer is protected if the card is lost or stolen.
As stored-value products are developed, both banks and examiners need guidance, said Jimmy F. Barton, chief national bank examiner. The bulletin, he said, should give bankers "good ideas and benchmarks for laying out risk-management systems."
But Nessa Feddis, senior federal regulatory counsel for the American Bankers Association, said the OCC might be getting too specific too early. "Consumers won't read all these disclosures," she said.
Robert G. Rowe, regulatory counsel for the Independent Bankers Association of America, agreed. "Too much is still uncertain about stored- value cards," he said.
The bulletin is not binding on banks, but it does tell examiners what to look for. It details the risks banks face in their different roles as investors, issuers, or distributors of stored-value and smart cards. These cards use magnetic strips or computer chips to hold cash value electronically. A computer hard-disk also can serve as the "purse" holding electronic cash.
Banks could face bad publicity and disgruntled customers if consumers are confused about who owns the stored value on their cards, according to the bulletin. What happens if the company that issued the card goes bankrupt?
If banks that sell stored-value cards to consumers haven't made clear their limited obligation as distributors, they could face both legal and public relations hassles, the OCC said. Consumers may expect their banks to make good on stored-value cards made useless by an issuer's bankruptcy.
A lack of adequate disclosure, the bulletin stated, creates both reputation and compliance risks for banks.
"Compliance risk is present because as a distributor the bank may be the primary contact for consumers and, thus, is responsible for distributing necessary disclosures and (in some systems) for initiating an error resolution process," the OCC wrote.
"Customer dissatisfaction with the product due to misinformation, lack of information, or failure to resolve problems ... could result in litigation or adverse publicity that would damage a bank's reputation and subject it to liability," the OCC added.
The OCC is the third regulator to address stored-value cards. Last March, the Fed proposed exempting many types of stored-value cards from most consumer regulation. The FDIC looked at the cards and concluded that most do not qualify for deposit insurance because the bank is not holding the funds in a consumer's account.
But in a July 16 legal opinion, the agency said banks could design stored-value cards that would qualify for insurance. Such products would hold money in consumers' accounts until a payment was made.
Thursday's hearing is meant to give the industry a chance to respond to that FDIC opinion.
