At the close of the comment period on proposed additions to Regulation E, the Federal Reserve received a number of letters advising it to be cautious in applying the measure to smart cards.

Smart cards resemble traditional credit or debit cards but contain a computer chip that is capable of storing significantly more information than a magnetic stripe.

Though the cards are scarce in the United States, a number of banks and electronic banking networks aim to promote them as a multipurpose financial payment tool.

Since funds would be loaded onto the chips at automated teller machines and point of sale terminals, the Federal Reserve Board believes that the cards should fall under Reg E.

Regulation E, which enforces the Electronic Funds Transfer Act, defines the rights and responsibilities of consumers who conduct electronic funds transfers. The regulation makes banks responsible for consumer fraud losses of $50 or more incurred from an electronic funds transfer.

Letters from the American Bankers Association, the Electronic Funds Transfer Association, the New York Clearing House, Visa USA, and other organizations attempted to highlight the differences between smart cards -- also known as stored value cards -- and traditional debit cards.

The letters largely acknowledged that the act of loading a smart card with funds at an ATM may indeed be the type of electronic funds transfer that would be covered under Reg E.

However, the letters argued that the off-line transactions for which a smart card would subsequently be used should not be considered an electronic funds transfer because such transactions do not directly touch a bank account.

"Application of Regulation E to smart card transactions, other than those in which an account is being accessed, could cause this whole technology to be abandoned as uneconomical, leaving consumers in the United States with poorer, less convenient service than consumers abroad," the New York Clearing House, which represents 11 New York banks, wrote in its letter.

The board plans to rule on the smart card issue by January.

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