Banking Regulators Issue Guidance on Customer ID Programs for Prepaid Cards
The banking agencies have released guidance about when banks need to put prepaid card holders through the full Customer Identification Process required for all accountholders.
The guidance applies to banks, savings associations, credit unions, and U.S. branches and agencies of foreign banks (collectively "banks"). The guidance clarifies that a bank's CIP should apply to the holders of certain prepaid cards issued by the institution as well as holders of such prepaid cards purchased under arrangements with third-party program managers that sell, distribute, promote, or market the prepaid cards on the bank's behalf. The guidance describes when, in accordance with the CIP rule, the bank should obtain information sufficient to reasonably verify the identity of the cardholder, including at a minimum, obtaining the name, date of birth, address, and identification number, such as the Taxpayer Identification Number of the cardholder.
The guidance defines prepaid cards that give the cardholder the ability to reload funds or access to credit as accounts, and so banks must collect name, date of birth, address, and an identification number from individual cardholders.
Programs that are excluded include payroll cards where only the employer can load funds on the cards, government benefit cards, and flexible spending accounts where only the employer can load funds.
The guidance does not specify whether or not the ability to for cards to occasionally and inadvertently go negative counts as an extension of credit. In that case, some of the exemptions, such as the one for payroll cards may not apply. Batch processing and forced transactions could cause a card that ordinarily should not go negative top become negative.
It seems that issuing banks and credit unions would be wise to ensure that prepaid program managers gather CIP information on all cardholders due to the ambiguities around this point. Additionally, given that FDIC pass-through insurance relies upon knowing how much is held for each cardholder, knowing about each individual cardholder would help with the assertion that funds on deposit for prepaid cards are FDIC insured