Prepaid Cards & AML Policies
Issue
Are prepaid cards covered by the existing system of anti-money laundering and anti-fraud laws?
NBPCA Position
The NBPCA supports risk-based anti-money laundering (AML), anti-terrorism and anti-fraud regulations, and believes that the best results are obtained when these are implemented in a manner reasonably anticipated to prevent money laundering, terrorist financing and fraud in light of the risks presented and of the numerous safeguards implemented by the industry.
Explanation
The NBPCA and its members are committed to deterring money laundering, terrorist financing and fraud. We recognize that, like any payments system, prepaid cards are susceptible to abuse and misuse. Nevertheless, misconceptions about network branded prepaid cards have led some to propose AML and anti-fraud rules that fail to account for the many safeguards implemented by the industry, including:
- Every network branded prepaid card is issued by a highly regulated financial institution or money services business that is subject to examination, review, and oversight. Many states also require program managers and distributors to register as money transmitters or check sellers, which may necessitate registration as a money service business with FinCEN. Additionally, federal and state regulators oversee industry compliance with Office of Foreign Assets Control (OFAC) screening, transaction testing, and monitoring for suspicious activity.
- Unlike “bearer instruments” or chip-based cards, where the cardholder also holds the value, prepaid cards are merely access devices with the underlying funds held in separate accounts at regulated financial institutions.
- All prepaid card transactions are processed through an online system that requires authorization prior to completing a purchase or obtaining cash from an ATM. The system enables prepaid card issuers to cancel a prepaid card and to track every use, creating a trail that records place, time, date, amount, and often the nature of the transaction. Prepaid card participants routinely monitor card activity and file suspicious activity reports or notify law enforcement.
- So-called “anonymous” prepaid cards today are limited to gift or reward cards, which are subject to significant access, load, ATM-usage and geographic restrictions. Reloadable, cash-accessible prepaid cards require cardholder identification verification similar to that used for new bank account holders.
- Most prepaid cards require activation, which typically involves the cardholder providing personal identification information, which is verified using a third-party authentication system such as Experian, Lexis-Nexis, or Equifax and screened against the OFAC Specially Designated Nationals list—just like a bank account.
- The NBPCA supports AML laws directed at prepaid cards that recognize the unique nature of prepaid cards as well as the differing risk profiles of the various prepaid card products that are offered in the market.
Contact for Further Information: