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CFPB Seeks Comments on Preemption of State Gift Card Escheat Laws

The Consumer Financial Protection Bureau (CFPB) is considering requests that it make a determination on whether certain provisions of the Maine and Tennessee abandoned property laws are inconsistent with the CARD Act provisions of the Electronic Fund Transfer Act (EFTA) and Reg. E and are thus preempted.

Under the EFTA, the bureau must evaluate whether state law is inconsistent with federal law. One way for a state law to be inconsistent is by “requir[ing] or permit[ing] a practice or act prohibited by the federal law.” An inconsistent state law is preempted by federal law only to the extent of the inconsistency. State law cannot be preempted, however, if the state law provides consumers greater protection than federal law.

The gift card provisions of Reg. E prohibit expiration dates of less than five years. The abandoned property laws of Maine and Tennessee, however, generally require escheatment to the state of unused balances on certain types of gift cards after two years of card inactivity. A bank or retail gift card issuer that has escheated funds to the state may subsequently honor the card if it’s presented for payment and file a request for reimbursement with the state. However, such issuer may also elect to decline to honor the card, in which case, the consumer will have to attempt to reclaim card funds directly from the state (although it may not be obvious to the consumer which state to contact).

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CFPB International Remittance Transfer Rules Create Substantial Compliance Hurdles

One provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) that generated comparatively little concern when it was passed was section 1073 entitled “Remittance Transfers.” Closer examination and subsequent issuance of regulations has now drawn scrutiny to this provision, which was already so detailed and lengthy when it was inserted into the Dodd-Frank Act that there was little room for modification by the CFPB when the bureau issued its implementing regulations. To assist Bryan Cave’s client and friends in efforts to comply with the new law and regulations in time for its February 7, 2013 effective date, we’ve prepared a Bryan Cave Client Alert on the Final Remittance Transfer Rules.

The CFPB’s new regulations are clearly “comprehensive.” Among other things, they:

  1. mandate certain disclosures, including the amount of the exchange rate and the amount to be received, prior to and at the time of payment by the consumer for the transfer;
  2. provide for Federal rights regarding consumer cancellation and refund policies;
  3. require remittance transfer providers to investigate disputes and remedy errors regarding remittance transfers; and
  4. establish standards for the liability of remittance transfer providers for the acts of their agents and authorized delegates.

With the recent issuance by the CFPB of some modifications intended to soften the impact of the Remittance Transfers law and implementing regulations (the “Remittance Rules” or “Rules”), we now have the complete and final picture of how these new Remittance Rules will work.

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CFPB Focusing on General Purpose Reloadable Prepaid Cards

As a precursor to further regulation of general purpose reloadable (GPR) cards, the Consumer Financial Protection Bureau (CFPB) is seeking responses to 10 questions before July 23, 2012.

The CFPB recently released an advance notice of proposed rulemaking (ANPR) seeking comments, data and information regarding GPR cards, including questions regarding costs, benefits and risks to consumers. The ANPR is the first step in the long-anticipated process of regulation by the CFPB over “open loop” or “general use” prepaid cards.

While the ANPR specifically discusses “cards,” other mechanisms that access a prepaid financial account are also encompassed, including key fobs and cell phone apps. The ANPR is focused on GPR cards which the CFPB defines loosely as a general use prepaid card “issued for a set amount in exchange for payment made by a consumer” that is reloadable by the consumer, “meaning the consumer can add funds to the card.”  The ANPR is not seeking information about corporate-funded cards, closed-loop prepaid cards, traditional debit cards, non-reloadable cards, payroll cards, EBT cards or gift cards.

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Bryan Cave Presenting at the Power of Prepaid Conference

Bryan Cave is a proud sponsor and speaker for the 2012 NBPCA Annual Congress, the Power of Prepaid.

The Power of Prepaid
June 3-6, 2012
Gaylord National Hotel & Conference Center
Washington, D.C.

Bryan Cave Partner Judith Rinearson will be speaking on a panel on the second day about Scaling for Growth: Keeping up to Date and up to Speed as your Portfolio Grows in Size and Scope.

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Third Circuit Issues Opinion in New Jersey Abandoned Property Litigation

The Third Circuit issued a long-awaited decision in the New Jersey Abandoned Property litigation, NJ Retail Merchants Association v. Andrew Sidamon-Eristoff. The court affirmed the District Court’s decision in this important escheat case with broad implications for members of the prepaid industry.


In 2010 New Jersey passed a new abandoned property law that, if upheld, would have been devastating for gift card and prepaid card issuers doing business in New Jersey.

  • First, the new law shortened the dormancy period for prepaid cards and gift cards from being not even subject to escheat, to requiring escheat after 2 years of inactivity (a shorter period than other states, and far shorter than the required 5 years validity under the CARD Act).
  • Second, the new law also required prepaid card issuers to retroactively escheat all funds from inactive prepaid cards sold in the last 5 years.
  • Third, the new law required sellers of prepaid cards (both open and closed loop cards) to collect the name and address of the purchaser, or at the very least, the purchaser’s zip code. Later this requirement was modified so that only collection of the purchaser’s zip code was “mandatory.”
  • Fourth, if the purchasers name and address (or zip code) was not known or collected, the purchaser’s address would be deemed to be the address of the store where the card was purchased.

NOTE — The reason New Jersey wants sellers to collect purchasers’ name and address, or otherwise wants to “deem” the purchasers’ address to be in New Jersey, is because under the uniform abandoned property laws, unused funds from gift cards and other prepaid cards would be paid to the state of the last known address of the purchaser. But if the last known address of the purchaser is not known (which is the case for virtually ALL gift cards), then the unused funds are paid to the state where the card issuer is domiciled. New Jersey’s new law, deeming purchasers’ addresses to be in NJ, or otherwise requiring collection of zip code data from purchasers, was intended to make sure that more of the unused funds escheat to NJ rather than to other states where the card issuers are domiciled. Since many prepaid card issuers are domiciled in states that don’t require escheat, the imposition of NJ’s new law as initially passed, with retroactivity, could have had serious consequences for many prepaid card programs.


The Third Circuit’s Opinion represents both good news and bad news for the gift card and prepaid card industry. See details below.

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Bryan Cave Sponsors 16th Annual Southeastern Bank Management & Directors Conference

Bryan Cave is pleased to once again serve as a sponsor of 16th Annual Southeastern Bank Management & Directors Conference, hosted by UGA’s Terry College of Business on February 9, 2012.  The conference’s theme for this year is “Banks & Emerging Retail Payments Systems: Opportunity or Threat?” and this year’s keynote speaker will be E. Robinson McCraw, CEO and Chairman of Renasant Bank.

Topics will include Regulations in Payment Systems, Monetizing Payments and Non-Lending Activities, the Retail Landscape, Getting Management and Your Board to think about Payments, and Evolving Accounting Standards and Compensation Policies.  Download the conference agenda or information sheet.

The long-term impact of payment systems on community banks remains unpredictable, but one fact is indisputable – change is coming and banks need to be nimble, embrace technology and understand their customers’ preferences if they want to thrive in the new environment.  This conference addresses an approach to extending the vitality of your bank.

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Prepaid & Emerging Payments Year in Review

Looking back at 2011, on Wednesday, January 25, 2012, from 2:00 to 3:30 pm EST, the Bryan Cave Payments Team has prepared a “Prepaid Card in Reviewwebinar for Bryan Cave clients and friends.  In addition to an overview of major legal and regulatory events impacting both open and closed loop cards, the Team will offer their views on likely future developments.

We will provide an overview of major legal and regulatory events impacting both open and closed loop cards and other emerging payments, including:

  • The “Durbin Amendment” and the subsequent FAQs from the Fed
  • Prepaid Access AML regulations
  • The CFPB – Current activity and the recess appointment of Richard Cordray
  • Abandoned Property – the implications of the New Jersey abandoned property legislation and the recent Third Circuit Opinion
  • Consumer Protection Laws – Life after the CARD Act.
  • Remote Deposit Capture – Check Cashing or Deposit Taking?  Current Views.
  • Preemption post Dodd-Frank – recent decisions.  Is preemption “dead”?
  • Money Transmitter Licensing – Why so many new payment companies are getting licensed: The pros, the cons, and the risks.
  • Privacy and Data Security – Are Prepaid & Emerging Payments riskier or safer than traditional payment products?
  • Mergers & Acquisitions in the Payments Area – Risks and rewards from acquisitions of licensed money transmitters.

The slides for this webinar are now online.

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FinCEN issues Proposed Rulemaking Regarding Cross-Border Reporting of Prepaid Cards

FinCEN has released a proposed rulemaking that would require consumers holding prepaid cards that aggregate to more than $10,000 in value, to report such prepaid cards when crossing into or out of the U.S., in the same way they currently report cash, travelers checks and other monetary instruments. The notice of proposed rulemaking (NPRM) would add “tangible prepaid access devices” to the list of currency and monetary instruments that must be reported when transported, mailed or shipped into or out of the United States in aggregate amounts over $10,000.

Currently persons crossing into or out of the US must report cash and monetary instruments exceeding $10,000, using FinCEN Form 105, the Report of International Transportation of Currency or Monetary Instruments known as the “CMIR” form. The NPRM’s inclusion of tangible prepaid access devices as a type of monetary instrument applies only to the $10,000 CMIR filing obligation; it does not extend to other requirements, such as the $3,000 recordkeeping requirement applicable to monetary instruments.

Interestingly, however, the NPRM also acknowledges that FinCEN is only authorized to extend CMIR reporting to items similar to U.S. currency based on the legislative purpose behind BSA reporting, that is to facilitate “the traceability of currency and its equivalents and eliminating anonymous international flows of money.” To the extent prepaid cards are not the equivalent to currency, and do not provide for “anonymous international flows of money” arguably the extension of CMIR reporting should not apply.

This proposal appears to have only a limited direct impact on prepaid card issuers and program managers. However, it will impact cardholders directly, possibly with negative consequences for customer experience and satisfaction. The proposal may result in holders of prepaid cards feeling discriminated against and/or stigmatized as compared to holders of debit and credit cards, who do not need to report their associated funds nor their access to lines of credit. It may also result in increased inquiries from law enforcement to designated providers of prepaid access and/or issuing banks about the value of specific cards crossing the border as well as increased website traffic and calls to customer service from individuals checking card balances to determine whether reporting is required and for what amount.

What is a “tangible prepaid access device”?

The term “tangible prepaid access device” is defined as “any physical item that can be transported, mailed, or shipped into or out of the United States and the use of which is dedicated to obtaining access to prepaid funds or the value of funds by the possessor in any manner without regard to whom the prepaid access is issued.” (Emphasis added.) The value of a tangible prepaid access device for reporting purposes would be the amount of funds available to which the device provides access, at the time it is transported, mailed or shipped.

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Bryan Cave Hosts ACAMS Atlanta Chapter Prepaid Access Event

Bryan Cave is hosting the quarterly CPE and general membership meeting for the Atlanta Chapter of the Association of Certified Anti-Money Laundering Specialists on Thursday, November 3, 2011, from 10:00am to 12:00pm.  We are also very pleased to announce that our own Judie Rinearson will be the guest speaker.

All AML/CTF professionals in the region are welcome to attend.

November 3, 2011
10:00 AM – 12:00 PM

Fourteenth Floor
1201 W. Peachtree Street, NW
Atlanta, GA 30309

Free for Chapter Members; $5 for Non-Chapter Members


Judith Rinearson leads the payments practice team for Bryan Cave LLP, where she is a partner in the firm’s New York City office. She also is chair of the Network Branded Prepaid Card Association’s Government Relations Working Group, the association’s representative to FinCEN’s Bank Secrecy Act Advisory Group and a Paybefore contributing editor.

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FinCEN Extends Compliance Date for Many Aspects of Prepaid Access Rule

The Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) announced on September 9, 2011, that it is extending the compliance date for most aspects of its final rule on prepaid access (the Final Rule). The Final Rule, which was published on July 29, 2011, was set to go into effect on September 27.

Compliance Date for Sellers of Prepaid Access Extended Until March 31, 2012

The provisions of the Final Rule applicable to “sellers of prepaid access” (Sellers) will become effective March 31, 2012. FinCEN states it received compelling information from the industry on the compliance challenges faced by Sellers, given that the Final Rule’s original effective date coincides with the back-to-school season and the beginning of the holiday shopping season. Many retailers impose a “lockdown” on their IT systems at this time of year, to accommodate peak retail sales and consumer traffic, which prevents any systems changes until the close of the holiday season in late January.

Compliance Date for Providers of Prepaid Access Remains Sept. 27, 2011 In Part; Extended Until March 31, 2012 In Part 

Some provisions of the Final Rule applicable to “providers of prepaid access” (Providers) still become effective Sept. 27, 2011; other provisions are extended until March 31, 2012. By Sept. 27, Providers must:

  • Develop an anti-money laundering (AML) compliance program that is risk-based and commensurate with the location, size, and types of financial services offered. (As required by 31 CFR 1022.210(a) and (b).)
  • Report suspicious transactions. (31 CFR 1022.320.)
  • Maintain transactional records related to prepaid access. (31 CFR 1022.420.)

Compliance with all other aspects of the Final Rule for Providers is extended until March 31, 2012.

FinCEN notes that in addition to preparing their own systems for compliance with the Final Rule, Providers may also need to negotiate new contracts with their distributors and retailers in order to clarify the status of their products under the Final Rule. However, FinCEN states it has learned that Providers are differently situated than Sellers, and some are currently capable of complying with the three basic requirements listed above. In fact, FinCEN believes many aspects of the Final Rule are already common business practices for Providers, and thus they will be able to comply with those aspects of the Final Rule by the original effective date of Sept. 27.

No Enforcement Prior to March 31, 2012

FinCEN states that for both Providers and Sellers, it will not initiate any compliance matter or enforcement action prior to March 31, 2012 for violations of the Final Rule, nor will it assess any civil money penalties for violations that occur prior to March 31, 2012.

FinCEN’s announcement of this administrative relief is available at

Our previous client alert on the Final Rule may be viewed at

If you have any questions or would like more information about FinCEN’s prepaid access Final Rule, please contact Kris Andreassen or Judie Rinearson.

Kristine M. Andreassen
Bryan Cave LLP
1155 F Street NW
Washington, DC 20004
(202)508-6117 phone
(202) 220-7417 fax
Judith Rinearson
Bryan Cave LLP
1290 Avenue of the Americas
New York, NY 10404
(212) 541-1135 phone
(212) 541-1385 fax
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