FREQUENTLY ASKED QUESTIONS ABOUT
THE COMPLEXITY OF THE REGULATIONS & STANDARDS
The prepaid instrument industry is heavily regulated by regulations and standards. Compliance with these regulations is complicated. Below are frequent questions regarding the complexities.
Q. You say compliance is complicated by complexities. Can you describe the complexity?
The complexity resides at several levels: multiple jurisdictions – multiple regulations – multiple subjects – multiple regulators – multiple amendments – multiple changes – large volumes of small dollar items.
Q. Can you provide a little more detail?
The regulations are administered by a wide variety of bodies or governmental agencies. The personnel in these bodies change over time. And, they adopt micro rules of compliance in the form of guidance, website instructions, compliance handbooks, frequently asked questions, desk level rules, and administrative processes.
The end result is a difficult matrix of changing regulations and standards adopted by multiple jurisdictions and applied by numerous changing regulatory bodies.
Compliance officers must apply this complicated matrix to cards or instruments distributed across numerous States and, in some cases, numerous countries. These wide distribution footprints require determinations on which jurisdiction’s law applies – including whether more than one jurisdiction’s laws apply to a single item.
The churning regulatory amendments result in historical versions of each jurisdiction’s rules. This requires determinations of which version applies to an item – after the jurisdiction itself is determined.
Compliance offices must apply all of the above to large volumes of items – purportedly on a per item basis. They are supposed to do so even for small dollar items. Large volumes of small dollar items are a nemesis to efficient, cost effective compliance – particularly in the face of the complicated regulatory matrix.
Q. Do you have some examples of the multiple jurisdictions at issue?
A. Yes. Payment Instruments and prepaid cards are regulated by numerous jurisdictions. In the United States, they are regulated by the federal government and by each state and territory. Foreign governments also have adopted regulations. In addition, accounting standards are set by governing bodies. Generally Accepted Accounting Practices (“GAAP”) is set by Financial Accounting Standards Board (“FASB”). International Financial Reporting Standards (“IFRS”) is set by the International Accounting Standards Board (“IASB”). For details you should visit our Compliance Libraries.
Q. Can you provide examples of the governing and regulatory bodies at issue?
A. Yes. Payment Instruments and prepaid cards are regulated by numerous jurisdictions. In the United States, they are regulated by the federal government and by each state and territory. Foreign governments also have adopted regulations. In addition, accounting standards are set by governing bodies. GAAP is set by Financial Accounting Standards Board (“FASB”). IFRS is set by the International Accounting Standards Board (“IASB”). For details you should visit our Compliance Libraries.
Q. You mentioned that multiple subjects are being regulated. What are they?
A. The regulations and standards address specific subjects. A high-level list includes consumer protection, unclaimed property, anti-money laundering, privacy, income taxation, sales & use taxation, GAAP, IFRS, securities, e-money, licensing, and more.
Q. Can you give some examples of the U.S. regulations and standards?
A. Yes. Consumer protection is addressed by both federal and state statutes and regulations. Unclaimed property is governed by State statutes adjusted by a few federal rules. Anti-money laundering rules are set by federal statutes and regulations. Privacy is address by the FTC and state laws. The IRS has released several tax rules. FASB has adopted GAAP governing accounting for breakage. The SEC has issued guidance on taking breakage to earnings in public companies. Federal e-money statutes regulations address certain subjects. Licensing type requirements are addressed in federal and state laws. Sales and use taxes are set by state laws. For details on the regulations and standards per jurisdiction you should visit our Compliance Libraries.
Q. I have a simple gift card program, so why do I need to know about all of these rules and regulations?
A. You should be aware of the rules for two reasons. First, many of the regulations and standards directly apply to simple gift cards programs. Second, while some rules may not apply to some gift cards programs you should be aware of these other rules to understand which do and do not apply.
Q. You say that regulations may impact each other; can you give a couple of examples?
A. Yes. Anti-money laundering statues may force the collection of the name and address of a cardholder, but name collection may change the escheat status of the card. A consumer protection law may require a card issuer to give cash back to a consumer upon request, but a cash back program may change the anti-money laundering status and the escheat position of the card.
Q. How do you know which jurisdiction applies?
A. A separate set of legal rules governs which jurisdiction’s laws should be applied to a particular item. These rules include conflicts of law principles – priority rules for escheat – and rules governing the interplay of federal and state laws. Treaties may apply in international situations.
Q. Can more than one jurisdiction’s laws apply?
A. Yes. This may happen at several levels. It is common for federal and state laws to both apply to an item, but sometimes the federal law will trump state. More than one state’s laws may apply on some subjects and occasionally one state’s laws may govern one subject while another state’s law governs another subject.
Q. Why is compliance applied at the item level to each instrument or card?
A. The regulations typically are written so that each instrument, card or item must be in compliance. In fact, regulations may provide that penalties are assessable per item for non-compliance. The regulators leave it to the compliance officers of regulated entities to deal with the resultant problem of applying multiple laws to large volumes of small dollar items.
Q. How does Card Compliance address the large volume of items?
A. We leverage technology to unravel the complexities on a per item basis. In other words, we let computers do the work and tackle the volumes.
Q. What is micro compliance?
A. Regulations start with a statute and may be followed by a regulation. However, governing bodies or agencies often add complexities to these laws by issuing guidance, website instructions, compliance handbooks, frequently asked questions, desk level rules and administrative processes. We view this level of regulation as requiring micro compliance.
Q. Is micro compliance important?
A. Yes. Micro compliance can be critical in completing compliance tasks such as filing escheat reports with state agencies. Escheat filings and payments may be rejected with penalties applied for failure to follow the micro rules.
Q. Do your services address micro compliance?
Q. What about international laws?
A. Foreign governments have adopted their own series of laws and standards. For example, the European Union has laws addressing licensing, anti-money laundering, consumer protection, taxes, and privacy.
Q. How does Card Compliant address the regulatory complexities?
A. As explained above, we leverage technology to attack and unravel the complexity on a per item basis. In other words, we let computers sort through and apply the regulations.
Q. What services does Card Compliant provide to help with the complexities?
A. Services are available at several levels:
For those who simply want information, our Compliance Matrices and Libraries are full of charts, matrices and other helpful information regarding the laws on many subjects per jurisdiction. Subscribers are permitted to browse the materials and information on an as need basis.
For those who desire to outsource compliance work, we offer many services including compliance management services along with an ala carte suite of technology supported services. Explore our services. We handle a large group of subjects for come clients or simply fill a few gaps for others.
For those desiring the outsource card issuing itself, we offer gift card issuing services under which we assume the compliance responsibilities as the card issuer. Let us issue for you.