Academic journal article ABA Banking Journal

Smart Cards May Be Coming, but Is Reg E Ready for Them?

Academic journal article ABA Banking Journal

Smart Cards May Be Coming, but Is Reg E Ready for Them?

Article excerpt

As this month's cover story demonstrates, smart cards are the product of the hour. But while the technology may be ready, banking rules are lagging behind.

"Smart cards have implications for Regulation E that people aren't really sure about yet," said banker John S. Burnett during ABA's National Regulatory Compliance Conference earlier this year. Burnett, vice-president and compliance officer at Cope Cod Bank and Trust Co., Mass., gave a presentation on Reg. E.

One key question is whether the money contained in a stored-value type of card will be considered an "account" for Reg E purposes, explained Burnett. Status as an "account" triggers Reg E requirements. To Burnett, a stored-value card is "more analogous to cash than to an account."

Applying Reg E rules to smart cards could lead to some odd situations, Burnett suggested. For example, say a cardholder used a smart card to purchase a can of soda out of a machine. Under Reg E, the soda machine should issue a receipt.

"Are customers going to ask the Coke machine to give them a receipt when they spend 75 cents on a soda?" asked Burnett. "For that matter, do customers want the receipts?"

Regulation E also requires listings of electronic transactions on a monthly statement, said Burnett. Listing every purchase--even 75 cent cans of soda--would be tedious to the customer and burdensome to the bank--especially since one of the advantages of the smart card is supposed to be the ability to do business off-line. …

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