Magazine article American Banker

OCC Lists Smart Card Risks, Urges Consumer Disclosures

Magazine article American Banker

OCC Lists Smart Card Risks, Urges Consumer Disclosures

Article excerpt

The Office of the Comptroller of the Currency issued a 10- page bulletin Tuesday to national banks outlining risks posed by stored-value cards and encouraging specific consumer disclosures.

The topic is a hot one with regulators. The Federal Deposit Insurance Corp. is holding a public hearing Thursday on stored-value cards, and the Treasury Department is sponsoring a two-day conference next week on the role of government in electronic money and banking.

While the FDIC and Federal Reserve Board have interpreted existing laws' applications to stored-value technology, the OCC bulletin is regulators' first effort to tell the banking industry how safety and soundness exams will be adjusted to account for the new technology's risks.

The bulletin also urged banks to consider a dozen basic consumer disclosures, ranging from directions on how to use the cards to whether the consumer is protected if the card is lost or stolen.

As stored-value products are developed, both banks and examiners need guidance, said Jimmy F. Barton, chief national bank examiner. The bulletin, he said, should give bankers "good ideas and benchmarks for laying out risk-management systems."

But Nessa Feddis, senior federal regulatory counsel for the American Bankers Association, said the OCC might be getting too specific too early. "Consumers won't read all these disclosures," she said.

Robert G. Rowe, regulatory counsel for the Independent Bankers Association of America, agreed. "Too much is still uncertain about stored- value cards," he said.

The bulletin is not binding on banks, but it does tell examiners what to look for. It details the risks banks face in their different roles as investors, issuers, or distributors of stored-value and smart cards. These cards use magnetic strips or computer chips to hold cash value electronically. …

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