Last week FinCEN (the Financial Crimes Enforcement Network) and federal banking agencies released new guidance
for how the CIP (customer identification program) requirements of the Patriot Act are to be applied to prepaid cards.
The guidance issues by the federal agencies relates to how an account is defined, and when a prepaid card is considered to be an account for purposes of the CIP Rule. This clarification is important, as when it is determined that a prepaid card is considered to be an account then the issuing bank is required to perform identity verification as they would any other depository account.
Central to the guidance is whether a prepaid card supports additional funds beyond the initial purchase amount of the card. The additional funds factor can take two forms, either the ability to reload funds to the card (regardless of who adds funds to the cards) or access to credit and overdraft protection for the card. For prepaid cards that have these capabilities the CIP Rule applies once those features are activated (e.g. the first time additional funds are “loaded” onto the prepaid card).
For any of these instances where a prepaid card is considered to be an account, the issuing bank must apply their CIP requirements for those consumers. Specifically this means that banks must require name, date of birth, address, and identification number from the consumer and follow procedures regarding how identity verification is performed. For many financial institutions that have an existing CIP for loan or depository accounts, this new guidance is in line with already established practices. Financial institutions specializing in prepaid cards, however, may need to establish or adjust their CIP to conform to the guidance from federal agencies.
Electronic Verification Systems (EVS) can assist financial institutions needing to perform identity verification in a customer not present environment to comply with the CIP requirements of the Patriot Act.