Regulations on the Way for the Prepaid Card Industry?

August 23, 2016

Since 2011, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) has been working to close a loophole that they believe facilitates the movement of bulk cash across borders through prepaid credit and gift cards. FinCEN’s hope was the Bank Secrecy Act (BSA) could be amended to count these types of cards toward the requirement that individuals have at U.S. borders to report carrying $10,000 cash or more.

FinCEN Withdraws Rule

Following resistance from the prepaid card industry, FinCEN has withdrawn the proposed rule. It has indicated, however, that the proposed rule is not dead but rather that it will be resubmitted—likely by 2017—after it has undergone some modification and been subjected to a cost-benefit analysis.

FinCEN’s seeming refusal to give up on the rule stems from its bid to crackdown on international money laundering and drug trafficking. In 2009, the Treasury Department estimated that as much as $24 billion is smuggled into Mexico alone annually, part of which is carried across the border on the two main types of prepaid cards: open loop and closed loop cards.

Open loop cards are reloadable cards that are branded with credit card company logos. Customers using these types of cards are required to present retailers with identification in order to use them. Closed loop cards are gift cards for use at a specific retailer only.

Use of Prepaid Cards

In recent years the use of prepaid cards has increased and continues to do so, with more than $623 billion being transferred onto gift and prepaid cards in the U.S. in 2015. Given numbers like this, it’s not surprising that the prepaid and gift card industries have been opposed to FinCEN’s proposed rule, with some in the industry arguing that people would be discouraged from using the cards.

The industry argues that introducing this rule would deter and negatively impact individuals that are heavily reliant on this form of financial services. For example, some prepaid cards can be loaded with funds from U.S. government benefits or with wages for employees who don’t have bank accounts.

Some banks and other financial institutions have also raised similar arguments about the tightening of AML regulations in general. These extremely stringent money-laundering laws are leading more and more financial institutions to cut certain regions and business lines from their operations in order to de-risk, a practice that further limits the options available for some customers to access funds.


One of the most vocal opponents at a meeting between industry reps and officials from FinCEN, the Department of Homeland Security and the Office of Management and Budget, was Visa Inc.—a leading provider of prepaid cards and the world’s largest payments network operator.

It was approximately a year and a half later that FinCEN withdrew its proposal to introduce the new rule, a highly unusual move—less than six percent of draft regulations have been withdrawn by the proposing agency within the last ten years.

A deputy special agent leading Homeland Security Investigations in Miami believes that prepaid cards are an easily accessible way for smugglers to be paid for delivering drugs, money and other types of goods as transactions involving large sums of money continue to be subjected to intense scrutiny.

The European Union is also reportedly worried that these cards may have been used in terror plots recently. Like FinCEN, the EU has put forward a proposal for more regulations regarding these cards. So although FinCEN may have withdrawn their proposed rule for the moment, regulations for prepaid cards are on the horizon—it’s just a question of when.

With increasing regulations, organizations must ensure their anti-money laundering (AML) compliance programs are effective. Learn more about how we can help your organization get ahead of AML risks, or contact us for more information.

About Andrew Simpson

Andrew Simpson (LinkedIn | Twitter) is Chief Operating Officer at CaseWare RCM and has more than 20 years of experience building businesses in the fields of information systems audit and security, data analytics, Anti-Money Laundering and forensics. He is a regular contributor to conferences and a recognized thought leader in financial crime management.

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