Prepaid Access

Prepaid access is a category of money services business (MSB) activity defined by the US Financial Crimes Enforcement Network (FinCEN) under the Bank Secrecy Act. FinCEN defines prepaid access as access to funds, or the value of funds, that have been paid in advance and can be retrieved or transferred at some point in the future through an electronic device or vehicle, such as a card, code, serial number, mobile identification number or personal identification number.

The regime distinguishes two roles with different obligations: the provider of prepaid access, which is the principal responsible for a prepaid program, and the seller of prepaid access, which sells the product to the public, typically at a retail counter.

FinCEN's earlier rules referred to issuers, sellers and redeemers of stored value, a category exempt from many requirements. Concern that prepaid cards could be used to move illicit funds anonymously, combined with the Credit CARD Act of 2009, which directed the Treasury to regulate prepaid devices, led FinCEN to issue a final rule in July 2011 replacing stored value with the new prepaid access framework. The rule sits in FinCEN's regulations at 31 CFR Chapter X.

The provider is the participant in a prepaid access program that agrees to serve as its principal conduit for access to information from fellow program participants. Where a program has several participants, such as a sponsor bank, a program manager and a distributor, they may designate the provider among themselves; otherwise FinCEN looks at who exercises principal oversight and control, for example who organizes the program, sets its terms and determines its distribution. A bank cannot be the provider, since banks are excluded from the MSB definition. For more on this role, see provider of prepaid access.

A provider must:

• register with FinCEN as an MSB, through FinCEN registration, and identify each prepaid program it covers;
• maintain a written AML program;
• collect and verify customer information, including name, date of birth, address and identification number, and retain it and transaction records for five years;
• file suspicious activity reports and currency transaction reports where required.

A seller is any person that receives funds in exchange for providing prepaid access, either under a program that is not exempt from the rule, or in an amount greater than USD 10,000 to one person during one day, regardless of the program type. Sellers must maintain an AML program, collect customer identification for the relevant sales and file suspicious activity reports, but they are not required to register with FinCEN.

Several types of program fall outside the rule, provided they meet the conditions set by FinCEN:

• closed-loop prepaid access, such as a store gift card usable only at one merchant group, up to USD 2,000 per device on any day;
• open-loop products limited to USD 1,000 maximum value at initial load and per day, provided they cannot be used internationally, cannot transfer funds between users and cannot be reloaded from a non-depository source;
• programs for government benefits, employer payroll and pre-tax health or dependent care accounts.

These exemptions are lost if the program permits features such as international use or person-to-person transfers, which FinCEN views as higher risk. A reloadable product such as a general purpose reloadable card sold at retail therefore usually falls within the rule.

Prepaid access is a separate MSB category from money transmission under federal law, but the two can overlap. At state level, many prepaid programs require a money transmitter license because state laws often treat the sale or issuance of stored value or prepaid access as money transmission. Program designers must therefore analyze both the federal classification and the state licensing position. Retailers that sell many prepaid products are also expected to watch for structuring designed to keep purchases under the thresholds.

• Financial Crimes Enforcement Network (FinCEN)