The OCC’s Gift Card Guidance
In August, the OCC released guidance for national banks with respect to disclosures and marketing issues presented by gift
cards. Specifically, the guidance states the OCC’s expectation that national bank gift card issuers take appropriate steps
to ensure that important information is provided in a form that is likely to be available to both recipients and purchasers
of gift cards. The OCC expects national banks to provide on the gift card (or on a sticker or tape affixed to the gift card)
basic information key to a recipient’s decisions about when and how to use the card, including: expiration date; amount or
existence of monthly maintenance, dormancy, usage, or similar fees; and a method for consumers to obtain information about
their gift cards, such as a toll-free telephone number or Web site address.
The OCC also expects that national banks will provide disclosures in a form that may be passed on by the purchaser to the
recipient, such as placing the gift card in a promotional package that contains the information—e.g., the name of the issuing bank, any other fees that may apply to the card, where the card can be used, and the importance of
tracking the balance remaining on the card.
For more information, contact Rick Fischer at rfischer@mofo.com.
FRB Adopts Payroll Card Rule
The FRB released a final rule subjecting to Regulation E payroll card accounts that are established directly or indirectly
through an employer and to which transfers of the consumer’s salary, wages, or other employee compensation are made on a recurring
basis. The final rule provides financial institutions with an alternative to providing periodic statements for payroll card
accounts. The mandatory compliance date is July 1, 2007. Highlights:
Unlike the interim rule, the final rule would not cover employers and third-party service providers as financial institutions.
However, if an employer or service provider undertakes to hold payroll card accounts or provide EFT services to payroll card
holders, it would become a financial institution subject to Regulation E. Financial institutions will have an alternative
to providing periodic statements for payroll card accounts if the financial institution: (1) makes balance information available
through a readily available telephone line; (2) makes available an electronic history of the consumer’s account transactions,
such as through an Internet Web site; and (3) provides promptly upon request a written history of the consumer’s account transactions.
Other clarifications: (1) Cards used solely for health-related expenses, such as cards linked to flexible spending accounts
and health savings accounts, are not covered by Regulation E, whether funded by the employer or the employee; (2) Employers
may issue inactivated payroll cards with materials provided to employees about the terms and conditions of the payroll card
account, provided certain procedures are followed and the consumer retains the option to receive compensation by other means.
FRB Solicits Comment on Interim Rule for Electronic Collection of NSF Fees
The FRB has solicited comment on an interim rule providing clarification of Regulation E’s coverage of the electronic collection
of NSF fees by merchants and consumer notice requirements for electronic check conversion transactions. The effective date
is January 1, 2007, with delayed compliance for certain fee disclosures.
For more information, contact Obrea Poindexter at opoindexter@mofo.com.
It’s a FACT—More FACTA Flags
Are you ready to wave the white flag on red flags? Not so fast. The federal banking agencies, the NCUA, and the FTC published
for comment the following FACT Act rules: (1) "Red Flag" rules that would require a financial institution or creditor to establish
a written, risk-based, ID theft prevention program, which must take into account specific "Red Flags"—namely the patterns,
practices, and specific forms of activity that could indicate identity theft; (2) rules requiring a card issuer to assess
the validity of a change of address request; and (3) rules requiring users of consumer reports to establish responses to notices
of address discrepancies received from consumer reporting agencies. These rules also would permit users to satisfy the verification
requirements by using the Customer Identification Program rules ("CIP rules") under section 326 of the USA PATRIOT Act.
The proposed Red Flag rules would apply to financial institutions as well as to a wide range of "creditors" that are subject
to the jurisdiction of the FTC, such as wireless telephone providers or securities brokers and dealers that make margin loans
to their customers. The proposed Red Flag rules would require each financial institution and creditor to implement an ID Theft
Prevention Program based on a risk assessment, and the Program must be "flexible to address changing identity theft risks
as they arise." Even though the proposed Red Flag rules contemplate that a financial institution or creditor may use the procedures under the CIP rules when opening accounts, the Red Flag rules appear to require the ID Theft Prevention Program
to extend to virtually all aspects of maintaining customer accounts. The deadline for filing comments on the proposed rules
is September 18, 2006.
For more information, contact Tom Scanlon at tscanlon@mofo.com.
First Bank of Big Box?
The FDIC in August announced that it will postpone by at least six months its decision on the application of Wal-Mart and Home Depot to own industrial loan companies (ILCs). This came at the request of 100 lawmakers who asked the FDIC to delay the decision
until after the November election and the new Congress convenes. In its notice the FDIC states that ILC assets have skyrocketed
since 1987, from $4 billion to $155 billion. In late August, the FDIC also solicited comment on specific issues related to
ILCs, including issues about the current legal and business framework and the possible benefits, detrimental effects, risks,
and supervisory issues associated with ILCs. The comment period is scheduled to close on October 10, 2006.
Ready, Set, FAX
The FCC’s rule permitting unsolicited fax advertisements to recipients who have an existing business relationship with the
sender became effective August 1. The final rule comes three years after the FCC first sought to eliminate the exception,
only to delay that rule under intense pressure until Congress put the exception into law under the Junk Fax Prevention Act
of 2005.
For more information, contact Obrea Poindexter at opoindexter@mofo.com.
Internet Gambling
The House Committee on Financial Institutions lobbed a water balloon the banks’ way by approving legislation aimed at preventing
the use of credit cards and fund transfers for unlawful Internet gambling, blocking financial transactions associated with
illegal gambling, and strengthening international anti-money laundering efforts. If it passes, the bill will create difficult,
some say impossible, compliance burdens for uncoded transactions.
Regulatory Relief in Sight?
A House/Senate conference committee could hammer out legislation that includes several measures to reduce regulatory burden.
Provisions to be discussed include: (1) allowing a financial institution to forgo having to give an annual privacy notice
if it has not changed its privacy policy and does not share consumer information that would trigger an opt-out notice under
the Gramm-Leach-Bliley Act or the Fair Credit Reporting Act; (2) prohibiting the application of the guidance on minimum credit
card payments issued by the federal banking regulators to accounts opened prior to passage of regulatory relief legislation;
(3) removing the prohibition on national and state banks from expanding across state lines by de novo branching; and (4) streamlining
the process by which banks may be exempted from filing currency transaction reports on large cash deposits, transfers, or
withdrawals if the business is a well-known bank customer whose normal business involves large amounts of cash.
For more information, contact Oliver Ireland at oireland@mofo.com.
