Functionalities that make prepaid cards attractive to consumers also pose risks for financial institutions that issue prepaid cards and process prepaid card transactions. For example, easy access to prepaid cards, the ability to use them anonymously, and the potential for relatively high volumes of funds to flow through pooled prepaid access accounts, make prepaid cards potentially vulnerable to criminal abuse.

This guidance clarifies that certain prepaid cards issued by a financial institution should be subject to the financial institution’s CIP, including when a financial institution issues prepaid cards under arrangements with third-party program managers that sell, distribute, promote, or market the prepaid cards issued by the financial institution. This may be the only relationship that the cardholder has with the financial institution. The guidance specifically refers to prepaid cards, but also is applicable to other prepaid access products, that meet the criteria described in this guidance. Such examples include certain prepaid access products offered through mobile phones or Internet sites that are used to access funds.

In order to determine if CIP requirements apply to purchasers of prepaid cards, the financial institution should first determine whether the issuance of a prepaid card to a purchaser results in the creation of an account; and if so, ascertain the identity of the financial institution’s customer.

CIP requires a financial institution to obtain information sufficient to form a reasonable belief regarding the identity of each customer opening a new account. In order to determine if CIP requirements apply to purchasers of prepaid cards, the financial institution should first determine whether the issuance of a prepaid card to a purchaser results in the creation of an account; and if so, ascertain the identity of the financial institution’s customer.

General purpose prepaid cards may be reloaded by the cardholder or another party on behalf of the cardholder in a manner that is similar to the way in which funds can be added to a traditional deposit, asset, or transaction account. Therefore, the Agencies believe that issuing a general purpose prepaid card with those features creates a formal banking relationship and is equivalent to opening an account for purposes of the CIP rule.

By contrast, the issuance of a general purpose prepaid card that, under the program’s terms, cannot be reloaded by a cardholder or another party on behalf of the cardholder, does not establish an account for CIP purposes. These cards do not bear the characteristics of a typical deposit, transaction, or asset account because they do not permit the cardholder or other party on behalf of the cardholder to reload funds. Therefore, the Agencies believe these cards do not create a formal banking relationship.

General purpose prepaid cards may permit withdrawals in excess of the card balance and also may provide the cardholder with access to an overdraft line or an established line of credit similar to a lender/borrower or credit card relationship. The Agencies believe that a card that permits either functionality constitutes a formal banking relationship with the issuing financial institution and is an account for purposes of the CIP rule.

In some cases, general purpose prepaid cards may be sold without the reloadable functionalities activated or credit or overdraft features enabled. A purchaser or subsequent transferee of these cards generally may activate any one of those features only if they contact the issuing financial institution or the third-party program manager. In such cases, for purposes of the CIP rule, the Agencies believe that an account is not established until a reload, credit, or overdraft feature is activated by cardholder registration.

The guidance also addresses third-party program managers, payroll cards, government benefit cards and health benefit cards.

Credit unions should determine whether their form of pre-paid cards establishes an account, and if so, ensure that CIP is done for cardholders and the CIP requirements are reflected in the credit union’s policies and procedures.