WASHINGTON – The future shape of prepaid cards – the popular card product that includes everything from gift cards to benefit cards to payroll cards – appears to hang in the balance this year. Either these cards are completely safe and need no additional regulation, as some Visa executives have suggested, or they are a dangerous financial vehicle ripe for exploitation by money launderers and terrorists as some government officials fear. Many think there will likely be a government consensus one way or the other by the end of 2006. Visa is clearly moving ahead with the product, confident that whatever regulatory problems arise can be addressed and resolved, announcing a program that it says will help the cards provide more services, which it believes will help its card issuers provide more service to prepaid cardholders, often among the unbanked in the U.S. The new service, which Visa dubbed the Visa Prepaid Load Network, will allow prepaid cardholders to add to their prepaid cards at participating drug stores, grocery stores and other retailers across the country. "Visa remains focused on developing the category infrastructure to support all of our key stakeholders – cardholders, merchants, financial institutions and their partners," said Todd Brockman, senior vice president for Visa. "The Visa Prepaid Load Network offers an infrastructure to respond to a direct need in the marketplace, supports the rapid growth we continue to see in the prepaid payments category, and helps our partners capture a greater share of cash and check spend." Brockman explained that Visa's surveys of people who use prepaid cards revealed one enduring complaint; they wanted to be able to add money to the cards from other sources – particularly paychecks from other jobs or income from other family members – and the Prepaid Load Network is the card brand's proposed solution to that complaint. But the program might also provide one more topic of concern for the Treasury and other agencies concerned about the lack of accountability prepaid cards provide. For example, what would prevent someone from allowing others to load a card with money from drug sales or fenced goods and thus launder it that way? What would prevent a terrorist organization from funneling its operations through prepaid cards and thus better cover their tracks? Brockman countered that Visa has been gradually reassuring regulators about prepaid's safety when it comes to different aspects of money laundering. He said that he and other Visa representatives had been making presentations and explaining the brand's prepaid products and the protections which, Brockman said, are built into the products. "I just think there were a lot of misconceptions among regulators about what prepaid cards are and what they are meant to do and how they work," Brockman said. "We have been focused on working with regulators to explain the products and the market they serve." Brockman pointed out that Visa has limited the initial amount of money which can be placed on cards when the issuing institution does not know the purchaser (such as gift cards in malls and other retailers) and prevented these cards from being "reloaded" or having money added to them. "Many regulators didn't know these details," he said. He also pointed out that, in the case of the Prepaid Load Network, the transactions which load additional money onto cards are subject to similar security and screening mechanisms that the card issuing institutions use to evaluate purchase transactions. "The card anti-fraud security measures card issuers use are not just for money coming off prepaid cards or out of debit accounts," Brockman said. "They can also be put into place for money being added to prepaid cards. There is still an anti-fraud screen that every prepaid load transaction will have to pass through and if there is anything that the computer doesn't like it can deny the transaction." Despite the efforts of Visa executives to reassure regulators about the safety of prepaid card products, there are indications Treasury officials continue to worry about the cards and plan to take action. Speaking to reporters in Florida after a banking conference, Treasury officials predicted that Treasury would make a regulatory proposal on prepaid cards within six months and suggested the department viewed the topic as an urgent matter. One story, carried by Reuters, quoted William Langford, an associate director for the Treasury Department Financial Crimes Enforcement Network, as telling reporters that "We've got to get a proposal out. We need to do this, we need to get this ball rolling." Langford was not available as of press time, but another Treasury official spoke on background about the topic. "A lot will depend on whether a financial institution can prove that they really have a relationship with the people who hold these cards. I'm not sure that simply working for a firm which has a relationship with the bank is going to be enough." -

[email protected]