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March 22, 2016

US regulators issue guidance clarifying CIP rule for prepaid cards

Bank and credit union regulators in the US have issued guidance on the applicability of the Customer Identification Program (CIP) rule to prepaid cards issued by banks.

By Verdict Staff

Bank and credit union regulators in the US have issued guidance on the applicability of the Customer Identification Program (CIP) rule to prepaid cards issued by banks.

The guidance clarifies that banks should apply their CIPs to certain prepaid cards issued by them. A bank’s CIP would also be applicable to prepaid cards that are sold, distributed, promoted or marketed by third-party programs on its behalf.

The rule is applicable to prepaid cards that can be reloaded after withdrawals.

The regulators said 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".

In order to verify the cardholder’s identity under the CIP rule, banks need to secure data such as the name, date of birth, address, and an identification number.

The rule mandates a cardholder to be considered as the financial institution’s customer even though he/she is not the named account holder and has secured the card from an intermediary using a pooled account with the institution.

It says third-party program managers should be considered as agents of the institution.

"The preamble to the final CIP rule makes clear that the rule does not affect a bank’s authority to contract for services to be performed by a third party either on or off the bank’s premises, nor does it alter a bank’s authority to use an agent to perform services on its behalf," said regulators.

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