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Fed addresses prepaid card exemption in new FAQs

The Federal Reserve released additional FAQs to its final ruling on the Durbin Amendment that focus on general-use prepaid cards and clarify compliance issues with the prohibitions on circumvention, evasion and net compensation.

Fourteen new FAQs address the regulations section 235.5(c) that requires that prepaid cards be “the only means of access to the underlying funds, except when all remaining funds are provided to the cardholder in a single transaction," according to ABA.com.

According to the Fed’s new FAQs, general-use prepaid cards retain exemption from the Durbin Amendment rules as long as the cardholder is able to use information from that card to pay merchants, including website merchants.

A general-use prepaid card loses its exemption, however, if that card is linked to a bill payment service, such as a cardholder being able to use the online card or account management system to authorize a payment.

After the Durbin Amendment passed, banks and card issuers began contemplating taking advantage of the prepaid card exemption. In the past, prepaid cards have been used by people with low financial standings or who are unbanked.

Some financial speculators believe the Durbin Amendment exempted prepaid cards since many government benefits are distributed through prepaid cards rather than checks, according to BusinessInsider.com.

The Fed also clarified many issues related to new regulations for issuers receiving net compensation from a payment card networked related to debit card purchases, ABA.com reports.

The new FAQs also detail how card issuers should allocate such payments as the rule goes into effect in the middle of the calendar year.

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