Sean M. O'Connor, The De Minimus Exemption of Stored Value Cards from Regulation E: An Invitation to Fraud?, 5 Rich. J. L. & Tech. 6 (1998), https://digitalcommons.law.uw.edu/faculty-articles/212
The De Minimus Exemption of Stored Value Cards from Regulation E: An Invitation to Fraud?
Richmond Journal of Law and Technology
consumer protection, electronic funds tranfer, stored value cards
How valuable is $100? To a student? To a single unemployed parent? To a well-compensated professional? The Federal Reserve Board apparently believes that the potential loss of $100 is not a tremendous burden on anyone. In a recently proposed rule, the Board exempts stored value cards[that contain less than $100 from the same regulations that protect consumers from most types of fraud associated with ATM, debit, and credit cards. Regulation E (Reg E) currently regulates the electronic funds transfers (EFTs) that are at the heart of ATM/debit/credit card transactions by requiring printed receipts, error resolution procedures, periodic statements, initial disclosure of terms of usage, and more. Without these protections, stored value card holders will be easy targets for unscrupulous vendors who shave off an extra few pennies per transaction as well as fraudulent issuers who disburse defective cards. In short, the $100 de minimis exemption of stored value cards from Reg E protection is an open invitation to fraud.
More telling, however, is that the enabling legislation for Reg Et—the Electronic Funds Transfer Act of 1978 (EFTA)—is solely and expressly intended as consumer protection. The Board's balancing concern is self-imposed through its own internal Regulatory Planning and Review program. Thus, the Board should instead be first and foremost concerned with protecting consumers, including those for whom $100 is a substantial amount of money. This paper proposes an alternative Reg E amendment that offers better protection for consumers while not imposing unduly harsh restrictions on a nascent, potentially useful industry.
Part I describes important existing Reg E provisions in greater detail. Part II outlines the relevant aspects of stored value cards. Part III critically analyzes the de minimis exemption buried in the proposed Reg E amendment in light of the potential for fraud, while Part IV suggests a better compromise.