Developments in Stored-Value Cards and Cyberbanking

Business Lawyer

Volumn 54, Issue 3, 1999, Pages 1373-1387

  Adams, Lee S ^a   Martz, David J ^b  

^a Morrison and Foerster LLP   (United States)

^b Morrison and Foerster LLP   (United States)

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[No Author keywords available]

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EID: 0033436615     PISSN: 00076899     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (147)

1. Except as otherwise noted, this Article covers developments that occurred from January 1998 through December 1998. Many of the issues discussed herein were also considered in detail in the 1998 Survey of the Law of Cyberspace. See John D. Muller, Selected Developments in the Law of Cyberspace Payments, 54 BUS. LAW. 403 (1998).
2. See Elizabeth deGrazia Blumenfeld, Privacy Please: Will the Internet Industry Act to Protect Consumer Privacy Before the Government Steps In?, 54 BUS. LAW. 349 (1998).
3. Electronic Fund Transfers, 63 Fed. Reg. 14,528 (1998) (to be codified at 12 C.F.R. § 205.4) [hereinafter Interim Rule].
4. THE REPORT OF THE CONSUMER ELECTRONIC PAYMENTS TASK FORCE (1998), available in 〈http://www.occ.treas.gov/emoney/ceptfrpt.pdf〉 [hereinafter TASK FORCE REPORT].
5. FRB, REPORT TO THE CONGRESS ON THE APPLICATION OF THE ELECTRONIC FUND TRANSFER ACT TO ELECTRONIC STORED-VALUE PRODUCTS (1997), available in 〈http:// www.bog.frb.fed.us/boarddocs/RptCongress/efta_rpt.pdf〉 [hereinafter FRB REPORT].
6. 15 U.S.C. §§ 1693-1693r (1994 & Supp. III 1997).
7. FRB REPORT, supra note 5, at 1.
8. Id.
9. See, e.g., id. at 2-3.
10. Electronic Fund Transfers, 61 Fed. Reg. 19,696, 19,704-05 (1996) (to be codified at 12 C.F.R. § 205.16) [hereinafter Proposed Rule].
11. 12 C.F.R. pt. 205 (1998).
12. See Interim Rule, supra note 3, at 14,528. On March 25, 1998, the FRB also proposed amendments to Regulation B, Regulation DD, Regulation M, and Regulation Z to allow electronic communications. Equal Credit Opportunity, 63 Fed. Reg. 14,552 (1998) (to be codified at 12 C.F.R. pt. 202) (proposed Mar. 25, 1998); Truth in Savings, 63 Fed. Reg. 14,533 (1998) (to be codified at 12 C.F.R. pt. 230) (proposed Mar. 25, 1998); Consumer Leasing, 63 Fed. Reg. 14,538 (1998) (proposing to amend 12 C.F.R. pt. 213) (proposed Mar. 25, 1998); Truth in Lending, 63 Fed. Reg. 14,548 (1998) (to be codified 12 C.F.R. pt. 226) (proposed Mar. 25, 1998).
13. See Interim Rule, supra note 3, at 14,528. On March 25, 1998, the FRB also proposed amendments to Regulation B, Regulation DD, Regulation M, and Regulation Z to allow electronic communications. Equal Credit Opportunity, 63 Fed. Reg. 14,552 (1998) (to be codified at 12 C.F.R. pt. 202) (proposed Mar. 25, 1998); Truth in Savings, 63 Fed. Reg. 14,533 (1998) (to be codified at 12 C.F.R. pt. 230) (proposed Mar. 25, 1998); Consumer Leasing, 63 Fed. Reg. 14,538 (1998) (proposing to amend 12 C.F.R. pt. 213) (proposed Mar. 25, 1998); Truth in Lending, 63 Fed. Reg. 14,548 (1998) (to be codified 12 C.F.R. pt. 226) (proposed Mar. 25, 1998).
14. See Interim Rule, supra note 3, at 14,528. On March 25, 1998, the FRB also proposed amendments to Regulation B, Regulation DD, Regulation M, and Regulation Z to allow electronic communications. Equal Credit Opportunity, 63 Fed. Reg. 14,552 (1998) (to be codified at 12 C.F.R. pt. 202) (proposed Mar. 25, 1998); Truth in Savings, 63 Fed. Reg. 14,533 (1998) (to be codified at 12 C.F.R. pt. 230) (proposed Mar. 25, 1998); Consumer Leasing, 63 Fed. Reg. 14,538 (1998) (proposing to amend 12 C.F.R. pt. 213) (proposed Mar. 25, 1998); Truth in Lending, 63 Fed. Reg. 14,548 (1998) (to be codified 12 C.F.R. pt. 226) (proposed Mar. 25, 1998).
15. See Interim Rule, supra note 3, at 14,528. On March 25, 1998, the FRB also proposed amendments to Regulation B, Regulation DD, Regulation M, and Regulation Z to allow electronic communications. Equal Credit Opportunity, 63 Fed. Reg. 14,552 (1998) (to be codified at 12 C.F.R. pt. 202) (proposed Mar. 25, 1998); Truth in Savings, 63 Fed. Reg. 14,533 (1998) (to be codified at 12 C.F.R. pt. 230) (proposed Mar. 25, 1998); Consumer Leasing, 63 Fed. Reg. 14,538 (1998) (proposing to amend 12 C.F.R. pt. 213) (proposed Mar. 25, 1998); Truth in Lending, 63 Fed. Reg. 14,548 (1998) (to be codified 12 C.F.R. pt. 226) (proposed Mar. 25, 1998).
16. Interim Rule, supra note 3, at 14,528.
17. Id.
18. Id. at 14,529.
19. See Proposed Rule, supra note 10, at 19,696.
20. Interim Rule, supra note 3, at 14,532.
21. Id. (to be codified at 12 C.F.R. § 205.4(c)(1)).
22. 12 C.F.R. § 205.4(a) (1998).
23. See Interim Rule, supra note 3, at 14,528.
24. Id. at 14,532 (to be codified at 12 C.F.R. § 205.4(c)(2)).
25. Id. at 14,529.
26. Id.
27. Comment Letter on the Interim Rule from Star System, Inc. to the FRB (May 15, 1998).
28. See Interim Rule, supra note 3, at 14,529-30.
29. Id. at 14,529.
30. Id. at 14,530.
31. Id. at 14,529.
32. Id.
33. See Proposed Rule, supra note 10, at 19,704 (to be codified at 12 C.F.R. § 205.4(c)(2)(ii)).
34. See Interim Rule, supra note 3, at 14,529.
35. Id.
36. See TASK FORCE REPORT, supra note 4, at 56.
37. See id. at 1. The Task Force was chaired by Eugene A. Ludwig, Comptroller of the Currency. Other members of the Task Force included Richard L. Gregg, Commissioner of the Financial Management Service of the Department of the Treasury; Jack Guynn, President, Federal Reserve Bank of Atlanta; Andrew C. Hove, Jr., Chairman of the Federal Deposit Insurance Corporation (FDIC); Edward W. Kelley, Jr., Member of the FRB; Robert Pitofsky, Chairman of the Federal Trade Commission (FTC); and Ellen Seidman, Director of the Office of Thrift Supervision (OTS). Id. at 1.
38. Id.
39. Id. at 2.
40. Id. at 1.
41. Id.
42. Id. at i, 59-61.
43. See id. at 31.
44. Id. at 32-35.
45. Id. at 60.
46. Id.
47. Id.
48. Id. at 37-45.
49. Id. at ii.
50. Id. at ii-iii.
51. Id. at 46-57.
52. Id. at 56-57.
53. Id. at 61.
54. Id. at 59.
55. Id.
56. Id.
57. Id. at 60.
58. See Jeffrey Kutler, Even Abundant Security Features Don't Spur Smart Card Buy-In, AM. BANKER, Nov. 18, 1998, at 1.
59. See id.
60. See id.
61. Visa, European Partners Agree on Stored-Value Standard, ONLINE BANKING NEWSLETTER, June 29, 1998, at 7.
62. Id.
63. Id.
64. Id.
65. See Microsoft Adds a Chip Card Off its Old Windows Block, DEBIT CARD NEWS, Nov. 11, 1998 [hereinafter Microsoft Adds a Chip].
66. Id.
67. See id.; see also Kutler, supra note 55.
68. See id.; see also Kutler, supra note 55.
69. See Microsoft Adds a Chip, supra note 62.
70. Id.
71. See generally Information Infrastructure Task Force, A Framework For Global Electronic Commerce (July 1, 1997) 〈http://www.whitehouse.gov/WH/New/Commerce/read.html〉 [hereinafter Framework For Electronic Commerce].
72. See supra notes 5-10 and 33-54 and accompanying text.
73. See Framework For Electronic Commerce, supra note 67; see also Blumenfeld, supra note 2, at 368-70.
74. See Framework For Electronic Commerce, supra note 67; see also Blumenfeld, supra note 2, at 368-70.
75. See Paul Beckett, Smart Card Still Needs More Answers, Sponsors Concede, as Big Test Nears End, WALL ST. J., Nov. 4, 1998, at A4.
76. Id.
77. Id.
78. Id.
79. See Saul Hansell, Got a Dime? Citibank and Chase End Test of Electronic Cash, N.Y. TIMES, Nov. 4, 1998, at C1.
80. Id.
81. See Beckett, supra note 70, at A4.
82. See Hansell, supra note 74, at C1.
83. Id.
84. Id.
85. Id.
86. Id.
87. See Jeffrey Kutler, Burger King to Distribute, Load Mondex Cards in Test, AM. BANKER, June 3, 1998, at 16.
88. See Hansell, supra note 74, at C1.
89. Vice President Al Gore, Remarks at New York University Commencement (May 14, 1998) 〈http://www.dlcppi.org/speeches/gorenyu98.html〉.
90. Id.
91. Id.
92. FTC, About Privacy (visited Feb. 11, 1999) 〈http://www.ftc.gov/ftc/privacy/index .html〉.
93. See David Medine, Regulatory Issues in Internet Privacy: The FTC's Role, ELECTRONIC BANKING L. & COM. REP., May 1998, at 7 (citing Louis Harris & Assocs. & Alan F. Westin, Business Week/Harris Poll: Online Insecurity, BUS. WK., Mar. 16, 1998, at 102).
94. See David Medine, Regulatory Issues in Internet Privacy: The FTC's Role, ELECTRONIC BANKING L. & COM. REP., May 1998, at 7 (citing Louis Harris & Assocs. & Alan F. Westin, Business Week/Harris Poll: Online Insecurity, BUS. WK., Mar. 16, 1998, at 102).
95. See id.
96. See CONSUMER BANKERS ASSOCIATION, FINANCIAL PRIVACY IN AMERICA: A REVIEW OF CONSUMER FINANCIAL SERVICES ISSUES (June 1998) 〈http://www.cbanet.org/ Government/Privacy/privacy_review.htm〉 [hereinafter FINANCIAL PRIVACY]. In the section "Market Forces at Work," the review discusses the "long tradition of respect for . . . privacy concerns" that banks have for their consumers, while acknowledging that banks generally use information internally "for product development and risk management purposes." Id.
97. See Privacy in Cyberspace: Hearings Before the Subcomm. on Telecommunications, Trade and Consumer Protection of the House Comm. on Commerce, 105th Cong. (1998) (statement of Steven J. Cole, Senior Vice President and General Counsel, Council of Better Business Bureaus, Inc. and BBBOnline, Inc.) [hereinafter Cole Testimony]. Mr. Cole briefly discussed the challenge presented by President Clinton, Dr. Ira Magaziner, and Secretary Daley: "self-regulate by July 1, 1998 or face federal legislation." Id.
98. See infra notes 94-103 and accompanying text.
99. See, e.g., Chairman Robert Pitofsky, Competition and Consumer Protection Concerns in the Brave New World of Electronic Money, Remarks Before the U.S. Department of the Treasury Conference (Sept. 19, 1996) 〈http://www.ftc.gov/speeches/pitofsky/banking .htm〉. Chairman Pitofsky stated that at the early stages of new technologies - where new issues will arise over time - there is a good case to go slow. I will suggest today, and discuss briefly in a conclusion, that we should be cautious about regulation, but that current approaches to consumer protection and antitrust are sufficiently flexible and resilient to respond to these new challenges. Id.
100. Presidential Directive on Electronic Commerce: Memorandum for the Heads of Executive Departments and Agencies (July 1, 1997) 〈http://www.doc.gov/ecommerce/presiden.htm〉 ("As the Internet empowers citizens and democratizes societies, it is also changing the way business is conducted . . . .").
101. See Framework For Electronic Commerce, supra note 67. The report articulated five governing principles for e-commerce, including: (i) private sector leadership, (ii) avoidance of undue government restrictions, (iii) predictable government involvement where necessary, (iv) respect for decentralized nature of the electronic marketplace, and (v) the minimization of international barriers to electronic exchange. Id.
102. Id.
103. Id.
104. Elements of Effective Self Regulation for the Protection of Privacy and Questions Related to Online Privacy, 63 Fed. Reg. 30,729, 30,730 (1998).
105. See Cole Testimony, supra note 91.
106. Commerce Secretary William Daley admitted his disappointment at having to wait before hearing how the industry would police itself. See Steve Weber, Online Privacy Debate Boils Over in Washington, ONLINE BANKING NEWSLETTER, June 29, 1998.
107. For example, the FDIC issued guidance for banks on what they should tell their customers about how personal information gathered on their website would be used. The FDIC also said that customers should be able to review their own data, restrict its use, correct mistakes, or stop collection of the data. Commentators point out that the guidance "follows repeated warnings by the [FTC] and other bank regulators that new federal privacy laws will be enacted unless industry privacy protection practices improve." Scott Barancik, FDIC Publishes Guidance on Gathering and Using Customer Data on the Net, AM. BANKER, Aug. 18, 1998, at 2.
108. See, e.g., Bill McConnell, Privacy Rules Sufficient for Web, Banks Say, AM. BANKER, June 25, 1998, at 2.
109. See, e.g., FINANCIAL PRIVACY, supra note 90; see also Medine, supra note 88; Weber, supra note 100.
110. See, e.g., FINANCIAL PRIVACY, supra note 90; see also Medine, supra note 88; Weber, supra note 100.
111. See, e.g., FINANCIAL PRIVACY, supra note 90; see also Medine, supra note 88; Weber, supra note 100.
112. See Nancy Dunne, US-EU in "Productive" Talks on Internet Privacy, FIN. TIMES, July 30, 1998, at 4.
113. Louise Kehoe, US, EU in Bid to Avoid "Cyber War," FIN. TIMES, Aug. 28, 1998, at 4.
114. See, e.g., ABA Paper Says U.S. Banks Adequately Protect Consumer's Privacy, BANKING POL'Y REP., July 20, 1998, at 5 (discussing U.S. banks' argument that "they are more than adequately protecting customer confidentiality") [hereinafter ABA Paper]; see also Interview with Julie Williams, Acting Comptroller of the Currency (July 17, 1998), in Alex D. McElroy, Acting Comptroller Williams Highlights Privacy Concerns, 71 Banking Rep. (BNA) No. 4, at 185 (July 27, 1998) (stating that it is difficult to determine whether U.S. banks will pass muster under the terms of the directive until the scope of the implementation is known). The most confident response came from Ira Magaziner, senior advisor to the President on Internet issues, who said that the EU recognizes that "any EU-wide policy that is seriously at odds with U.S. policy could mean damage to their economies." See Kehoe, supra note 105, at 4.
115. See ABA Paper, supra note 106, at 5.
116. FRB, SOUND PRACTICES GUIDANCE FOR INFORMATION SECURITY FOR NETWORKS (1997), available in 〈http://www.federalreserve.gov/boarddocs/srletters/1997/ sr9732al.pdf〉.
117. Id. at 2-3, 14.
118. Id. at 3, 34, app. B.
119. Id. at 10-11.
120. Id. at 6-7.
121. FFIEC, GUIDANCE ON ELECTRONIC FINANCIAL SERVICES AND CONSUMER COMPLIANCE (1998), available in 〈http://www.ffiec.gov/EFS.pdf〉. The FFIEC is composed of the FRB, the FDIC, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the OTS. Id.
122. Id. at 1.
123. Id. at 2-10.
124. Id. at 10.
125. FDIC, Suspicious Internet Banking (visited Feb. 4, 1999) 〈http://www.fdic.gov/ consumer/suspicious〉.
126. See id.
127. See id.
128. See id.
129. UNIF. ELECTRONIC TRANSACTIONS ACT (Sept. 18, 1998 Draft) 〈http://www .law.upenn.edu/library/ulc/uecicta/eta1098.htm〉.
130. See 6 Consumer Fin. Servs. L. Rep. (LRP) No. 2 (Sept. 4, 1998).
131. See UNIF. ELECTRONIC TRANSACTIONS ACT §§ 103, 104.
132. See id. § 106 cmt.
133. See id. § 102 cmt. 1; id. § 104 & cmt.
134. See id. § 102 cmt. 1; id. § 104 & cmt.
135. See id. § 102 cmt. 1; id. § 104 & cmt.
136. See id. § 102 cmt. 1; id. § 104 & cmt.
137. See id. § 102 cmt. 4.
138. See id. § 104(a).
139. See id. § 302.
140. See id. §§ 501-502.
141. Financial Crimes Enforcement Network, 62 Fed. Reg. 27,890 (1997) (to be codified at 31 C.F.R. pt. 103) (proposed May 21, 1997)).
142. Pub. L. No. 91-508, 84 Stat. 1114 (1970) (codified as amended at 12 U.S.C. §§ 1829b, 1951-1959) (1994)).
143. See Financial Crimes Enforcement Network, 62 Fed. Reg. at 27,890-92.
144. Id.
145. Comments on these proposed regulations were due on or before August 19, 1997. Id. at 27,890.
146. See FinCEN's Lethargy Draws GAO Ire, REGULATORY COMPLIANCE WATCH, Apr. 6, 1998, at 1.
147. See, e.g., FinCEN Ends Fiscal Year Accomplishing Little of What it Promised, MONEY LAUNDERING ALERT, Nov. 1997, at 9.