Consumer bill could create prepaid card headache
April 29, 2009
The Consumer Protection Bill, intended to protect consumers from unscrupulous service, will also regulate prepaid cards, a legal expert said on Wednesday.
"The intention is to protect consumers who buy prepaid airtime vouchers and gift vouchers, but it may also create further obligations for businesses that issue them," said Ina Meiring, a director at Werksmans Incorporating Jan S de Villiers in a statement.
This could potentially result in higher costs for the products, and would ultimately be to the detriment of those same consumers, She added, however, that it appeared the intention was to regulate only closed loop prepaid cards, where the card was redeemed in exchange for goods and services at the supplier who issued the card.
"However, prepaid cards and gift cards are also issued for use in semi-closed loop environments, where a consumer could for example use a card at a shopping mall and redeem the card in exchange for goods and services at all the merchants within the mall," she said.
Prepaid cards could also be issued for use in an open loop system in terms of which the card could be redeemed at all merchants who would accept the card.
The resulting confusion should be addressed by the SA Reserve Bank which has in the past issued a position paper on electronic money, Meiring said.
The definition of electronic money in that position paper seems to refer only to prepaid cards or devices used in an open loop system.
"However, in terms of the position paper, only banks are allowed to issue 'electronic money'," she said.
The confusion reflected the growing power of a phenomenon known as "social banking", bypassing the existing banking system, Meiring said.
"It is the financial trend of the future, with parents and even employers in America being able to load money onto a card".
The bearer then does not need to hold a bank account.
Although the bill had not yet been signed, Meiring said it was nevertheless "a done deal" and businesses had to prepare for its consequences.
According to the bill, any prepaid amount remained the "property" of the bearer.
The problem was that if the bearer was able to redeem the card for cash, then any consideration paid for the card could be regarded as a "deposit" in terms of the Banks Act.
Meiring explained that only banks may take in deposits and thereby conduct the business of a bank.
She advised that any issuer of prepaid cards should approach the Reserve Bank for clarity, before issuing any prepaid cards.
In addition, a rigorous accounting system is required.
"Every supplier (other than banks) must be able to account separately for all amounts paid by a consumer and exercise care and diligence when performing such accounting," she said.
She warned that another concern was that of money laundering.
"Suppliers of such cards, who are not banks, are not subject to the requirements set by the Financial Intelligence Centre Act (Fica), which require amongst others, the identification and verification of consumers, record keeping of transactions and the reporting of suspicious transactions," she said.
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