OCC Issues Guidance for Tax Refund Prepaid Issuers (Aug. 6, 2015)
The Office of the Comptroller of the Currency (OCC) has released new guidance for banks issuing tax refund-related products, including prepaid cards. The guidance outlines safety and risk management for such products, including BSA compliance, consumer protection and third-party risk. The OCC said tax-refunds products present “particular safety and soundness and compliance risks,” due to their unique payment structures and banks’ reliance on third-party tax return preparers, which interact directly with customers.
Among the key risk management steps the OCC recommends are: board and management responsibility in setting and following risk management policies; consumer protection standards for marketing of the products and disclosure of fees and other details before the customer applies for the product; and oversight of third-party partners, including performing due diligence before entering into a partnership with a third-party tax preparer, and maintaining an ongoing oversight program to prevent potential noncompliance by those partners. The guidance also notes that the OCC expects providers of prepaid tax refund products to comply with all applicable federal and state laws regarding prepaid cards—most notably, the rules covering what types of accounts are eligible for federal payments. For instance, to be eligible for government payments in the form of a tax refund, a prepaid account must have FDIC passthrough insurance and must provide consumer protections that apply to payroll cards under Reg. E.
Tax refund fraud is a growing issue, with the IRS paying out more than $5.2 billion in fraudulent returns in 2014, according to the agency. In June, the IRS announced it is collaborating with tax preparation software firms, payroll and tax financial product processors and state tax administrators to stem the problem.