Problem Set 16
16.1. Your daughter calls home after her first day away at college. She is excited about the stored-value card she has been issued - particularly with the feature that allows her to use the Internet to retrieve money that you send her. Do you have any concerns about sending her $500 allowance to her each month for her to store on the card? (The card can hold only $50 at a time, so the "money" would remain on the university computer until she downloaded it. The general habit is to download the funds in installments every few days.) Do you want to know anything further about the details of the card system to answer that question? If so, why should the details of the technology affect the answer to such a simple and practical question?
16.2. You have a meeting this morning with a new client, Mike McLaughlin, who runs a sporting goods store near the local university. Because many of his customers are students, he signed up to join the university's stored-value-card program (called I-Card). His problem arises from a series of transactions totaling several thousand dollars that occurred over a three-day period last week, all from students that live at a single fraternity house near his store. The first day's transactions went through fine last Tuesday night, but the second day's transactions were rejected when he tried to send them in for collection last Wednesday and Thursday night.
As best as he can understand based on his conversations with the University's I-Card office, the students at the fraternity appear to have discovered a way to create false value on their I-Cards - an amusing prank in the view of the fraternity members, but not in the view of the I-Card administrators (or, it seems, Mike). The students apparently used information one of them took from I-Card computers when he worked at the I-Card office as an intern last semester.
It appears that none of the transactions in question involved funds that actually had been desposited on the cards. The I-Card administrators haven't paid Mike for the bulk of the transactions, and have told him they may ask him to refund money from the Tuesday night transactions for which he has already been paid. He doesn't understand why this should be his problem. "It's their equipment - the terminal, the software, the cards in the readers, having them type in the PINs. How can they refuse to pay?" What do you tell him? Is there anything you would like to know?
16.3. Another new client this afternoon is Kate Raven. She works for a local technology company that is tryint ot market a stored-value card product for corporate campuses. Largely because of what she perceives to be the attraction to users of the ability to have their transactions be anonymous, the product would not involve any host-based records of the accounts. She contemplates allowing employees to put up to $100 on the card at any given time, expecting them to spend the money at vending machines, the corporation's onsite dining facilities, and gift shops (which sell typical corporate paraphernalia). As a legal matter, do you forsee any difficulty with her plan? EFTA §§903, 909, Regulation E, §§205.3, 205.6.
16.4. Seattle's Finest Coffee introduces a new prepaid card product, competing with the Starbuck's card. The card is host-based, so that Seattle's Finest can add rewards points to the balance on the card for frequent users. After a rash of claims for lost cards, Seattle's Finest adopted a rule that it would not replace lost cards. Is this permissible? Are there any other ways that Seattle's Finest can protect itself against losses from lost cards? EFTA §§903, 909.
16.5. Your last call of the day is from Congresswoman Pamela Herring, who is interested in regulation of electronic money. Her specific concern relates to the companies that issue the money. She is considering a statute that would limit the issuance of electronic money to banks. She is interested in your views on that proposal as a matter of policy. What do you tell her?
