Registration Requirements and Exceptions for Gift Card and Check Cashing Transactions

If a business sells gift cards or cashes checks, even as ancillary parts of its business, beware: those activities may trigger its classification as a Federal “money services business” (“MSB”) and state licensing, registration, reporting, recordkeeping and other requirements.  However, if a business satisfies certain criteria, it may be exempt from compliance with such requirements.   This article gives an overview of Federal MSB requirements, but please note that state requirements, which are not described in this article, may also apply.

Check Cashing

A business generally will be deemed a check casher subject to MSB requirements if the business accepts checks or monetary instruments in return for currency, or a combination of currency and other monetary instruments, in amounts greater than $1,000 for any person on any day in one or more transactions.  “Monetary instruments” include (i) currency, (ii) traveler’s checks in any form and (iii) negotiable instruments, such as checks that are in bearer form, endorsed without restriction or signed but without the payee’s name.  State law may subject persons who cash checks, money orders or drafts for others to licensing and other regulatory requirements.

However, cashing a check for the verified maker of the check, if such maker is a customer otherwise buying goods and services, will not, by itself, trigger MSB restrictions.

Accordingly, a business should adopt policies and procedures, such as the following, to avoid being subject to Federal check cashing restrictions:

  • A check should be cashed only for a paying customer of the business;
  • The maker of the check should be the person cashing the check, and the person’s identification should be verified;
  • To avoid risks of cashing checks for persons other than the verified makers of such checks, persons who cash checks should be limited to $1,000 in monetary instrument cashing per day, whether in one or multiple transactions, unless the person’s identity is verified beyond all doubts (bear in mind, however, that any check-cashing transaction in excess of $10,000, or transactions which aggregate in excess of such amount, must nevertheless be reported, per the final paragraph of this article); and
  • The limitations described above should apply to all transactions in which any monetary instruments are offered, including but not limited to transactions in which customers use travelers’ or other checks, and any currency or a combination of currency and monetary instruments is returned.  For example, if a customer pays the Hotel with a check in an amount greater than the price of the services being paid and receives cash in return, the transaction should be governed by the policies and procedures described above.

Gift Cards

Sales of gift cards may also trigger MSB restrictions.  Gift cards for use only at a business, another defined merchant or specific set of locations, which are referred to as “closed-loop” gift cards under MSB regulations, are subject to MSB requirements only above certain dollar amounts, however.

Closed-loop gift card programs are exempt from MSB requirements if each card is capped at a $2,000 maximum value at any time.  A gift card should not only reflect a balance less than or equal to $2,000, but also should not be loadable in excess of $2,000.  Further, to ensure applicability of such exemptions, a business should follow informal interpretations by the United States Department of the Treasury that require that reloadable gift cards be subject to $2,000 maximum loads per day.  While multiple gift cards, each subject to the limitations described above, may be sold to one person, selling more than $10,000 worth of gift cards to any single person on any single day will cause a business to be deemed an MSB.

Sales of non-“closed loop” gift cards  may also subject a seller to MSB requirements if the cards can be used without verification of the customer’s data and can either can hold more than $1,000, be used internationally, be used to make person-to-person transfers or be reloaded from non-depository sources.

Registration and Reporting Requirements

If the a business does not satisfy the exemptions to Federal MSB requirements described above, the business would need to register with the United States Department of the Treasury, and comply with Federal currency transaction, suspicious activity, customer due diligence and identification and other reporting and recordkeeping requirements applicable to MSBs.  Further, a business would need to develop and comply with an anti-money laundering program and would be subject to Federal and state regulatory oversight.  Therefore, it is strongly recommended that a business make every effort to meet the criteria required for the grant of an exemption for check cashing and gift card activities and other MSB transactions as described above.  Moreover, serious consideration should be given to establishing definitive cash-checking and gift card issuance limits so that the risk of crossing the “registration line” is minimized.

Please note that regardless of MSB or state requirements with respect to the transactions described above, a business will be subject to many financial reporting requirements, including but not limited to the requirement to file Form 8300 for transactions involving more than $10,000 in cash and cash equivalents.

(Please note that this article is for general information purposes only and does not constitute legal advice or create a lawyer-client relationship.  Thank you.)

More by | Christopher Edwards Christopher Edwards , Law.com Contributor
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