1. (a) Definitions. The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise.

   1. (1) Card Activation - process of sending new plastic cards from the issuer to the legitimate cardholder in an "inactive" mode. Once the legitimate cardholder receives the card, they must call the issuer/processor and go through a member verification process before the card is "activated".
   2. (2) Card Security Code - a set of unique numbers encoded on the magnetic strip of plastic cards used to combat counterfeit fraud.
   3. (3) Neural Network - a computer program that monitors usage patterns of an account and typical fraud patterns. The program analyzes activity to determine fraud risk scores to detect potentially fraudulent activity. Strategies are then used to determine actions to mitigate frauds. Human intervention occurs to validate if the activity is actually fraudulent.
   4. (4) Plastic Cards - includes credit cards, debit cards, automated teller machine (ATM) or specific network cards; and predetermined stored value and smart cards with micro-processor chips.

2. (b) A credit union may issue credit cards in accordance with the credit union's written policies, which shall include at a minimum:

   1. (1) Credit policies to set individual limits for credit card accounts:
   2. (2) A process for reviewing each member's payment and/or credit history periodically for the purpose of determining risk; and
   3. (3) The credit underwriting standards for each type of card program offered.

3. (c) Program Review.

   1. (1) A credit union shall review, on at least an annual basis, its plastic card program with particular emphasis on:

      1. (A) Losses caused by theft and fraud;
      2. (B) Loss prevention measures and their adequacy; and
      3. (C) The availability and use of appropriate loss prevention measures including card activation, card security codes, neural networks, and other evolving technology.
   2. (2) The review shall be documented in writing, with any changes to the plastic card program being entered into the minutes of the board meeting.
4. (d) At least annually, the credit union's board shall cause to be performed an assessment of earnings and the capital position to ensure that the credit union can absorb potential related plastic card program losses. This review shall include a cost benefit analysis of supplemental insurance coverage for theft and fraud related losses. Establishment of a segregated contingency reserve may be utilized to further mitigate the credit union's risk exposure for losses resulting from its plastic card program.

Source Note:The provisions of this §91.712 adopted to be effective August 9, 1999, 24 TexReg 6023.