Most executives in the prepaid debit card market agree any future federal regulations that demand better disclosures on products are good for the industry. But if the government starts messing with fee structures, it could lead issuers to leave the market altogether.
Sen. Robert Menendez, D-N.J., over the weekend reintroduced a bill that would ban overdraft, balance-inquiry, inactivity and other fees on prepaid debit cards. The Prepaid Card Consumer Protection Act also would extend Regulation E protections under the Electronic Funds Transfer Act to prepaid debit products and Federal Deposit Insurance Corp. coverage in case a prepaid card provider goes bankrupt.
“It seems we have continuously seen these companies become creative when it comes to finding new and more devious ways to make consumers pay more than they have to for what appears to be simple financial services,” Menendez said at a press conference Dec. 17 to announce the bill.
Menendez first introduced the bill in late 2010, but it failed to come to a vote in Congress. The bill’s revival could have dire consequences for the industry if passed.
“If they go down that path and all of those proposals get implemented, the banks will go out of this business,” says Madeline Aufseeser, a senior analyst for Aite Group.
Major bank issuers already are facing prepaid debit card restrictions from the Federal Reserve’s final ruling on the Durbin amendment to the Dodd-Frank Act. For example, for banks to claim an exempt status for prepaid cards, their cardholders must not be able to access funds via check, automated clearing house, wire transfer or other methods.
Some banks such as U.S. Bancorp are providing cards that meet this requirement, Aufseeser says. But if banks want to introduce a second-tier product and charge for services such as bill-pay and account-to-account transfers, regulations could limit what they can charge.
“How are banks supposed to make money on this product?” Aufseeser says.
The Network Branded Prepaid Card Association, which represents the card brands, issuers and prepaid providers, says it agrees with parts of what the Menendez bill is proposing, such as Reg E protection and fee disclosures.
The problem, however, lies with other parts of the bill.
“The industry supports strong consumer protections, but we are concerned that, as the bill is currently written, there are unintended consequences which could reduce consumer access to this vital payment tool, particularly for those Americans without access to bank accounts, and also limit the functionality of the cards that do remain on the market,” the association said in a statement.
The group says it will continue to work with Menendez on legislation.
Meantime, the prepaid card industry is fighting battles on other fronts.
The Florida Attorney General’s office is still examining prepaid card providers for what it believes to be hidden fees associated with the products. The office in May issued subpoenas in to Green Dot Corp., NetSpend Holdings Inc., AccountNow Inc., First Data Corp. and UniRush Financial Services LLC.
