ORLANDO, Fla. — Though the prepaid card industry continues to grow, proposed state and federal government regulations pose a threat to the sector, executives at the Prepaid Card Expo said.
Participants in panel discussions on Monday encouraged colleagues to remind politicians about the ways in which prepaid cards benefit consumers, as lawmakers consider legislation that could affect the industry.
Prepaid providers found out during the period leading up to the Credit Card Accountability Responsibility and Disclosure Act's passage in 2009 that politicians were unmoved by the industry's complaints about how regulation would affect business models, said Talbott Roche, senior vice president of Blackhawk Network.
"Talking about the business impact with Washington wasn't going to get the job done," she said. "The first lesson we learned from the front lines was to maintain a consumer-centric posture when we're advocating for our industry."
Roche recalled the challenges the industry faced as the CARD Act took shape. The bill was the first piece of legislation to affect the prepaid industry.
The gift card rules that the Federal Reserve Board finalized last March prohibit dormancy, inactivity and service fees on gift cards unused for at least one year. The rules also state issuers may charge no more than one fee per month after one year.
Other provisions stipulate that the cards cannot expire within five years of being issued and that the expiration terms must be clear and conspicuous. Fee transparency was the most notable new rule, observers said at the time.
The rules were to take effect Aug. 22, but some were postponed after lobbying from the Network Branded Prepaid Card Association.
The group argued that more than a 100 million gift cards would have to be scrapped because of requirements for the display of expiration dates, and said that would create a shortage for the holiday season. Congress subsequently passed the ECO-Gift CARD Act, delaying those changes until Jan. 31 this year.
The delay was a good example of how the industry came together to effect change, said Joseph Vitale, a partner with the law firm Schulte, Roth & Zabel LLP.
The CARD Act "started out as something much more complicated," Vitale said. "It was written by people who didn't understand how the business worked. The industry helped make improvements from the proposed regulations to what was passed."
The industry might need that resolve as it tracks 38 bills across the nation that could affect prepaid cards, according to Jeremy Kuiper, managing director of The Bancorp Bank.
New Jersey. State Sen. Paul A. Sarlo, a Democrat, recently introduced legislation that would reverse changes to the unclaimed-property law, which allows the state to claim unused funds on stored-value cards.
"These changes," the bill says, "have caused significant uncertainty for consumers and businesses alike."
American Express Prepaid Card Management Corp., a subsidiary of American Express Co., is one of several companies trying to get the Sarlo bill killed.
"States are waiting to see what happens in New Jersey" before they move ahead with their own prepaid legislation, Kuiper said.
John Hagy, the chief counsel for MetaBank in Storm Lake, Iowa, a unit of Meta Financial Group Inc., advised prepaid card issuers and program managers to remain diligent about each state's pending and approved legislation.
"Clearly, we can be more effective as a group than acting alone," Hagy said during a panel discussion.
