Prepaid cards have real value. Don't be fooled by isolated incidents.

A recent article in American Banker, “Prepaid card debacles, from BofA to the Kardashians,” paints a distorted picture of an industry that has and continues to provide value, innovation, security and efficiency to individuals, businesses and government agencies.

Prepaid accounts — including general-purpose reloadable prepaid cards, payroll cards, cards used to distribute government benefits, peer-to-peer products, and mobile wallets — represent some of the fastest- growing payment methods in the country. For nearly 20 years, prepaid products have brought value, innovation, security and efficiency to cardholders, employers and government agencies.

Yet despite this track record, prepaid accounts have been subject to onerous regulation and reputational risk because of intense scrutiny on incidents that are similar to others that happen across all payment types.

Any evaluation of a payments product needs to happen in the context of its overall track record. Rather than quibble over the incidents mentioned in the article, some of which are over a decade in the past, it makes more sense to look at recent history and how prepaid accounts have performed in some of the toughest years of our country’s history.

Prepaid products have played a significant role in helping millions of Americans access and manage their finances during the COVID-19 pandemic. Prepaid providers have been sought out by local, state and federal agencies to help disburse billions of dollars in emergency aid to millions of Americans.

When the pandemic first hit, the Consumer Financial Protection Bureau publicly encouraged the use of prepaid accounts to disburse Economic Impact Payments, declaring that prepaid accounts are faster, more secure, more convenient and less expensive than paper checks. The federal government issued three rounds of these payments, during which prepaid products helped to provide an efficient and safe way to distribute these essential funds to tens of millions of Americans.

The U.S. Treasury Department also expressed support for the use of prepaid accounts to disburse emergency payments stating, “Prepaid debit cards are secure, easy to use, and allow us to deliver Americans their money quickly. And recipients can immediately activate and use the cards safely.” On top of that, several members of Congress, including then-chairman of the House Financial Services Committee Subcommittee on Consumer Protection and Financial Institutions, Rep. Greg Meeks, an Arizona Democrat, authored a bipartisan letter supporting the use of prepaid accounts to distribute Economic Impact Payments.

Criminals commit fraud wherever they can find money. With the large amount of funds flowing onto prepaid cards, they attacked these programs. In response, the industry has followed the laws and regulations enforced by the Financial Crimes Enforcement Network, the CFPB, Treasury and others that require a review of any account impacted by suspicious activity.

The first sentence in a Federal Reserve report from September 2019 explains why governments at all levels use prepaid cards to disburse funds. Every state in the nation uses prepaid accounts to distribute benefits such as Supplemental Nutrition Assistance Program, Temporary Assistance to Needy Family, Social Security and unemployment insurance payments to their citizens. In doing so, they provide benefits electronically, saving taxpayer dollars, administrative time and bureaucratic troubles over paper check payments.

Government payments during the pandemic are just the most recent example of how prepaid accounts have helped Americans who cannot get a traditional deposit account or who choose not to have one. Prepaid accounts have helped Americans outside the financial mainstream gain access to services like direct deposit and online bill pay while providing access to the digital economy in ways that cash and checks cannot.

While outages have occurred, they are rather rare. The truth is that while there were outages on prepaid card programs in 2015 and 2016, a simple Google search will reveal multiple current outages in debit and credit card programs. No major outages in six years starts to look pretty good in comparison.

In addition, prepaid has strong consumer protections put in place by former CFPB Director Richard Cordray. It is no surprise that the most recent CFPB Consumer Report notes that only 0.8% of all consumer complaints are from prepaid accounts. The consumer protections combined with the fundamental value of prepaid products help explain why organizations such as the Financial Health Network and Consumer Reports have identified prepaid products as valuable tools for helping Americans manage their finances.

Prepaid accounts are an invaluable resource for unbanked and underbanked individuals. These cost-effective products save millions of dollars each year in disbursement costs compared to paper checks and provide unbanked and underbanked consumers with a convenient and economical alternative to traditional banks.

By focusing only on a handful of anomalies and outliers, the article fails to look at the tremendous growth and popularity of prepaid products in the payments marketplace, as well as the extraordinary and unique compliance requirements the industry follows on a daily basis in an effort to protect consumers. The reason these products have grown exponentially over the past decade is that consumers recognize their value.

Moving forward, the Innovative Payments Association encourages the American Banker editorial staff to directly engage the IPA in an effort to learn more about the various forms of prepaid accounts and how our industry helps millions of Americans manage their finances.