Green Dot Says Its Prepaid Cards Will Comply with Fed-Rule Exemption

Green Dot Corp.’s top executive says its reloadable prepaid cards will be exempt from the Federal Reserve Board’s new rule limiting debit card interchange.

The Monrovia, Calif.-based company recently conducted a review of the Fed’s new rule, which limits the fees merchants pay when a customer pays with a debit card, and determined its cards will meet the requirements that would avoid the fee cap, Steve Streit, Green Dot chairman, chief executive and president, said during an earnings conference call July 28.

Green Dot manages Wal-Mart Stores Inc.’s MoneyCard program, for which General Electric Co.’s GE Money Bank issues cards. Streit said the partners will be adding the ability for cardholders to make a free ATM withdrawal each month, a requirement for the Fed’s exemption.

The partners already had been planning to add this feature in 2012, Streit said. Green Dot's other cards already offer a free ATM withdrawal each month.

Many industry analysts expected prepaid cards would gain more interest from banks, third-party program managers and other companies because they ostensibly were exempt from the Durbin amendment to the Dodd-Frank Act, which instructed the Fed to establish lower interchange fees. Streit said that instead, interest from mainstream banks has faded.

Besides the free ATM withdrawal requirement, the Fed’s finalized rule carrying out the regulation included an unexpected provision that bans the ability for consumers to access funds in a prepaid card account via “check, ACH, wire transfer or other method” to qualify for the exemption (see story). 

As a result, analysts say features such as bill pay and person-to-person transfers would make cards ineligible for the exemption.

Streit would not comment on changes Green Dot might have to make to its program with Wal-Mart or its own reloadable prepaid cards. However, he said, “whatever changes we may need to make” are “way at the fringes” of how cardholders use their cards.

“We may need to reroute certain kinds” of transactions but it would not affect “the vast majority” of Green Dot's customers, Streit said.

Interchange revenue accounted for 28.8% of Green Dot's total operating revenue in the second quarter, which increased 27% from a year earlier, to $115.03 million (see story). The revenue increase was driven by growth in the number of active cards and higher dollar loads onto its cards.

A year after its initial public offering, Green Dot shows no signs of slowing down.

“Green Dot’s results are on track for 30% growth, regulatory risks from Durbin and FinCen are under control and no meaningful competitor has entered or threatened to enter its markets,” Gil Luria, an analyst at Los Angeles-based Wedbush Securities Inc., wrote in a research note.

Even American Express Co.’s recent push into the prepaid market should have little affect on Green Dot’s business, Luria wrote. In June, Amex rolled out a low-cost reloadable card that carries almost no fees (see story). 

“American Express’ high-profile product introduction drew attention in the quarter but had no impact on [Green Dot’s] activations or pricing,” Luria wrote.

(Will Hernandez also contributed to this article)