ORLANDO, Fla. — The general consensus among attendees here at the Prepaid Card Expo is that, while the industry continues to experience growth, potential state and federal government regulations are casting a storm cloud over the sector.
Company executives on multiple panel discussions March 7 encouraged their colleagues to work together to educate politicians about prepaid’s benefits to consumers as state and federal lawmakers consider legislation that could affect the industry.
Prepaid providers learned during the period leading up to the Credit Card Accountability Responsibility and Disclosure Act’s passage in 2009 that politicians were unfazed about how regulation would decimate business models, Talbott Roche, senior vice president of Blackhawk Network, told conference attendees during a panel discussion.
“Talking about the business impact with Washington wasn’t going to get the job done,” she said. “The first lesson we learned from the frontlines was to maintain a consumer-centric posture when we’re advocating for our industry.”
Roche recalled the challenges the industry faced as the Credit CARD Act took shape over the course of two months. The bill was the first piece of legislation that affected 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 parts of the new rules stipulate the cards cannot expire within five years from being issued and that the terms of expiration must be clear and conspicuous. Fee transparency was the most significant new rule, observers said at the time.
The rules were scheduled to take affect Aug. 22, but some were postponed thanks to lobbying from The Network Branded Prepaid Card Association. The body had argued that requirements pertaining to the display of expiration dates would result in more than a 100 million gift cards having to be scrapped, thereby creating a shortage for the holiday season. Congress subsequently passed the ECO-Gift CARD Act, which delayed those changes until Jan. 31 this year (
The law’s delay was a good example of how the industry came together to advocate change, Joseph Vitale, a partner for the law firm Schulte, Roth & Zabel LLP, told attendees.
“The [CARD Act] first started out as something much more complicated,” he 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 continue to need that type of resolve as it tracks 38 pending bills across the nation that in some way could affect prepaid cards, according to Jeremy Kuiper, managing director of the Bancorp Bank.
The most significant bill resides in New Jersey. Democratic state Sen. Paul A. Sarlo recently introduced legislation, SB26811, that would reverse changes to the unclaimed property law, which allows the state to claim unused funds on stored-value cards to help bridge the gap on budget shortfalls. “These changes have caused significant uncertainty for consumers and businesses alike,” the bill notes.
“States are waiting to see what happens in New Jersey” before they move ahead with their own prepaid legislation, Kuiper says.
John Hagy, the chief counsel for Storm Lake, Iowa-based MetaBank, advised prepaid card issuers and program managers to remain diligent about each state’s pending and approved legislation regarding prepaid. “Clearly, we can be more effective as a group than acting alone,” he told attendees during a panel discussion.
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