WASHINGTON, Dec. 17, 2010 /PRNewswire/ -- The Network Branded Prepaid Card Association (NBPCA) is concerned that the interchange fee structure and network routing terms announced by the Federal Reserve in its proposed rulemaking will inevitably increase costs to consumers and issuers. Operational flaws, such as requiring prepaid gift cards and flexible spending account cards to include PIN-based debit, not only serve no purpose but also create inefficiencies, increase risk of fraud and unnecessarily raise costs.
Of particular concern to the prepaid card industry is the proposed rules do not clarify how the critical exemptions for government benefit cards and reloadable prepaid cards would be implemented by the card networks under the proposed interchange fee cap rule, as mandated by the Dodd-Frank Wall Street Reform Act. This fact was noted during yesterday's meeting, when a Federal Reserve official acknowledged the proposed rule permits but does not require card networks to allow a higher interchange fee for government benefit cards, reloadable cards not marketed as gift, or cards issued by banks with less than $10 billion in revenue. The official added if it becomes problematic for the card networks to implement the exemptions, then the lower interchange rate would apply.
"At a time of historic economic hardship, millions of Americans rely upon government benefit cards and reloadable prepaid cards as a secure, convenient, non-stigmatizing payment tool to make everyday purchases," said Kirsten Trusko, NBPCA President and Executive Director.
"NBPCA looks forward to submitting comments to the Federal Reserve and hopes it will clarify how exemptions will be handled in its final rule. Failure to do so could reduce the availability of prepaid cards, resulting in a catastrophic impact on consumers and governments," added Trusko
Financial institutions offer government benefit cards to states at little to no cost because they receive revenue primarily from the debit interchange. Nearly every state in the nation (47 states) either uses prepaid cards or is in the process of setting up programs to administer a variety of benefits, such as unemployment and Temporary Assistance to Needy Families (TANF) to millions of needy Americans.
The US Treasury dispenses Social Security benefits through its Direct Express government benefit card. Not only do states save money from check related costs, which is critical at a time when states are experiencing huge budget deficits, but consumers benefit from receiving their funds more efficiently and quickly through this electronic payment tool. Without the exemption from the lower debit interchange fee, it is likely banks will be forced to reduce or eliminate the availability of government benefit cards to nearly every state in the nation.
Millions of unbanked and underbanked individuals also rely upon prepaid cards to participate in our card based economy. It is quite probable if these cards aren't exempted from the interchange fee cap, prepaid card users will be subject to merchant minimums for credit cards because clerks could confuse the cards with credit cards and deny prepaid cardholders from making basic purchases like milk and eggs.
About the NBPCA
The Network Branded Prepaid Card Association (NBPCA) is a non-profit, inter-industry trade association that supports the growth and success of network branded prepaid debit cards and represents the common interests of the many players in this new and rapidly growing payments category. For additional information visit www.NBPCA.org or the NBPCA Facebook page.
SOURCE Network Branded Prepaid Card Association (NBPCA)