Skip to comments.Will FDIC Regulations Shut Down the Prepaid Card Industry?
Posted on 06/27/2014 9:48:44 PM PDT by jeannineinsd
Will FDIC Regulations Shut Down the Prepaid Card Industry?
We have written about prepaid debit cards several times in recent months, but this week we saw the latest news that could throw a monkey wrench in the burgeoning prepaid card industry.
As reported by PaymentsSource, Bancorp Inc., one of the biggest issuers of prepaid cards with $4.7 billion in assets, saw its shares drop 30 percent when the company agreed to curtail its prepaid card activity as part of a deal with the Federal Deposit Insurance Corporation (FDIC).
A 22-page consent order mandates that Bancorp institute a number of changes to its lending practices in order to discourage money-laundering. One of the biggest changes was curtailing its prepaid card business. In response to the consent order, Bancorp Bank agreed not to issue any new general-purpose prepaid cards, or establish any new prepaid card distribution channels until the FDIC has had a chance to review its compliance plans.
A day after the report of Bancorp cutting back on its prepaid card operations, the New York Times reported that Bancorp will discontinue Suze Ormans Approved prepaid debit card effective July 1. Bancorp has requested that all Approved card holders either use up any funds left on their cards before July, or the bank will issue checks to cardholders with refunds for their remaining card balance after July 1.
Various celebrities and others have started issuing prepaid debit cards under their own name but backed by major financial institutions such as Bancorp. Suze Ormans Approved card has been one of the less expensive cards with fees of $3 per month, and the Times reports that the fees may not have been enough to offset costs. Other celebrity endorsed cards have been discontinued after complaints about misleading marketing practices, exorbitant usage fees, or having to pay advanced fees.
Other companies like American Express continue to look for new ways to service the underbanked. Orman was especially proud of the fact that her prepaid card would help people build their credit history. Where the credit bureaus dont typically track prepaid card usage, The Times article noted that TransUnion had agreed to start tracking Approved card users activity for credit purposes.
Whether or not the discontinuation of the Approved card is the direct result of the FDIC mandate to Bancorp is unclear. However, since Bancorp is one of the largest prepaid card underwriters, the fact that they have to curtail their prepaid card activity pending FDIC review is a big setback for the prepaid card industry. If Suze Orman is the first against the wall when the prepaid card rebellion comes, who knows how many other prepaid cards will fail in the months to come.
So what do you think? Is this an anomaly or does this sound the death knell for third-party prepaid debit cards? What safeguards are financial institutions going to have to implement to satisfy the FDIC to issue their own cards? Is the effort worth it?
The funds on the prepaid debit card can be accessed just like regular debit cards: Cash withdrawals at an ATM, purchases at a local or online store, or for paying bills online or by phone.
The prepaid debit cards can substitute for a checking account for a person who doesn't have a bank account. The fees for the debit card are higher than a regular bank account. Some prepaid debit cards have lower fees than others. The prepaid debit cards fees may be lower than the alternative of paying check cashing fees, and fees for money orders or bill paying services. Also, the prepaid cards cannot be overdrawn, so there is no possibility of excessive Non Sufficient Funds (NSF) charges.
All these prepaid debit cards have a bank behind them, but the customer doesn't deal directly with the bank. The customer's interactions are with a middleman, the card's issuer.
Suze Orman's prepaid debit card, which was highly publicized when first issued, is being discontinued as of 6/30/14, with apparently very little notice given to cardholders. When I read the New York Times article about the card's cancellation, I wondered if there was a possibility of some government action behind this closure, similar to the government's actions against the bank accounts of gun store owners and the bank accounts of porn stars.
Of course, there is the possibility of the closure of this Suze Orman's card being unique to this card. In my opinion, Suze overpromised the benefits of this card. She claimed using this card would improve credit records and FICO scores. Since this is a debit card, not a credit card, it doesn't seem possible to me that it could have an impact on a credit score.
Here is a link to the NY Times article.
However, the article posted above indicates there is indeed a government action behind this abrupt closure of the debit card.
I found an article from a Philadelphia newspaper about Bancorp's FDIC consent decree. It said the actions will restrict about one-third of Bancorp's prepaid-cards business.
Here is a link to the Philly.com article: http://www.philly.com/philly/blogs/inq-phillydeals/Bancorp-shares-plunge-on-FDIC-limits.html
Here is a link to the FDIC consent decree:
Read more at http://www.philly.com/philly/blogs/inq-phillydeals/Bancorp-shares-plunge-on-FDIC-limits.html#P1KVddFWcqCwCChq.99
Here is a link to the FDIC Consent Decree: http://www.snl.com/Cache/24005655.pdf?IID=4054569&FID=24005655&O=3&OSID=9
One time someone tapped into my account and purchased about $20 of software. Fortunately I caught it quickly and Apple refunded the money, but I really don't trust having portable devices or cell phones have access to a real credit card.
My debit card is linked to my checking account and each time I use it as a credit card my bank pays me 10 cents, this more than pays my checking account fees.
I hate paying for checks and taking the time to write each one out, I use checks only at church now so I will not temp someone to swipe the cash.
I wonder if this will effect my account? I don’t think it should but who knows what this bunch is really up to. So they are bottlenecking the porno stars bank accounts, one more dream dashed.
That is a good use of a prepaid Visa card. We hear more and more of payment data being compromised.
Just curious, why are these needed if people can get a checking account with a debit card?
I have great credit and love my chase MC personally, pay it off every month and they treat you like a king, gives me cash back.
I always laugh when I tell them to put it in my account and they tell me I cant use it as the minimum payment. I tease them about it.
It seems that anyone can get a credit card cant they? But some people cant handle one.
I wonder if this will affect gift cards? Any time we go out to eat, we get the gift cards at a grocery chain that gives us $12 worth of gas for every $100 we spend on gift cards.
It’s ridiculous that the government is making it increasingly difficult for people to conduct electronic commerce. All any additional rules will do is prey even further on the “underbanked” a/k/a poor people that for one reason or another do not have a bank account and widen the electronic gap between the rich and the poor.
These regulations will close down a market for others, that do not wish to enter the banking system, prefer to use cash and need some way to purchase products online.
Big Brother knows enough about Americans already. They need not collect more information on us if we choose to use a Prepaid Card to conduct business.
Some people don’t want a credit card
The medical industry, and the insurance industry, disdainfully quiet during the Obamacare debate, will track all purchases.
They talked about it yesterday.
It was a news item.
I thought, oh, well, they’ll surely stop prepaid cards and cash, then.
government health care? really?
That's OK but then why don't they just get a bank debit card?
The people I have met who dont want a credit card cite having kids who always want more stuff as a reason, not being able to say no.
Or maybe its a wife.
Credit cards can be a really good deal, I love mine, I just bought a NEW washing machine today for ~$800 on my Chase. It is a great helper.
That wont kill me, what I don't like is those grocery sales cards.
When a small % of customers stock up on large amounts of certain sales items on those stores they know to not put them on sale anymore. They want sales items to draw in customers to buy other stuff.
” why are these needed if people can get a checking account with a debit card?”
I think for online shopping and for travel, where the risk of identity theft is high (gas stations/convenience stores/shady hotel clerks). A debit card links directly to your funds and if the pin is discovered I don’t think there’s the same protection as a credit card where you have to sign.
This is just the Regime working to keep the underbanked dependent on government. Why do they need credit cards? Let them use their EBT cards!
I don’t think I have ever seen a “prepaid” card. When in America I had AMEX and a regular MasrerCard. They were standard credit cards.
When I moved to Central Europe, the AMEX and MC/Visa had almost no acceptance except in hotels and other tourist venues.
In Slovakia, and now in the Philippines, my MasterCards, issued by my foreign banks, have been tied to my regular bank account. Whatever money that I have in my bank account is useable with my MasterCard, via ATM or in any store that takes cards. They are, in effect, debit cards. Credit cards are seldom available to foreigners.
I assumed the same would be common in the US.
For those who get Direct Deposit every month and you can’t wait, Wells Fargo allowed you to take a $500 ‘loan’ on it for a $35 fee.
Because of government regulations this convenience has been ended.
There is no doubt that a credit card is better than a debit card wrt that, heck on top of cash rewards I can contest my own purchases because I didn't get the service, and false purchases are easy to contest.
Another reason I love credit cards.
My question was comparing debit cards to prepaid cards.
So will California quit issuing them for unemployment?
What I mean is that they are going to monitor your life. your choices. you will get medical payment, after paying out the ying yang, based on your life choices.
TOo much chocolate, no insulin for you.
Too much meat, no heart medication, no cardiac care.
Only the deserving, those who take care of themselves, regardless of their medical industry having no idea what a good diet is, will be penalized.
Prepaid cards, in Obama’s world, are our way of having privacy in our purchasing. THye have the power to eradicate cash, and prepaid cards. The government will know everything you purchase.
I knew what you are getting at, if it worries you so much write a check instead.
I will use my Chase.
Just pointing it out.
I read someplace that tin-foil hats will keep the overhead helicopters and drones from reading your thoughts with their gamma rays too.
You can never be too safe.
I bought a new front door for $2000 and paid cash.
When they passed the Patriot Act a lib came into the local deli where we gather for coffee and got a cup to go. He was going off on Bush over the library cards. I politely listened and then watched him pay for his cup of coffee with his debit card. I just shook my head, smiling.
I would have put it on my chase and they would give me back $20 or $40 for using it, and if the door was put in broken chase would have told them to go to hell for the money till I get a good one from them. .
I don't give a crap if the NSA knows that I bought a new front door.
Do you care the it’s knows?
I’m not taking about doors.
I’m talking about a government who’s VA medical system uses whatever excuse to rid its rolls of patients
They’re not going to give a crap about a door I’m talking about not being able to purchase a bag of m & m s without their breathing down your neck about wasting other people’s obamacare investment in you
I’m talking about not needing to talk to des about life choices because they’ll have all the data from the govt
The VA now gets all of its patients’ income data from the IRS Anyone who thinks they’re incompetent is mistaken they know how to get what they want to get
Just keep the balance low and transfer money from your main checking account as needed.
Reactionary, unthinking bush hatred. Look where it gets us
A new report from Bloomberg details how hospitals are using our habits such as buying cigarettes or skipping the gym to create patient profiles in order to identify those who are most likely to get sick.
It’s from yesterday, was on cavuto then the five then FR as above
Oh this is a quote from cavuto’s piece:
‘A new report from Bloomberg details how hospitals are using our habits such as buying cigarettes or skipping the gym to create patient profiles in order to identify those who are most likely to get sick.’
Tin foil- right
I was just sort of thinking people were keeping up
From yesterday’s item:
‘Fox News (Cavuto) had on a surgeon, who even suggested it will end up they will use that in decisions on rationing the healthcare, to the extent to withhold it from patients who aren’t compliant. He expressed it slightly differently, but this was the meaning.
The original article was published by Bloomberg, here is the link:
Your Doctor Knows You’re Killing Yourself. The Data Brokers Told Her
They are calling it “proactive care management” — just wait until they will ration what you can buy, “for your own good”, of course and naturally not giving you proper care, because it’s all your fault and you don’t deserve it.
Smokers, people with diabetes beware, but not to fear, they wouldn’t dare to use that on homosexual people who naturally have a much larger probability to get AIDS. ‘
The debit links directly so I think one’s entire account can be torpedoed if the pin is discovered. on a pre-paid, you’re only sunk for the amount remaining on that prepaid.
Wells Fargo encourages you to do that already. They open a separate account that you must move money into from your primary account, so your main account is never at risk.
Money laundering is a problem with these cards to be honest, it is the fastest and easiest way for a drug dealer to turn undeclared cash into electronic cash without a paper trail.
Talking with a friend what they REALLY want to go after is the prepaid cell phone minute cards and off the shelf phones that are unregistered. (burn phones) Bought with a prepaid credit card they are completely untraceable unless they can get video of the transaction, and even then it is usually a kid sent to buy them. You can get a cheap one now for about $5, plus a minute card that costs $.10/ minute, $.05/ text. For this chump change they have virtually unlimited use, and Big Brother doesn’t like that much these days.
Sounds to me like they’re going to drive people to electronic currencies such as bitcoin. Essentially no transaction fees.
Insurance companies are diffidently after that data from the press account I've read. If they are going to insure your life, they are going to try and find out about as much of your life as possible. I'll just leave it at that...
I don't think that's an outlandish assumption at all.
I use a prepaid card every month to pay my few utility bills and an occasional internet purchase. Other than that its cash, my buying habits are no ones business. And yes, I do have a bank account, although I only use it to receive my direct deposit.
——All these prepaid debit cards have a bank behind them——
How about walmart?
And here is why the FedGov doesn't like it. Prepaid cards can be used to perform anonymous transactions over the internet.
We know that when we make purchases or do searches we get advertisements for similar items on our subsequent searches ,
If I want the NYT Sunday for the magazine copy of the crossword I buy it, get the magazine out while waiting for coffe and throw the rest of the paper in starbx garbage so no one will read it
I use cas. Otherwise, no matter what payment I use, I get solicited by the Times via phone or mail within the week
I’m already trained by this to use cash when I want privacy
I see a story like this and I’m thinking with health care as part of the govt, who controls the money, to watch for moves on cash and prepaid cards
Next day i see this story
With government health care, people pay for others’ procedures and treatments.
People think that’s not going to affect their freedom.and privacy.
Interesting date - I have seen a few articles (mostly obscure) that the Gubmint is instituting new cash-flow rules on 1 July. More controls coming as ever smaller amounts of cash are reported/monitored to 'prevent crime" while further putting government scrutiny and control in our lives.
The prepaid card was great. The debit card isn't as good, because it attaches to ones checking account. With the prepaid, I took money out of the bank in person and put the cash on the prepaid. Paying with that divulged no personal information.
The only reason I stopped using the prepaid is that it added so many fees and wanted so much more information that it defeated its own purpose.
Debit cards are linked to your checking account so they provide access to your information. Prepaid cards aren’t linked....you pay cash and get a card. Using it does not tally your purchase or link to you any other way.
And prepaid service (which I’ve had for a few years now) misses out on the (depending in your state) additional 14-22% monthly taxes and fees that postpaid service has. I’m sure, sooner than later, the govt. is going to tap into the prepaid market for several reasons, revenues being reason #1.
I have AT&T prepaid service. I pay ~$53.30/month for service for both my iPhone and iPad. My friend who has postpaid AT&T service for the same devices pays over $90/month.
That adds up over time. What I save on a monthly/yearly basis more than pays for me to buy my own devices and resell them and make money, which again, I’ve been doing for years.
Cell phone service in the USA is one of the biggest ripoffs going.
I’m a miles whore. I charge almost everything* on my MC and get my 2x rewards. I saved over $600 on my last trip to Italy by redeeming my miles.
Govt. wants to see my weekly grocery purchases? Here you go, stick it up your a*s. Want to see how much gas I buy weekly/monthly/yearly? Have fun, you tool.
I bought my iPad purposely with my AMEX card because it doubled the warranty on it for free. So, I saved money not buying or needing Apple Care. Thank you, AMEX**!
*Things I don’t want showing up, I pay for with ca$h. DUUUUHHHHHH!
**AMEX typically has better electronics warranty coverage than MC or Visa.