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?
I don't know. The article's FDIC consent decree is with Bancorp. The FDIC is concerned with "weaknesses in the Banks Bank Secrecy Act (BSA) Compliance Program." It also states that "the Bank will be restricted from issuing new non-benefit related reloadable prepaid card programs."
Here is a link to the consent decree. It is short, only 4 pages long. http://www.snl.com/Cache/24005655.pdf?IID=4054569&FID=24005655&O=3&OSID=9
Here a a couple of articles about people who can’t get bank accounts:
http://dealbook.nytimes.com/2013/07/30/over-a-million-are-denied-bank-accounts-for-past-errors/
I shred everything with my name on it before it goes into the trash. I am primarily worried about identity theft. I don't think anyone would be interested in cataloging the contents of my garbage, but it could be a concern for people like celebrities.
The tin foil hat battalion here shouldnt be using the internet as the government has to be tracking their every keystroke.
Chase just sent me a replacement card for one of my MCs, they are migrating it to visa.
I just called up Chase to get them to sign me up for the 5% cash back on all gasoline purchases from July to Sept on my Chase MC CC.(actually I have two of them, two different accounts)
I love Chase.
OH NOOOOO, Obama knows that I am buying gasoline now...,HAHAHA.
Sounds like a great deal.
I use cards all the time, for just about everything, and I like the cashback deal, but that money is not free.
I don’t care what they know about my buying. I don’t get creeped out anymore when I get slammed with ads after I buy something.
Plus, I have nothing to hide.
I was just pointing out something I found to be perhaps coincidental to people who value privacy and freedom.
You don’t care. I get it.
That sounds better.
RE:”You dont care. I get it.”
Its pretty low on my list.
You know it was Republicans cheered on by many here for years who gave the government all these powers over banking and $$$, as anti-terrorist bills.
They must of thought they would never lose power.
I’m not interested in this conversation.
You think it’s tinfoil, then you say it’s from republicans at FR for cheering them on.
I’m done here.
It’s illogical now.
LOL
You’re special.
IIRC, Chase signed a deal within the last ~year to be exclusively Visa. Chase just had a 50k mileage bonus offer for a new card sign up and spending $’x’ within 3 months, but I passed on it. Personally, I don’t like Visa, especially when it comes to disputing purchases. MC and AMEX are much, much more cardholder friendly.
When I had a Visa thru Capital One and disputed any charges, the process was akin to me being put on trial. And when I complained about the BS, I was told the hoops were Visa’s not the card issuer. I solved any issues by cashing out my miles and telling Capital One what and where they can do with their card. I will never have another Visa card; MC and AMEX only for me.
I will have to watch this one, see if the benefits change. Certainly Chase MC was good.
Check for any changes in the TOS regarding returns and disputes.
Grated Capital One SUCKS, but Google the subject and you will find that Visa is way more anti-cardholder than MC & AMEX.
Put it to you this way: I’ve had credit cards since I was 18 years old, so we’re talking ~2 decades. And in that time, I never had a credit rescinded over a returned item. Capital One/Visa pulled that on me after 2 MONTHS. 2! Long story short was if the G-D idiots I talked to at Capital One would have simply looked up the tracking number THAT THEY REFERED TO IN THEIR OWN PAPERWORK, the situation could have been resolved. But no. And every person I spoke with said they had to follow Visa’s rules & regs. So, I did everyone’s job and got the situation resolved. And like I posted earlier, I redeemed my miles and then told Capital One what they could do with their card.
I will never use either a Capital One or Visa product again.
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