July 14, 2009
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News: Prepaid Card Companies Speak Out
President Obama's proposed new legislation that would call for a new consumer finance agency has the credit card industry in an uproar, not to mention many Americans as well. A group we haven't heard much from is speaking out. Recently, representatives of the prepaid card industry have increased the volume and tone to stand up in opposition to the new proposed agency. Unlike traditional credit cards, prepaid card companies do not generate revenue from over-the-limit and late fees. Therefore, representatives of the industry are asking that they not be considered in some of the same categories as credit cards. The main concern stems from a portion of the proposal which specifies that the state laws would overrule the consumer agency's rules when state laws are tougher.
Prepaid cards are not credit cards but fall into a mush group which includes gift cards and reloadable cards. Some states do not differentiate by type; therefore, state regulators could make it more difficult for some prepaid cards to function. Currently, measures being appealed in the 1st U.S. Circuit Court hold the prepaid card industry accountable only to Federal law with no attachment to state law. Representatives for prepaid card companies say the new provision would make the prepaid card business a costly entity to manage and knock them out of business in some states. However, supporters of the proposed consumer finance protection agency say that prepaid card customers are entitled to the same protections that credit card customers experience.
Unlike the traditional card that generates revenue from interest, representatives of the prepay card industry say that the only way for them to generate revenue is through the fees. They fear the new consumer agency would reduce or banish many of the credit card fees and if prepay cards are considered under that same umbrella, the results could be very damaging. Congress and the President's administration have not yet worked out the final details of the proposed agency making it even more urgent that the prepay card representatives make themselves heard.