FDIC Reconsidering Insurance For Prepaid Cards
With the Aite Group predicting stored-value cards to represent a USD 257 billion market by 2009, the Federal Deposit Insurance Corp (FDIC) is reviewing its case for regulatory legislation. Prepaid cards now account for 4 per cent of all in-store payments in the US, up from 2 per cent in 2003, according to the American Bankers Association and Dove Consulting. Since 2004, the FDIC has proposed that funds placed with a prepaid card-issuing bank constitute ôinsured depositsö only if the depositor and or/bank retain records of holdersÆ identities and all transactions on each card.Prepaid gift cards for amounts under USD 100 may be exempt from the FDICÆs proposals, which are being reviewed by the payments industry. Unsurprisingly, many banks, card companies and processors do not want the FDIC to interrupt the growth of the prepaid market, and have asked that different card categories be recognized in any ruling on deposit insurance coverage. For example, a prepaid card that is a cardholderÆs primary banking vehicle is a completely different product to a retailersÆ branded gift card, and any FDIC ruling would need to recognize this fact.
Regulating the prepaid card market could also stifle industry growth and innovation by making certain products too expensive to offer and creating uncertainty over product definition. Until now, individual US states have issued laws in relation to prepaid card products, but the feeling from the industry is that greater cohesion is required at federal level to avoid conflicts. Ultimately however, the FDIC has to clarify whether its definition of funds for deposit insurance coverage applies to funds for deposit purposes only, and not to define funds as deposits for all stored-value purposes. Related Links:
New FDIC Rule May Extend To Stored Value Cards
Card Processors See Potential In Prepaid Market
Bank-Issued Gift Cards To Gain More Of The Pie
Bank-Issued Gift CardsThreatened By Regulators
