One of the concerns expressed by some commentators is that the Senate proposal may strip the Agency of powers it would have under the House version of the legislation to regulate the many non-bank consumer financial service providers that compete with banks or fill niches banks do not serve. Of course, that does not mean that there is no regulation of those entities on the state level, because, although inconsistent from state to state, there is plenty.

The prepaid industry is an example of this, with state licensing laws for money transmission or stored value issuing, and state gift card regulation. However, there have been calls from consumer groups to extend Regulation E fully to prepaid cards, most recently in comments to the Federal Reserve’s proposal to amend Regulation E to implement the CARD Act gift card provisions. The New Jersey legislature also recently called for further federal regulation of the prepaid card industry. It would seem likely that the prepaid card industry would quickly receive the attention of any robust Consumer Financial Protection Agency, and it is likely to be more responsive to consumer group lobbying than the Federal Reserve has been.

I have to admit to being of two minds on further regulation of prepaid cards. On the one hand, I think the Federal Reserve was wise to defer applying Regulation E to prepaid cards, an issue they first started examining in the mid-1990’s, due to concern about stifling development of the then-nascent industry. Perhaps it is still too soon to subject prepaid cards to Regulation E, since while prepaid card sales have taken off and seen substantial success, the rate of innovation indicates a still-young and rapidly-evolving industry.

On the other hand, prepaid card programs are starting to compete for market niches occupied by credit and debit cards, which are subject to extensive consumer protections under Regulation Z and Regulation E, respectively. These regulations were adopted in the late 70’s-early 80’s, and arguably the consumer protections extended to cardholders under the regulations contributed to the success of cards in displacing cash and checks as a preferred means of payment. The ability to dispute a transaction after the fact and protection against loss from fraud provides peace of mind to consumers using the product, even if too much so in some cases.

In the early days of the prepaid card industry (back then called stored value cards) cardholders were urged to treat the card like cash because if lost or stolen there was, like cash, no remedy. That made sense when the cards were promoted as replacement for cash. If prepaid card program operators seek to offer viable substitutes for checking accounts, debit cards and transactional use of credit cards perhaps coverage under Regulation E would be a marketing plus.

Copyright Broox Peterson 2010. The author is a payments legal specialist with over 25 years in the industry providing legal consulting and transactional support services. www.bwplawyer.com and http://blog.bwplawyer.com

Is More Regulation in Store for the Prepaid Debit Card Industry? is a post from: Prepaid Debit Cards | Teen Debit Card | Prepaid Gift Cards

The agreement between Green Dot Corporation and UniRush LLC will allow RushCard customers to add cash to their prepaid cards using Green Dot’s MoneyPak®. MoneyPak is available at approximately 50,000 retailer locations nationwide, including Walmart, CVS/pharmacy, Kmart, Kroger, Rite Aid, 7-Eleven, and Walgreens. Customers simply purchase the MoneyPak with cash, and then transfer the money to their prepaid card.

With the addition of Green Dot MoneyPak’s as a reload option, RushCard customers now have one of the widest ranges of reload options of any prepaid card program. All of the RushCard products can use a variety of reload options, including the Black Diamond RushCard, the Purple Diamond Plus RushCard, the RushCard Plus Visa Card, and the popular Baby Phat RushCard. RushCard customers can now load money on their cards using the following options:

1. You can load a RushCard using direct deposit (including direct deposit of benefits and tax refunds)
2. You can load a RushCard using cash using MoneyGram at approximately 40,000 MoneyGram agent locations nationwide, including most Walmart and CVS/pharmacy.
3. You can load a RushCard using cash at any of the participating Western Union Agent® reload locations in the US.
4. You can load money onto your RushCard using PayPal.
5. You can load money onto your RushCard by mailing a check or money order to RushCard.
6. You can transfer money from your bank account to your RushCard by setting up RushCard as an online payee.

RushCard Adds 50,000 More Load Locations is a post from: Prepaid Debit Cards | Teen Debit Card | Prepaid Gift Cards

Since few prepaid debit card program managers are publicly traded, it is frequently difficult to use these kinds of marketing announcements to compare prepaid programs, or investigate the numbers. Thanks to Green Dot’s recent IPO registration, however, we have a good basis for comparison to judge how big the NetSpend announcement is.

NetSpend’s Numbers and Distribution Channels

NetSpend, in their press release, claims that most of the $1.04 billion was loaded by cardholders who chose to have their paychecks, government benefits and tax refunds electronically deposited onto the card. NetSpend issues their prepaid cards directly to consumers, but also co-brands or partners with others to distribute their cards. For example, NetSpend partners with check cashing companies like ACE Cash Express to make it easier for check cashing customers to cash and access their paychecks.

Further, NetSpend has focused on expanding into corporate payroll and government benefits cards. In 2008, NetSpend acquired Skylight Financial, in a deal that gave NetSpend control of Skylight’s corporate client base (of over 1,000 corporate clients) and strategic partnerships with U.S. Bank and SunTrust.

Based on NetSpend’s load volume reports for February 2010, the strategy of pursuing payroll, government benefits, and check cashing loads seems to have paid off (at least in terms of gross load volume).

Green Dot’s Numbers and Distribution Channels

Green Dot Corporation, on the other hand, primarily distributes cards through retail locations. As Green Dot notes in their recent S/1, “Substantially all of our operating revenues are derived from our products sold at the stores of our retail distributors.”

Here’s what Green Dot’s load volume for the 3 month period ending October 31, 2009 looks like (the load numbers, footnoted as item “2″, represent the “total dollar volume of funds loaded to our GPR card and reload products in the specified period”, and the numbers are in thousands):

On an average monthly basis, Green Dot cardholders loaded a little more than $0.5 Billion in the Fall of 2009 (about 1/2 of the load volume reported by NetSpend in February 2010).

Who is Doing Better?

From a pure gross load volume standpoint, NetSpend appears to have a substantial edge on Green Dot. But the gross load volume doesn’t necessarily translate into revenue for NetSpend. Both NetSpend and Green Dot currently act as program managers. The deposits are held at issuer banks (MetaBank for NetSpend, Columbus Bank & Trust and GE Money Bank for Green Dot). The bulk of card fee income for both NetSpend and Green Dot comes from transaction-based revenue (that is, both NetSpend and Green Dot make money when their cardholders use their cards to make purchases or withdrawals).

Without more details about NetSpend’s number of active cards it is difficult to compare the two programs on an even basis. However, it is likely that NetSpend’s payroll, benefits and direct deposit users keep their cards for longer periods, translating into greater fee income.

The balance of power may change, however, when Green Dot begins acting as a card issuer, and Green Dot is able to both control the deposits as well as the transaction fees.

NetSpend vs. Green Dot — Do Distribution Channels Matter? is a post from: Prepaid Debit Cards | Teen Debit Card | Prepaid Gift Cards

Secondary, or additional cards are called “authorized user” cards. To find out if your prepaid debit card program allows you to get a secondary card, you’ll need to read the terms and conditions of the card program (or, just read the prepaid card reviews on GetDebit.com to skip the legal language!).

If you check the terms and conditions, look for a paragraph called “Authorized Users”. (Here’s a tip — read the terms and conditions online, and then just do a search for the words “authorized users”).

Here’s an example of the legal language from several different prepaid card programs.

AccountNow’s Prepaid Visa Card has the following rules about authorized users:

Authorized Users: You may request an additional Card for another person. You may also permit another person to have access to your Card or Card number. However, if you do, you are liable for all transactions made with the Card or Card number by those persons. You must notify us to revoke permission for any person you previously authorized to use your Card. You are responsible for all transactions and fees incurred by you or any other person you have authorized. If you tell us to revoke another person’s use of your Card, we may revoke your Card and issue a new Card with a different number. You are wholly responsible for the use of each Card according to the terms of this Agreement.

Translation: You can get a secondary card with AccountNow. But be aware that you are liable for any transactions and fees resulting from your authorized user’s use of the card.

Some card programs allow secondary cards to be issued, but charge a fee to create and mail you the secondary card. Here’s an example.

The READYDebit Select Prepaid Visa allows you to get a secondary card, but charges you a $10 fee to obtain the secondary card. Here’s the fine print from their terms and conditions:

Authorized Users: You may request an additional Card for another person. You may also permit another person to have access to your Card or Card number. However, if you do, you are liable for all transactions made with the Card or Card number by those persons. You must notify us to revoke permission for any person you previously authorized to use your Card. You are responsible for all transactions and fees incurred by you or any other person you have authorized. If you tell us to revoke another person’s use of your Card, we may revoke your Card and issue a new Card with a different number. You are wholly responsible for the use of each Card according to the terms of this Agreement.

Authorized user, or secondary cards can be a great way to go, allowing you to share access to a single account. They are particularly useful for families who need shared access to funds. If you know that you will need a secondary card, make sure to read the card details before picking a card plan.

Can I Get a Secondary Card on a Prepaid Debit Card Account? is a post from: Prepaid Debit Cards | Teen Debit Card | Prepaid Gift Cards

Today, most prepaid cards that are reloadable require you to provide your social security number as well as a physical mailing address (not a P.O. Box) when you apply for a card. A “reloadable” card is generally defined as a card that has your name embossed on the front, and that you can add more money to through direct deposit or reload networks such as the reload network operated by The Green Dot Corporation.

Why is a social security number required to get a reloadable prepaid debit card?

There are two main reasons.

First, Government Regulations require banks to perform adequate “know your customer” processing when opening new accounts.

The “Bank Secrecy Act” (or “BSA”) requires that banks and other financial institutions in the United States file currency transaction reports (CTRs) and suspicious activity reports (SARs). Collecting information, maintaining records, and filing reports enable law enforcement to conduct criminal investigations and provide regulatory agencies with the ability to monitor noncompliance.

The USA PATRIOT Act, which was passed in 2001, amended the BSA to mandate that all statutory financial institutions establish anti-money laundering (AML) programs. This mandate obligates each institution subject to it to develop, implement, and maintain an effective AML program. Through recent BSA enforcement actions, the AML program requirement has been extended to nonbank issuers, sellers and redeemers of stored-value cards (including money services businesses), and operators of credit and debit card systems.

By requiring you to provide your social security number when opening an account (as well as an actual physical address), banks and program managers can comply with these federal laws.

Second, because the banks could be liable for any illegal activity if they don’t adequately take steps to identify you when opening an account.

Payment card networks have taken steps to comply with the federal laws, and to reduce their liability by instituting rules for all issuers and program managers associated with prepaid debit cards.

The result of all these regulatory and legal issues are that you need to adequately identify yourself before you are issued a reloadable prepaid debit card. The way most issuers and programs have decided to identify you is to require that you provide your Social Security Number and address.

Why Do I Need to Provide a Social Security Number to Get a Prepaid Debit Card? is a post from: Prepaid Debit Cards | Teen Debit Card | Prepaid Gift Cards

The Green Dot Bank Holding Company Application

The Green Dot Corporation is in the process of becoming a bank holding company by acquiring 100 percent of the voting shares of Bonneville, Bancorp, and thereby indirectly acquire voting shares of Bonneville Bank, both of Provo, Utah. Details of the planned acquisition were published in the Federal Register on Feb. 22, 2010. The Federal Register notes that comments regarding the Green Dot application must be received at the San Francisco office of the Federal Reserve Bank no later than March 18, 2010.

Copies of Green Dot’s application to become a bank holding company can be obtained by contacting Kenneth Binning, Vice President, Applications and Enforcement, Federal Reserve Bank of San Francisco.

The Bank to be Acquired by Green Dot

As noted above, Green Dot is seeking to acquire 100% of the assets of the voting shares of Bonneville Bancorp, and thereby indirectly acquire voting shares of Bonneville Bank, both of Provo, Utah. A brief review of the 2009 Financial Statements of the Bonneville Bancorp (available from the FFIEC) shows that the Bonneville Bancorp had almost no operating income in 2009 (approximately $136,000 of net reported income). As such, it is clear that Green Dot is acquiring Bonneville Bancorp for operating purposes only — not for the deposits or income of the bank.

How Will Green Dot’s Move Affect the Prepaid Card Industry?

We believe the move by Green Dot will have significant implications to the U.S. prepaid debit card industry. Here is how Green Dot explains the acquisition in their S/1 filing:

We believe this acquisition will increase the efficiency with which we introduce and manage potential new products and services, reduce the risk that we would be negatively impacted by changes in the business practices of the banks that issue our cards, reduce the sponsorship and service fees and other expenses that we pay to third parties, and allow us to serve our customers better and more efficiently through a more vertically integrated platform.

Green Dot currently issues their general purpose reloadable debit cards through Columbus Bank and Trust Company (including both the Green Dot prepaid MasterCard and the Green Dot prepaid Visa). The Walmart MoneyCard (which comprises a substantial portion of Green Dot’s general purpose reloadable portfolio) is issued by GE Money Bank.

The move by Green Dot to become a bank holding company will allow Green Dot to issue their own cards. By issuing their own cards, Green Dot will enjoy additional interchange and fee revenue, as well as avoid the risk that issuing bank partners will change their business practices or suffer losses or changes that could impact the issuance of cards.

Further, by controlling the issuance of their reloadable cards and other products, Green Dot will be able to more quickly adopt new product features and respond to market changes. It also puts Green Dot in an excellent position to consolidate parts of the fragmented prepaid card industry.

Banks that issue prepaid cards, such as Columbus Bank & Trust, MetaBank, and The Bancorp Bank, and that profit from the fragmented market, will likely see an impact from Green Dot’s move.

Green Dot’s Bank Holding Company Move is a post from: Prepaid Debit Cards | Teen Debit Card | Prepaid Gift Cards

Using Reload Locations to Fund your nFinanSe Card

You can add money to your card at more than 80,000 locations nationwide. You can get a complete list of locations near you by visiting the nFinanSe website. Most MoneyGram and Western Union locations participate, along with many retailers.

To add money in person, just take your card, the cash you want to add, and a small service fee to the reload location. The fee at Western Union and MoneyGram locations varies, but most retail locations charge a mere $2.95 per transaction, far less than most other prepaid card fees.

Using Direct Deposit to Fund your nFinanSe Card

If your employer offers direct deposit, you can fund your card with your payroll check. You can also have your Social Security, VA, or other government benefits check added to your card by direct deposit. Federal and state income tax refunds can also be used to fund your card with direct deposit.

To add money with direct deposit, use the form that arrived with your card. This will bear the bank routing and account number information you will need to establish your direct deposit. If you no longer have this form, log in to your account at the nFinanSe website and follow the links for direct deposit. You can then print out an authorization form.

For payroll checks, complete the form, including whether you want the entire check or a percentage of it deposited to your card. Give the completed form to the person who processes payroll at your company.

For government benefits, complete the form and mail it to the agency that issues your payments. You can also enroll online at www.GoDirect.com.

For tax refund payments, you do not need to submit a form for federal refunds and most state refunds. Instead, you enter the routing and account information in the space provided for direct deposit information.

Using Bank Transfers to Fund your nFinanSe Card

You can use your existing bank account to fund your nFinanSe Visa card. Initiate the transfer from your bank’s website or account center. You will need to enter the same routing and account number information as you would use for a direct deposit. You can find this information on the form that came with your card or by logging in to your online account at the nFinanSe site. While your bank may or may not charge you a fee for the service, there is no charge made by nFinanSe.

How to Load Money on a nFinanSe Visa Card is a post from: Prepaid Debit Cards | Teen Debit Card | Prepaid Gift Cards

The registration statement provides a number of details about Green Dot as well as the prepaid debit card market in the United States. For example, the filing indicates that Green Dot recently entered into an agreement to acquire a bank holding company and its subsidiary commercial bank. Green Dot states that

We believe this acquisition will increase the efficiency with which we introduce and manage potential new products and services, reduce the risk that we would be negatively impacted by changes in the business practices of the banks that issue our cards, reduce the sponsorship and service fees and other expenses that we pay to third parties, and allow us to serve our customers better and more efficiently through a more vertically integrated platform.

The filing also provides a good look at what Green Dot considers to be their competitive strengths in the U.S. prepaid debit card market. According to Green Dot, these strengths include:

Innovative Product and Marketing Expertise. We are an innovator in the development, merchandising and marketing of prepaid financial services. We believe we were the first company to combine the products, technology platform and distribution channel required to make retailer-distributed GPR cards a viable product offering. Our consumer focus has led us to enhance our product packaging and product displays in retail locations to educate consumers and promote our products and services more effectively. We believe that we have the strongest brand in the prepaid financial services industry and we continue to build brand awareness using national television advertising.

Leading Retail Distribution. We have established a nationwide retail distribution network, consisting of approximately 50,000 retail store locations, which gives us access to the vast majority of the U.S. population. According to Scarborough Research, during the twelve months ended October 31, 2009, at least 93% of U.S. households shopped at one or more of the stores of our current retail distributors.

Leading Reload Network in the United States. We believe the Green Dot Network is the leading reload network for prepaid cards in the United States. We also believe that it can be expanded and adapted to many new and evolving applications in the electronic payments industry.

Proprietary Technology Platform. Green PlaNET, our centralized processing platform, contains a variety of proprietary software applications that run our front-end, back-end, anti-fraud, regulatory compliance and customer service processing systems. It enables us to develop, distribute and support a variety of products and services effectively.

Business Model with Powerful Network Effects. The combination of our broad group of products and services, large portfolio of active cards, nationwide footprint of retail distributors and proprietary technology platform creates powerful network effects. Growth in the number of our product and service offerings or network participants enhances the value we deliver to all network participants. For example, we are able to attract retail distributors because of the large number of consumers who actively use our reload network. We believe the breadth and depth of our network would be difficult to replicate and represents a significant competitive advantage, as well as a barrier to entry for potential competitors.

Stay tuned for more details about this registration. We expect this move by Green Dot will result in moves by other prepaid companies, including consolidation of program managers in the highly fragmented and immature prepaid card space.

Prepaid Cards and Wall Street: Green Dot Plans IPO is a post from: Prepaid Debit Cards | Teen Debit Card | Prepaid Gift Cards

• It’s safer. You need not worry about cash or checks being lost or stolen.
• It’s faster. You need not waste time in line or making trips to the bank or a check cashing service.
• It’s economical. Check cashing fees can run 3% or more of the face value of your check, while direct deposit to your nFinanSe card is free.

Setting up direct deposit to your nFinanSe Discover card is quick and easy. It takes only minutes. Although direct deposit may take one or two payroll cycles before it is in place, once it is established, you will have the peace of mind that comes from knowing you will be able to access your money on payday, regardless of where you might be.

How to set up Direct Deposits on a nFinanSe Discover Card for your Paychecks

When your new nFinanSe Discover card arrived in the mail, it should have included a direct deposit form bearing the routing number and account number for your nFinanSe account. If this form is not available, go to www.nFinanSe.com, log in to your account, and navigate to the link for direct deposits to print out another one. Give the completed authorization form to your employer.

How to set up the Direct Deposit of your Tax Refund to your nFinanSe Card

All you need to do is enter the routing number and the account number for your nFinanSe Discover card account when you file your tax returns. You have the option, whether completing returns electronically or on paper, to choose the direct deposit option. This is near the end of the return, near the box that shows the amount of your refund. Just fill in the spaces with the information from your direct deposit authorization form. If you no longer have the form that came with your card, go to www.nFinanSe.com. After logging in, you can find the information you need online.

How to set up Direct Deposits on a nFinanSe Discover Card for your Government Benefits Payments

Establishing direct deposit for government payments can be accomplished in two different ways.

• Online at www.GoDirect.gov, a site maintained by the Treasury Department and Federal Reserve. In addition to the routing and account information for your nFinanSe card, you may also need to know the exact amount of your last payment and the check number. Some agencies may also request a claim number.
• By mail, when you complete the direct deposit authorization form and send it to the agency issuing your checks.

How to Set up Direct Deposit on a nFinanSe Discover Card is a post from: Prepaid Debit Cards | Teen Debit Card | Prepaid Gift Cards

Keep in mind that recurring direct deposits may take one or two pay cycles to establish. In the meantime, open pay envelopes to see if you have a check you must cash or a non-negotiable notice of direct deposit.

How to arrange to have your Monthly Government Benefits Applied using Direct Deposit

Government agencies such as Social Security or the VA can deposit your payments directly to your nFinanSe card should you so desire. There are two ways to accomplish this, so choose the one most comfortable for you.

• The government maintains a website for you to register for direct deposit. It is www.GoDirect.gov. You will need the routing number and account number for your nFinanSe account. Some agencies also require the amount of the last benefit payment you received and/or its check number, while others may ask for your claim number.
• You can mail a completed direct deposit authorization form to the agency that issues your payments.

You can use the direct deposit form that you received with your nFinanSe card, or you can print one out from the nFinanSe website. Simply log in to your online account at www.nFinanSe.com and follow the links to add money by direct deposit.

How to arrange to have your Payroll Checks Applied using Direct Deposit

Almost all employers make direct deposit a payment option for their employees. If yours does, you only need to complete a direct deposit authorization form and return it to your company’s payroll department.

A direct deposit form should have been included with the nFinanSe card you received in the mail. If you no longer have this form, you can go to the nFinanSe website, log in to your account, and then follow the prompts to add money by direct deposit.

If your employer is using nFinanSe Pay Cards, your employer will automatically transfer your payroll earnings to your Pay Card.

How to arrange to have your Tax Refund Check Applied using Direct Deposit

One of the last lines on your return will ask whether you want a check mailed to you or wish to use direct deposit. Select the direct deposit box and then enter the routing number and account number for your nFinanSe account.

The routing and account numbers will be on the direct deposit form that was mailed with your nFinanSe Visa card. If you no longer have this form, go to the nFinanSe website and log in to your account. Then just follow the links to add money by direct deposit.

How to set up Direct Deposit for a nFinanSe Visa Card is a post from: Prepaid Debit Cards | Teen Debit Card | Prepaid Gift Cards