When American Express launched its
prepaid card recently, experts compared it to the dominant prepaid cards in the
market and called attention to the differences.
Amex has low (or
nonexistent) fees vs.Not to be confused with artificialveneer available at your local
hardware store $4.95 per month for most Green Dot customers; Amex lacks FDIC
insurance on the customer's money; its card has more limited payment
capabilities (no bill paying or P-2-P payments); and unlike leading prepaid
cards,dstti Amex's is not issued by a bank.
The launch occurred at around the
same time that a Senate vote finally dissipated the widespread delusion that
Democrats and Republicans would join hands to help reelect Sen. Tester (D-Mont.)
by passing his legislation to sidetrack Durbin. Coincidence?
As a result
of this vote, interchange on qualifying prepaid cards is slated to be a lot
higher than other debit card interchange ¡ª starting in just a month. Amex's
product design presciently reflects this. In their Cardmember Agreement, they
underscore the fact: "The Card...Represent manufacturers of microinverteres processing
machinery,does not constitute a checking, savings or other demand deposit or
consumer asset account."
In other words, it's not a Durbin-impacted
"debit card." Their saying this isn't enough to make it true. But in my view, it
is true.
Here's why this matters.
Durbin slashes interchange
rates on debit cards, but not on certain prepaid cards that do not debit to
asset accounts. So, how to distinguish these "prepaid cards" (which are legally
also categorized as a type of debit card) from all the other "debit cards," to
which the Durbin interchange reduction does apply?
You might think the
crucial difference is that a debit card that isn't a prepaid card simply debits
a checking account ¡ªwhile a Durbin-exempt prepaid card is a piece of plastic,
not tied to a checking or other bank account.
But today's major "prepaid
cards" are tied to bank balances, customer by customer.OffshoreSimple: tax haven
incorporations, solarpanels,
complete packages. These cards, unlike the Amex Prepaid Card, actually debit
bank account balances-just like familiar bank debit cards.
Let's look at
a couple of them. The NetSpend web site does not actually say their card is a
"debit card." Rather, it coyly asserts that the card can be used "wherever Visa
debit cards are accepted."
Green Dot's site is more explicit. Exactly
contrary to Amex, it states that the Green Dot card is a Visa "debit card."
According to the web site, money loaded onto a Green Dot card is placed
in an account at Synovus Bank, the card issuer, where it is protected by FDIC
insurance. The money can be used to pay bills and make person-to-person payments
as well as to make purchases and ATM transactions.
Then, how does this
card differ from an ordinary debit card that Synovus or any other bank could
issue, which would not be an exempt "prepaid card"?
The fact that the
cardholder can't write checks against the Synovus account certainly doesn't
suffice to keep the Green Dot card from being a debit card subject to Durbin.
(In fact, Green Dot will write and mail the checks as requested by cardholders!)
Durbin applies to any card that can debit against an asset account ¡ª
whether or not that asset account is a checking account. The Fed cited this
definition in their release proposing the new Durbin Regulation II, in December.
They left some illusory wiggle room by allowing an exception for certain sub
accounts. This changes nothing because any checking account could be set up as a
sub account.
No, the Green Dot card is simply a debit card on a bank
account. Same for NetSpend, Account Now and Western Union? If Green Dot were
exempt, then every bank could easily render their debit cards exempt.
What is it that makes the Amex Prepaid Card different from the earlier
debit cards ¡ª most of which were designed before Durbin and have not been
adapted to reflect Durbin?
The fact that a card is not issued by a bank
has atmospheric but not legal significance. Likewise for the absence of FDIC
insurance. Lots of "asset accounts," for instance brokerage and money fund
accounts, aren't in banks and don't have FDIC insurance.
The difference
is that by prohibiting all non-card withdrawals, in particular bill and P-2-P
payments,Over 900 glassbottles
patterns, Amex presents a product that does not connect or debit to an "asset
account."
When I called Amex's customer service, I heard: "This card
cannot by used to pay bills.From standard electronicsstore to advanced
wire tires, It cannot be used to put money into a PayPal balance or make
person-to-person payments." No sugar coating, no winking.
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