Prepaid Cards & Consumer Protection Legislation
Issue
Consumer protection legislation that treats prepaid card products as one-size-fits-all.
NBPCA Position
The NBPCA supports consumer protection legislation that recognizes that prepaid cards are new and unique products, encourages straightforward disclosures, recognizes the substantial operational and legal differences between the different types of and uses for prepaid cards, and discourages pricing controls and artificial restrictions on terms.
Explanation
Many types of prepaid cards are available in the market, but the two main categories are “open-loop” and “closed-loop.” Open-loop cards are network-branded (e.g., American Express, Discover, MasterCard or VISA) and can be used wherever the prepaid cards bearing the network appearing on the face of the cards are honored. Within the market for open-loop cards, there exist many different card products—or “verticals”— such as gift, payroll, travel, health-care, government benefit, disaster-relief and incentive. Each of these prepaid card verticals services the specific needs of a target market with differing product features. Closed-loop cards are typically sold by merchants, can be used only at merchant locations, typically are not reloadable, and normally can be redeemed only for goods or services.
Despite these differences, federal and state laws that are applied to prepaid card products frequently adopt a one-size-fits-all approach or simply attempt to govern prepaid products under some other regulatory regime applicable to credit cards or debit cards. While in some cases it makes sense to apply laws designed for credit cards or debit cards to prepaid products, the better approach is to recognize that prepaid products are unique and are better regulated through specific legislation that is tailored to the specific prepaid vertical.
The NBPCA understands that much of the confusion surrounding prepaid card products has arisen from the rapid deployment and innovation the industry has undergone in recent years. As legislators attempt to develop a legal framework for prepaid cards, it is important that the unique attributes of various prepaid products are carefully considered. Accordingly, the NBPCA supports consumer protection legislation that encourages straightforward disclosures, recognizes the substantial operational and legal differences between open- and closed-loop card programs, and discourages pricing controls and artificial restrictions on terms.
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