Page 127 - Pay Magazine s2014

volume 8 • fall 2015
early days
1996 was a landmark year for the elec- tronic payment of government benefits. Two laws passed that year spurred the move from paper check payments. The Personal Responsibility and Work Opportu- nity Reconciliation Act required state governments to distribute SNAP benefits (formerly known as Food Stamps) exclu- sively on prepaid cards; the conversion was complete by 2004.
Meanwhile, the Debt Collection Improve- ment Act mandated that by 1999, nearly all federal benefit payments were to be made electronically. While that deadline wasn’t met —largely because a prepaid card solution had yet to reach the mainstream—federal government agencies have been steadily shifting toward electronic payments—with the big breakthrough coming in 2008 with the introduction of Direct Express for distribution of Social Security benefits.
issuer revenue by source
Interchange is the largest revenue source, followed by cardholder fees, of which $89 million is ATM fees. Issuers paid $58 million in fees to third parties for ATM withdrawals and $13 million
in fees to third parties for OTC cash withdrawals in 2014.
the regulation situation
Electronic deposit of funds from the federal government to
a prepaid card must meet the following standards under law. Prepaid accounts receiving direct payments from federal agencies must:
•Be in a subaccount held in the name of the recipient
•Offer the same consumer protections and rights as
payroll cards under Regulation E, including fee disclosures, access to account history, limited liability for unauthorized use and error-resolution rights
•Include FDIC pass-through insurance
•Not include a line of credit that is repaid automatically from future deposits
Prepaid accounts receiving payments through state agencies, such as unemployment bene- fits, must meet all of the above requirements, except needs-tested programs—such as SNAP—which are not required to provide Regulation E protection. Many states, however, have negotiated consumer protections into their own requirements.
Agencies at all levels of government have adopted prepaid for an array of payment types, including the following programs:
federal*
Social Security • Supplemental
Security Income • Some Retirement Plans • Veterans Affairs • Tax Refunds
state
Unemployment Insurance • Child Support • Supplemental Nutrition Assistance Program (SNAP) • Supplemental Nutrition Program for Women, Infants and Children (WIC)• Temporary Assistance for Needy Families (TANF) • Tax Refunds
city
Transit Subsidies • Emergency Assistance • Wage Payments to Employees • ID cards that Double as Prepaid Cards (e.g., City of Oakland Municipal ID Card)
*Distributed via Direct Express with the exception of tax refunds
Interchange Fees $310MM
Payment Card
Network Incentives
$16MM
Cardholder Fees $158MM
Government Fees $6MM
source: Board of Governors of the Federal Reserve System. “Report to the Congress on Government-Administered, General-Use Prepaid Cards” (2015).
Input for this analysis of government-administered prepaid cards was provided by: John Barbella, senior vice president, The Bancorp; Steven Evans, senior director, government prepaid products, Visa; Andrew Gillen, vice president, public sector programs, MasterCard; and the late Terry Maher, former partner, Baird Holm LLP.
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