Prepaid cards are never far from politics and controversy, though the industry's distance from government scrutiny will likely increase in January when Donald Trump assumes the presidency and a new Congress is sworn in.
The pressure the industry faced from its ties to fast food workers being required to pay fees to use payroll cards to access their salary, or to publicly account for technology failures will likely ease, freeing up compliance space and cost to issue more cards.
"The prepaid card segment [will] resume double digital account growth and become more profitable," said Madeline Aufseeser, CEO at card security technology company Tender Armor and a longtime financial services analyst who has analyzed Trump's potential impact on a wide range of issues impacting payment card access and usage.
The agency that has taken the most interest in prepaid's impact on users, the Consumer Financial Protection Bureau, will likely come under scrutiny in some form under Trump's administration. Republicans have long wanted to decentralize the CFPB's leadership, while Trump could replace the CFPB's leadership directly without cause, inserting a more industry-friendly choice. A less likely — but still possible — outcome is that the CFPB, an agency created in response to the financial crisis of 2008, could disappear entirely.
"Gone is Elizabeth Warren’s influence on the markets," Aufseeser said. "[CFPB Deputy Richard Cordray] most likely already has his resume on the street along with his 1,600 plus agency associates."
The big issue for the prepaid industry today relates to pending overdraft protection rules from the CFPB. The pending CFPB rules do not prohibit overdraft fees but prepaid cards would need to comply with ability to repay rules and could not charge fees in the first year that exceed 25% of the credit extended, among other protections.
The CFPB maintains a log of prepaid card complaints and has also pressured payroll cards, a category of prepaid card, with heavier restrictions. If the CFPB is overhauled or dismantled, it will mean an immediate retraction of all of the agency's prepaid card rules, definitions and requirements, Aufseeser said.
"Could this mean the return of prepaid program managers and decoupled debit cards?" Aufseeser said. "Not so fast due to the competitive nature of the market. Yet prepaid program profitability will rise considerably once operating requirements go away, saving organizations expenses across the board."
The political shifts may cause consumer advocacy groups to look for other authorities to restrict prepaid issuers.
Even before Trump's election, Michelle Sternthal, deputy director of policy and government affairs for the Main Street Alliance, said she was looking to local authorities to petition to regulate prepaid cards, citing the existing GOP dominance of Congress and the likely smaller-scope restrictions of the CFPB even if Hillary Clinton had won the presidency.
"There are state protections that we can seek, and can look at the Comptroller of the Currency, the FDIC or the FTC, they all have authority that can provide oversight in this area," she said.
The Main Street Alliance is battling NetSpend, a unit of the payment processor TSYS, over new products the prepaid card marketer developed.
NetSpend said the steps it must take to obey the new CFPB rules will cost it up to $80 million, or 12% of its revenue. The Main Street Alliance contends NetSpend has several new products, including a prepaid card for small businesses and a deposit account that allows consumers to write checks, that are not covered by the new prepaid card rules.
"Protections for consumers often don't extend to businesses as well," said Sternthal, deputy director of policy and government affairs for the Main Street Alliance, who likened the consumer/business device to credit card losses. Issuers compensate losses for consumer cards, but not for business cards.
TSYS did not provide a response for attribution. Its public relations office did respond to PaymentsSource via email.
"The NCLC has fundamentally mischaracterized these products. The NetSpend Small Business Card, which launched on a pilot basis in September, has a variety of key features--including fully-integrated payments acceptance and subaccounts--but contrary to the NCLC’s statements, overdraft is not one of them," TSYS said, adding its long-planned Demand Deposit Account (DDA) product is expected to offer opt-in overdraft protection, as well as check writing and enhanced savings features. However, the DDA account will not replace its core General Purpose Reloadable (GPR) prepaid product, which NetSpend will continue to offer, the company said.
"Both of these products represent the evolution of NetSpend’s nearly 20-year-old business," TSYS said. "We welcome the certainty the CFPB rules will bring to the prepaid industry and the Bureau’s recognition of prepaid cards as safe and practical financial tools that serve a rapidly expanding consumer base."
TSYS and the Main Street Alliance were addressing the current state of play, and did not address Trump's potential influence on prepaid policy when asked by PaymentsSource.
Writing for PaymentsSource, Brad Fauss, executive director of the Network Branded Prepaid Card Association, said there is a benefit to deregulating the prepaid industry. Prepaid cards are key to financial inclusion, are universally accepted and enable millions of Americans to participate in the financial system.
Whatever happens in the near term, it is likely that Trump's administration will have a longer-term impact on the prepaid card market. And while the appetite to regulate prepaid may be understandable, if so many restraints are placed on prepaid card providers, companies willing to issue such cards may dwindle, said Nancy Atkinson, a senior analyst at Aite Group.
"The trade-off is continued use of checks and check cashers that traditionally charge more than prepaid card providers," she said.