Nebraska state officials are warning lawmakers that the debit-interchange amendment in the Senate financial-reform bill could have grave implications for states using prepaid debit cards to disburse government benefits.

Nebraska’s state treasurer Shane Osborn says that if debit interchange fees are reduced as a result of the amendment from Sen. Richard Durbin, D-Ill., financial institutions may try to offset those losses by hiking prepaid debit card fees for cardholders or payers.

In a May 24 letter to members of the House Financial Services Committee, Osborn explained that Nebraska in recent years has shifted to using prepaid debit cards to distribute state benefits to individuals, including through its Temporary Assistance to Needy Families Program. The use of prepaid debit cards has resulted in significant cost savings compared with paper checks, he said.

“Debit interchange provides revenue to the financial institutions that issue these prepaid debit cards, allowing them to offer these products at little or no cost to states,” Osborn said. Durbin’s amendment could result in reduced interchange rates, potentially decreasing financial institutions’ incentives to offer prepaid debit cards at no charge to users, he speculates. “As a result, financial institutions issuing these cards may raise fees on cardholders or state to recoup lost revenue.”

Osborn contends the Durbin amendment could shift the cost of card usage “to those who can least afford it,” including poor families and cash-strapped state governments. “This is a real concern for the State of Nebraska ... At a time when our state budgets are already severely strained, this would add additional costs that states simply cannot afford.”

An American Bankers Association spokesperson said the amendment’s effect on prepaid debit card disbursement programs is a concern to “several other states,” but he did not provide further details.

 

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