Source: www.federalreserve.gov
Section 1075 of the Dodd-Frank Act, which amends the Electronic Fund Transfer Act (EFTA), directs the Board to report annually on the prevalence of use of general-use prepaid cards in federal, state, and local government-administered payment programs and the interchange transaction fees and cardholder fees charged with respect to the use of such general-use prepaid cards. [1] The act requires the Board to begin submitting these annual reports 12 months after the date of enactment.
General-use prepaid card programs are used as a method for disbursing funds to individuals and allowing government agencies to make payment in the administration of government benefit, assistance, and other miscellaneous programs. In most instances, general-use prepaid cards replace the issuance of checks or vouchers when funds are not or cannot be disbursed directly to beneficiary accounts at financial institutions. The cards can be used to provide payments such as Social Security benefits, veterans’ benefits, disability benefits, pensions, unemployment benefits, worker’s compensation, emergency disaster relief, and child support disbursements. Examples of federal, state, and local government-funded programs that use general-use prepaid cards include Social Security; Temporary Assistance for Needy Families (TANF);Women, Infants, and Children (WIC); state unemployment; and court-ordered payments. [2]
Government-administered, general-use prepaid card programs can involve (1) federal funds that are disbursed by the U.S. Treasury on behalf of federal agencies to the cardholders or (2) federal funds that are directed to state agencies, which, in turn disburse funds to cardholders under state- or locally operated card programs. In other instances, state or local agencies provide the funding, and state, county, or city governments manage the disbursement of funds through their card programs.
In March 2011, the Board surveyed 15 depository institutions believed to issue government-administered, general-use prepaid cards; 50 state treasurers and treasurers from the District of Columbia and Puerto Rico; and the Department of Treasury’s Financial Management Service (FMS). The depository institution response rate was high, with 75 percent of those actively engaged in the issuance of government-administered, general-use prepaid cards responding. [3] The state government response rate was much lower, with only 29 percent responding. FMS also provided a response to the survey request. The data provided by survey respondents are not inclusive of all federal, state, and local government-administered card programs; rather, the data provide a sample of government-administered, general-use cards.
This report discusses the prevalence of use in terms of the number of general-use prepaid cards used in federal, state, and local government-administered payment programs as of year-end 2010, and in terms of the volume and value of transactions made using those cards during 2010. Based on the low survey response rate and limited data provided by those that did respond to the state government survey, we are not able to calculate the prevalence of use of general use prepaid cards as a proportion of total payments disbursed through related government-administered programs. Also, because of the low response rate to the state government survey, the summary statistics provided in this report are based on the survey responses received from the depository institutions.
In 2010, depository institutions provided cardholder-use information for 90 federal, state, and local programs operating in 36 states. These programs employed 20 million cards, representing more than one billion transactions that were valued at $34.8 billion.
Interchange fees were reported for 45 of the programs, encompassing 24 states. The average interchange fee for transactions in these programs was 30 cents, or 1.1 percent of the transaction amount. This average interchange fee is lower than the average 2009 debit card (including prepaid card) interchange fee revenue of 44 cents per transaction and average 2009 prepaid card interchange fee revenue of 40 cents per transaction reported by payment card networks in a separate survey administered by the Board. This is because a greater proportion of government-administered card transactions are made over personal identification number (PIN) debit networks, which have significantly lower interchange fees. [4] Federal programs had slightly higher interchange fees per transaction than state programs; however, the interchange fees as a percentage of the transaction total were essentially the same.
In addition, depository institutions provided cardholder fee information for 70 programs. For these programs, the average 2010 cardholder fee was $9.69 per card, or 0.3 percent of the total amount disbursed to cards. The average automated teller machine (ATM) cash withdrawal fee was 47 cents, or 0.3 percent of the amount withdrawn. The average ATM cash withdrawal fee charged to cardholders, however, was about 20 percent less than the amount paid by card issuers to the ATM operators for these transactions.
The Board is evaluating and refining its survey instruments in an effort to increase the overall response rate and quality of data reported in future surveys. (Read the full report)
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[1] EFTA § 920(a)(7)(D), 12 USC 1693o-2(a)(7)(D). Section 1075(b)-(d) of the act exempts certain electronic benefit transfer (EBT) or reimbursement systems from the scope of this report. Although these EBT transactions are not reflected in the statistics included in this report, we reference EBT when relevant to the discussion.
[2] Under the welfare reform legislation of 1996 (the Personal Responsibility andWork Opportunity Reconciliation Act ), TANF replaced the welfare programs known as Aid to Families with Dependent Children, the Job Opportunities and Basic Skills Training program, and the Emergency Assistance program.
[3] Depository institutions did not provide data for any general-use prepaid card programs administered in the District of Columbia or Puerto Rico.
[4] See the 2009 Interchange Revenue, Covered Issuer Cost, and Covered Issuer and Merchant Fraud Loss Related to Debit Card Transactions report (table 3 on page 20 at www.federalreserve.gov/debitfees_costs.pdf).
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