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Is that prepaid card actually a checking account?

April 12, 2013

| Money Rates Columnist

Prepaid cards are shaping up to be big business. According to the Consumer Financial Protection Bureau, a 2009 FDIC study found that nearly 10 percent of households use the cards, while the Mercator Advisory Group estimated growth to be 42 percent per year from 2010 to 2014.

As one of the more noteworthy cards on the market, the Bluebird prepaid card is likely helping fuel that growth. The card was introduced by American Express and Walmart last year and was expected to make prepaid cards more accessible and appealing to a wider consumer base.

"When we launched Bluebird last October, we were focused on serving the tens of millions of Americans who are not well served by the traditional financial services industry," said Dan Schulman, group president of Enterprise Growth at American Express, in a press statement.

However, at least one banking group says the Bluebird card is looking more like a checking account than a prepaid card and should be regulated as such.

Bluebird prepaid cards now offer FDIC insurance

Camden Fine, President and CEO of Independent Community Bankers of America, sent a letter in April 2013 stating Bluebird prepaid cards should be regulated as a banking product. His correspondence -- addressed to the CFPB, the FDIC and the Office of the Comptroller of the Currency -- appeared to be a response to a recent announcement that money loaded on Bluebird prepaid cards was now protected by FDIC insurance.

Fine states it is just the latest addition to the cards that makes them look and act more like checking accounts than prepaid cards. In his letter, he says Bluebird includes many features associated with traditional checking accounts:

  • Check-writing privileges
  • ATM withdrawals
  • Direct deposit

Taken together with the FDIC insurance, Fines says in his letter, the Bluebird card "has all the attributes of a traditional checking account." He calls upon the federal government to require the Bluebird prepaid cards to comply with all the regulations and oversight currently applied to bank accounts.

CFPB already reviewing prepaid cards

While there has not yet been a formal response to the ICBA letter, the CFPB had previously initiated its own review of prepaid cards. In May 2012, the bureau launched its inquiry into the transparency and safety of the cards. It received public comments on the issue until July 2012 but has not yet released its findings or recommendations.

Although Bluebird accounts did not exist at start of the CFPB investigation, a representative from American Express implied recent changes to the prepaid cards came at the suggestion of government officials, among other sources.

"Today's announcement [regarding the addition of FDIC insurance, check writing and direct deposit], which reflects feedback from consumers, advocacy groups and government officials, represents the next set of enhancements that further distinguish Bluebird from other financial services options," said Schulman in a prepared statement.

It remains unclear whether the CFPB will see the Bluebird enhancements as a positive response to its concerns regarding transparency and safety, or as an attempt to turn the card into something that resembles a checking account -- minus the banking regulations that come with it.

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