Credit/Debit Cards, Prepaid

Fitch Ratings: Prepaid cards likely to become more popular

prepaid-debit-cards2Fitch Ratings said the strong growth seen in the U.S. prepaid market will likely continue as consumers opt for the cards to better manage their finances.

Recent data provided by the Federal Reserve showed general purpose prepaid card payments have remained the fastest-growing noncash form of payment for the past several years.

The number of prepaid cards rose at an annual rate of 33.5 percent between 2009 and 2012, outpacing other types of noncash payment. Prepaid card transactions topped three billion in 2012, a 138 percent increase over 2009.

The increasing popularity of prepaid is due in part to the Durbin Amendment, which capped interchange fees and cut banks’ revenue for debit card transactions. As a result, many banks reinstituted fees on previously free checking accounts and cancelled reward programs, leading low-balance accountholders to seek out alternative banking services.

While prepaid cards may help consumers better manage their finances by helping them avoid overdraft and checking account fees, many prepaid cards still come with monthly fees. The CFPB proposed regulation for prepaid cards beginning May 2014.

Sen. Mark Warner (D-Va.) recently introduced legislation that would require new prepaid disclosures for cards in excess of $250, including more easily understandable fee tables, and would require the CFPB to issue rules to standardize prepaid card disclosures.

Fitch pointed to JPMorgan’s recent announcement of its intent to sell its prepaid card business, due in part to an increase in perceived risk. The ratings firm said increased oversight could lead many financial institutions to consider exiting the prepaid business, which could clear the way for nonbank firms like American Express, Green Dot and NetSpend.

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