Unexpected conditions in Durbin Amendment to hit low income consumers hardest

The Federal Reserve added an unexpected condition to its final rule on the Durbin Amendment that limits an exemption for prepaid cards, a move credit experts say could have a devastating impact on underserved consumers.

The Network Branded Prepaid Card Association said that it is disappointed that the Fed disqualified many general purpose prepaid cards and payroll cards from receiving an exemption from the new rule that limits the fees a bank issuer may charge retailers for each debit card transaction.

In order to protect prepaid card users, who are generally low-income consumers who are either unbanked or underbanked, the Durbin Amendment includes an exemption from the lower interchange rate for prepaid debit cards and government benefit cards, according to the NBPCA.

"The prepaid card industry is worried the limitation added by the Fed on the prepaid exemption could have a devastating impact on millions of underserved consumers who have no other means but a prepaid card to participate in our card-based economy," Kirsten Trusko, the president and executive director of Network Branded Prepaid Card Association, said. "Sadly, prepaid card issuers may either be forced to stop offering many of these access options so critical to un- and underbanked consumers' ability to make payments in ways available to people with conventional bank accounts, or raise monthly fees to cover the costs for these services, which under the new rules, no longer qualify for the interchange rules exemption

In the final rule, the Fed also excluded from the exemption any prepaid debit card issued by a bank with assets over $10 billion that allows cardholders to use the cards for services other than point-of-sale debit or ATM access, such as check writing, bill pay or electronic remittances, according to the NBPCA.

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