Report

Report to the Congress on Government-Administered, General-Use Prepaid Cards, July 2015

Abstract: Section 1075 of the Dodd-Frank Act, which added section 920 to the Electronic Fund Transfer Act (EFTA), requires the Federal Reserve Board to report annually to the Congress on the prevalence of use of general-use prepaid cards in federal, state, and local government-administered payment programs and on the interchange fees and cardholder fees charged with respect to the use of such prepaid cards. The Board collected 2014 data from 15 bank issuers on programs using prepaid cards as a method to disburse funds. Issuers reported on 889 government programs that used prepaid cards to disburse funds. Across reported programs, government offices disbursed $148 billion through prepaid cards in 2014. Bank issuers reported an 8 percent decline in prepaid card disbursements from 2013 to 2014. This decline was driven by declines in state and local programs, which were partially offset by an increase in federal programs. Issuers reported collecting more than $490 million in revenue across reported programs during 2014, with 63 percent from interchange fees, 32 percent from cardholder fees, and 5 percent from other sources. Issuers collected 1.2 percent of the value of purchase transactions in interchange fees for these programs in 2014. Although the prepaid cards provided under government-administered programs usually offer cardholders one or more free automated teller machine (ATM) cash withdrawals per month, ATM withdrawal fees constitute 56 percent of all card-holder fee revenue that issuers collected in 2014. Account servicing fees and customer service fees constitute the next largest source of cardholder fee revenue at 17 percent and 12 percent, respectively. Revenue from overdraft fees virtually disappeared in 2014, largely, it appears, because of an EFTA provision that took effect in July 2012, which stipulates that a government prepaid card loses its exemption from the interchange fee standards if the cardholder may incur overdraft fees.

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Reports and Studies

Publication Date: 2015