Share This Page

Wal-Mart, Amex prepaid card gets FDIC insurance

| Thursday, March 28, 2013, 12:01 a.m.

WASHINGTON — American Express and Wal-Mart announced on Tuesday that their prepaid debit card accounts will now be backed by the Federal Deposit Insurance Corp., making them among the last major providers to sign on to the government backstop.

This is a significant move for the prepaid card market as it matures into a viable financial services industry, one that has experienced remarkable growth in recent years.

Unlike checking accounts that carry up to $250,000 in mandatory deposit insurance per customer, reloadable prepaid cards are under no such obligation. A vast majority of card operators opt for the coverage, but until now American Express had not.

The use of reloadable prepaid cards has exploded since the credit crisis that left millions of Americans outside the traditional banking system.

Prepaid cards act much like debit cards that are tied to a traditional bank account, but they do not enjoy the same consumer protections.

American Express said it was responding to customers' requests to receive direct deposit of government payments, such as Social Security, military pay and tax refunds. Government funds can be deposited only into federally insured accounts.

Insuring the prepaid cards, called Bluebird, could open American Express and Wal-Mart to a larger consumer base — although the companies are not hurting for business.

In the six months since Bluebird debuted, more than 575,000 customers have signed up, placing more than $275 million into their accounts.

The card operates much like a debit or credit card with features such as roadside assistance and mobile banking. Customers also can write checks with the account and load up to $100,000 a year.

Consumer advocates warn that prepaid card operators are not always forthcoming about the fees attached to the product, including charges to load money, activate the card, speak to customer service or check a balance at an ATM.

They worry that card operators are steering lower-income consumers into these products without fully disclosing the terms.

The Consumer Financial Protection Bureau is working on new rules for the prepaid card industry, which has long been governed by a patchwork of state and federal laws. The rules, which the bureau expects to complete this year, will address protection from unauthorized transactions and fee disclosure, among other things.

Americans have been streaming out of the banking system in the past few years, giving rise to a broad range of alternative financial products. Whereas the market for prepaid cards hovered around $28.6 billion in 2009, consulting firm Mercator Advisory Group estimates it will reach nearly $202 billion this year.

Nearly 1 million households exited the banking system from 2009 to 2011, according to the FDIC.

One in four American households, or 28.3 percent, had one bank account or no bank accounts as of 2011. A third of these households told researchers that they did not have enough money to open and fund an account.

“If used correctly, prepaid cards can be far more cost effective than a regular checking account, particularly if you are someone who doesn't have the money to set aside for a minimum monthly balance,” said Adam Rust of Reinvestment Partners, an advocacy group.

TribLIVE commenting policy

You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.

We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.

While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.

We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers

We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.

We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.

We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.

We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.