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The unbanked and underbanked – an estimated 70 million U.S. adults who 2013 found 53 percent had purchased
either don't have bank accounts or have limited interaction with banks – are some type of prepaid card in the
major users of prepaid debit. As a result, some prepaid cards have many of the previous 12 months. The firm said its
markings of bank accounts. research also suggested consumers
are buying more prepaid cards for
One example is Bluebird, a reloadable prepaid debit card issued by American their own uses, although the majority
Express Co. in partnership with Wal-Mart Stores Inc. It features a check-writing continue to be purchased for gifting.
functionality and Federal Deposit Insurance Corp. insurance for funds loaded
onto the cards. Last year U.S. consumers loaded a total of $194.5 billion onto Not to be left out, banks are
open-loop prepaid cards, according to Mercator. embracing prepaid cards and adding
functionality like mobile phone apps
Prepaid cards are not just for the unbanked and underbanked, however. A for cashing checks and having the
Mercator survey of several thousand U.S. adult consumers in the summer of funds deposited to prepaid cards.
One reason banks issue reloadable
prepaid cards is that they are not
subject to the interchange rate caps
imposed by the Federal Reserve
in accordance with the Durbin
Amendment to the 2010 Dodd-Frank
Act.

Those rates – paid by merchants to
acquirers and capped at 21 cents,
with a small markup allowed to
cover fraud losses – have been
successfully challenged in federal
court, but not by banks. Judge
Richard J. Leon of the U.S. District
Court for the District of Columbia
was firm in his July 31, 2013,
rebuke of the Fed's rate-capping
methodology, insisting that the
Fed "completely misunderstood
the Durbin Amendment's statutory
directive."

He ordered the Fed to lower
allowable interchange on debit
card payments even further and
to provide merchants with greater
flexibility in choosing transaction
processing networks. That decision
is now on hold pending the outcome
of an appeal by the Fed.

The Global Economics Group Inc., an
international economic consulting
firm, reported in October 2013 that
its research suggests consumers are
the biggest losers when it comes to
capping debit card interchange, and
that consumers will lose even more if
the Fed is forced to further lower the
cap. "The present discounted value
of the loss to consumers is between
$22 and $25 billion based on our
findings," said Dr. David S. Evans,
the consultancy's chairman.

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