Mercator Perspectives

Gingrich’s Mistake on Food Stamps Show Larger Problems Prepaid Has with the Government

At a campaign stop in Council Bluffs, Iowa, on Nov. 30, Newt Gingrich said that Americans get food stamps on credit cards.

“And now we give it away as cash – you don’t get food stamps. You get a credit card, and the credit card can be used for anything. We have people who take their food stamp money and use it to go to Hawaii,” Gingrich reportedly said.

The prepaid industry does not need this kind of confusion and lies as it fights for fair regulation and acceptance. Let’s go over some of the problems with these statements.

First, no one receives a “credit” card for food stamps. (Incidentally, the program has not been called “food stamps” since 2008.) These cards are prepaid cards where funds are loaded onto the card and no credit is extended. This is a critical legal, regulatory, and business model difference.

Second, when it comes to Supplemental Nutrition Assistance Benefits (SNAP – the official name of the program), the cards can only be redeemed at approved retailers for specified items. The program is a complex, stock keeping unit number level of filtering. These cards are only eligible for food purchases. You can’t buy plane tickets to Hawaii with these cards.

Third, the amount of fraud has dropped dramatically with the advent of electronic benefits transfer, according to the non-partisan Government Accountability Office. The payment error rate declined by 56 percent from 1999 to 2009.

Additionally, the media coverage around these benefits conflates SNAP with Temporary Assistance to Needy Families (TANF), which is often implemented on open-loop prepaid cards. These cards can be used for a wider variety of things, but electronic records mean that fraud is easier to detect.

If Gingrich’s statement is representative of the way the government and the public views prepaid, then the industry has a long way to go before it will be able to win acceptance and make the benefits of its product known. This is just the latest in a series of problematic statements by the government about prepaid. Money laundering is another area where politicians and regulators seem to ignore the facts about prepaid cards and make assertions such as being able to load $1 million onto a card undetected, without regard to the truth of the matter.

The industry needs to make sure that it sets the record straight on prepaid cards regardless of the segment, because lies about ‘food stamps’ can rapidly lead to regulations on the rest of the industry.

For more information about the government’s use of prepaid cards, please see the Mercator report “Mapping the United States of Prepaid.”

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