New York Attorney General Eric Schneiderman announced on June 30 that he had reached an agreement with JP Morgan Chase Bank to modify its account standards and change its prepaid card program in a way that will cause it to lose its prepaid exemption from the Durbin Amendment.
Chase has modified the procedures it uses to screen consumers who apply for checking accounts, thereby permitting more consumers to open accounts. Chase, which offers the option of a prepaid debit card, known as the Liquid Card, to consumers who do not qualify for a checking account, will also allow those consumers to pay bills online or have Chase mail checks for them at no additional charge. These changes will enable card users to pay their rent, utilities, and other bills without having to resort to high-cost alternative financial services like check-cashing outlets and money transmitters.
Under the Durbin Amendment to the Dodd Frank Act, a prepaid card does not qualify for exemptions from the interchange caps on debit cards if it allows any transactions that access the funds underlying a card directly. Because Chase has more than $10 billion in assets and the changes appear to allow transactions that are not card transactions, it is likely Chase will lose some interchange income from its Liquid cards.
Chase has already exited most other prepaid business, and if the income from its general purpose prepaid card is affected, then it may choose to leave that segment as well.
The Attorney General has been trying to be a bank regulator with this action and with his agreement with CitiBank, Capital One, and Santander to lower their standards for opening accounts. It is important for people to have access to financial services, but that access has to be balanced with the requirements that financial service providers manage risks.
Overview by Ben Jackson, Director, Prepaid Advisory Service at Mercator Advisory Service
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