In response to recent disruptions in Green Dot’s Walmart card portfolio, several U.S. Senators have sent letters to the heads of Green Dot, Walmart, and MasterCard demanding to know what went wrong, The New York Times reports. What is scary is the lessons that the Senators are drawing from the incidents.
“These service interruptions are a clear indication that more oversight and consumer protection is needed in the prepaid card market,” said the letters, signed by Senator Sherrod Brown of Ohio and Senator Robert Menendez of New Jersey, both Democrats.
The problem with this thinking is that the Senators don’t understand that the problem is not with prepaid cards. Al the need to do is look at the recent struggles Costco has had in converting its credit portfolio from American Express to Visa to see that the complexity of the payments system means that any kind of portfolio conversion could face disruptions. Yet, we don’t see the Senators demanding answers from the credit side of the house.
No one wants a service disruption. Green Dot, MasterCard, and Walmart want their customers to be happy and to have full use of their cards. That is how they make money. Outages are lost dollars for these companies. There are lessons to be learned from the outages, but they are operational ones n how to make future transitions go more smoothly and to have back up plans in place in the event of a glitch.
What additional regulation does is threaten the one tool that low and moderate income people have for accessing low-cost financial services. Many people using prepaid cards live in areas that banks and credit unions have largely abandoned from a retail banking standpoint. Other prepaid card holders cannot past Chexsystems checks, maintain minimum balances, or access banks during normal hours. This means that banks are not the best choice for them. What the Senators don’t seem to realize is that their push for ever more draconian regulation threatens to force the poor back into a cash-based existence that makes it harder for them to participate fully in society.
Overview by Ben Jackson, Director, Prepaid Advisory Service at Mercator Advisory Group
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