As the rules that will implementthe Durbin amendment to the Dodd Frank Act come closer to beingpublished, a number of questions have come up over what is a debitcard and what is a prepaid card. Many companies are counting on theprepaid card exemption to help keep them in business.
Although the term “Prepaid DebitCard” has been used rather extensively, it is something of amisnomer, and now there is a legal definition of a debit card themakes distinguishing between the two card types more necessary thanever.
In the section of the Dodd Frankbill about the exemption for prepaid, the definition of debit cardsis outlines in the section below, which talks about the exemptionfor prepaid cards:
(ii) a plastic card,payment code, or device that is:
“(I) linked to funds,monetary value, or assets which are purchased or loaded on aprepaid basis;
“(II) not issued or approved for useto access or debit any account held by or for the benefit of thecard holder (other thana subaccount or other method of recording or tracking fundspurchasedor loaded onthe card on a prepaid basis);
This is section 920, 7 A iII.
The full text of thebill can be found at:http://www.gpo.gov/fdsys/pkg/PLAW-111publ203/html/PLAW-111publ203.htm
While Mercator is not a law firm,and this should not be taken as legal advice, it appears that theimportant difference between a prepaid card and a debit card isaccount ownership. With a debit card, the cardholder owns theaccount that the card draws from. With a prepaid card, thecardholder is one of many people authorized to draw from an accountowned by the program manager. While a debit card holder can chooseto move the associated account or not, a prepaid card holder doesnot get to choose which financial institution holds the moneyassociated with the prepaid card. Instead, the program managermakes that decision.
This distinction is likely to bemade clearer once the rules around implementation of the amendmentare written. When the rules are published in the federal register,the prepaid industry should take care to read them and comment onthem to make sure that the correct distinctions between the twopayment types are accurately made.