Traditional credit and debit cards are not the only plastic payment mechanisms contributing to the decline of paper at the point of sale. Prepaid cards, which include products such as gift cards, travel cards, and payroll cards, are quickly replacing a variety of paper payment products, including gift certificates, travelers’ checks, and paychecks. In addition, merchants, banks, and employers are announcing new stored value card initiatives almost weekly. Also contributing to the prepaid card buzz are impressive estimates as to the product’s potential.
MasterCard and Visa, for example, both estimate that the prepaid market could grow to over $2 trillion and include business-to-business, consumer to consumer, and government to consumer transactions.1 Although such volumes are not expected for many years, prepaid card issuers are already being confronted with a myriad of legal issues that threaten to impede the technology’s growth. It is unclear, for example, whether a host of federal and state statutes that cover traditional payment products can or should reach prepaid cards. Overall, the future of prepaid card law is unsettled.
In an effort to better understand the developmental and legal issues facing prepaid cards and their issuers, the Payment Cards Center of the Federal Reserve Bank of Philadelphia hosted a workshop led by prepaid card expert Judith Rinearson. Rinearson has been chief counsel to American Express’ electronic stored-value business since 1995. This paper provides highlights from Rinearson’s presentation and the ensuing discussion. It analyzes the different kinds of prepaid card products currently on the market and the federal and state laws that may apply to them.
