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Governments up prepaid card use

By Marcie Geffner · Bankrate.com
Thursday, August 22, 2013
Posted: 5 pm ET

The Federal Reserve has issued a report about government use of prepaid cards to disburse benefits to recipients.

The eight-page paper, released in July and titled, "Report to the Congress on Government-Administered, General-Use Prepaid Cards," doesn't include any conclusions or recommendations but instead offers information about the prevalence of prepaid cards for government disbursements and the fees involved.

Governments have been using prepaid cards for more than 20 years to distribute benefits to poor people, retirees and others. Nearly every state offers a prepaid card for child support, unemployment insurance and Temporary Assistance for Needy Families programs, the report said.

Many government agencies still offer payments by check as well as prepaid card, but some now require either a prepaid card or direct deposit. Some also have said prepaid cards will be added as a way to issue tax refunds in the future.

"As a result, the share of government disbursements made through prepaid cards continues to increase," the report said.

To collect the data, the Fed distributed surveys to 184 government offices and 14 prepaid card issuers. Of those, 101 government offices and all 14 issuers responded.

The surveys found that 94 government offices administering 186 programs reported disbursing more than $1 trillion to recipients in 2012. Of that total, $136 billion, or 13.4 percent, was disbursed through prepaid debit cards.

The percentage of prepaid card disbursements varied among agencies. The Social Security Administration disbursed more than $770 billion, but only 2.4 percent went out through prepaid cards. State government offices distributed more than $75 billion under the Supplemental Nutrition Assistance Program, all of which was distributed through prepaid cards.

The report found the average interchange fee per transaction increased 1 cent while the average purchase value was about $1 less. The average was higher for signature transactions than it was for PIN transactions.

The fee revenue generated by prepaid card disbursements declined as a percentage of program funds from 0.27 percent in 2011 to 0.26 percent in 2012. That decline was "consistent with the anecdotal observations of some issuers and government offices that cardholder fees have generally declined over the past several years," the report said.

Most government agencies require prepaid card issuers to offer benefits to recipients such as a certain number of free ATM or cash withdrawals, and prohibit issuers from charging certain types of fees.

Do you use prepaid cards on a regular basis?

Follow me on Twitter: @marciegeff

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