Prepaid Card Planning Goes Beyond Legal Analysis

Visa CardIn recent years, prepaid cards have become a common form of payment, for everything from payroll/wages to rebates and everything in between. A recent story out of Norfolk, Virginia, is showing the hidden dangers of using prepaid cards to replace checks without careful planning and protection for the end-user.

In Norfolk, the city decided to replace checks with a prepaid debit card from SunTrust Bank to pay jurors for their service. The move was expected to save approximately $2.50 per payment, saving the court system $12,500 annually. The move also decreased the time the jurors received payment from months to only weeks. However, SunTrust charged inactivity fees on the cards, decreasing the available balance.

When brought to the attention of Circuit Court judges, they expressed a concern that it could be against state laws that uncollected juror pay be sent to the state. The inactivity fees would cause uncollected juror pay to remain with SunTrust and not the state. Other concerns related to the juror being able to access the money without any fees. The city responded with a previously established procedure where jurors could redeem the cards for the full face value at a SunTrust bank.

When establishing a prepaid card program, whether for gift cards or for paying payroll or other liability, a company should carefully review all terms and conditions so that the cards conform to local, state and federal law. Earlier this month, Google was sued for not issuing cash refunds for gift cards. Many states, including Hawaii and New York, are reviewing laws and regulations, while the CFPB has also issued guidance on payroll cards.

Companies should also consider ramifications to the end-user and how fees and expiration dates may cause later trouble, including bad publicity. Last summer, the CFPB began a system where it can collect consumer complaints on prepaid cards. Other considerations can negate any increase in revenue recognition or reducing expenses, the primary goals usually associated with prepaid card programs.

See Also:
Federal Judge Sends Gift Card Case Back to State Court
CFPB Partially Preempts Gift Card Laws
Gift Cards a Concern in Canada Too