Over the past decade, the use of prepaid card accounts has expanded substantially,
and prepaid cards have become a vital payment delivery mechanism for the unbanked.
Typically, prepaid card programs pool cardholders’ funds into a master account, with
each cardholder having a sub account. In most cases, the individual cardholder’s name
is not on the title of the deposit account that holds the funds.
Approve direct deposit of Federal payments to prepaid card accounts that meet all of the following requirements.
The account is at an acceptable financial institution (FI).
The Federal Deposit Insurance Corporation (FDIC) insures the account to the extent
permitted by law, or the National Credit Union Share Insurance Fund (NCUSIF).
The card account must not have an attached line of credit, or loan feature that triggers
automatic repayment from the card account.
The FI applies the Regulation E payroll card protections to prepaid debit card accounts.
Regulation E provides consumer protection that limits liability for unauthorized transactions,
right to dispute errors, etc. Regulation E covers transactions initiated through an
electronic terminal, telephone, or computer to either order, instruct, or authorize
a financial institution to debit or credit an account. These transfers include, but
are not limited to, point-of-sale (POS) and automated teller machine (ATM) transfers,
direct deposits or withdrawals, telephone transfers, and transfers initiated through
a debit card transaction.
Prepaid cards that do not meet the requirements described in this section, do not
fall under the proposed exception; and therefore, we do not deliver Federal benefits
via those cards. For example, some merchants offer prepaid cards that function in
the same manner as gift certificates. Examples are cards sold by bookshops or coffee
shops, or prepaid telephone cards. These cards do not provide access to money at a
depository institution, and do not meet the requirements for FDIC or NCUSIF insurance.
In addition, Federal Reserve’s Regulation E does not cover these cards, which provides
consumer protection, when individuals access funds through an electronic terminal,
or other specified device