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Prepaid Card Throwdown

Adam Rust's picture

Posted July 14, 2010

It is hard to tell what will come out of Wednesday's showdown on prepaid cards.  The event, a half-day seminar sponsored by CFSI (the Center for Financial Services Innovation), claims to highlight how prepaid cards can transform financial services for the unbanked.

That is not a reach, because the promise of their premise is undeniable. These cards are going to be the new banking system. Mobile banking isn't quite here yet, but it won't be long, and at that point there will be an entirely separate banking system for low-income households. Just you wait. By the way, low-income households are a growing demographic in America. The FDIC estimates that there are already 40 million households without a standard checking or savings account.  Hold on, though, because now there are also more Americans with bad credit. News out yesterday

says that 70 million Americans now have credit scores below 650.

The CFSI approach is to invite industry to meet with a select group of advocates, in the hopes of finding a middle ground that accomodates the motivations of capital with the hopes of the public interest. That's a good idea, too. 

I hope that CFSI tackles some of the big issues on the table. First and foremost should be how some financial institutions are using prepaid debit cards to build a new platform for payday lending. MetaBank offers high cost loans through marketing relationships with many different consumer finance companies. Their partners include payday lenders, refund anticipation loan providers, check cashers, and payment centers. MetaBank won't be there. 

Even though MetaBank will be absent, it is hard to imagine that their innovations are not on the minds of many of the people in attendance. I worry about Green Dot. While they have given signals that their potential acquisition of Bonneville Bank would not coincide with new credit products, there is still the nagging question: why is their Board made up of the all-time heavies of payday lending? I hope someone puts that question to Sowell. I hope that someone else publishes his response.