Treasury Adopts IFR for Federal Benefit Recipients
The Department of the Treasury has issued an interim final rule that will govern standards for cards that receive federal payments. The new rule goes into effect on Friday. It implements policies designed by NACHA (the Electronic Payments Association) that govern the federal use of the ACH system.
The new rule may leverage the scale of transactions made by the federal government into creating a higher standard for all prepaid cards. A healthy portion of non-banked households get some kind of federal payment (social security, disability, VA) already.
As this is an interim final rule, Treasury is still going to take comments on the proposal until February 11th.
Card users will benefit several ways from this rule:
- It will require that all cards that can accept federal payments must provide their users with pass-through FDIC deposit insurance.
- No card can have a line of credit attached to it, or any feature that allows another party to attach an automatic re-payment mechanism.
- The card must provide cardholders with all of the Regulation E consumer protections.
This is a very promising development. While some cards already meet these standards, regardless of whether or not they accept a federal payment, there have been other instances when some cards fell short.
John Galt
January 20, 2011
The last bullet point mandating that all Reg E protections be added to these prepaid benefits cards will exponentially increase the costs to the card provider as well as to the consumer. Charge-off expenses will go up dramatically and will be passed along to the card holders in turn.
Payday_Tired
January 20, 2011
Keep in mind that a “federal payment” includes nearly every form of government payment: public assistance, social security, tax refunds, and even the postman’s paycheck. This feels like an overstep by the government with virtually no time to comply. Also, as it relates to the credit feature prohibition, why is it ok for a checking account to receive a federal payment with virtually no strings attached – yet prepaid cards cannot have any form of credit tied to them? Why doesn’t the rule apply to Wells Fargo checking accounts and preclude WF from offering Direct Deposit Advance?
Adam
January 21, 2011
Right. I think that the term "federal payment," as it appears in the IFR, is probably much more narrowly defined. If it was every federal payment, then it would be a much more widely-publicized event. My belief is that it will includes things like Social Security and maybe VA benefits. I wonder if it will also apply to food stamps. Food stamps are a bit different than either of the former.
Payday_Tired
January 21, 2011
It is actually a very very broad definition. Here’s the portion of the definition of “federal payment” that would seem to pull in tax refunds. 31 CFR 210.2(i)(4) DEFINES “FEDERAL PAYMENT” TO INCLUDE “(4) Miscellaneous payments including, but not limited to, interagency payments; grants; loans; fees; principal, interest, and other payments related to United States marketable and nonmarketable securities; overpayment reimbursements; and payments under Federal insurance or guarantee programs for loans.” ALSO, THE PREAMBLE TO THE NEW RULE INCLUDES THE FOLLOWING PASSAGE: “In addition, Treasury believes that once prepaid cards provide the specified consumer protections, these cards will be used in novel ways. An example of this is receiving tax refunds on these prepaid cards.”
I don’t see how it would include tax refunds and even the postman’s paycheck.