Prepaid Cards and the Napoleonic Code

by Ben Jackson 0

Consumer advocacy groups and governmentregulators seem to judge the prepaid industry using a different setof standards compared with other available financial products.Rather than being allowed to operate and demonstrate its relativevalue over time, the business seems to be subject to a NapoleonicCode that presumes a de facto guilt when it is considered by itsmost vocal critics.

This is easiest to see in the realm of the general purposereloadable market, where regulators and advocates expect the cardsto operate the same as a bank-provided free checking account. Allcards tend to be lumped into the same category and considerationsof whether or not a prepaid card user might get more value from aprepaid card because a checking account is not available or aprepaid card may offer more free ATMs where cardholders live andwork are seldom considered.

Of course, GPR cards are not alone in this. Prepaid in-store giftcards routinely come under fire. Despite the fact that many giftcards never expire and research shows that retailers profit morefrom gift card redemptions, there are still articles written andcomments in the public sphere about how retailers are trying topull a fast one on gift card holders.

Even a product like prepaid utility service takes a pounding fromconsumer advocacy groups. They say that customers who otherwisecould not afford utility service because of high deposits and lowcredit scores are worse off because they pay slightly more forprepaid service. Never mind that prepaid service also allows manyof these customer to avoid costly service shut off andreinstatement fees, and forget that prepaid customers tend toconserve more energy. No, these customers are being unfairly takenadvantage of by the utilities.

Prepaid service providers need to recast the discussion aroundprepaid by presenting their case in light of the alternatives thatare available to the users of their products. While not everyprepaid card is a better, the government and consumer advocatesseem to assume the guilt of prepaid and the stupidity of prepaidcustomers. Prepaid companies need to question the assumptions thatcome with the critiques and show that their customers can read thefine print, do the math, and make a choice that truly works forthem.