Is Bluebird A Vulture in Disguise?

March 27, 2013 at 8:13 am Leave a comment

imagesCAP0276UIs the news yesterday that AMEX will now be providing deposit insurance on its prepaid reloadable cards a game changer that poses yet another threat to the credit union way of doing business or simply yet another example of the need to remain ultracompetitive with your banking products in a financial service sector already transformed by technology?  I don’t know the answer, but if I was running a credit union, it’s a question I would be asking this morning.

Bluebird is the prepaid store-bought card launched by American Express in October 2012.  What makes it such an intriguing product, beyond the credibility of its corporate creator (would you be more likely to buy a financial product from Kim Kardashian or American Express?), is that it is distributed in WalMart stores.  WalMart has graciously agreed to reload the cards on behalf of users, which means that a person using this prepaid card never has to go into a credit union, or bank for that matter, to cash checks or pay bills; in short, the type of things which cause people to go into financial institutions in the first place.

By announcing that it was already shifting its publicly stated business plan not to apply for federal deposit insurance, the corporation clearly feels that reloadable prepaid cards are going to be more than niche products bought on a whim on a visit to a retail store and in fact an acceptable way for consumers to conduct their business.  The seeds for yesterday’s decision were formed quietly in a 2008 legal opinion by the FDIC in which it overruled a previous interpretation and held that prepaid storage cards could be eligible for share insurance if, among other things, the money held on the cards could be traced to a specific consumer and was ultimately held by a bank.  In other words, for FDIC purposes, its function rather than its format matters when it comes to determining whether a prepaid card is a bank account in a person’s wallet.

The best argument that I can see against worrying too much about prepaid cards is that the business model simply isn’t sustainable.  Some believe these are nothing more than glorified checking accounts that are dependent on fee-income at a time when fees are under attack.  In any event, at some point a prepaid card consumer is going to want to get a mortgage, get a car or pay for college.  To me, this argument misses the point.  As the stigma against prepaid cards wanes, there is nothing to stop the Bluebirds of today from offering expanded banking services tomorrow, tapping into the same group of working class and young members who enjoy not having to step into a branch, let alone become a member of something called a credit union.

On that happy note, as they say in Disney, have a magical day.

Entry filed under: Advocacy, Legal Watch, Regulatory. Tags: , , .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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