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Pre-paid cards soften blow of federal regulations

Jul 16, 2012 Sean Albert

For decades now, more and more businesses have decided to make significant operational changes in an effort to acclimate toward an increasingly paperless world. This has paid dividends regarding corporate bottom lines, while simultaneously improving the efficiency of payment processing and debt collection practices. The Durbin Amendment, part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, caused waves in the payment processing industry. When it was first passed, American Banker reported that the government had to step in to ensure interchange agreements between financial institutions and businesses were reasonable. Fox Business recently discussed some of the biggest reasons why pre-paid cards are currently experiencing rapid growth. According to the source, the first impetus was more stringent regulations placed on processing fees, causing banks to look to pre-paid cards as a new revenue driver. This payment method does not fall under the regulations, such as the Durbin Amendment, and as a result allows banks to make a higher profit each time it processes a transaction. Additionally, the source notes, these cards are highly attractive to consumers since they are not linked to any traditional lines of credit, and are by definition an alternative finance source.