Report to the Congress on Government-Administered, General-Use
Prepaid Cards, July 2012
Pursuant to section 1075 of the Dodd-Frank Act, which amends the Electronic Fund Transfer Act (EFTA), the Board is required to report annually to the Congress on the prevalence of use of general-use prepaid cards (prepaid cards) in federal, state, and local government-administered payment programs and on the interchange transaction fees and cardholder fees charged with respect to the use of such prepaid cards.1, 2 The Board distributed a survey to 15 depository institutions (issuers) and another survey to 158 federal, state, and local government offices (government offices) representing more than 200 programs to gather data for calendar year 2011.3
Government offices reported prevalence-of-use data for 158 federal, state, and local payment programs that disbursed more than $149 billion in 2011. Of these funds, 67 percent was disbursed through prepaid cards. This percentage is largely attributable to one large program's exclusive use of prepaid cards to distribute funds. The Board was not able to calculate the prevalence of use of prepaid cards in 2010 because of the limited data provided by government offices.
Issuers provided interchange fee data for 118 programs. The average 2011 interchange fee per transaction in these programs was 33 cents, or 1.1 percent of the average transaction value. The average interchange fee increased 3 cents from 2010. Average transaction size, however, also increased in value from 2010, so the average interchange fee as a percentage of average transaction value remained essentially unchanged from 2010.
Issuers also provided information on fees that issuers pay to third parties for withdrawals from automated teller machines (ATM fees) and for over-the-counter transactions at banks (OTC fees). Issuers submitted data on ATM fees paid by issuers for 108 programs and OTC fees for 103 programs. The average per transaction ATM fee paid by issuers to third-party ATM operators decreased from 60 cents in 2010 to 52 cents in 2011. The average per transaction OTC fee paid by issuers to third-party banks was $2.03. The Board did not collect information regarding OTC fees in 2010.
In addition, issuers provided information on fees--including ATM fees, overdraft fees, and account servicing fees, among others--that they assessed to cardholders. The average cardholder paid $2.90 in fees per card, or approximately 0.1 percent of the average total amount disbursed through prepaid cards. As with prevalence-of-use data, the average cardholder fees per card generally is attributable to one large program, which does not assess any fees to cardholders. ATM fees accounted for the largest percentage of cardholder fee revenue to issuers by a significant margin. The average ATM cash withdrawal fee was $1.22, or 0.27 percent of the amount withdrawn.
The number of responses and the quality of data submitted by government offices and issuers for the 2011 surveys increased significantly from those for 2010.4 The Board attributes these increases to the revised survey instruments and the new methodology used to identify survey participants.
1. Sections 1075(b) - (d) of the Dodd-Frank Act amend benefits statutes such that electronic benefit transfer (EBT) cards issued in connection with the relevant benefit program are not subject to the provisions of section 920 of the EFTA. The amended statutes are the Food and Nutrition Act of 2008, the Farm Security and Rural Investment Act of 2002, and the Child Nutrition Act of 1966. Although the Board did not include in the 2010 report information about EBT cards issued under these acts, the Board believes that it is appropriate to include in this report information about EBT cards because such cards represent a significant portion of prepaid cards issued pursuant to government-administered payment programs. Return to text
2. Federal, state, and local governments use prepaid cards as a method for disbursing funds for a range of programs. The government managing the program may or may not also fund the program. For instance, state and local governments may manage programs that are funded by the federal government, such as Temporary Assistance for Needy Families (TANF), the Heating and Energy Assistance Program, and Medicaid. Some states and local governments manage programs, such as child support, that are not funded by any government. Return to text
3. The 2011 surveys are available online at www.federalreserve.gov/reportforms/formsreview/FR3063a_FR3063b_20111222_surveys.pdf. See Appendix - Methodology in this report for more details about the surveys. Return to text
4. Data generally cannot be combined or compared across tables or across sections in the report because of differences in the composition of respondents. In addition, because of the variance in the responses to the 2010 and 2011 surveys, the Board makes comparisons between the 2010 and 2011 data only where meaningful similarities exist. Return to text