Report to the Congress on Government-Administered, General-Use
Prepaid Cards, July 2012
Prevalence of Use
Government offices reported data on the prevalence of use of prepaid cards for 158 programs in 36 states. These programs disbursed more than $149 billion in 2011, and 67 percent of that amount was disbursed through prepaid cards.
The proportion of funds disbursed through prepaid cards varied widely by program. Seventy-three percent of all funds disbursed through prepaid cards can be attributed to the Supplemental Nutrition Assistance Program (SNAP). SNAP, formerly known as the Food Stamp Program, disbursed nearly $73 billion in benefits in 2011 and all of those funds were disbursed through prepaid cards.5 Excluding SNAP, 35 percent of program funds was disbursed through prepaid cards. Government offices reported data on 26 unemployment insurance programs that disbursed a total of nearly $39 billion, 37 percent of which was disbursed through prepaid cards.6 In addition, TANF program benefits were almost exclusively disbursed through prepaid cards, while only approximately 1 percent of payroll program funds were disbursed through prepaid cards.
The average interchange fee per purchase transaction increased about 5 percent for federal programs and about 9 percent for state and local programs from 2010 to 2011.7, 8 Average transaction value, however, also increased about 4 percent for federal programs and about 9 percent for state and local programs from 2010 to 2011. Thus, average interchange fees as a percentage of purchase transaction value did not change appreciably.Table 1 provides summary information about the average interchange fees received by issuers from purchase transactions in 2010 and 2011.
|Average value of purchase transaction (dollars)||Average interchange fee per purchase transaction (dollars)||Average interchange fee as percentage of purchase transaction value (percent)|
|State and local||27.42||29.81||0.29||0.32||1.1||1.1|
1. The average values of signature- and PIN-based purchase transactions in 2010 are not available. Return to table
2. Some program data reported in aggregate could not be allocated between federal and state and local programs. These data, however, are reflected in the total figures. Return to table
Issuers reported receiving more than $208 million in interchange fee revenue from 118 programs during 2011. Approximately 61 percent of that revenue was from signature-based purchase transactions and 39 percent from personal identification number (PIN)-based purchase transactions. Of the total interchange fee revenue reported, about 80 percent was attributable to cards issued under state and local programs, while about 20 percent was attributable to cards issued under federal programs.
Fees Paid by Issuers
Issuers pay fees to third parties for a cardholder's use of a prepaid card to withdraw cash.9 In 2011, issuers reported paying ATM fees for prepaid card use in 108 programs and OTC fees for prepaid card use in 103 programs. Issuers reported paying approximately $75.5 million for ATM and OTC cash withdrawals. Average ATM fees paid by issuers decreased 14 percent between 2010 and 2011.Table 2 provides summary information about fees paid by issuers to ATM operators.
Issuers reported paying fees on 111 million cardholder cash withdrawals from ATMs in 2011. The vast majority of those withdrawals is associated with prepaid cards under state and local programs. The average ATM fee per withdrawal decreased in 2011, both in dollar terms and as a percentage of withdrawal value. This decrease was driven largely by an 8 percent increase in the average value of ATM withdrawals in state and local programs. The average value of ATM withdrawals for state and local programs increased from $130.68 in 2010 to $141.46 in 2011. The average value of ATM withdrawals for all reported programs was $143.38.
|Average ATM fee per withdrawal (dollars)||Average ATM fee as percentage of average withdrawal value (percent)|
|All programs 1||0.6||0.52||0.4||0.3|
|Federal programs 2||0.55||1.27||0.3||1.1|
|State and local programs||0.62||0.51||0.4||0.3|
1. Some program data reported in aggregate could not be allocated between federal and state and local programs. These data, however, are reflected in the "All programs" figures. Return to table
2. The increase in the average ATM fee per withdrawal is largely attributable to one federal program. Return to table
Issuers reported the number of cardholder OTC cash withdrawals for 31 programs. For these programs, issuers reported paying fees on more than 2.6 million cardholder cash withdrawals in OTC transactions in 2011. Issuers paid an average OTC fee of $2.03 per withdrawal. The average OTC fee per withdrawal for state and local programs was also $2.03, as OTC fees associated with state and local programs represented the vast majority of the reported OTC fees. Issuers reported paying OTC fees associated with only one federal program. The average OTC fee per withdrawal for that federal program was $4.00; however, the number of OTC withdrawals reported in connection with that program was very small.
Average cardholder fees totaled $2.90 per card in 2011, or 0.1 percent of the dollars disbursed through prepaid cards.10 In calculating this average cardholder fee per card, the Board used data reported by all programs, including the SNAP program. The SNAP program prohibits issuers from charging cardholders fees and was the largest program reported. Average cardholder fees excluding the SNAP program, however, totaled $6.33 per card, or 0.3 percent of the dollars disbursed through prepaid cards.11
Issuers reported that they received in excess of $120 million in cardholder fee revenue on 524.5 million transactions in 113 card programs. Issuers reported $59 million in ATM fees, which accounted for the greatest percentage of total cardholder fee revenue in both federal and state and local programs.12 ATM fees accounted for approximately 80 percent of total cardholder fee revenue associated with federal programs, with an average ATM fee of $1.00 per transaction, and 43 percent of total cardholder fee revenue associated with state and local programs. The average ATM fee was $1.37 per transaction.
Overdraft fees accounted for less than 1 percent of the total cardholder fee revenue received by issuers in federal programs, with an average overdraft fee of $13.80 per occurrence. In contrast, overdraft fees accounted for a significant portion--25 percent--of the total cardholder fee revenue received by issuers in state and local programs, with an average overdraft fee of $8.68 per occurrence.
Issuers reported that they often did not assess cardholder purchase transaction, ATM, OTC, and customer service inquiry fees.13 For example, issuers assessed fees on purchase transactions in 25 programs, but did not assess fees on approximately 90 percent of the transactions under those programs. In addition, issuers assessed fees on ATM cash withdrawals in 99 programs, but did not assess ATM fees on approximately 60 percent of the withdrawals. Similarly, issuers assessed fees on OTC cash withdrawals in 37 programs, but did not assess fees on approximately 87 percent of the withdrawals. Finally, issuers assessed fees for customer service inquiries in 34 programs, but did not assess fees on approximately 38 percent of the inquiries.
In addition to total fee revenue received, issuers also reported the number of times fees were charged, allowing the Board to calculate average fees by fee type for each reported program. The range of reported average cardholder fees by fee type for 2011 are reflected in table 3.
|Type of cardholder fee 1||Range of reported average cardholder fee in federal programs 2||Range of reported average cardholder fee in state and local programs|
|Purchase transaction||--||0.13 - 1.50|
|ATM||1.00 - 3.84||0.77 - 3.49|
|OTC||1.00 - 1.57||1.00 - 15.00|
|Account servicing||1.00 - 6.95||0.01 - 18.10|
|Routine monthly||1.00 - 1.86||1.17 - 1.29|
|Customer service inquiry||1.00 - 1.00||0.16 - 2.56|
|Penalty||--||0.83 - 2.35|
|Overdraft||11.37 - 13.86||0.04 - 20.26|
1. The Board redefined several cardholder fee types in the 2011 survey. Therefore, 2011 data on average ranges of cardholder fees should not be compared to 2010 data appearing in last year's report. Return to table
2. Average cardholder fees were calculated for each reported program by dividing total fees received by the number of times a fee was charged. The ranges reflect the lowest and highest averages reported. Return to table
Fees assessed to cardholders on a regular basis (such as purchase transaction fees and routine monthly fees) were on average much lower than fees assessed on an ad hoc basis (such as penalty and overdraft fees). The highest fees charged in 2010 and 2011 were overdraft fees.14 Generally, cardholder fees for state and local programs had a much wider range than those for federal programs.
5. SNAP benefits are disbursed electronically using EBT cards in all 50 states, the District of Columbia, Puerto Rico, the Virgin Islands, and Guam. The EBT card is composed of two distinct compartments: (1) the SNAP compartment, which only can be used for eligible food purchases, and (2) the cash benefit compartment, which can be used to make purchases and to obtain cash back when making a purchase or a cash withdrawal from an ATM. The SNAP compartment of the EBT card is the sole mechanism for disbursement of SNAP benefits. The cash benefit compartment is currently used by at least 38 states to disburse funds associated with cash assistance programs (such as TANF; Heating and Energy Assistance Program; Old Age Pension; Women, Infants, and Children (WIC)), general assistance, and refugee assistance. Return to text
6. The reported unemployment insurance disbursements represent 68 percent of the approximately $57 billion in unemployment insurance benefits disbursed by states during 2011, according to the United States Department of Labor (see www.ows.doleta.gov/unemploy/content/data.asp). The portion of total funds disbursed through prepaid cards under other state and local programs was, in most cases, much lower. Return to text
7. An interchange fee is any fee established, charged, or received by a payment card network and paid by a merchant or an acquirer for the purpose of compensating an issuer for its involvement in an electronic debit transaction. 12 CFR 235.2(j). Merchant acquirers typically pass these fees on to merchants, so interchange fees can be thought of as a cost to merchants and as revenue to issuers. The interchange fee limits do not apply to the following types of debit cards: (1) debit cards issued by an issuer that, together with its affiliates, has assets of less than $10 billion ("exempt issuers"); (2) debit cards issued pursuant to a government-administered payment program; and (3) certain general-use, reloadable prepaid cards. 12 CFR 235.5. Return to text
8. Federal programs in this report are defined as programs both funded and administered by a federal government office. Programs such as TANF, which are funded at the federal level, but are administered at the state and local level, are referred to as "state and local programs." Return to text
9. Issuers pay ATM fees to ATM operators for each ATM cash withdrawal to compensate the ATM operator for the costs of deploying and maintaining the ATMs and of providing cash services to the issuers' cardholders. Issuers pay OTC fees to banks that provide cash withdrawals to cardholders at the teller window. Return to text
10. Cardholder fees are fees the cardholder pays to the card issuer. The Board collected data on fees assessed to cardholders, such as purchase transaction fees, ATM fees, OTC fees, account servicing fees, routine monthly fees, customer service inquiry fees, penalty fees, and overdraft fees. For definitions of these types of cardholder fees, see the issuer survey glossary at www.federalreserve.gov/reportforms/formsreview/FR3063a_FR3063b_20111222_surveys.pdf. Similar to the 2010 issuer survey, the 2011 issuer survey did not request information on fees charged to cardholders by ATM operators for cash withdrawals at nonproprietary ATMs and, thus, such fee data are not included in the cardholder fee calculations in this report. Return to text
11. Cardholder fee data cannot be reliably compared with data reported last year for 2010. The number and nature of programs reported for 2011 is significantly different from programs reported for 2010. Return to text
12. Issuers provided data on both ATM fees paid to third-party ATM operators by the issuer and ATM fees paid to the issuer by cardholders for 103 programs. For these programs, issuers paid $49.4 million in ATM fees to third-party ATM operators, and cardholders paid $40.1 million in ATM fees to issuers. Return to text
13. Among the reasons that issuers did not assess cardholder fees were government-imposed fee restrictions. Some government-imposed fee restrictions enable cardholders to conduct a certain number of activities, such as purchase transactions or ATM cash withdrawals, per month or per disbursement period without being charged by the issuer. Return to text
14. In 2010, issuers reported overdraft fees under the penalty fees type of cardholder fee. The 2011 data suggest that overdraft fees increased marginally from 2010. Return to text