Unless youve been living under a rock or in Rockaway Beach, where there are still areas without power you know all about the far-reaching destruction Hurricane Sandy wrought on the East Coast last month. Youve heard every tale of flooded subway lines, homes ablaze, trees snapped in half and the snow that fell the mountains. You probably think there isnt much you dont know. But you might be wrong, because theres one Sandy story that seems to have slipped under the radar. Could the storm of the century, as its been called, also have brought with it a new wave of opportunity for credit card companies? It appears so.
On November 2, just days after the storm hit, New Jersey Governor Chris Christie issued a barrage of executive orders intended to expedite the recovery process. Tucked into those orders was something unusual: regulated insurance companies had been permitted to issue claim payments by prepaid debit cards, instead of checks. Credit card companies have long been searching for a way to get state and federal governments to replace all their paper with plastic, because the fees associated with prepaid cards are very profitable. It certainly looks like this is their chance in New Jersey. But is this indicative of change on a larger scale? Is it something you should worry about?
Said Mastercard, in their official statement on Governor Christies executive order, Branded prepaid cards, including MasterCard, are widely accepted by retailers, contractors and others, and also allow online and telephone purchases to be made. This was a good call by the governor that will benefit people all across our state.
This all may seem pretty innocuous at first. Credit card companies say that these prepaid cards enable people to get their money faster (a good thing in the wake of a natural disaster), are less of a hassle than cashing a check for those who dont have a bank account, and would save the government and insurance companies on printing and mailing costs. But anything that makes big credit card companies happy makes us wary.
What Mastercard didnt mention in their statement is that prepaid debit cards come with a whole host of problems for consumers and whole lot of profit potential for those money-starved credit card companies. Theyre notorious for their extraordinarily high fees (there are fees for activating your card, reloading it and even just using it), for their terrible customer service, and for how incredibly easy they are to lose.
The New Jersey powers that be seem to be aware of customer concerns over prepaid cards and have stipulated that applicable insurance customers must be able to opt for a check instead, cannot be charged fees, and must be able to convert the card balance into cash if they wish.
This definitely looks like the first step in a switch from checks to cards in New Jersey and the federal government certainly seems open to the idea. Your grandma has probably been getting her Social Security money this way since 2008. There are still fees associated with the card Social Security recipients get, but they are significantly less than the fees that come along with a non-government issued prepaid card.
As more state governments hop on board with this idea, the more likely it is that a total switch to prepaid cards is inevitable. Striving to be like New Jersey is probably not a concept most people are used to, but lets hope that the government as a whole is as attuned to customer concerns about prepaid card payments as the Garden State is.