A loophole in recent credit and debit card legislation is leading some banks to move its least profitable checking account customers into prepaid debit cards. The cards work similarly to a checking account, but do not give the ability to write checks or have overdrafts.
The loophole allows banks to charge higher merchant fees for processing payments with this type of card. According to JPMorgan Chase, approximately 10% of its accounts do not create enough revenue to pay their costs, such as deposit insurance and check processing.
Although many prepaid debit cards can carry high fees, JPMorgan is quick to point out that their card will have a relatively low $4.95 monthly fee. Also, it is not adding extra fees such as fees for deposits or withdrawals at its ATMs or branches. A pilot program offering the cards in two states has already started and JPMorgan hopes to have the cards available in 23 states by the end of the summer.