Todd J. Zywicki


One of the fastest growing sectors of the consumer payments marketplace is the general-purpose reloadable prepaid card sector. Their importance accelerated as a consequence of new regulations enacted in the wake of the 2008 financial crisis. This increased use of prepaid cards also increased angst among regulators, especially regarding the number and size of fees on prepaid cards. State and federal regulators as well as Congress are interested in imposing new regulations on prepaid cards. These calls for regulation, however, proceed in a largely fact-free environment. This Article describes the current economic and regulatory landscape for prepaid cards. The market appears robustly competitive—in recent years, costs declined, functionality increased, and major players such as American Express and several large banks entered the market. In addition, traditional consumer protection concerns appear to be largely absent, as there is no evidence that consumers systematically err in the cards that they choose. Absent a demonstrable competitive market failure or systematic consumer abuse, prescriptive regulation of the terms and substance of prepaid cards would likely have unintended consequences that would exceed benefits to consumers. On the other hand, there are some regulations that, if enacted, could promote competition and consumer welfare in this rapidly evolving market.