Consumer advocates, including ourselves, have been very skeptical and have spoken out against credit on, or tied, to prepaid cards. Regulators have also been wary.
In the case of Tandem Money, its investors also became wary, resulting in the company’s closure. The program manager to Tandem Money’s prepaid card, Insight Card Services acknowledged, “We had a hard time seeing how the product would handle the scrutiny.” And convincing regulators that they weren’t skirting the law looked like it was indeed going to be an uphill battle. Adam Rust raised this issue early on in a July 2012 Balk Talk blog.
Why? In an nutshell, there were questions about the manner in which the program was structured, with one issuer holding the “credit” account and another with the savings account. For one, the Department of Treasury’s Prepaid Card Interim Rule prohibits any prepaid card that extends credit features from receiving federal benefits payments.
These federal rules and regulations should not be seen as barriers to innovation, as some would conclude regarding the end of Tandem Money. The company may have provided an innovative idea, but many others have also and become hugely successful. Such innovations need to occur within a framework that also provides consumers with protections against getting ripped off. So, hopefully, the next iteration of encouraging savings by utilizing behavioral economics will be more successful AND work within our laws and regulations.