Washington Post: American Express Prepaid Debit Cards Get FDIC Insurance
American Express announced Tuesday that its prepaid debit cards will now be backed by the Federal Deposit Insurance Corp., the latest indication that a market once shunned by established financial institutions is gaining ground.
The use of reloadable prepaid cards has exploded in the wake of the credit crisis that left millions of Americans outside the traditional banking system. But reloadable prepaid cards do not offer the same financial protections for consumers as checking accounts. They also operate with fewer regulatory constraints.
Facing increasing scrutiny from consumer advocates, the vast majority of card operators have opted in the past few years to carry up to $250,000 in mandatory deposit insurance per customer offered through the FDIC. American Express is one of the last major providers to sign on to that government backstop.
The coverage will apply to Bluebird cards sold at Wal-Mart stores. The card carries the American Express insignia and operates much like a debit or credit card, with features such as roadside assistance and mobile banking. Customers also can write checks with the account and load up to $100,000 a year.
But Susan Weinstock of Pew Charitable Trusts is concerned that the FDIC insurance is not being extended to all American Express prepaid products, including a similar prepaid card offered through Target.
“Does it set a precedent that allows other companies to get into this space and avoid FDIC insurance?” Weinstock said. “Should those companies go under, the big question is what will happen to consumers and their money?”
- Prepaid Cards Research Project