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September 12, 2011 • Issue 11:09:01

Interchange lower on benefit cards than debit

sellingprepaidTo comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the Federal Reserve Board made the first of what is to be an annual report to Congress on the metrics that underscore the use of government benefit cards. The July 2011 report found that the interchange fee on benefit cards averaged 40 cents in 2009, compared to 44 cents per transaction for debit cards that same year. The fed attributed the difference to the lower-cost networks that federal- and state-funded cards travel over. "A greater proportion of government-administered card transactions are made over personal identification number (PIN) debit networks, which have significantly lower interchange fees," the report said.

Additionally, the report stated that federal prepaid card programs had slightly higher interchange per transaction than state programs – 38 cents as opposed to 29 cents. But, as a percentage of the total transaction amount per card, interchange was "essentially the same" for federal and state programs, the Fed noted.

"This may be explained by the structure of interchange fees charged by payment card networks," the report said. "In general, interchange fees for both signature-based and, more recently, PIN-based networks are structured similarly to credit cards in that they include both an ad valorem [according to value] and a fixed component. The higher average per transaction interchange fee for the federal programs may be attributable to the higher average value per transaction."

Metrics on fees

However, the report also found the total fees charged cardholders per card were slightly less on federally funded cards than their state-funded counterparts. For example, the average ATM transaction fee on a federal program was 55 cents compared with 62 cents on state programs.

The banks that took part in the study – constituting 90 prepaid card programs altogether – reported that 185.5 million ATM cash withdrawals were made using government benefit cards in 2010. The average ATM cash withdrawal using federal benefit cards was $179.04, while the average ATM withdrawal using state and other "local" benefit cards was $130.68 in 2010.

The report noted that the average ATM fee charged cardholders was approximately 20 percent less than the interchange fees bank issuers returned to ATM operators for those transactions.

Overall, cardholders were charged an average of $9.04 in fees per transaction on federal benefit cards, as opposed to $9.81 for state-funded cards. Among other fee metrics, the Fed found:

  • Balance inquiry fees ranged from $0 to $2.95 per inquiry
  • Monthly maintenance fees ranged from $0 to $2.25
  • ATM cash withdrawal fees ranged from $0 to $1.75 per withdrawal

The Report to the Congress on Government-Administered, General-Use Prepaid Cards can be accessed at www.federalreserve.gov/publications/other-reports/files/government-prepaid-report-201107.pdf. end of article

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