WASHINGTON (7/15/15)--Visa Inc. has written to the National Credit Union Administration, urging the agency to extend share insurance coverage to prepaid products. Visa’s position echoes CUNA’s position regarding the NCUA’s proposed rule granting coverage to interest on lawyer trust accounts (IOLTAs), which was brought up at the NCUA’s April meeting.
"Prepaid products are an increasingly crucial tool for consumers in today's financial landscape and we thank Visa for urging NCUA to reconsider its position. The nation's 100 million credit union members will benefit from a bold and forward-looking decision by NCUA to allow the best, most convenient and modern financial services possible,” CUNA said in a statement.
The NCUA’s proposed rule would bring agency regulations in line with a law passed last December granting share insurance coverage to IOLTAs; however the law also allows for coverage to be extended to “other similar escrow accounts,” a term that is not defined in the law.
CUNA, in its comment letter on the proposal, said the NCUA’s proposal falls short of what is permissible under the law. Visa, in its letter, argues that prepaid card programs exhibit characteristics sufficiently similar to IOLTAs and should be considered “other escrow accounts.”
In the letter, signed by Ky Tran-Trong, Visa associate general counsel, the company states its agreements with statements made by NCUA board member J. Mark McWatters.
Visa cites McWatters as saying, “It is reasonable to argue that the holder of a share account maintains deposited funds in trust for the benefit of the holder of a prepaid card or stored value product and that the holder may have a legally enforceable right to receive the funds evidenced by the card or product.” Tran-Trong goes on to note that the NCUA’s historical position on nonmember ineligibility for pass-through share insurance has placed federally chartered credit unions attempting to serve the underbanked with a prepaid card program in a less favorable position than banks.
“We understand that some credit unions have had to turn members away and advise them to obtain prepaid cards from a bank issuer to ensure that the underlying funds are federally protected regardless of the membership status of the cardholder,” the letter reads.
The NCUA’s position could also present compliance problems for federally chartered credit unions offering prepaid card programs under the Consumer Financial Protection Bureau’s recent prepaid accounts proposal.
“This may be the case both from a Prepaid Accounts Rule and/or from an unfair or deceptive acts or practices perspective because of the credit unions’ inability to provide [National Credit Union Share Insurance Fund] insurance for all of their cardholders,” the letter reads.