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Who's driving cancellation of pre-paid spending cards?

Who's driving cancellation of pre-paid spending cards?

Old Apr 1, 14, 6:04 pm
  #1  
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Who's driving cancellation of pre-paid spending cards?

I've been reading about people getting their accounts cancelled by reasons of "improper use", etc, for spending 1K or more - maybe 5K - on a reload-able card in order to ralley up credit card points and such.

Bottom line is, who cares? Everyone is getting their merchant fees.

Is there something I am missing? Which party here is losing out?
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Old Apr 1, 14, 7:08 pm
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The regulators care. When someone moves such large sums of money, it raises flags. These card issuers would rather close your account than deal with the paperwork and hassle that comes from regulators.
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Old Apr 1, 14, 7:44 pm
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Regulators are all over card issuers about money laundering risk. This two-bit MS stuff costs the issuers more than they make, so they cancel the cards. Filing a SAR is a time-consuming and expensive proposition.

I would expect to see this become much more prevalent and across the board over the next year.
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Old Apr 1, 14, 8:00 pm
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This might be second order with respect to fraud/SAR/money laundering risk, but when you use it in one shot as opposed to for routine transactions, the issuers are losing out on a decent bit in swipe fees as well.
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Old Apr 1, 14, 8:02 pm
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That makes no sense. What if someone deposits a $20k paycheck into their bank and pays off credit card bills? How come banks don't shut those people down?

Or what if someone has a legitimate $5k bill to pay from a prepaid card?

They must be doing the shutdowns proactively. Not because they cost money, but because they MIGHT end up being illegal activity, and since they don't fit the pattern of 99% of their customers they're easy to spot.
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Old Apr 1, 14, 8:23 pm
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Originally Posted by taxicabnumber View Post
This might be second order with respect to fraud/SAR/money laundering risk, but when you use it in one shot as opposed to for routine transactions, the issuers are losing out on a decent bit in swipe fees as well.
But, even in this case the issuer is still making some money. The issuer of the card used to buy the prepaid card racks in their 3 to 5% merchant fee. The issuer of the pre paid still gets their activation fee, and any transaction fees + collects interest, assumingly, on the money they are holding.
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Old Apr 1, 14, 8:24 pm
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Now, if regulators are screaming at the issuers for whatever reason about potential fraud with certain customers than that's a different game all together....
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Old Apr 1, 14, 8:31 pm
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Originally Posted by DanTravel View Post
But, even in this case the issuer is still making some money. The issuer of the card used to buy the prepaid card racks in their 3 to 5% merchant fee. The issuer of the pre paid still gets their activation fee, and any transaction fees + collects interest, assumingly, on the money they are holding.
You're assuming quite a bit in this statement. And much of it is wrong.

For the most part, much of the public MS is trading profit for revenue. When CVS changed the limits to 5k/day, this was a signal that that was a trade they were willing to make. With this most recent change, either they're not willing to make the trade anymore, or something else is up (fraud).

Merchant processing is a complicated business. Regulations vary state to state, and agreements with merchants are tricky. There's a reason WM is suing VISA for anti-competitive behavior.

If you think MS is printing money, this game might be riskier than you've first realized.
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Old Apr 1, 14, 8:31 pm
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Originally Posted by DanTravel View Post
But, even in this case the issuer is still making some money. The issuer of the card used to buy the prepaid card racks in their 3 to 5% merchant fee. The issuer of the pre paid still gets their activation fee, and any transaction fees + collects interest, assumingly, on the money they are holding.
There is a difference between business among the different parties in banks and illegal activity. If you can't see why regulators aren't always on the look out for money laundering then I don't know what to tell you. You are only thinking of this from a business point of view for the banks.

What if the money that was being laundered was drug money funneled through prepaid debit cards....should the regulators not care? The risk is that these prepaid debit card companies can get into huge trouble in fines if they are supporting illegal activity and they don't want to take that risk. This is why Netspend, Paypower, etc have to crack down on this. Think Bitcoin and the Silk Road.
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Old Apr 1, 14, 9:14 pm
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Originally Posted by atxtravel View Post
That makes no sense. What if someone deposits a $20k paycheck into their bank and pays off credit card bills? How come banks don't shut those people down?

Or what if someone has a legitimate $5k bill to pay from a prepaid card?

They must be doing the shutdowns proactively. Not because they cost money, but because they MIGHT end up being illegal activity, and since they don't fit the pattern of 99% of their customers they're easy to spot.
If you deposit a $20,000 check, you will have to fill out a suspicious activity report. If you do this every month, they might shut you down. $20,000, especially when deposited into a checking account, is nothing to a bank.

I work at a bank (commercial side). Regulators are a pain to deal with. Canceling an account here and there is much easier than dealing with regulators for the pocket change deposits that MS involves (yes, $20,000 is pocket change for a bank).
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Old Apr 1, 14, 11:07 pm
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Originally Posted by commdiver View Post
If you deposit a $20,000 check, you will have to fill out a suspicious activity report. If you do this every month, they might shut you down. $20,000, especially when deposited into a checking account, is nothing to a bank.

I work at a bank (commercial side). Regulators are a pain to deal with. Canceling an account here and there is much easier than dealing with regulators for the pocket change deposits that MS involves (yes, $20,000 is pocket change for a bank).
Worked on the other side for a bit. You guys are no angels either
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Old Apr 2, 14, 5:28 am
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Originally Posted by commdiver View Post
If you deposit a $20,000 check, you will have to fill out a suspicious activity report. If you do this every month, they might shut you down. $20,000, especially when deposited into a checking account, is nothing to a bank.

I work at a bank (commercial side). Regulators are a pain to deal with. Canceling an account here and there is much easier than dealing with regulators for the pocket change deposits that MS involves (yes, $20,000 is pocket change for a bank).
Uh, no. I suggest you do some more research on SARs before you post information that is completely wrong.
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Old Apr 2, 14, 6:22 am
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You live in some fantasy world where everyone is making money?
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Old Apr 2, 14, 6:22 am
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Who's driving cancellation of pre-paid spending cards?

Edited
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Old Apr 2, 14, 6:27 am
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That is why bankers can afford to wear suits - all their laundry is free!

Originally Posted by taxicabnumber View Post
Worked on the other side for a bit. You guys are no angels either
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