JPMorgan To Exit Foodstamp, Other Prepaid Cards Business
Mess with us, we'll mess with you. That is the message one can derive from JPMorgan's surprise announcement that it plans to "sell or wind down its business of issuing prepaid cards for corporate payrolls and government tax refunds and benefits." Which also includes the infamous Electronic Benefits Transfer, or foodstamps, card. According to Reuters, the product, which has been offered with cash and treasury services to companies and governments, "had become a headache of risks in operations and regulations, according to a person familiar with the matter who was not authorized to speak publicly."
Curiously, it was just over two years ago when JPM said this about its EBT business:
“This business is a very important business to JP Morgan,” Christopher Paton, the company’s managing director of treasury services, told Bloomberg News in 2011. “It’s an important business in terms of its size and scale. We also regard it as very important in the sense that we are delivering a very useful social function. We are a key part of this benefit delivery mechanism. Right now volumes have gone through the roof in the past couple of years or so … The good news from JP Morgan’s perspective is the infrastructure that we built has been able to cope with that increase in volume.”
Guess the social function isn't that important any more. However, along with the responsibilities, JPM is losing a substantial revenue stream:
Just how lucrative JP Morgan’s EBT state contracts are is hard to say, because total national data on EBT contracts are not reported. But thanks to a combination of public-records requests and contracts that are available online, here’s what we do know: 18 of the 24 states JP Morgan handles have been contracted to pay the bank up to $560,492,596.02 since 2004. Since 2007, Florida has been contracted to pay JP Morgan $90,351,202.22. Pennsylvania’s seven-year contract totaled $112,541,823.27. New York’s seven-year contract totaled $126,394,917.
EBT processors charge for other services as well. For example, any time TANF recipients withdraw their cash benefits or make balance inquiries through out-of-network ATM machines, the user may incur ATM transaction fees generally ranging from $.75 to $1.50. In addition, most states allow EBT processors to charge card replacement fees. Arizona cardholders, for example, are permitted one free replacement a year, after which a $5 per card fee is imposed. The same goes for customer service calls: After an EBT cardholder exceeds the state’s maximum number of free calls, EBT processors typically tack on a $.25 per call fee.
That's a lot of money that one doesn't easily give up on. But that's what JPM just did. Or in other words, JPM just told the government which has been going after it relentlessly for the past year, forcing JPM to rack up some $25 billion in litigation reserves, "you can find someone else to manage your wholesale welfare program for nearly 50 million Americans."
There is more:
Last month JPMorgan warned some 465,000 holders of the cards that their personal data may have been accessed by computer hackers who attacked its network in July.
Government regulators are focusing on whether corporate payroll programs that use the cards have sufficient safeguards against burdening employees with fees.
For the past year the company has been moving to simplify its operations after its risk controls and guards against money laundering were found deficient by regulators.
According to JPMorgan's statement, the bank "will explore a full range of options for its prepaid card business, including a sale." In the meantime, it will continue to support current clients and cardholders. The decision does not affect Chase customers holding credit, debit or prepaid "Liquid" cards, the company said. Needless to add here, the last thing the precarious "recovery" needs right now are glitches with the EBT system, which as we saw last October when the EBT system briefly went "dark" nearly plunged the nation into a wholesale panic. Then again, such is quid pro quo life when the government bites one of the biggest hands that feed it.
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