Daily Court Reporter - News Unclaimed funds fix would allow Ohio businesses to dive into prepaid gift card biz
Unclaimed funds fix would allow Ohio businesses to dive into prepaid gift card biz
KEITH ARNOLD, Daily Reporter Staff Writer
Branded prepaid cards and gift cards are big business, boasting a purchase volume just shy of $2 billion, according to a national study of the financial instrument in 2013.
Ohio banks and businesses, however, have largely missed out on any boon due to banking rules and unclaimed funds law that put the state at a competitive disadvantage.
A northern Ohio lawmaker hopes to reverse the trend, championing a bill that would change current law regarding open-loop gift cards, while at the same time protecting banks and consumers.
"An open-loop card is a gift card that is accepted at any point-of-sale location and may be branded with Visa, MasterCard, Discover, and more," said Tiffin Rep. Bill Reineke, a Republican. "Current law requires funds on these cards that go unclaimed after five years to be remitted to the state."
Regardless of charter, any Ohio-based bank must remit these funds after five years of inactivity, the lawmaker said.
"Businesses seeking to partner with a bank to offer open-loop gift cards evaluate state escheatment (unclaimed funds) laws, federal laws regulating the bank, the bank's employee pool, the bank's flexibility and its technology," Reineke said. "As a preliminary matter, businesses offering open-loop gift card products will not partner with an Ohio bank because of its escheatment laws, but choose instead to deliver the economic benefits of their product to banks subject to the laws of states like South Dakota, that do not require banks to remit unused open-loop gift card funds to the state.
"Many banks which issue open-loop gift cards benefit from South Dakota law by only opening one physical location in South Dakota."
A community bank within the lawmaker's district - Sutton Bank - first raised the issue with Reineke.
Sutton currently maintains a robust prepaid card program, the lawmaker said.
The program's focus is primarily on business-to-business and open-loop GPR cards, engaging in programs from Facebook, Square, DoorDash, Instacart, Stripe, Instant and about 30 other prepaid card programs.
The bank earlier this year estimated 2017 processing volumes in excess of $1.4 billion in prepaid transactions.
"The bank anticipates that being able to partner with businesses offering open-loop gift cards will allow the bank to participate in serving the underbanked and unbanked and thereby position itself to grow with both the open-loop gift card market and the gig-economy, which anticipates doubling its growth over the next four years," Reineke said.
HB 353 would exempt any open-loop prepaid card issued by a financial organization or a business association for which the underlying funds do not expire from unclaimed funds law.
The electronic payment device is either purchased or loaded on a prepaid basis for the future purchase or delivery of any goods or services, according to analysis of the bill.
It can be used to purchase goods and services at multiple, unaffiliated merchants or service providers, and is not redeemable for cash.
The bill also would exempt any rewards card from unclaimed funds law.
"A rewards card includes any loyalty, incentive or promotional-type program that is issued by a financial organization or a business association, whether represented by a card or electronic record," Jennifer Parker wrote for the Ohio Legislative Service Committee. "The program must have been established for the purpose of providing the cardholder awards, rewards, rebates or other amounts to reward the cardholder for his relationship with the rewards card sponsor, provided that direct money was not paid by the cardholder for the rewards card, excluding any minimal membership fee.
"Ohio and its local communities would directly benefit from this change," Reineke continued. "Increased revenue streams to local community banks would increase the amount of tax paid by banks and their shareholders and would increase the number of employees the banks would employ.
"Sutton Bank anticipates increasing its potential revenue over the next 10 years so that by Year 10, revenue from open-loop gift cards is not just meaningful to Sutton Bank but potentially to other Ohio financial service providers focusing upon the prepaid card industry."
HB 353 awaits a vote by the full Senate.
Date Published: June 28, 2018