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Update Newsletter: Summer 2005

From the Director

Welcome to this edition of Update, a publication of the Payment Cards Center that highlights recent Center activities. Update complements the more complete set of content available elsewhere on this site.

The Payment Cards Center was established at the Federal Reserve Bank of Philadelphia to develop insights and to communicate about issues relevant to the rapidly expanding arena of consumer payments. Its goal is to inform debate on current issues facing the industry and policymakers.

As might be expected in this dynamic environment, there is no shortage of relevant topics and new issues are continually emerging. The Center’s business model emphasizes responsiveness to market developments and a reliance on leveraging the expertise of partners in order to prioritize and ultimately address these issues. As we will describe later, we build on expertise within the Bank and the broader Federal Reserve System, but importantly, we also turn to external partnerships for counsel and assistance in developing our agenda.

In reviewing recent Center activities in this issue of Update, we want to both acknowledge the role of partnerships and highlight several key research themes being addressed.

The first of these topics deals with our work in exploring the rapid expansion and varied applications of prepaid cards. This “pay now-spend later” payment card model has become especially popular in the gift-card segment, rapidly replacing traditional paper gift certificates. More recently, payments innovators have been developing a wide range of applications for these cards, from payroll check substitutes to government welfare payments. The Center’s first focused analysis of this new payment vehicle took place in the spring of 2004 with the conference Prepaid Cards: How Do They Function? How Are They Regulated?” In structuring this event, we relied heavily on input from state and federal regulators, retail merchants, banks, and specialized processors to both inform the discussion and help bring emerging issues to light. The resulting conference summary quickly became one of the more frequently downloaded documents on our website.

As discussed later in Update, our investigation of the prepaid world has led us to examine the unique infrastructure associated with prepaid cards and, more recently, consider applications to the unbanked and underbanked consumer segments. Working with other Federal Reserve colleagues, we have hosted and participated in workshops and seminars exploring various aspects of these issues. In July, we will sponsor a major conference on the topic, “Payment Cards and the Unbanked: Prospects and Challenges.” PDF This conference will not only bring together banking and nonbanking industry innovators in this market but it will also garner perspectives from the community development areas within the Federal Reserve System as well as not-for-profit community groups that work within this market segment.

On a different tack, the Center’s analysts have been examining another contemporary issue that is particularly relevant to the credit card business: consumer protections and regulation. The evolution of risk-based pricing and other changes in terms and conditions associated with credit card use was the subject of an earlier Payment Cards Center paper, "Credit Card Pricing Developments and Their Disclosure." PDF Among the issues raised in the paper was the challenge to clear disclosures posed by the increased complexity of credit card pricing, fees, and computational methodologies.

Earlier this year, the subject was further addressed in an internal workshop featuring Professor Mark Budnitz from Georgia State University College of Law. More recently, Payment Cards Center analyst Mark Furletti and Stephen Smith, of the Bank’s Legal Department, collaborated on a series of papers discussing protections available to consumers as provided by federal and state regulation, association and network rules, and individual bank practices. The Center recently convened a group of legal scholars, industry attorneys, regulators, and business practitioners in a roundtable discussion of "Federal Consumer Protection Regulation: Disclosures and Beyond.”

Also in this issue of Update, we introduce our industry advisors. As noted earlier, we rely heavily on the expertise of external constituencies from academia, consumer interest groups, and the industry to help guide the Center’s agenda. Among the vehicles we use to incorporate this expertise are the semi-annual meetings we hold with industry advisors. These informal discussions provide important input into our understanding of current and emerging issues confronting the broader consumer payments industry.

I hope you will enjoy reading this issue of Update, and I thank you for your interest and support. As always, I welcome your thoughts as to how the Center can better serve the needs of market participants and other interested parties.