Why Is the City of New Haven Selling Gift Cards?
Some cities are using government-issued prepaid cards to fight poverty and increase public safety. New Haven, Conn., is using them to stimulate the local economy. Should other cities do the same?
Beginning later this spring, New Haven, Conn., will offer a reloadable gift card for downtown parking and shopping, a twist on the recent trend of cities offering general purpose prepaid cards for storing and spending money.
Although the New Haven program shares some characteristics with other city-issued cards, it’s intended to come with limited features and a narrow focus on stimulating the local economy. Other cities have sought to use government-issued prepaid cards to fight poverty and increase public safety, rather than to spur commerce. More municipalities are likely to adopt both models in the coming years.
A non-reloadable version of the New Haven Shop Dine Park card launched in January and works like a gift card, running on the Discover financial network. Residents can purchase a card for $3.95 and use it to upload as much as $999. Currently, consumers have to buy another card if they spend down the funds on their card. Most parking meters in the city accept Discover card, which allows them to accept the city gift card as well. Likewise, more than 280 retailers in the city's business improvement districts accept the card.
“The concept that I thought of was, I would like to bring a gift card that we could brand to New Haven,” said Jim Travers, the main architect of the New Haven program and the city’s former transportation director. Before working at the city, Travers worked in business administration for the clothing retailer Ann Taylor and was familiar with the idea of creating brand loyalty through gift cards in mini malls.
The New Haven card is a modification of the ParkEasy prepaid card, which allows people to pay for parking on the street or in garages. Currently, the ParkEasy card is available in a handful of cities, such as Lexington, Ky., Chicago and the District of Columbia. While New Haven is the only city to have the shop-dine card, others have inquired about launching their own, said Beth Fahey, a program manager at ParkEasy.
To some extent, the New Haven Shop Dine Park card mimics what Oakland unveiled last year. The California city offered municipal identification cards with a debit feature, allowing residents to deposit checks, cash checks and pay bills without a traditional bank account. Nearby Richmond, Calif., recently signed a contract to become the second city with a dual prepaid-municipal ID card. The Chicago Transit Authority offers a similar transit-debit card, though not tied to a government-issued ID.
Public officials have pitched the city-issued prepaid cards as a way to help low-income residents accumulate savings. As a side benefit, they allow people who don't have bank accounts -- especially undocumented immigrants -- to avoid carrying large amounts of cash, which can make them targets for robbery. As in Oakland and Richmond, Travers said he planned to eventually integrate the New Haven gift card with the city’s existing municipal ID card.
When a new mayor took office in January, Travers left his position to work as vice president of development at the local United Way, though he remains on the board of commissioners for the city’s transit district. Mike Mohler, deputy director of the transportation department, said the department stays in touch with Travers and is committed to his vision.
One benefit of the New Haven program is the lack of hidden fees because it is technically a gift card. Last year city-issued general purpose prepaid cards drew criticism from Consumers Union, the policy and advocacy branch of Consumer Reports, for being too expensive. In a letter to the National League of Cities, the group noted that prepaid cards tend to have inadequate protection against theft and fraudulent use of cards or card numbers, not to mention high, hidden or confusing fees.
However, cities looking into the prepaid card model may not wish to go the New Haven route because of its limited utility. Even after the Shop Dine Park card becomes reloadable, residents won’t be able to set up direct deposit for their paychecks. They won’t be able to withdraw cash from ATMs with the card. Unlike other city-issued prepaid cards, the New Haven product does not work outside the city. Ultimately, the program isn’t a prescription for people who lack access to traditional bank accounts. It just makes parking and shopping in downtown New Haven a littler easier.
In the future, city officials may decide that integrating the gift card with its municipal ID doesn’t make sense. Once the card becomes reloadable, it will probably require residents to supply their social security numbers, according to Fahey. That's largely because the Financial Crimes Enforcement Network, a bureau of the U.S. Treasury Department, released guidance in 2011 that limits how much someone can load on a prepaid card. The rule is actually meant to prevent money laundering, but as a consequence, card issuers need to be able to verify people's identification and ensure that they aren't violating the loading cap. Asking for the social security number is the easiest way of verifying someone's identity.
Yet the reason New Haven created a municipal ID almost seven years ago was to provide undocumented immigrants with a form of official government identification that they could use for interacting with public resources, such as the police, and for opening bank accounts. Eduardo Gomez, a software architect at ParkEasy, said the company is trying to determine if other types of identification, such as a passport or consular ID card, could serve as substitutes for a social security number. If not, undocumented immigrants may be discouraged from using the prepaid feature of the card.