Another front in the battle between the United States as a promoter of the common good and the United States as a machine churning out profits for large banks is the matter of the prepaid bank cards now widely used to pay unemployment benefits. Once again the issue is fees, but there’s more.
There may be a conflict of interest between the states that administer the benefits and the banks the states contract with to issue the cards.
In California, for instance, the state pushes the cards as a way of paying unemployment compensation. Direct deposit is actually an option there, but the state plays it down—and the recipient has to deal with the bank, not the state, to get direct deposit rather than the default option, the card.
Is it any wonder that California wants people to use the cards when the state has a “revenue-sharing” agreement with the card issuer—in California’s case, Bank of America—that gives it, the state, a cut of whatever unused money is left in the cards at the end of the payment period? California got $7.7 million from its unemployment benefits card program between December, 2010 and November, 2011.
Then there’s the matter of fees, the same fees that are nickel-and-diming people to death with conventional debit cards.
In Alabama, Connecticut, Iowa, Tennessee and Rhode Island, according to a survey by the National Consumer Law Center, the benefit card user is caught in a structure that assesses a fee to check the balance on the card and a fee for a transaction with an insufficient balance.
In a few states, prepaid cards are the only instruments used to disburse unemployment benefits. The NCLC contends that that’s illegal because the Electronic Funds Transfer Act prohibits persons or other entities from requiring people to have arrangements with specific financial institutions in order to receive government benefits.
The states claim that users of prepaid benefits cards will incur no fees if they are careful. In practice, it’s not easy to avoid the fees.
Huffington Post, for example, described an unemployment compensation recipient in South Carolina who lives 35 miles from a Bank of America ATM and must pay up to $5 a hit to use her prepaid BoA benefit card at other ATMs.
In New Mexico, another state where Bank of America issues the cards, card users may make one withdrawal from a Bank of America ATM per week for free, but an additional withdrawal carries a fee of $1.50, and a withdrawal from a non-BoA ATM also costs $1.50.
In July, California became the 43rd state to use the cards, which are popular with state governments because they eliminate the necessity to issue paper checks and pay postage. Nationwide, $53.2 billion in unemployment benefits and child support was moved through the cards in 2010, 33 percent more than in 2009. Massachusetts doesn’t yet use the cards, but officials here are planning to do so in the near future.
Spokesmen for the banking industry are quite frank about their hopes that the benefit cards will help banks make up for the losses they will take on swipe fees under new government regulations (benefits cards are exempt from the new regulations).
But in March, some 600 people held a demonstration at a branch of Bancorp, which issues that state’s unemployment benefit cards, to demand an end to fees on cards used to deliver government benefits.
