Unemployment Compensation Prepaid Cards

Unemployment Compensation Prepaid Cards

How States Can Deal Workers A Winning Hand by
Discarding Junk Fees

Prepaid Cards May Benefit Unbanked Recipients and Save States Money
but Need Improvements

Download the full report (PDF)

Download the Executive Summary &
a National Overview of Usage and Fees (PDF)

Download a State-by-State Highlights Chart,
Notable Fees, and Bank Issuer (PDF)

Download the press release (PDF)

Media Highlights:"The price of unemployment debit cards" by Kristin Arnold (video interview with Lauren Saunders)

Published May 10, 2011
©National Consumer Law Center

40 states now use prepaid cards instead of paper checks to pay some or all recipients of unemployment compensation (UC). Prepaid cards provide access to electronic payments and can help unbanked workers to avoid check cashing fees and the risks of carrying cash. But too many unemployed Americans are getting stung with unnecessary and poorly disclosed fees at a financially stressful time when they need every penny.

To improve UC prepaid cards, states should:

• eliminate junk fees,
• improve options for getting account information, and
• offer direct deposit to a bank account as the first choice

The report's key findings are:

1. States need to negotiate better deals with banks to eliminate junk fees.

Because states receive separate grants for administration expenses and unemployment benefits, they are not permitted to fund the former with the latter. But overdraft fees, denied transaction fees, balance inquiry fees, and other fees on prepaid cards skirt that rule. Read more on specific fees.

• 24 cards charge $0.25 to $1.50 denied transaction fees, and 5 cards, all issued by U.S. Bank, charge $10 to $20 overdraft fees. Penalty fees are unfair and are an unacceptable way of paying for UC prepaid card programs.
• 24 cards charge $0.25 to $1.00 for ATM balance inquiries and many cards charge $0.20 to $3.00 for customer service calls, sometimes even for calls to the automated menu to check the balance. Basic account information should be free.
• 4 cards charge for purchases made using a PIN number.
• Most cards provide several free options for withdrawing cash, but 2 cards charge for every ATM withdrawal and only one-third of the cards provide any free withdrawals at out-of-network ATMs.

2. Better access to account information and fee transparency are essential.

Workers should have:

• free access to basic account information;
• the option of signing up for paper statements to assist in monitoring accounts for unwanted fees and unauthorized charges;
• easy access to clear and conspicuous fee schedules on state websites.

3. Direct deposit should be the first choice, with checks in case of hardship.

6 states that use prepaid cards do not give workers the choice of direct deposit to their bank account; several others first enroll workers in the prepaid card and force them to opt out.

For unbanked workers, a well-designed prepaid card is better than a paper check, but checks should be an option in case the prepaid card poses a hardship.

4. States should follow the best models and issue public requests for proposals.

Cards vary considerably state to state and even among cards issued by the same bank. As of May 2011:

 

Best cards
California and New Jersey (Bank of America)

 

Runners up cards
Arizona (JP Morgan Chase)
Maryland (Citibank)
Minnesota, North Dakota, South Dakota, and Wyoming (U.S. Bank)

 

 Card with the most junk fees
Tennessee (JP Morgan Chase)

 

 Cards with the most problematic fee
Arkansas, Idaho, Nebraska, Ohio, and Oregon (U.S. Bank for overdraft fee)

 

5. The new U.S. Consumer Financial Protection Bureau and the U.S. Department of Labor can help.

They should work together to eliminate unfair fees, to improve transparency, and to help states negotiate more competitive contracts.

Media Highlights

4/6/12 Bankrate.com 2:25 runtime "The price of unemployment debit cards" by Kristin Arnold (video interview with Lauren Saunders)