Bucks Blog: Improvement Seen in Prepaid Cards for Jobless Benefits

Many states have made progress in reducing fees that can eat away at unemployment benefits delivered on prepaid debit cards, a report from the National Consumer Law Center finds.

But five states still do not offer jobless workers the option of having their benefits deposited directly into a bank account, which the center says violates federal law.

Changes since the center’s first report on the issue in 2011 have saved unemployed workers millions of dollars in fees over all, the center says. Eighteen states have reduced card fees for A.T.M. withdrawals and purchases, and just three cards get a “thumbs down” from the center in the new report, down from 16 in the initial analysis.

But there is still room for improvement, since many cards still carry fees that out-of-work Americans can ill afford, said Lauren Saunders, managing lawyer at the center and an author of the report. Some states make it hard to find out just what fees are charged, and under what circumstances.

“There are still too many fees,” she said, citing instances in which workers must pay to check their balances and contact customer service, even if they do not speak with a live representative. Well-designed prepaid cards are safer, cheaper and more convenient than paper checks, she said, but direct deposit to a bank account of the recipient’s choosing is still the best option.

Practices and fees vary because jobless benefits are distributed at the state level, and each state negotiates terms with card companies.

Roughly 5.7 million people were receiving unemployment assistance as of Jan. 5, according to federal data. (The unemployment rate stood at 7.8 percent at the end of 2012, with 12.2 million people out of work.)

The report found the ease of signing up for direct deposit of unemployment benefits varies. Some states encourage workers to sign up for direct deposit as the first choice, while others automatically enroll them for prepaid cards and make them take extra steps to unenroll from the cards and enroll in direct deposit. While prepaid cards, in general, are often used by people who lack conventional bank accounts, unemployed workers previously received a paycheck, so many are likely to have a bank account available, Ms. Saunders said.

Minnesota had the highest direct deposit rate, at 82 percent, while Arizona had the lowest, at 16 percent.

California, Indiana, Kansas, Maryland and Nevada do not offer the option of direct deposit, even though federal law requires them to do so, the report says.  In California, Kansas and Maryland, workers can set up automatic transfers from a card to a bank account, but fewer than a quarter do so — perhaps because it results in a delay of one to four days in getting their money.

U.S. Bank, the only bank that charged overdraft fees in the previous survey, has eliminated them. Pennsylvania made changes to its card program that have saved unemployed workers more than $5 million.

As a result of the changes, Pennsylvania’s card, issued by JPMorgan Chase, joined top-ranked cards in California and New Jersey, both issued by Bank of America. The three cards earned “two thumbs up” from the center because they offer benefits like free in-network A.T.M. withdrawals and lack “junk” charges, like inactivity fees.

The three states receiving a “thumbs down” for their cards were Alaska, Indiana and Iowa.

Do you receive unemployment benefits on a prepaid card? What has been your experience? Do you feel the fees are excessive?

Article source: http://bucks.blogs.nytimes.com/2013/01/30/improvement-seen-in-prepaid-cards-for-jobless-benefits/?partner=rss&emc=rss