December 6, 2023

Bucks: Prepaid Cards Subject Jobless to Host of Fees

When you’re getting unemployment benefits, you by definition don’t have a lot of cash to spare. So it seems especially unfair that people who receive their jobless benefits on prepaid debit cards are subject to a variety of fees they can ill afford to pay.

A report out this week from the National Consumer Law Center lays out a host of ways in which banks nibble away at jobless benefits with fees the center called “junk.” The prepaid cards are most often used by jobless recipients who don’t have checking accounts, and so are ineligible for direct deposit. Practices vary from state to state because jobless benefits are distributed at the state level, and state governments negotiate the terms of agreements with card providers. In many states, charges apply for using A.T.M.’s, even if they’re in network; checking balances; and even for not using the card enough (inactivity fees, as high as $3).

The report is especially critical of a card issued in five states by U.S. Bank, which charges overdraft fees of $10 to $20 if recipients use more than the amount on their cards. Charging an overdraft fee to someone who doesn’t even have a bank account struck me as particularly ingenious — what are they overdrawing, exactly?

U.S. Bank is able to do this, the report explains, because jobless benefits are typically paid into pooled accounts that then have subaccounts designated for individual recipients. In most states, if a recipient uses the card to make a purchase that exceeds his or her benefits, the transaction is simply denied. But in five states — Arkansas, Idaho, Nebraska, Ohio and Oregon — U.S. Bank lets the transaction go through, and then deducts the amount, plus the overdraft fee, from the recipient’s next benefits check. (The bank issues cards without overdraft fees in several other states.) Those fees can make a big dent, considering that the typical weekly unemployment check is just $294.

Teri Charest, a spokeswoman for U.S. Bank, said in an e-mail that overdraft protection is an option that states can choose to add to their prepaid card programs. But even when it is offered, cardholders must opt in to overdraft coverage. “The terms are clearly disclosed so cardholders are aware of the fee should they need to use it,” she said.

Other banks don’t charge such hefty fees, but some do charge “denial” fees, ranging from 25 cents to $1.50, when an attempted A.T.M. or retail transaction fails for lack of funds. Some even charge for live customer service calls or withdrawing funds using a human teller.

The practice occurs despite a directive from the Department of Labor stating that deducting “overdraft, overdraft fee, or denial fee” from future unemployment payments is “inconsistent” with federal law.

The “best” cards, offering free in-network A.T.M. withdrawals, at least two free out-of-network withdrawals, no balance inquiry fees and no inactivity fees, are offered in New York and New Jersey by Bank of America, the report found.

The worst for junk fees, in addition to the U.S. Bank version with overdraft fees, is the Tennessee card issued by JPMorgan Chase. It is one of only two states that fail to offer any free A.T.M. withdrawals.

The report recommends that smaller states band together for more clout when negotiating card terms with banks. And it urges the new Consumer Financial Protection Bureau to take up the cause of excessive fees on prepaid cards when it opens for business this summer. “We hope prepaid cards are high on the agenda,” said Lauren Saunders, managing attorney at the Consumer Law Center in Washington, and the primary author of the report.

Have you received jobless benefits on a prepaid card? What has your experience been?

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