Monday, March 9, 2009
"We are appalled that this is happening in our industry," said Louis Hoch, Chairman and Chief Executive Officer at FiCentive. "And we're very concerned about it."
Reports have surfaced that unemployed individuals are assessed bank fees when they use their state-issued prepaid debit cards to withdraw cash at ATMs and for other services, such as balance inquiries or calls to customer service centers.
"Some of these banks that are involved are doing things like charging 50 cents to call and get your balance, charging 50 cents for customer service," Hoch said. "And that's not right."
Hoch believes recipients should not be charged any fees at all. "These people that are getting these unemployment benefits on cards should be able to get all their money off the cards," he said.
According to FiCentive, approximately 30 states distribute unemployment benefits on cards through banks; an additional 11 states are reviewing such programs. FiCentive said banks provide this service to states without setup or processing charges. States save millions of dollars annually by no longer having to manage and mail paper checks to recipients. But FiCentive said banks are charging considerable fees to the unemployed.
Hoch maintained that fees charged cardholders are acceptable on such payment devices as gift and general purpose reloadable cards; consumers can accept or reject cards and their accompanying fees and conditions. But Hoch believes cards on which government benefits are loaded are another matter.
"There's a difference when somebody chooses to use that card and when somebody is forced to use that card," Hoch said.
"For example, if today you're getting your paycheck direct deposited into your bank account, and you're happy with that, and your employer comes to you tomorrow and says you're going to have a payroll card, and we're not going to support your direct deposit, and, oh, by the way, the payroll card has $5 a month fee, you're not going to be happy about that," he said.
Dallas-based Affiliated Computer Services Inc. processes government benefit payments for the state of Oklahoma. Dave Turner, Vice President of State and Local Solutions for ACS, said,"There are many, many ways for folks who are using the debit card program to get all of their money for free.
"For example, just like when you walk into a grocery store with either a Visa- or MasterCard-branded card and you can get cash back: You don't even need to buy anything, and you can get cash back for absolutely no fee whatsoever."
Lisa Henley, Director of Electronic Payment Systems for the Oklahoma Department of Human Services, calls it a training issue. "Number one, the fees that are charged are no different than the fees that the private sector pays," she said. "So that's not an unreasonable thing to ask. Number two, at least on the ACS program, there is always a way to get your money for free.
"And it's not like you have to travel a great distance to do so. You can go inside the bank to the teller and you withdraw your funds, and that's free. … I think the people that incur the fees have not bothered to read the information submitted with the card; they just go out to any location and just do ATM inquiries and they get denials, and all those things will rack up fees."
But Hoch feels that by "nickel and diming" the unemployed, banks are bringing negative attention to the prepaid industry. He said, "What we're worried about is that the whole industry kind of goes under this cloud – you've got to charge these fees; that's what you're all about. FiCentive had to come out and say, hey, we're not about that.
"On our system, we don't have to charge people ATM fees. We've got 40,000 ATMs throughout the United States that are surcharge free."
Hoch also worries that the banks' actions have brought the industry more unwanted attention from the federal government. Rep. Carolyn Maloney, D-N.Y., a member of the U.S. House Financial Services Committee, has led efforts to regulate industry practices around card fees and has taken notice of the recent publicity.
"Charging the unemployed a 'convenience fee' to handle funds which are, in fact, more convenient for banks themselves to manage (because they are electronically transferred from the state unemployment funds) seems over the line," she said. She called charging such fees "especially unjust in times of economic hardship.”
According to Hoch, the banks do not have to charge fees to earn revenues from unemployment benefit cards. "You can offer [cardholders] bill pay right off the card," he said. "Maybe you can monitor their spending habits and offer them some type of low balance credit card. I mean, there are different ways for the banks to leverage this into a bigger thing."
Hoch pointed out that the problem is not just with the banks, but also with the prepaid card processors the banks utilize.
"Their processors probably aren't educated on, hey, this is how you should make money off this," he said. "And, you know, the right way to make money off this is the interchange and having people sign for transactions [signature debit]. So they go to Wal-Mart and shop for groceries, and they sign for it. Interchange comes back to the card issuer, and they're going to make a percentage."
But JPMorgan, the treasury arm of JPMorgan Chase & Co., doesn't see a problem charging fees on unemployment benefit cards. It provides benefit card programs to seven states: Arizona, Colorado, Louisiana, Michigan, New York, Rhode Island and Texas. "In Colorado, Louisiana, New York and Texas, cardholders have unlimited free withdrawals at all Chase ATMs," a JPMorgan spokesman said.
"JPMorgan has received positive commentary from the states and the cardholders in the states where we have helped launch programs," the spokesman added. "Cardholders have commented on the convenience of not having to wait for checks to arrive in the mail or paying check-cashing fees, as well as the reduced risk of checks getting lost in the mail."
The spokesman concluded that JPMorgan does not expect current fee structures to change. "We would be willing to entertain other pricing structures with the states, but this is what they choose to do today," the spokesman said. "JPMorgan is flexible in the way any fees/costs are borne in our programs. We can support fees paid by the states themselves, cardholders or a combination of both.
"To date, specific state programs have required that they be provided at no cost to the states."
But Hoch feels that the furor the fee issue has caused could be detrimental for the industry and cardholders if it leads to government regulation.
Hoch said because technology exists to "block" the cards and restrict where they are used, "it's conceivable that somebody in a state agency says, 'Hey, we're paying unemployment. We want it to only be used for food and whatever. We don't want to see this card being used at Saks.'
"I could see that happening. And I'm not for that. I mean, I want people to use their unemployment responsibly, but I'm not about telling somebody where they can spend it."
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