Prepaid cards facilitate a majority of federal benefits

In a July 2012 report to Congress, the Federal Reserve said the government's Supplemental Nutrition Assistance Program (SNAP), formerly called the Food Stamp Program, disbursed nearly $73 billion in benefits in 2011, with all of those funds loaded onto prepaid cards. Out of a total of over $149 billion in government benefits disbursed last year, 67 percent were issued on prepaid cards, according to the Fed.

Prepaid cards were used in 158 programs across 36 states. Of 26 unemployment benefits programs, representing nearly $39 billion in funds disbursed, 37 percent of total funds were loaded on prepaid cards. Furthermore, funds disbursed for the Temporary Assistance for Needy Families (TANF) program were "almost exclusively" disbursed via prepaid cards, the Fed reported. In contrast, prepaid cards were used to disburse only approximately 1 percent of government payroll program funds, the Fed added.

The annual amount of fees paid by prepaid card users depended on the type of government program that underscored the cards. The Fed found average cardholder fees totaled $2.90 per card in 2011, or 0.1 percent of the funds disbursed via prepaid cards. But if SNAP prepaid cards are excluded, cardholders paid $6.33 per card in annual fees, or 0.3 percent of the total amount of funds loaded.

The Fed said card issuers reported receiving over $120 million in cardholder fee revenue in 2011, representing 524.5 million transactions for 113 card programs. Issuers also reported $59 million in ATM fees, which accounted for the largest percentage of total cardholder fee revenue in both federal, state and local programs.

For federal programs, ATM fees accounted for about 80 percent of total cardholder fee revenue, with an average ATM fee of $1 per transaction, the Fed said. In comparison, only 43 percent of total cardholder fee revenue associated with state and local programs came from ATM fees, although the average ATM fee was $1.37 per transaction.

The Fed said SNAP benefits are disbursed electronically using electronic benefit transfer (EBT) cards in all 50 states, the District of Columbia, Puerto Rico, the Virgin Islands and Guam. The cards have two compartments: the SNAP compartment used for eligible food purchases and the cash benefit compartment used to make purchases, obtain cash back at the POS, and withdraw cash from ATMs.

The Fed noted that the SNAP compartment of the EBT card is the sole mechanism for disbursement of SNAP benefits, while the cash benefit compartment is used by at least 38 states to disburse funds on other programs, such as the TANF and general assistance programs.

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