A study conducted by the National Consumer Law Center into state unemployment compensation (UC) prepaid card programs reveals the gamut of fees that can drain the value on the cards of the unemployed. Of the 40 states that offer UC card programs, over half charge ATM withdrawal and balance inquiry fees, denied transaction fees or inactivity fees, according to Unemployment Compensation Prepaid Cards: States Can Deal Workers a Winning Hand by Discarding Junk Fees.
The report singled out five UC card programs operated by U.S. Bank as having the "worst" fees – overdraft fees that ding cardholders' accounts between $10 to $20. The five states that charge overdraft fees are Arkansas, Idaho, Nebraska, Ohio and Oregon. The states where U.S. Bank's UC programs operate but do not charge overdraft fees are Minnesota, North and South Dakota, and Wyoming.
However, researchers discovered positives to U.S. Bank-issued UC cards that charge overdraft fees. "The U.S. Bank cards with the most troublesome fees tend to be quite good on other measures," the report said. "Some cards are better for recipients in urban areas with many network ATMs, while others are better in remote areas."
Additionally, the report said Tennessee's UC card program, managed by JPMorgan Chase & Co., has the most "junk fees," while the card programs in California and New Jersey, both managed by Bank of America Corp., have none. The NCLC recommends that all states should eliminate all penalty and information fees, as well as ensure that unemployment benefit recipients can easily access funds without being charged for it.
When the NCLC investigated the fee schedules of the programs state by state, researchers found purposeful obfuscation. "It appears that a deliberate choice was made not to include complete and compact fee schedules, as it would have been a simple matter to include them," the report said. "When contacted, many states could not or would not provide information about the fees charged on their cards and referred callers to the bank."
Lauren Saunders, Managing Attorney at the law center's Washington, D.C., office, said U.S. Bank would not provide full details to NCLC about how its overdraft fee programs operate. Saunders believes that U.S. Bank is in compliance with the part of Regulation E that implements the overdraft requirements of the Electronic Fund Transfer Act of 1978. However, Saunders said it is debatable whether U.S. Bank's overdraft fees policy violates the Federal Unemployment Tax Act of 1939.
Among its recommendations, the NCLC said unemployment benefit programs should offer recipients choice of payment method (direct deposit, check or prepaid card) and that UC cards should not come with overdraft fees and "dangerous" credit features.
Saunders recognizes that the move away from paper check programs is a large money saver for state governments, and that most unemployment benefit recipients have the skills to utilize electronic systems effectively. However, Saunders believes states should allow for a limited number of waivers for recipients who don't have those skills.
"We think all states should have some sort of waiver process," she said. "We're not saying it should be widely available. You need a little bit of an escape valve. … They need to have some sort of hardship waiver process that would probably be applicable to a very small number of people."
Saunders also advocates against prepaid cards that come with credit facilities. "I think a credit feature on a prepaid card is a bad idea," she said. "It encourages people to spend money that they don't have. And, similar to the kind of debt cycle you get into with payday loans, it gives somebody the very first crack at your benefit check or your wages before you pay for food or pay your rent. … The credit features that we've all seen are priced at exorbitant rates that are really just payday loans."
Saunders believes prepaid cards should be a safe alternative to traditional bank accounts. "If you can't qualify for a credit card and you can't afford an overdraft line of credit on a bank account, maybe that's because you can't handle the debt," she said. "Credit is debt, and if people are struggling, they shouldn’t take on more debt they can't afford."
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