With U.S. unemployment remaining stubbornly high, the importance of cost-effective electronic benefit cards for the unemployed remains equally high. A report by the National Consumer Law Center said states have eliminated overdraft fees on unemployment compensation (UC) prepaid cards and reduced other fees on the programs as well. The result is that UC cards save unemployment benefit recipients millions of dollars in fees a year.
In the NCLC's 2013 survey, Unemployment Prepaid Cards: States Save Workers Millions in Fees; Thumbs Down on Restricting Choice, the law center praised the states and their prepaid card program manager partners for eliminating and reducing fees. In its 2011 survey of the UC card sector, the NCLC gave an overall positive rating to the programs of only eight states and a negative rating to 16 others, out of 40 state programs surveyed. But in the 2013 survey, which reviewed 42 state programs, 18 received the positive rating and only three garnered the negative designation.
The NCLC ranked California as having the best UC card program. But the law center singled out Pennsylvania for the improvements it had made to its program since 2011. Pennsylvania's new program, managed by JPMorgan Chase & Co., will save unemployment benefit recipients $5.2 million annually compared with the old program circa 2011, according to the NCLC.
The savings come in the form of about $3 million in reduced fees yearly via the elimination of ATM fees for in-network transactions, the law center said. The other $2.2 million in savings will occur because 25 percent more in-network ATMs were added to the program, making it easier for Pennsylvanians to conduct transactions at fee-free ATMs, the NCLC noted. Pennsylvania's program was also praised for its innovation; the NCLC said the state will roll out a first-of-its-kind mobile app that allows UC cardholders to locate the closest in-network ATMs.
Amid the sugar, the NCLC added a dose of medicine. The center said direct deposit is the most popular mechanism among consumers for the delivery of unemployment benefits. However, the report stated that five states do not offer direct deposit for their UC card programs, including California. In fact, by requiring recipients to receive benefits on prepaid cards and providing no direct deposit option, the states violate federal law.
The NCLC cited the Electronic Fund Transfer Act, which mandates that no state can force an individual to establish an account with a financial institution (FI) in order to receive government benefits. The law center said four of the five states offer automatic transfers to bank accounts in lieu of direct deposit and claim that automatic transfers are the same as direct deposit.
But the NCLC stated that the two are not the same. Automatic transfers still require recipients to open accounts with the FIs that issue the UC prepaid cards and funds are directed through those accounts before being deposited into bank accounts. Additionally, automatic transfers can take one to four days before funds are available to cardholders, the NCLC said.
The law center concluded that four years after the U.S. Department of Labor recommended direct deposit over UC cards for the disbursement of benefit payments, "there is no excuse for any state not to be offering direct deposit as the first choice for payment of unemployment benefits."
Among its recommendations for further improvements to UC card programs, the NCLC highlighted the importance of making direct deposit the easiest option for recipients to choose. The law center drew a correlation between the states that made direct deposit adoption easy for recipients and the percentage of unemployed individuals who enroll in electronic UC programs.
The report said Minnesota is the most successful in enrolling unemployed Minnesotans in UC programs (82 percent) because of the ease by which they allow recipients to choose the direct deposit option. In contrast, Arizona's adoption rate is the lowest in the study (16 percent), because the state does not give recipients the initial choice of direct deposit.
However, the preeminence the NCLC places on direct deposit reduces UC prepaid cards to a secondary role. "A prepaid card should always be the second choice payment method, available for workers who do not have a bank account or who, for whatever reason, prefer to have a separate prepaid card," the law center said.
Nonetheless, the NCLC concluded prepaid cards play an important role in UC programs, as they help states save money by avoiding check handling costs and help recipients save money by avoiding check cashing fees, as well as provide a safer alternative to carrying cash. 
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