Fresh off of months of bad news on banking regulations and a failed push for debit card fees, it looks like one revenue stream for banks remains intact: fees stemming from prepaid debit cards loaded with citizens' unemployment benefits. From Janell Ross at the Huffington Post:
Shawana Busby does not seem like the sort of customer who would be at the center of a major bank's business plan. Out of work for much of the last three years, she depends upon a $264-a-week unemployment check from the state of South Carolina. But the state has contracted with Bank of America to administer its unemployment benefits, and Busby has frequently found herself incurring bank fees to get her money.
To withdraw her benefits, Busby, 33, uses a Bank of America prepaid debit card on which the state deposits her funds. She could visit a Bank of America ATM free of charge. But this small community in the state's rural center, her hometown, does not have a Bank of America branch. Neither do the surrounding towns where she drops off her kids at school and attends church.
She could drive north to Columbia, the state capital, and use a Bank of America ATM there. But that entails a 50 mile drive, cutting into her gas budget. So Busby visits the ATMs in her area and begrudgingly accepts the fees, which reach as high as five dollars per transaction. She estimates that she has paid at least $350 in fees to tap her unemployment benefits.
As American Banker's Kate Berry notes, the banks providing these services to states are also getting paid in another way: debit card swipe fees paid by merchants on each transaction with state benefit cards. Because government-administered payment programs are specifically exempted from the Durbin amendment, which places a limit on most other swipe fees, banks are getting the full, uncapped price for debit card transactions.
I won't begrudge the banks their swipe-fee loophole on this one. Transactions with unemployment benefit debit cards probably make up a small part of the mix for merchants, and they can probably afford it. But if the banks are bringing in millions of extra dollars in interchange revenue, they could at least cover the ATM and other fees for unemployment beneficiaries.
And even if they're not willing to these fees out of the goodness of their hearts, state governments should be shopping for a bank that would be willing to cover, say, 2 ATM withdrawals from any ATM in the state, the same way some Internet banks do for customers now. What with that sweet swipe-fee exemption, I don't think that's too much to ask.
What do you think? Should unemployment benefit cards be subject to ATM fees and other banking fees? If not, who should cover them?