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Bank fees hit unemployed benefits

By Claes Bell ·
Wednesday, November 16, 2011
Posted: 5 pm ET

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?

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December 21, 2011 at 3:38 pm

I think these accounts should not be allowed to be charged any fees, although I think it is rediculous that they have signed these contracts with the big banks to handle unemployment funding.

November 18, 2011 at 2:22 am

Unemployed for 3 years and complaing about bank fees on her gov handout? How about get a job and hook up direct deposit with a bank in your community? Honestly the real culprit for all these bank fees is the Fed Reserve. They report that inflation is 3-4% annually and then turn around w/ QE and "Operation Twist" to lower rates. Us investors lose our purchaing power with the horrible rates on most debt related investments these days, cds, treasuries, etc. Why would it be different for a bank who has to give out a 30 year mortgage with a rate below 4%?

November 17, 2011 at 10:56 pm

I say no banks shouldn't charge not one penny for prepaid cards from the unemployment benefits that most americans depend on shame on the banks and a bigger shame for the government for not finding a cheaper way in fees form banks.

November 17, 2011 at 11:21 am

I would guees that the folks who are getting unemployment benefits through these pre-paid debit cards also have the option of having their own checking account credited instead. If that is the case, recepients should take matters into their own hands and open a no fee checking account. They exist! You have to do a few minutes of research.

If that is not the case, then as others have commented, the state should make arrangements which are low or no fee.

Emily B
November 17, 2011 at 10:53 am

A lot of people don't realize they can get cash back at a lot of merchants when they use their debit card. The bank still gets their swipe fees, but the debit card holder doesn't have to pay any ATM feeds.

November 17, 2011 at 10:27 am

Bank of America STRIKES AGAIN!

Can we petition to get the "Of America" part off of the bank name?

s muz
November 16, 2011 at 9:27 pm

Unemployment payment should be exempt from any fees and the state should see to that or give the insured the option of direct deposit . What is this ? .. a gift card for a lowered pay out ?...sound's like someone is on the board of director's for the bank . We The People can make or break them , even though we don't have the money