The National Consumer Law Center today released the results of a study it conducted on prepaid cards issued in 40 states to recipients of unemployment benefits. The study found that jobless Americans are at risk of having their meager benefit payments diminished by a bevy of poorly-communicated conditions that lead to the accrual of fees, some significant.
While there are tangible consumer benefits to prepaid cards -- such as convenience, greater security, the ability to make online purchases and other transactions that require a card -- the study also found that many states need to negotiate more aggressively on citizens' behalf to remove what the report terms "junk fees" as well as provide greater transparency about fees and charges that can be incurred.
States elect for prepaid programs because it costs them nothing in terms of administrative costs; the expense of the cards and management is underwritten by the banks and subsidized by the fees charged to users as well as merchants. Distribution of paper checks costs much more.
Lauren Saunders, NCLC managing attorney and chief author of the report, said in a teleconference presenting the report that the fees vary by state, even if the issuer is the same. For example, cards issued by U.S. Bank in five states charge overdraft fees; the highest penalty charge is in Arkansas, where an overdraft costs a user $20. Two dozen states have cards that penalize cardholders up to $1.50 for a denied transaction. While most states don't charge users for making a purchase, there are a few exceptions: four states charge for PIN-based (opposed to signature-based) transactions, and Colorado gives users only two free purchases per month, after which they're charged 10 cents per purchase. Other fees -- which vary by state -- include charges to withdraw funds at ATMs, checking a balance at an ATM, calling customer service or even not using the card for as few as 90 days.
In most states, consumers have the option of direct deposit or a prepaid card (and, in some states, a paper check). In Arizona, Colorado, Louisiana, Oklahoma and Oregon, prepaid cards are the default and consumers must opt out if they want to receive direct deposit instead.
The NCLC recommends that states offer direct deposit to recipients of unemployment benefits as a first choice, rather than making prepaid cards the default option. Saunders adds that the Consumer Financial Protection Bureau, once it begins work in July, should set some guidelines and some limits on the fees that can be charged to recipients.