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Rating prepaid cards for jobless

By Martha C. White ·
Tuesday, May 10, 2011
Posted: 4 pm ET

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.

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May 12, 2011 at 2:08 pm

Also a finance class would help you organize your spending to make as few transaction as possible, again reducing fees.

May 12, 2011 at 1:58 pm

IF there is no other choice, go to an atm when you get paid take at as much as u can and just use cash for the month. If you get charged to call for a balance, its simple dont call. Track your spending. Again taking out all you can at the start of the month will pretty much reduce all the fees you can

May 12, 2011 at 7:50 am


"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."

These are pretty basic transactions that people are being charged a fee for. OBVIOUSLY, if they are receivng these cards for unemployment and need to USE the money to buy BASIC NECESSITIES they are going to use the cards more than TWICE A MONTH! And if they have to pay a fee in order to even check their balance or call customer service a personal finance class isn't going to help one bit! DISGUSTING!

May 11, 2011 at 3:21 pm

Right on homeless, I mean when I get in bed at night the government should wake me up so I'm not late for work in the morning right? It is called being an adult, and being responsible. Guess what, there actually is no reason to own a credit card. You can just as easily get a debit, and that way you only SPEND WHAT YOU HAVE NOT WHAT YOU MIGHT MAKE IN THE FUTURE!!!!!!

May 11, 2011 at 11:34 am

It seems like most the Fees have to do with overdrafts or denied transactions. Pretty easy to fix. make it mandatory to take part in a personal finance class.

May 11, 2011 at 9:41 am

This is sickening to read. As if these people are not suffering enough in this awful economy, banks are making MORE money off of them while taking their houses away at the same time. SHAME ON those states, forcing these cards on people and then not being concerned with disclosing the negative effects these cards have.

THIS is exactly what that "Consumer Protection Bureau" should be watching out for. Wonder how the communications are with the SSI going to these cards also...