Across the nation, people receiving a range of state-furnished benefits — from unemployment insurance and food stamps to cash assistance for poor families — are facing similar options and reaching the same conclusion. In 41 states major banks and financial firms have secured contracts to provide access to public benefits via prepaid debit cards. And banks are increasingly extracting hefty cuts of these funds through an assortment of small fees. U.S. Bank, JP Morgan Chase, Wells Fargo, Bank of America and other institutions hold contracts to distribute these benefits on prepaid debit cards.
When Bank of America announced plans to charge regular banking customers a $5 monthly fee to use their debit card created a wave of public criticism. But the lesser-known fees attached to prepaid debit cards are already extracting money from the most vulnerable Americans — those unable to pay their bills and feed their families without public help — in the midst of stubbornly high unemployment and soaring rates of poverty.
Six years ago, states distributed $55 billion in public benefits via prepaid debit cards, according to an estimate from Mercator Advisory Group, which monitors the consumer payment industry. By last year, that figure had ballooned to $133 billion. Mercator does not track how much of that money was handled by banks.
There are some hints of how much money is flowing from America’s poorest families to banks. In 2008, California’s welfare families paid $8 million in surcharges to access their cash welfare benefits, according to a Western Center on Law and Poverty analysis, which advocates for the poor. Surcharges paid by welfare recipients will exceed $16 million this year, the Center projects.
In several states, the public benefits debit card business involves a largely captive audience that must exert itself to find an alternative means of securing its money. A half dozen states force the unemployed to receive their benefits on prepaid debit cards, according to a May study released by the National Consumer Law Center.
Title: Banks Extract Fees on Unemployment Benefits
Source: Huffington Post: November 1, 2011
Author: Janell Ross
Student Researcher: Ellis Huber, Sonoma State University
Faculty Evaluator: Peter Phillips, Sonoma state University