Debit Card Fees Hit Unemployment Benefits

Increasingly, things like unemployment benefits are being distributed on prepaid cards that act like debit cards. In many cases, that’s convenient for the recipients. But these debit cards are Visa or Mastercard. Think about the fees you pay on your Visa or Mastercard. Now imagine that those fees were coming out of unemployment benefits you were barely scraping by on to begin with.

You see the problem?

Rep. Sander Levin has proposed a bill that would fix this.

The act would:

Require beneficiaries have the option of receiving benefits through direct deposit;

Ensure that all recipients receive one free ATM withdrawal and one free bank teller withdrawal per deposit;

Prohibit fees for balance inquiries or card inactivity;

Require free telephone customer service and error resolution.

That seems like it should be non-controversial, right? People should have access to the full amount of their benefits. So it’ll be interesting to see what objections Republicans have to it—you know there’ll be something.

Working America has signed on to a letter supporting this bill; click read more to see the full text of the letter.

Dear Congressman Levin:

The undersigned labor, consumer and civil rights organizations are pleased to support your Benefit Card Fairness Act, H.R. 4552. The bill protects the vital unemployment insurance, state-disbursed child support, and other federal, state and local payments that are increasingly being disbursed on prepaid cards instead of by paper check.

Prepaid cards are typically Visa- or MasterCard-branded debit cards that look and function like bank account debit cards but do not come with a bank account and lack the clear federal protections that bank cards receive. Moreover, while consumers can choose the bank account that fits their needs, consumers who receive government payments on a prepaid card may have no choice in the matter. Some government prepaid cards come loaded with inappropriate fees and substandard protection for the crucial income paid through the cards. By contrast, the new prepaid card that the Treasury Department has developed for Social Security recipients, the Direct Express Card, is optional and has minimal fees and greater consumer protections.

Modeled after the features of the Direct Express Card, the bill provides these protections for government payments prepaid cards:

• Choice. Consumers who have bank accounts will have the choice of payment by direct deposit or prepaid card. Consumers who live in remote areas without ATMs or have disabilities or other hardships making prepaid cards expensive or unworkable can choose to receive a paper check.

• Information. Consumer must be given clear information about prepaid card fees and other terms, not buried in the fine print.

• No inappropriate fees. Fees for balance inquiries, overdrafts, denied transactions, customer service and other inappropriate fees are not allowed. Consumers can make ATM or bank teller withdrawals once for each deposit without a fee. A limited number of other fees, such as for the next cash withdrawal per deposit and optional services like bill payment, are permitted.

• Right to statements and transaction information. Consumers can monitor fees and unauthorized charges by electing to receive paper statements for $1 per month or by accessing balances and transaction information by telephone or electronically.

• Unauthorized charges and billing errors. Consumers will have the same dispute rights and procedures as they do for bank account debit cards.

• FDIC insurance. Consumer funds that are held in pooled prepaid card accounts must be structured to ensure FDIC insurance that is payable to the individual consumers.

Individuals who receive unemployment insurance, child support, welfare payments, and other government payments depend on that income for their basic necessities and need every penny. For consumers with bank accounts, prepaid cards are typically inferior to direct deposit. For unbanked consumers, prepaid cards can help avoid check cashing fees and can have other advantages over cash. But prepaid cards can also carry hidden fees that eat away at critical funds and can lack adequate protection against unauthorized transfers and billing error. The Benefit Card Fairness Act will ensure that consumers receiving government payment prepaid cards can use those cards with confidence. We applaud you for introducing the bill and are pleased to support it.