Exorbitant card fees chip away at benefits for the unemployed

For millions of out-of-work Americans, the only thing keeping them fed, clothed and housed is the unemployment benefits they receive from the state. Yet in far too many cases, those badly-needed funds are being depleted by the very banks that issue the debit cards on which they receive their benefits.

In 19 states, the unemployed use a processing system called EPPICard, which also handles distribution of other types of government benefits such as welfare and child-support payments. In others states, big banks such as JPMorgan Chase and Bank of America provide debit cards on which unemployment funds are distributed. The cards are supposed to offer users convenient access to their funds, but many Americans are growing frustrated with EPPICard and other unemployment-benefit debit cards.

ConsumerAffairs.com has received dozens of complaints from consumers regarding the cards, many of which concern the exorbitant fees that users are charged and poor customer service. Heather of Evansville, Indiana wrote on the ConsumerAffairs.com message board in July:
You can find an ATM that doesn't charge for withdrawals by using their ATM locator on the website -- but beware -- just because they say they won't charge doesn't mean a thing! There's only one ATM in my area that *supposedly* won't charge for withdrawal, but EPPICard still charged me. If this happens to you, CALL THEM, but don't believe them if they say you have to fill out a dispute form for ATM fees -- that's a LIE! You have to call them and handle it over the phone.
Consumer advocates and Congress alike are taking note, but there's no relief in sight just yet. "We've been trying to push for states to make sure these cards are fair," says Michelle Jun, staff attorney at nonprofit group Consumers Union.

Recent legislation protecting consumers from exorbitant credit card fees and penalties doesn't apply to holders of the debit cards onto which unemployment benefits are deposited (although this is arguably a population that most needs protection from those fees). Depending on the state, people drawing unemployment can be charged for such mundane activities as withdrawing money from an ATM -- even an in-network machine -- or speaking with a teller. Users can even be penalized for checking their balance at an ATM. According to data from the Department of Labor, 11 states have card programs that will slap a user with an overdraft fee of up to $20 if they try to make a purchase for more than they have left on the card (in other states, the transaction will just be declined). These overdraft fees might even be illegal, based on regulations stipulating that unemployment money must go straight to the recipients, not third parties, says Margot Saunders, a lawyer with the National Consumer Law Center

"Beneficiaries in some states have no choice but to accept benefits on the cards and many are charged exorbitant fees for withdrawals, balance inquiries, attempting to use their card when it has an insufficient balance, and other services," a spokeswoman for the Ways & Means Committee told WalletPop. Rep. Sander Levin (D-Mich.), the chairman of the committee, has recently introduced a bill to try and halt the nickel-and-diming of unemployed Americans. "These fees reduce the overall benefits paid to the beneficiary, beneficiaries may not get the full amount of their benefits, and this limits the impact of government programs," the spokeswoman added.

But there's one obstacle that may keep any progress from being made on this front: states save a lot of money by distributing unemployment benefits on cards as opposed to sending out paper checks. "It's a problem because the states have transferred the cost of providing the unemployment benefits from the state to the recipients," says the National Consumer Law Center's Saunders.

Every state has a slightly different contract with an issuing bank, so there's no national average, but consider this metric by way of comparison: According to a study done by the National Consumer Law Center, if the federal government decided to replace Social Security checks with direct deposit (a move the government has already been pushing for more than a decade), the Treasury would save $100 million annually.

Currently, 35 states issue unemployment benefits via debit cards, two have pilot programs in the works and 11 more are considering the method, while 19 states use the EPPICard processing system. The cards do have benefits: Recipients get the money immediately and they can use the card for shopping and paying bills as easily as they could with an ordinary credit or debit card. But the fees can be steep, and there are a lot of them.

Users can incur fees for withdrawing money at an ATM, a fee that's generally higher at non-network ATMs. For unemployed people who might not have the gas money to go running all over the county to use the "right" ATM, this can be a significant hardship. Many also charge a higher fee for going to a teller window instead of using the ATM, or for obtaining customer service over the phone. Some states allow unlimited use of the card at stores, while some only provide a limited number of fee-free purchases. Perhaps most problematic, many charge users for checking their balance at an ATM. Card issuers like to point out that users can avoid a lot of these fees by going online, but this unfairly penalizes older or less computer-literate Americans, or those who had to give up their Internet service to save money (a not unlikely scenario for the unemployed).

Last year, the Department of Labor issued an advisory about these fees, in which it called at least some of the fees "unfair." Unfortunately, the advisory is just that; it's not a mandate. A Department of Labor spokeswoman told WalletPop there have been some small changes; for instance, New Mexico recently switched debit card vendors in order to offer residents a better deal on fees, and Colorado kept its vendor but renegotiated the fee structure to benefit recipients.

At least one lawmaker is trying to put some teeth behind the Labor Department's advisory in order to prevent circumstances like this from happening in the future. Congressman Sander Levin introduced H.R. 4552, the Benefit Card Fairness Act of 2010. This bill would prohibit charging users fees for what it terms "ordinary" use of the account and would require issuers to provide better disclosures about fees and resolving account errors. Unfortunately, the bill is still pending before the House Financial Services Committee, and there's no timeline for its advancement or passage, according to a Ways and Means Committee spokeswoman.

Margot Saunders of the National Consumer Law Center recommends that unemployed Americans elect for direct deposit of their unemployment benefits whenever possible, or that they make themselves very familiar with all of the associated fees. The Labor Department suggests that states distribute wallet-sized cards listing all the fees so people will have the information handy when they're using the card. Until states start providing that, you could certainly write out that information on an index card and keep it in your wallet or purse where you can refer to it while at a bank or store.

Sometimes, though, even this can fail to cover consumers, which is why advocates say legislation is needed. Earlier this month, the EPPICard system that provides payments for unemployed Americans in 19 states failed. In an article about the glitch, an EPPICard spokesperson says customers could call the service number on the back of their card for help. The problem? In most states, calling customer service incurs a fee.

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