Jobless Paying Millions in Bank Fees to Get Unemployment Benefits

unemployment payment cards credit

Jobless Americans are paying millions in unnecessary fees to collect unemployment benefits because of state policies encouraging them to get the money through bank-issued payment cards, according to a new report from a consumer group.

People are using the fee-heavy cards instead of getting their payments deposited directly to their bank accounts. That's because states issue bank cards automatically, require complicated paperwork or phone calls to set up direct deposit and fail to explain the card fees, according to a report issued Tuesday by the National Consumer Law Center, a nonprofit group that seeks to protect low-income Americans from unfair financial-services products. An early copy of the report was obtained by The Associated Press.

Until the past decade, states distributed unemployment compensation by mailing out paper checks. Some also allowed direct deposit. The system worked well for people who had bank accounts and could deposit the check without paying a fee.

It also cost states millions of dollars each year to print and mail the checks.

Banks including JPMorgan Chase & Co., U.S. Bancorp and Bank of America Corp. seized on government payments as a business opportunity. They pitched card programs to states as a win-win: States would save millions in overhead costs because the cards would be issued for free. And people without bank accounts would avoid the big fees charged by storefront check cashers.

However, most of the people being hit with fees already have bank accounts. The bank-state partnerships effectively shifted the cost of distributing payments from governments to individuals. The money needed to cover those costs is deducted from people's unemployment benefits in the form of fees.

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Consumer advocates like NCLC are focused on ensuring access to the direct-deposit option so that people can avoid the card fees.

The trouble, the new report says, is that many states make it difficult for people to sign up for direct deposit. The rate of people using direct deposit ranges from a national high of 82 percent in Minnesota to a low of 16 percent in Arizona, the report says.

Minnesota offers direct deposit to people when they apply for benefits, and allows them to change their payment method online or over the phone, the report says.

In Arizona, by contrast, people are automatically enrolled in the card program. After they receive the card, they must find a paper form, fill it out, and submit it by mail. There is no way to change payment methods online or over the phone.

"The difference in direct-deposit rates among states seems primarily due to how hard or easy the state makes it for workers to choose direct deposit," the report says.

In five states - California, Indiana, Kansas, Maryland and Nevada - unemployed people aren't offered direct deposit at all. The report says that setup is illegal under a federal law that bars states from requiring benefits recipients to open an account at a particular bank.

The federal government recommended in 2009 that people with bank accounts receive payments via direct deposit. Nearly four years later, the report says, "there is no excuse for any state not to be offering direct deposit as the first choice for payment of unemployment benefits."

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Banks make more money when more people use the cards. In the past, some of their deals with states prevented states from offering direct deposit, or required states to promote the card program as a first option.

To cover the cost of issuing cards and running the programs, banks charge a plethora of fees, including charges for balance inquiries, phone calls to customer support, leaving an account inactive for a period of months, or making a purchase using a personal identification number.

Many states have eliminated some fees and improved consumer protections in the two years since NCLC published its first comprehensive review of state unemployment payments. Banks no longer charge overdraft fees, which skimmed up to $20 from the benefits of card users whose spending exceeded the balance on the card.

Pennsylvania was singled out for praise in the report. Residents of that state will save $5.2 million in card fees each year because the state switched to a lower-fee card.

In part because of the recent improvements, the report says, prepaid cards often are the best option for people who don't have bank accounts. Those people would often pay even bigger fees to storefront check cashing services.

"A well-designed prepaid card is safer, cheaper and more convenient than paying to cash a paper check," said Lauren Saunders, one of the report's authors, in a prepared statement. But she said "it is no substitute for direct deposit to an account of your own choosing."

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I disagree with the author of this article. During my 1+ yr of unemployment I have not paid one dime in fees. The State of California uses Visa and B of A as its provider. The fee may come into play if someone uses the card directly without a bank account. That could be remedied by calling the customer service number on the back of the card, for card balance. From experience there was a fee imposed to the cardholder for using Visa as a debit v. credit. It was a fee not imposed by the bank or merchant. Not sure that is still true.

February 11 2013 at 1:47 PM Report abuse rate up rate down Reply

Maybe if we had more jobs available, we wouldn't have so many people on unemployment. Where are all the jobs Obama???

January 30 2013 at 9:04 AM Report abuse +1 rate up rate down Reply
3 replies to sebrugger's comment

Just another example of our government being in bed with corporate America to cheat us.

January 30 2013 at 8:53 AM Report abuse +1 rate up rate down Reply

The major banks have been a major cause of the economic collapse. And yet, not one has been charged for any criminal violations. I am not the brightest star in the sky so will someone please help me out. Why is this so? Larry

January 30 2013 at 7:56 AM Report abuse +1 rate up rate down Reply

banks who particiate SHOULD NOT BE ALLOWED TO CHARGE FEES FOR unemployment benefits.........

SHAME ON YOU......... AND OBAMA..........SHAME ON YOU.....

January 30 2013 at 4:50 AM Report abuse +1 rate up rate down Reply

Never collected such "benefits" and never will, no matter what. Get a job. But why should you when you can get a check for doing nothing.

January 30 2013 at 2:07 AM Report abuse -2 rate up rate down Reply
1 reply to crimeslawyer's comment

I've been out of work for a month, have not received any benefits as of yet. I'm looking every day for work, if it's really out there; it's bypassing me. And yes, I've even applied for jobs at fast food joints... I was a medical assistant before I lost my job.

January 30 2013 at 9:49 AM Report abuse rate up rate down Reply
Thrift Store

Well lets make it easy stop being a Welfare Party moocher and get a job. And yes jobs are out their for those who actually want to work

January 30 2013 at 12:48 AM Report abuse rate up rate down Reply

I bet some of that went tpwards her cleavage buildup LOL

January 29 2013 at 10:47 PM Report abuse -1 rate up rate down Reply

When I was un employment I went in Bank of America and transfered the money from the card into my checking account at wellsfargo and it didnt cost me a dime. Or you can go to the bank and transfer the money from the card for nothing,,,I dontunderstand what is so hard about that all you need is on line banking and guess what? That is free too lol

January 29 2013 at 10:37 PM Report abuse +1 rate up rate down Reply

LOL This cracks me up. Obama puts people out of work, on to the ever extended unemployment benefits and his friends in the evil banking industry ( that pocketed BILLIONS in bailout money) are pocketing money from unemployment benefits. 6 TRILLION and counting ... where did it all go

January 29 2013 at 10:24 PM Report abuse -3 rate up rate down Reply