Things could be worse for Marylanders receiving unemployment benefits — they could live in Tennessee

National consumer group rates prepaid cards states use to pay jobless benefits

May 16, 2011|By Eileen Ambrose, The Baltimore Sun

Jobless Marylanders don't have their unemployment benefits eaten up by "junk fees" on prepaid debit cards like people in other states, according to a national consumer group.

National Consumer Law Center last week released a report on prepaid debit cards now used by 40 states to disburse jobless benefits. Maryland didn't take top honors — that went to California and New Jersey — but the consumer group gave the Free State a thumbs up.

"It has one of the better cards," Lauren Saunders, managing attorney for the consumer group, said during a teleconference last week. But Saunders noted that Maryland, along with most states, had room for improvement.

Prepaid cards have taken off in the past few years, not only in the private sector but among state and federal governments disbursing payments. The Treasury Department, for example, experimented with them this year in a pilot project to offer refunds to taxpayers without bank accounts. And starting this month, new applicants for Social Security and other federal benefits will receive a government-issued prepaid card unless they have the money directly deposited in a bank account or on another prepaid card.

States have been switching to prepaid cards for unemployment benefits to eliminate the high cost of printing and mailing checks. The cost of prepaid cards are borne by the unemployed through fees as well as merchants that pay an interchange fee whenever the card is used at one of their stores, Saunders said.

But some state cards nickel-and-dime jobless workers more than others. And with the national average weekly unemployment benefit at $294 — and $323.95 in Maryland — every penny counts.

"Tennessee has the most junk fees," Saunders said.

Tennessee's card, issued by JP Morgan Chase, charges 60 cents or $1 for ATM withdrawals. It costs 40 cents to check the balance at an ATM, 25 cents if a transaction is rejected for insufficient funds and a dime each time the consumer wants to talk to a live customer service representative beyond four times a month.

Maryland's card, issued through Citibank, has few fees. For example, the unemployed get four free ATM withdrawals a month, and thereafter are charged $1.50 for each transaction. But there's no charge if a transaction is rejected for lack of funds.

The card, though, loses points by not giving workers the option of getting benefits directly deposited in their bank account, Saunders said.

The Department of Labor in 2009 recommended that states pay benefits through direct deposit for individuals with bank accounts, the consumer group said. Two years later, Maryland remains one of six states without a direct deposit option.

Maryland officials with the Department of Labor, Licensing and Regulation say they decided not offer direct deposit because that would require agency employees to collect consumers' banking information.

Instead, jobless workers can provide that information to Citibank, which then automatically transfers their benefits from the card to their bank accounts each week for free. This can take an extra day to get the money in the account, though.

Dee McElroy, manager of Maryland's debit card program, says unemployed residents also get a brochure with the card that tells them how they can avoid fees.

Maryland has saved $3.5 million since adopting prepaid cards for jobless benefits in 2008.

Before the prepaid card, the state had a problem with checks being delayed in the mail or, even worse, stolen.

"Stealing checks became a real problem," McElroy says. "We just don't have those problems anymore."

Saunders agreed that a well-designed prepaid card can offer significant benefits to unemployed workers compared with paper checks.

Workers without bank accounts, for example, avoid check cashing fees with a prepaid card and they gain access to the world of electronic payments, Saunders said.

But the consumer group suggested ways to improve the states' prepaid card programs. Among the recommendations:

All states should allow workers the option of getting benefits directly deposited in a bank account and should post fees online. And the Department of Labor and the new Consumer Financial Protection Bureau should consider creating a national card program, which states could join, that uses its larger bargaining power to negotiate lower fees.

Maryland's fees on unemployment compensation prepaid cards

ATM withdrawals: Four free each month; $1.50 thereafter

ATM balance inquiry: Free

Calls to customer service: Free

Inactivity: $3 per month if card isn't used for 180 days

Denied transactions Free

Source: National Consumer Law Center

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