A new report from the National Consumer Law Center revealed that unemployed Americans are paying millions in fees to collect unemployment benefits under the encouragement of state policies that advocate bank-issued payment cards.
Instead of having the fees deposited directly to their accounts, jobless Americans are using bank-issued cards that often carry hefty fees. States usually issue bank cards automatically and require paperwork or phone calls to set up direct deposit. Up until the past 10 years, states issued unemployment benefits through paper checks, which cost states millions of dollars, according to CBS News.
Banks like Bank of America and JPMorgan Chase offered card programs to states that would save millions in overhead costs, and unemployed and unbanked Americans, who could avoid substantial fees charged by check cashing providers. The bank-state card partnership, however, shifted the cost of payment distribution from government to citizens.
The report said that many states make it challenging for a consumer to sign up for direct deposit, adding that the percentage of Americans using direct deposit is as low as 16 percent in Arizona and nationally high at 82 percent in Minnesota. While Minnesota offers direct deposit for people receiving benefits, Arizona automatically enrolls individuals in the card program and 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 said, CBS News reports.
Five states, including California, Indiana, Kansas, Maryland and Nevada, do not offer direct deposit at all, which the report said is illegal under a federal law that prohibits banks from requiring benefits recipients to open a bank account.
Other states like Pennsylvania have opted for cards accompanied by lower fees. Pennsylvania benefits recipients will save $5.2 million in card fees as a result of the new, lower cost card.
“A well-designed prepaid card is safer, cheaper and more convenient than paying to cash a paper check,” Lauren Saunders, one of the report’s authors, said, according to CBS News. “It is no substitute for direct deposit to an account of your own choosing.”