Out of work and living on a $189-a-week unemployment check, Rob Linville needs to watch every penny. Lately, he has been watching too many pennies disappear into the coffers of the bank that administers his unemployment check via a prepaid debit card.
The state of Oregon, where Linville lives, deposits his weekly benefits on a U.S. Bank prepaid debit card. The bank allows him to make four withdrawals per month free of charge. After that, he must pay $1.50 for each visit to the ATM and $3 to see a teller. Managing his basic expenses, including rent, bus fare and groceries, typically requires more than four withdrawals, he says. Unexpected needs -- Linville recently bought a sport coat for $20 to prepare for a job interview -- entail more. He's afraid to withdraw his full benefits in one shot, knowing that the bank could sock him with a $17.50 overdraft fee if he exceeds his balance. So he pulls out small amounts of cash as he needs it, incurring about $15 in fees in the last two months he says.
"I'm so broke," Linville said, his voice expressing resignation that this is simply how the world works. "But I don't really have any other options."
Across the nation, people receiving a range of state-furnished benefits -- from unemployment insurance and food stamps to cash assistance for poor families -- are facing similar options and reaching the same conclusion. In 41 states major banks and financial firms have secured contracts to provide access to public benefits via prepaid debit cards. And banks are increasingly extracting hefty cuts of these funds through an assortment of small fees. U.S. Bank, JP Morgan Chase, Wells Fargo, Bank of America and other institutions hold contracts to distribute these benefits on prepaid debit cards.
When Bank of America announced plans to charge regular banking customers a $5 monthly fee to use their debit card it created a wave of public criticism. But the lesser-known fees attached to prepaid debit cards are already extracting money from the most vulnerable Americans -- those unable to pay their bills and feed their families without public help -- in the midst of stubbornly high unemployment and soaring rates of poverty.
"The big banks have actually figured out a way to make unemployed workers a profit center, one that only grows as things get worse," said Angela Martin, executive director of Economic Fairness Oregon, a nonprofit advocacy group for low income and poor families.
A spokeswoman for U.S. Bancorp, the parent company of U.S. Bank, said unemployment recipients are clearly informed about the fees that pertain to their debit cards. She added that the cards provide a convenient and economical service, because they allow holders to use them to buy goods at stores and withdraw cash back without incurring a fee.
Prepaid debit cards often look a lot like the debit cards which many Americans are already familiar with. But the cards can carry a range of fees for basic banking activities such as visiting an ATM, making a purchase, checking one's balance or paying a bill online.
Six years ago, states distributed $55 billion in public benefits via prepaid debit cards, according to an estimate from Mercator Advisory Group, which monitors the consumer payment industry. By last year, that figure had ballooned to $133 billion. Mercator does not track how much of that money was handled by banks.
There are some hints of how much money is flowing from America's poorest families to banks. In 2008, California's welfare families paid $8 million in surcharges to access their cash welfare benefits, according to a Western Center on Law and Poverty analysis, which advocates for the poor. Surcharges paid by welfare recipients will exceed $16 million this year, the Center projects.
The revenue generated from providing access to public benefits on prepaid debit cards has become particularly important to banks this year, said Lauren Saunders, a managing attorney at the National Consumer Law Center in Washington, D.C. A 2010 federal law capped the swipe fees banks can collect from merchants when consumers use ordinary debit cards. But those caps do not apply to the prepaid debit cards used to withdraw unemployment benefits and other forms of cash assistance.
In several states, the public benefits debit card business involves a largely captive audience that must exert itself to find an alternative means of securing its money. A half dozen states force the unemployed to receive their benefits on prepaid debit cards, according to a May study released by the National Consumer Law Center.
In Oregon, jobless people who apply for unemployment benefits are automatically given their weekly benefits via a U.S. Bank ReliaCard unless they expressly opt out and furnish information about a personal bank account to establish a direct deposit.
Six Oregon residents interviewed by The Huffington Post said that when they applied for unemployment benefits online, the state's website did offer them the opportunity to set up a direct deposit instead of relying upon a prepaid debit card furnished by U.S. Bank. But the page on which they were offered the options did not clearly lay out the fees that can be incurred with the debit card option, they said. Another section of the Web site does list the fees, The Huffington Post found, but locating that information requires looking on a separate page.
Between July and September, U.S. Bancorp secured $357 million in revenue through the division that includes its prepaid cards, according to its most recent earnings statement. That was more than one-fourth of its total revenues. The bank refused to say how much of this revenue was comprised of fees from its handling of state unemployment benefits.
The fees are the sole source of revenue the bank derives by handling unemployment benefits and court-ordered child support payments in Oregon. The state does not pay the bank for issuing debit cards or administering the payments. Oregon's treasurer will begin negotiating a new contract in November. A request for proposals from other banks has not been issued.
For the state, the cards minimize the need to mail checks or manage transfers to myriad banks. Since 2007, Oregon has saved at least $11 million on printing, mailing and other costs associated with the unemployment program alone, said James Sinks, a spokesman for Oregon State Treasurer Ted Wheeler's office. State staff estimate that over the course of the contracts, about 40 percent of people in both programs have used ReliaCards, Sinks said. The remainder receive funds via direct deposit.
Sinks described the notion that fees are unfair, abusive or out of touch with consumer spending habits as "specious" and "laughable." People can always obtain cash without paying fees by making a purchase at a store where customers can request cash back.
"The card was negotiated the way that it was to make people's money available to them at the lowest cost," said Sinks. "Are there fees, yes. But there are ways for people to access their money for free and there are robust ways to do that. I don't believe that most people are paying fees."
But several unemployment benefit recipients in Oregon said it was quite difficult to switch to direct deposit after they learned of the fees on their prepaid debit cards. Many recipients complain that their unemployment benefits are so limited that even an unwanted pack of gum purchased to access their benefits without fees amounts to a consequential expense.
A woman in the southern Oregon town of Grants Pass who enrolled in the state's unemployment program in 2007 said she did not receive a notice of fees until several months after she incurred some $220 in surcharges. A Portland man who enrolled in August and receives $507 in benefits each week said he cannot find a U.S. Bank ATM or retail store where he can remove more than $200 at a time, forcing him to pay fees to get all of his funds.
Linville, who lost his job as a data entry clerk in August, said he was not aware of the fees when he signed up for the U.S. Bank card on Oregon's unemployment web site but later received a schedule of fees in the mail. He has a bank account but thought the U.S.Bank card would give him a way to pay bills immediately when his unemployment benefits arrived. Often, Linville is so short on cash that he pulls money off the card to pay bills on the same day they are due, he said. If he can, he pays the bill with the debit card, a retail purchase that does not carry a fee. But, that is not always an option.
"I try to use it the best way I can really," said Linville, 39. "But it's not that easy to plan a way around those fees. You just pay them and you move on to the next problem."