The prepaid debit cards that most people use to receive unemployment insurance carry fewer fees than they did two years ago, but some states are likely breaking federal law by foisting the cards on workers, according to a new report by the National Consumer Law Center.
The majority of states have switched their unemployment system from paper checks to prepaid debit cards issued by banks, making for cheaper distribution for the state and saving money for people without bank accounts, since they would no longer have to pay check-cashing costs.
The catch is that consumers pay for the new system through bank fees. In 2011, more than half of the cards came with ATM fees, balance inquiry fees and inactivity fees, according to the law center's report that year. And a handful had overdraft fees as high as $20.
Now the overdrafts are gone and "other fees have come down considerably, saving workers millions of dollars a year," the NCLC's new report says. (HuffPost's Janell Ross reported on the junk-fee racket in 2011.)
Tuesday's report says states don't make it easy enough for unemployment claimants to bypass the cards and have their benefits deposited directly into their bank accounts. Of the 42 states using prepaid cards, 36 also offer direct deposit, but the rates at which consumers use direct deposit vary wildly depending on how easy the state makes it to do so.
Five states -- California, Indiana, Kansas, Maryland and Nevada -- apparently violate federal law by requiring beneficiaries to use the cards, according to the report. (Wyoming doesn't offer direct deposit, but most claimants there still receive paper checks.) California, Kansas and Maryland, however, do allow workers to set up automatic transfers from the cards to their bank accounts, but less than a quarter of recipients do so. The transfers can cause delays as long as four days.
Nevertheless, California joins Pennsylvania and New Jersey as the only states to receive a "two-thumbs up" rating in the report, which calculated that California's system earns Bank of America $1.8 million per year.
The Dodd-Frank Wall Street reform bill passed by Congress in 2010 is to thank for the death of overdraft fees on the prepaid cards. "That law caps the interchange fees that merchants must pay when they accept debit cards, but exempts prepaid cards from that cap on certain conditions," the law center said. "The absence of overdraft fees is one of the conditions."
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More than<a href="http://www.huffingtonpost.com/2012/10/02/millionaires-unemployment-benefits_n_1931837.html"> 2,000 millionaires took home unemployment</a> benefits in 2009, according to a recent report from the Congressional Research Service. That comes to a total of $20.8 million.
Prisoners in a variety of states may be improperly receiving unemployment benefits while serving time. An investigation by Illinois officials in July turned up <a href="http://articles.chicagotribune.com/2012-07-11/news/ct-met-inmate-unemployment-20120712_1_unemployment-benefits-greg-rivara-inmates">at least 420 inmates</a> taking home unemployment benefits, according to the <em>Chicago Tribune</em>. In Arizona, the state improperly paid prisoners more than<a href="http://www.foxnews.com/us/2012/07/19/arizona-collects-on-improper-payments-to-prisoners/"> $1.1 million in unemployment benefits</a> over a two-year period, according to Fox News. In one case a convicted killer managed to <a href="http://abclocal.go.com/kabc/story?section=news/local/los_angeles&id=8568004">collect $30,000 in unemployment benefits</a> between 2008 and 2010, the Los Angeles ABC affiliate reports.
Among the people improperly receiving unemployment benefits in New York state are those <a href="http://www.wwnytv.com/news/local/Dead-People-Receive-Unemployment-Checks-164616016.html">who aren't even alive</a>, according to the Associated Press. The state's comptroller Thomas DiNapoli said he's stopped more than $1 million in improper benefits to the dead, undocumented immigrants and working people.
In Maryland, one state worker making $9,700 <a href="http://articles.baltimoresun.com/2012-10-02/news/bs-bz-audit-unemployed-workers-20121002_1_unemployment-benefits-overpayments-auditors">took home $5,800 in unemployment benefits</a> at the same time, according the <em>Baltimore Sun</em>.
Fired Prison Workers
The California Corrections Agency <a href="http://articles.latimes.com/2009/mar/31/local/me-prisons31">wrongly paid prison workers</a> that they fired for misconduct $1.3 million in unemployment benefits over two years, the <em>Los Angeles Times</em> reports. Recipients included a prison guard fired after being arrested in a drunken hit-and-run incident and a prison guard involved in a narcotics transaction.
People With Jobs
It may come as no surprise that one of the requirements of receiving unemployment benefits is being unemployed, but in Illinois at least <a href="http://www.pjstar.com/news/x1681146451/Illinois-cracking-down-on-unemployment-fraud">12,000 people wrongly collected</a> unemployment benefits while working, according to the <em>Peoria Journal-Star</em>.
Retired Public Workers
In Massachusetts <a href="http://abcnews.go.com/US/us-seeks-recoup-billions-unemployment-benefits-paid-error/story?id=15921922&page=2#.UGyUF_mfHll">retired public workers collecting</a> benefits became such a problem that local leaders pushed for statewide reform on the issue, according to ABC News. These retirees were receiving public pensions at the same time.