Card fees chip away at unemployment benefits
A new report finds that bank-issued debit cards cut into entitlements with penalties for transactions and balance inquiries.
Out-of-work Americans are seeing millions of dollars in unemployment benefits siphoned away by states using fee-heavy debit cards issued by banks to manage payments. Because states issue these cards automatically -- often against federal law -- or require paperwork or phone calls to set up direct deposit, people collecting unemployment in those states are often subject to ill-explained fees.
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, says that these cards unfairly take away benefits unemployed Americans are entitled to by placing the burden for distribution of those benefits onto the unemployed themselves. While it cost states millions to mail out individual checks, the NCLC argues that the direct-deposit option takes the burden off both sides.
As it stands, even direct deposit isn't a perfect answer. Banks including JPMorgan Chase (JPM), Bank of America (BAC), Citbank (C), U.S. Bank (USB), Wells Fargo (WFC), Comerica (CMA) and PNC (PNC) got into the unemployment benefit business by promising free cards that would not only cut states' dispersal costs, but give people without bank accounts a means of avoiding check-cashing fees.
The NCLC says that most of the people being hit with fees, however, have bank accounts and are paying fees unnecessarily. Despite a federal law that prevents states from requiring unemployment recipients to open an account at a particular bank, and a government recommendation in 2009 that people with bank accounts receive payments via direct deposit, five states -- California, Indiana, Kansas, Maryland and Nevada -- violate that law by only offering cards.
Unemployed persons stuck with those cards in the 41 states that issue them are subject to a wide array of fees that go into effect for even the most minor actions, the NCLC found. In Alaska, for example, unemployed workers using the state's Chase-issued card are forced to choose between a 40-cent balance inquiry fee and a 50-cent denied transaction fee. They also pay a $1.50 for any ATM transaction after their first free deposit and are charged a whopping $5 if they choose to use a teller.
Indiana, meanwhile, illegally forces the unemployed to use its PNC-issued card and charges fees for ATM usage, balance inquiries, denied transactions and both live and automated customer service. Iowas enforces similar penalties on its Wells Fargo card.
Other states, meanwhile, refuse to make a sport out of separating the unemployed from their benefits. Minnesota, for example, has 82% of the people in its unemployment benefits program enrolled in direct deposit and offers the option up front. Even if people choose its card option, fees are limited to out-of-network ATMs and live customer service and only take a phone call to eliminate if a recipient decides to switch to direct deposit.
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If you are reading this and saying... well, I'm not unemployed so this doesn't impact me... know that Visa and Mastercard are allowing merchants to pass the merchant services fee THEY pay, on to you in every transaction. Up to 4%. What does this mean? It means the card user pays the merchant's usage fee for them. If your state Sales Tax is 6% and the merchant passes through a 4% fee, you pay 10% more for the item BEFORE interest charges. If you use a Rewards card that pays 2% and a merchant passes through 4%, you LOSE 2% on that deal.
Economics are generally a person's WORSE expertise even for the educated (just look at Bernanke and Congress!) and a Cash Flow Lifestyle is a difficult discipline. Learn it. Every unemployed person should be opening a Credit Union account and getting Comp directly deposited. Establish a budget to establish a knowledge of your cash needs. Expect the next fee to be electronic transfer and work your obligations to be local and willing to accept cash.
My whole career was credit. Fee tagging as been tried before and this is a circumnavigation of the prior attempts at it, stopped by Law. Unfortunately, nearly 100% of all financial laws are written only to stop abuses. The only not to-- is the Gramm Leach Bliley Act in 1999, that gave banks the ability to be tyrannical over us all. Stop banks and other corrupt financials by not giving in to their shoddy creepy corrupt ways. We don't need banks, we need strong financial regulation and supervision.
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