Banks Charging Fees on Unemployment Benefit Debit Cards

By Beth Longware Duff   

With an increasing number of states turning to prepaid debit cards to distribute unemployment benefits, consumers and their advocates are beginning to question the practice. The states can potentially save hundreds of thousands of dollars by switching from paper (checks) to plastic (cards), but the consumer may be left holding the bag when it comes to the service fees attached to those cards.

Stories have emerged of card recipients being charged $6 for two ATM transactions and a $20 overdraft charge for a pre-approved transaction. Advocates for the unemployed point out that charging them fees to access their benefits is an added hardship for folks who are already strapped for cash.

Consumers Union, publisher of Consumer Reports, notes that the U.S. Department of Labor (DOL) has issued guidelines regarding the use of prepaid debit cards to state workforce agencies across the country. The recommendations include offering the option of direct deposit of benefits into existing bank accounts, allowing free ATM withdrawals and balance inquiries, abolishing overdraft charges, and providing free customer service by phone.

As a result, Consumers Union has urged states to renegotiate their contracts with the banks that run their debit card programs to incorporate the DOL guidelines.

"These negotiations need to happen quickly, as many Americans using these unemployment debit cards are often facing fees for trying to use the money, for things like going to the ATM too many times in one day, or for checking the balance too many times," Consumers Union said.

On the other hand, the non-profit Network Branded Prepaid Card Association (NBPCA), an inter-industry trade association, maintains that unemployment benefits cards can work well for their recipients.

"When consumers take a few minutes to read the welcome kit that comes with the card, they can virtually eliminate all surcharges and can immediately take advantage of the numerous benefits that come with these cards," says Kirsten Trusko, NBPCA president and executive director.

The advantages of unemployment benefit cards

Unemployment benefits cards do have their advantages, particularly if their users don't have access to a bank account. The funds are available on the day of payment, and the recipient doesn't need to make a trip to the bank or wait for an unemployment check to clear. The cards can be used to make purchases wherever the card brand is accepted, they can be cheaper than using a check-cashing facility, and the cardholder is protected if the card is lost or stolen.

If you receive your unemployment benefits on a prepaid card, here are a few tips to make sure the arrangement doesn't end up costing you money:

1. Read the rules. The devil is in the details, so carefully read the fine print that comes with your card to make sure you understand the terms and conditions.
2. Follow the rules. Make them work for you. For example, most card issuers allow a specified number of free ATM withdrawals each pay period, so avoid withdrawal fees by taking out enough cash to last until your next payment.
3. Better yet, set up an automatic transfer to your bank account. In effect, you'll have direct deposit of your benefits.
4. Some services are free, so take advantage of them. The most common free services are online account management and phone transfers, but check the literature that comes with your card for the specifics.
5. Withdraw all the money on the card when it's issued, and deposit it into your bank account. Depositing unemployment funds into your regular account means never having to pay unnecessary fees or keep track of your finances on the prepaid card.