Banks slapping fees on unemployment benefit debit cards

[one...two...tree 2,762]

By CHRISTOPHER LEONARD, AP Business Writer Christopher Leonard, Ap Business Writer

First, Arthur Santa-Maria called Bank of America to ask how to check the balance of his new unemployment benefits debit card. The bank charged him 50 cents.

He chose not to complain. That would have cost another 50 cents.

So he took out some of the money and then decided to pull out the rest. But that made two withdrawals on the same day, and that was $1.50.

For hundreds of thousands of workers losing their jobs during the recession, there's a new twist to their financial pain: Even when they're collecting unemployment benefits, they're paying the bank just to get the money — or even to call customer service to complain about it.

Thirty states have struck such deals with banks that include Citigroup Inc., Bank of America Corp., JP Morgan Chase and US Bancorp, an Associated Press review of the agreements found. All the programs carry fees, and in several states the unemployed have no choice but to use the debit cards. Some banks even charge overdraft fees of up to $20 — even though they could decline charges for more than what's on the card.

"They're trying to use my money to make money," said Santa-Maria, a laid-off engineer who lives just outside Albuquerque, N.M. "I just see banks trying to make that 50 cents or a buck and a half when I should be given the service for free."

The banks say their programs offer convenience. They also provide at least one way to tap the money at no charge, such as using a single free withdrawal to get all the cash at once from a bank teller. But the banks benefit from human nature, as people end up treating the cards like all the other plastic in their wallets.

Some banks, depending on the agreement negotiated with each state, also make money on the interest they earn after the state deposits the money and before it's spent. The banks and credit card companies also get roughly 1 percent to 3 percent off the top of each transaction made with the cards.

"It's a racket. It's a scam," said Rachel Davis, a 38-year-old dental technician from St. Louis who was laid off in October. Davis was given a MasterCard issued through Central Bank of Jefferson City and recently paid $6 to make two $40 withdrawals.

Neither banks nor credit card companies will say how much money they are making off the programs, or what proportion of the revenue comes from user versus merchant fees or interest. It's difficult to estimate the profits because they depend on how often recipients use their cards and where they use them.

But the potential is clear.

In Missouri, for instance, 94,883 people claimed unemployment benefits through debit cards from Central Bank. Analysts say a recipient uses a card an average of six to 10 times a month. If each cardholder makes three withdrawals at an out-of-network ATM, at a fee of $1.75, the bank would collect nearly $500,000. If half of the cardholders also call customer service three times in any given week, the bank's revenue would jump to more than $521,000. That would yield $6.3 million a year.

Rachel Storch, a Democratic state representative, received a wave of complaints about the fees from autoworkers laid off from a suburban St. Louis Chrysler plant. She recently urged Gov. Jay Nixon to review the state's contract with Central Bank with an eye toward reducing the fees.

"I think the contract is unfair and potentially illegal to unemployment recipients," she said.

Central Bank did not return two messages seeking comment.

Glenn Campbell, a spokesman for Rep. Russ Carnahan, D-Mo., said the congressman would support a review of the debit card programs nationwide.

Another 10 states — including the unemployment hot spots of California, Florida and South Carolina — are considering such programs or have signed contracts. The remainder still use traditional checks or direct deposit.

With the national unemployment rate now at 7.6 percent, the market for bank-issued unemployment cards is booming. In 2003, states paid only $4 million of unemployment insurance through debit cards. By 2007, it had ballooned to $2.8 billion, and by 2010 it will likely rise to $10.5 billion, according to a study conducted by Mercator Advisory Group, a financial industry consulting firm.

The economic stimulus plan signed by President Barack Obama this week will increase federal unemployment benefits by $40 billion this year. Subsequently, there will be more money from which banks can collect fees. The U.S. Department of Labor allows the fees as long as states create a way for recipients to get their money for free, spokeswoman Suzy Bohnert said.

"Beyond that, the individual decides how to manage his drawdowns using the debit card," she said in an e-mail.

A typical contract looks like the agreement between Citigroup and the state of Kansas, which took effect in November. The state expects to save $300,000 a year by wiring payments to Citigroup instead of printing and mailing checks.

Citigroup's bill to the state: zero. The bank collects its revenue from fees paid by merchants and the unemployed.

"If you use your card the right way, you're not going to pay fees at all," said Paul Simpson, Citigroup's global head of public sector, health care and wholesale cards.

But that's not always practical.

Santa-Maria, the laid-off New Mexico engineer, said he didn't pay any fees the first time he was laid off, for several months in 2007. His unemployment benefits were paid by paper checks. He found a new job last year but was laid off again last fall.

This time, he was issued a Bank of America debit card — a "prepaid" card in industry lingo — but he was surprised to learn he had to pay fees to get his money. He asked the bank to waive them. It said no. That's when Santa-Maria called back to ask how to check his account online. He logged on and saw that the call cost him a half dollar. To avoid more fees, Santa-Maria found a Bank of America ATM at a strip mall and withdrew $80 at no charge. When he got back to his car, he decided to take out the rest of his money — $250 — and deposit it in his bank account.

Afterward, Santa-Maria logged on to his account and saw a charge of $1.50 for two withdrawals in one day.

New Mexico authorities bargained with Bank of America to get lower fees for unemployment recipients, said Carrie Moritomo, a spokeswoman for the state Department of Workforce Solutions. The state saves up to $1.5 million annually by not printing checks.

Banks could issue unemployment debit cards with no fees for cardholders, but that would likely mean that states would have to pay more of the administrative costs, said Mark Harrington, director of marketing for Citigroup's prepaid card services. If a state demanded no cardholder fees and could pay the difference, Citigroup might enter such a contract.

"We would be open to that," Harrington said. "We're not looking to structure any programs where we would lose money, but we're definitely flexible."

Simpson noted that the cards can save money for jobless workers who have no bank accounts. In the past, these people had to use corner check-cashing shops that charged fees as high as 2 percent, or $6 for a $300 check. Now, they can swipe their cards at McDonald's, Wal-Mart or elsewhere for free.

Kenna Gortler, a laid-off paper mill worker in Oregon, said her union is advising members to avoid the debit cards and sign up to get their benefits through direct deposit. More than 300 of her fellow workers have lost their jobs at the mill in the last three months, and horror stories about ATM fees and overdraft charges are starting to filter back to others who are just now signing up for their benefits.

"It's discouraging," Gortler said. "People have limited funds and they don't need to be giving money to the banks. They need to be keeping that money to feed their families and pay bills."

http://news.yahoo.com/s/ap/20090219/ap_on_...obless_benefits

[Jasman0717 9]

I am so glad I belong to a credit union, banks suck

[one...two...tree 2,762]

I am so glad I belong to a credit union, banks suck

Damn straight.

[Ban Hammer 13,355]

my neighbor was given one even though before it was direct deposited into his account in the past. he got that changed back to direct deposit.

it's just more proof that the banks are out to screw us, some way, somehow.

[Jasman0717 9]

Banks and credit cards are evil

[JoeCanuk 3]

This "debit card" system is useless. Whatever happened to direct deposit into a personal account? That's the way they did it in Canada and that way is good enough.

[spookyturtle 9,466]

Those poor, unappreciated, ####### raping banks. They need that 50 cents to help pay their CEO's $50 million per year salary. Please, cut them some slack.

[dalegg 143]

I have so little pitty for Bank of America's demise. They are the kings of fees. These were the original "charge-you-to-take-an-ATM-withdrawal-from-your-own-bank-bastards". They probably don't do that anymore since other banks pounced on that as a means to take away their customers- me being one of them. I was a customer of them for about 3 months.

[JanaknJanet 0]

The debit card system really needs some work....

Here in Oregon there is a card that they send you for child support payments that are made tru the state.

I had one.. then I noticed some erronous charges... .. card was frozen.. locked out. .. .. I requested a new card..

guess what.. the dingbats do.. the card has all same numbers other than the last 4.. ..

Doesnt take a rocket scientist to decifer a system of 4 digits.... thinking of how many ... shady people are out there getting these cards.. via.. state.. .. er um.. afdc? or unemployment... etc... same card same program... ..

I cancled my card fast... only after I was hacked and had $250 in disputed charges.. .. grrr.. NOW.. only will do Direct deposit...

and my direct deposit will and is .. only in a account that is only for this .. not merged with any other of my accounts... ..

If I used the debit card.. I got charged if I used a non.. bank... other than US bank..../// Which is not a bank I naturally do business with..

shame on them.. the system sux..

for now.. just send me the money.. in my account of choice... .. .. they dont need to know what i spend my money on.. .. which if they choose. they could infact track... .. good ole uncle s

Edited February 23, 2009 by JanaknJanet

[spookyturtle 9,466]

I have so little pitty for Bank of America's demise. They are the kings of fees. These were the original "charge-you-to-take-an-ATM-withdrawal-from-your-own-bank-bastards". They probably don't do that anymore since other banks pounced on that as a means to take away their customers- me being one of them. I was a customer of them for about 3 months.

BOA does suck. Greedy sob's.

[Donna A 4]

i get mine direct deposited. works out great. i get paid weekly instead of every two weeks.

[tallcoolone 102]

Banks and credit cards are evil

Legalize way to steal money........

[NickD 203]

Remember when we would get canceled checks from the banks, feels like a million years ago. I can use my debit card to withdraw my cash for free, but only at select ATM's. But they do say on some ATM's, we are going to screw you blind, are you sure you want to be screwed?

[Niels Bohr 72]

I know huh, after BoA received their stimulus package from the government they secretly implant the fees into user accounts. BoA is double dipping on the stimulus package indirectly by placing fees on the umemployment account. Smart for them. Dumb for the consumers.

[NickD 203]

Couldn't help but notice that sign at the check out counter at Wal-Mart, is a three dollar charge to cash either a payroll or a government check.

Should add Wal-Mart to your list of scavengers.