Jobless Americans Paying Fees for Unemployment Benefits

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OK, brace yourself because I'm about to get on my soapbox again. This time, I'm very annoyed that unemployed workers are receiving their benefits on prepaid cards.

The problem is that they have to pay fees to use the cards. There are fees for using out-of-network ATMs, withdrawals at a teller window, balance inquiries, talking to a customer service rep, and more. If you'd like to see what fees are applicable in your state, you can see the report here: 2013 State-by-State Highlights of Unemployment Compensation Prepaid Card Programs.

I'm sure it's very convenient (and cheap) for state governments to issue unemployment benefits on prepaid cards. But the reason the unemployed need the benefits is because they're hurting for cash. It doesn't seem fair to make them pay fees — even small fees — to access this money. (See also: Beware Celebrities Bearing Prepaid Cards)

At Least the Fees Have Gone Down

A recent survey by the National Consumer Law Center (NCLC) showed that the fees aren't nearly as bad as they were in 2011, when the NCLC did their initial survey about this.

In 2011, workers were paying a ridiculous amount of fees to access their benefits, including overdraft fees. Now, overdraft fees are gone, and according to the new survey, workers are paying less in fees than they did in 2011. It's good to hear that the prepaid cards have improved, but it's still crazy that the jobless have to pay fees at all.

California, according to the NCLC survey, has the best prepaid card. Still, workers there paid nearly $1.8 million in fees in the past year. And that doesn't include ATM surcharges!

Five States Are Breaking the Law

California may have the best prepaid card when it comes to fees, but the state is violating the law by requiring workers to receive benefits via prepaid cards. Kansas, Indiana, Maryland, and Nevada are also breaking the law by requiring that the unemployed receive benefits on prepaid cards. According to the NCLC report, "Workers in five states incur prepaid card fees unnecessarily as those states violate federal law and require use of the prepaid card, without offering the choice of direct deposit to the worker’s own account."

At least in California, Kansas, and Maryland, workers can get an automatic transfer from the prepaid cards into their own bank accounts. But only 21% to 25% do this, and I'm guessing it's due to timing issues. If they set up the transfer, it can delay their access to the funds anywhere from one to four days. If you're unemployed, I can imagine you'd need every penny as quickly as possible.

I'm wondering why this is allowed to continue. I mean, these five states are very publicly breaking the law. So why isn't something being done? I don't get it.

What's the Answer?

The obvious answer, pointed out in the NCLC report, is to allow direct deposit into the worker's bank account. And for heaven's sake, don't turn it into a tedious exercise. This gives workers the money they need as quickly as possible.

To be fair, some states do encourage this as the preferred choice when a worker decides how to receive the benefits. But some states have made it difficult to choose direct deposit as the primary option without jumping through hoops.

Here are the recommendations from the NCLC report:

• Offer direct deposit to the worker's own account first at the time of application. And make the sign-up easy.
   
• Offer a minimum of one free ATM and teller withdrawal for each deposit.
   
• Eliminate fees for balance inquiries, customer service calls, and denied transactions.
   
• Monitor fees and involve workers and advocates to address the costs.
   
• Publicize ways to get fee-free cash access and give information about the location of free ATMs.
   
• Offer complete and accurate fee information on the state website. And display it prominently.

The last two bullet points are crucial, especially for those who don't have bank accounts because the prepaid card is their only option. One of the issues I've always had with prepaid cards is that, too often, the fees aren't easy to find. And certainly, it's up to the consumer to read the fine print, so I'm not absolving people from responsibility. But I do know the legal jargon and lack of clarity makes the fine print difficult to understand.

So, what do you think about this? I'd love to hear your thoughts. And yes, even if you disagree with me!