Archive for Friday, February 20, 2009

Banks charging unemployed workers fees on benefits

Kansas and Missouri both participate in card program

February 20, 2009


Recently unemployed engineer Arthur Santa-Maria stands in front of a Bank of America ATM in Los Lunas, N.M. Santa-Maria was surprised to learn he must pay fees to withdraw his unemployment money using a state-issued bank debit card.

Recently unemployed engineer Arthur Santa-Maria stands in front of a Bank of America ATM in Los Lunas, N.M. Santa-Maria was surprised to learn he must pay fees to withdraw his unemployment money using a state-issued bank debit card.

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.”

Kansas and Missouri both participate in the debit card programs, issuing the cards through Central Bank and Citigroup, respectively. The states say the contracts will save hundreds of thousands of dollars annually, but protests are growing among unemployed cardholders.

“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.

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.

Companies mum

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.

‘Potentially illegal’

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.

Booming market

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.

Kansas example

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.”


storm 8 years, 11 months ago

This is an outrage. People have the opportunity to withdrawall ALL their money out of the account for FREE, one time. And then they choose not to! The only thing that may need to be modified is they don't have to physically go to the bank for the withdrawal. This is only fair, due to people living far away from a bank not of their choice. But that's all that needs to be changed.

Chris Ogle 8 years, 11 months ago

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

Could you imagine the LJW charging fifty cents each time one of us bitched?

just_another_bozo_on_this_bus 8 years, 11 months ago

It'd be cheaper for all involved if the state would pay the banks for the service, and deduct a small amount off the top from the benefits paid to cover those costs.

Richard Heckler 8 years, 11 months ago

Sounds like the government has set up a gravy train for the big banks. Direct Depositing all of the unemployment benefits is a scam and a gravy train for the big time bank robbers who created this disaster. Once again the people get screwed.

The team of creeps simply cannot be trusted with OUR /YOUR money. None of it and now they have cooked up a scheme to rob the social security fund.

How many honestly believe you can trust polticians,major banks,Wall Street or Nazis with YOUR money. Social Security was not designed to bail out troubled financial institutions. The folks that will get screwed ONCE AGAIN will be YOU and ME.

"When official America talks of 'bipartisan compromise,' it usually means the people are about to get screwed"

Looting Social Security William Greider : Social Security Behind closed doors, advocates of entitlement reform are pushing Obama to tap the Social Security surplus to pay for bank bailouts. It could be a defining test for new politics in the Obama era.

Social Security is not broke...not even close. It can sustain its' obligations for roughly forty years,even if nothing is changed now.

Sharon Aikins 8 years, 11 months ago

I don't trust politicians, period. But if we all looked closely, I think we might find that it is the banks and credit card companies behind a lot our current economic situation.
Now, with the states and federal government as their partners in crime, there is little we can do to protect ourselves.

lawthing 8 years, 11 months ago

Banking is a business. Businesses have a right to charge for their services.

There are no laws saying you have to use the bank. The mattress is always free!

shotgun 8 years, 11 months ago

Much ado about nothing. These charges can be avoided by opting for direct deposit instead of the debit card. If one does not have a bank account.........step up and pay the piper!

avoice 8 years, 11 months ago

lawthing says: "There are no laws saying you have to use the bank. The mattress is always free!"

Unless you're drawing unemployment. Then you can be required to use banks -- specific banks that issue these debit cards, no less. Or, you can choose your own bank and opt for direct deposit (your checking account comes complete with a minimum $5/month fee because you're definitely not going to be able to keep a $300+ balance at all times). Either way, the mattress is not an option for out-of-workers.

storm 8 years, 11 months ago

It'd be nice if they offered direct deposit to a bank of the person's choosing but since some banks are not offering direct deposit then people can take their money out for free and move it to their own bank. Banks are not to be trusted, some more than others. There's a bank in Lawrence with blue bathroom walls on the outside of the building that would charge customers $25.00 per deposit if they deposited more than twice in their checking account. That's right, a deposit. This was in 1988 or 1989. Three mortgages later, I've never given that bank my business and steer everyone away.

lucky7brand 8 years, 11 months ago

The bank gives people one free chance to get their money. Who wants to walk around with a wod of cash on them. We've already read about purse snatchers and pizza delivery robberies. Plus the banks don't pay interest on the money that is kept in the accounts. The state should pay the fees at least part of them. If they are saving hundreds of thousands of dollars by not sending out checks then they should pay. where is the money going that is saved by the state by not sending out checks? Not fair to the unemployed. Maybe the companies that are laying people off should pay extra money to the people they lay off to off set the bank fees.

Richard Heckler 8 years, 11 months ago

Do yourselves a favor! Close your bank accounts and find a friendly local Credit Union

araker 8 years, 11 months ago

Shotgun wrote, "Much ado about nothing. These charges can be avoided by opting for direct deposit instead of the debit card. If one does not have a bank account………step up and pay the piper!"

I'm not sure how they do things in Kansas, but I know in other states, you don't have the option of direct deposit. Trust me, I would have loved using that system. But, nope, but state's contract with their private bank wouldn't let me do that.

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