Jobless Americans are paying millions in unnecessary fees to collect unemployment benefits because of state policies encouraging them to get the money through bank-issued payment cards, according to a new report from a consumer group.
In some states people are using the fee-heavy cards instead of getting their payments deposited directly to their bank accounts. That's because states issue bank cards automatically, require complicated paperwork or phone calls to set up direct deposit, and fail to explain the card fees, according to a report issued Tuesday by the nonprofit National Consumer Law Center.
Until the past decade, states distributed unemployment compensation by mailing out paper checks. Some also allowed direct deposit. The system worked well for those with bank accounts who deposited the check without paying a fee.
It also cost states millions of dollars each year to print and mail the checks.
Banks including JPMorgan Chase & Co., U.S. Bancorp and Bank of America Corp. seized on government payments as a business opportunity. They pitched card programs to states as a win-win: States would save millions in overhead costs because cards would be issued for free, and people without bank accounts would avoid big fees charged by check-cashing stores.
But most of the people being hit with fees already have bank accounts. The bank-state partnerships effectively shifted the cost of distributing payments from governments to individuals. The money needed to cover those costs is deducted from people's unemployment benefits in the form of fees.
The NCLC report says many states make it difficult for people to sign up for direct deposit. The rate of people using direct deposit ranges from a national high of 82 percent in Minnesota to a low of 16 percent in Arizona.
In New York State about 57 percent of people use direct deposit, according to the report. The NCLC gave the state a "neutral" rating, saying, "The New York card provides ample access to information and numerous opportunities to withdraw funds for free."