Out Debt Out!

You may also be getting something else:  Assessed bank fees simply trying to access YOUR money.

This Associated Press report (via. the  ‘Clarion-Ledger’ [Mississippi]), “Jobless hit with bank fees on benefits” (“Fair Use” claimed) tells of the unpleasant “surprise” some unemployed people have discovered when they try to use the “convenient” cards, or even ask the bank via. phone how to use them!

One unemployed engineer–Arthur Santa-Maria from New Mexico–found out the hard way just why banks such as Bank of America (B0A) have found these contracts with several states to administer the unemployment benefits via. prepaid debit card attractive:

[H]e was issued a Bank of America debit card …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… [H]e 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.

Nice:  He gets charged to call them to ask how to use the thing.

Then he gets charged to get his balance on-line.

Then, to add insult to injury?  Mr. Santa-Maria gets dinged an additional penalty fee for making two withdrawals in one day!  And was his bank BoA?  If so, that was adding insult to injury.

Avoid this expense by “using the card in the right way”?  Not so easy:  Since many an expense cannot be paid with a debit card–such as the rent and utilities–and a single benefit payment (benefits are generally paid by the week) is likely less than the amount of the biggest bills over the course of a month which necessitates multiple withdrawals and re-deposits into an existing account, either at that bank or another one?   One can easily see the income potential for a bank like BoA.

But why would the states agree to a program that could be a political millstone around their necks?  After all, their unemployed constituents would not exactly be fond of being treated like little children–or welfare cheats–simply to get the unemployment benefits they are qualified for.

Unless…

A typical contract looks like the agreement between Citigroup and the state of Kansas… The state expects to save $300,000 a year by wiring payments to Citigroup …

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

It’s cheaper to wire money in bulk and let the private sector take on the expense…and the opportunity to make a big profit…of distributing the funds to beneficiaries.   After all, issuing individual checks is expensive and states are not adverse to saving beaucoup bucks where they can.  New Mexico certainly does:

The state saves up to $1.5 million annually by not printing checks.

Are these fees necessary?  Not really; the banks are open to administering the distribution of the benefits if the states would just pony up those administration fees.

You can guess what the states will NOT do.  Nor will they necessarily think the current fee schedule is “unfair”:

Bank of America spokeswoman Britney Sheehan pointed out that the fees charged in New Mexico are similar to those charged in the 29 other states with unemployment debit cards.

How prevalent is the issuance of pre-paid debit cards as the medium for paying unemployment benefits?  Thirty states now use these debit cards for paying benefits; eleven are considering switching to debit cards from paper checks. (The rest use checks or direct deposit.)

[See the original graphic here .]

Are there benefits?  Maybe, if one is among the “unbanked”:

[T]he 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

A bargain for these people?  Hardly:  It’s very unlikely that businesses will give “cash back” without a purchase or even with one.

This also overlooks the fact that many of these banks may not be located where the unemployed worker is or can get to and the ATMs they can access may not be in the “network”.  That means more fees, potentially to at least two different entities (the ATM owner and the issuing bank).  Since the average fee for a withdrawal at a non-network ATM is already substantial (it averages around $2.00 a withdrawal where I am located (CT)), the fess for using a check cashing service may well be cheaper than the fees tied to the use of the debit card over time.

Also remember that “pre-paid” debit cards do not allow for any sort of “overdraft” privilege so there are no additional costs to the bank for such transactions.  Or, do they prohibit overdrafts?  Perhaps not: Seems that such a logical conclusion–don’t allow overdrafts–may not be in the best interests of the bottom line of some banks:

Some banks even charge overdraft fees of up to $20 — even though they could decline charges for more than what’s on the card.

How nice:  Overdraft fees, too.

The only way to avoid all of this is to handle the debit card as if it were a paper check:

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.

And they claim this service is really for the “convenience” of the beneficiary? Since when is having to wait in line at a bank and then dealing with a teller (especially if the bank is not the one one has their account(s) at) “convenient”?

No…the reason for all of this bulldung is here:

Some banks…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.

As an example, in Missouri, analysts figure the average recipient uses the card six to ten times a month:

…94,883 people claimed unemployment benefits through debit cards from Central Bank….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 dial 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.

As Rachael Davis from St. Louis, MO, recently unemployed said to the AP [after she had to pony up $6.00 for two $40 transactions against such a debit card]:

“It’s a racket. It’s a scam.”

Need I say more?

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Leonard, Christopher, “AP IMPACT: Jobless hit with bank fees on benefits”, The Clarion-Register, Mississippi, February 19, 2009.  Originally via the Associated Press; downloaded February 19, 2009 from http://hosted.ap.org/dynamic/stories/B/BANK_FEES_JOBLESS_BENEFITS?SITE=MSJAD&SECTION=HOME&TEMPLATE=DEFAULT

(“Fair Use” claimed for all quoted materials.)