Prepaid benefit cards exploit the unemployed, says study

A Bank of America ATM machine.

Bank of America charges the unemployed less than most banks for prepaid benefits cards. (Photo Credit CC BY/MoneyBlogNewz)

Prepaid debit cards can work well as a gift, but monthly maintenance fees, withdrawal and ATM fees can take some of the usefulness out of them. According to the National Consumer Law Center, prepaid cards may not be the best way of distributing benefits to more than 13 million unemployed in the U.S., as is the custom in 40 U.S. states. When already meager benefits are diminished by a bevy of fees, the unemployed are left with very little.

States should work harder for consumers

A major finding in the NCLC report is that the overdraft, ATM and transaction fees prepaid card issuers charge could be lower if states negotiated more aggressively on behalf of their unemployed. The states benefit from lower administration costs by not having to issue unemployment benefits in the form of paper checks, so working harder on behalf of the populace would be fair trade. While most states make it clear up front that the unemployed have the option of direct deposit or a prepaid debit card, Arizona, Colorado, Louisiana, Oklahoma and Oregon default to debit card. This is a practice that NCLC managing attorney Lauren Saunders says harms consumers.

“Prepaid card junk fees stack the deck against jobless Americans who need every dollar during a financially stressful time,” she told

Prepaid card fees vary by state

According to Saunders, prepaid fees and practices can vary from state to state, even for cards issued by the same bank. U.S. Bank charges overdraft fees in five states, the highest in Arkansas, where overdrafts cost $20. Most states charge only $1.50. ATM fees are standard in four states, not just for purchases, but merely for checking balance.

Among all state unemployment benefit systems studied by the NCLC report, Arkansas, Idaho, Nebraska, Ohio and Oregon are the worst when it comes to overdraft fees, ranging from $10 to $20 per incident. Not coincidentally, U.S. Bank is the card-issuing bank in all five states. The highest number of individual “junk fees” appear on JP Morgan Chase prepaid cards in Tennessee.

Doing the right thing for the unemployed

Saunders stated that not only does the NCLC report highlight which states need to cut a better deal for unemployment benefits debit cards, it highlights that the need for the Consumer Financial Protection Bureau is greater than it has ever been. Considering that only California and New Jersey aid their unemployed by keeping prepaid card fees to a bare minimum – both states are served by Bank of America – the Bureau has much work ahead.


Other recent posts by bryanh