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March 6, 2009
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, including Texas, have struck such deals with banks that include Citigroup Inc., Bank of America Corp., J.P. Morgan Chase and US Bancorp, an Associated Press review 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 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."
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.
'A racket'
"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.
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 vs. 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 dial customer service three times in a week (the first time is free; after that, it's 25 cents a call), the bank's revenue would jump to more than $521,000. That would yield $6.3 million a year.
Central Bank did not return two messages seeking comment.
In Texas, unemployment insurance claimants get a Chase debit card when they file, and benefits are transferred electronically every two weeks. That gets money in their hands more quickly than checks in the mail would, Texas Workforce Commission officials say.
The state also gives claimants a brochure about the debit cards' cost schedule, which includes:
•No bank transaction fee for retail purchases or for getting cash back in a retail purchase.
•No bank transaction fees for withdrawals or balance inquiries at Chase ATMs.
•One free withdrawal per deposit at Allpoint ATMs. There's a $1.50 transaction charge after that but never a surcharge. Balance inquiries cost 50 cents.
•One free withdrawal per deposit at other ATMs. But there's a $1.50 cost per transaction after that, and surcharges may apply. Balance inquiries cost 50 cents.
•$1 fee per denied transaction.
•For claimants who prefer to get their cash from a teller, there's one free cash withdrawal per deposit at Chase or Visa member banks. After that there's a $5 fee.
Booming market
With the national unemployment rate at 8.1 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 probably rise to $10.5 billion, according to a study by Mercator Advisory Group, a financial consulting firm.
Texas paid out more than $60 million in unemployment benefits in the last week of February, compared with about $25 million in the comparable week a year ago.
The economic stimulus plan signed by President Barack Obama last month 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.
A typical contract looks like the agreement between Citigroup and 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.
Simpson said the cards can save money for jobless workers who have no bank accounts. In the past, these people had to use check-cashing shops that charged fees as high as 2 percent.
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 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."
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