Prepaid debit cards for unemployment benefits are under fire from a consumer group that claims they have unnecessary and undisclosed costs.
The National Consumer Law Center has singled out prepaid card issuers, particularly U.S. Bancorp and JPMorgan Chase & Co. The organization was especially critical of U.S. Bank, which charges $10 to $20 in overdraft fees on prepaid cards it issues in Arkansas, Idaho, Nebraska, Ohio and Oregon.
"There is no excuse for permitting overdraft fees to drain funds from cash-strapped unemployed workers," the group said in a report, which was released May 10.
But U.S. Bank counters that overdraft coverage is an opt-in feature for cardholders. "The terms are clearly disclosed so cardholders are aware of the fee should they need to use it," a bank spokeswoman said. She stressed that overdraft protection is an option states can choose to add to an unemployment card program.
The spokeswoman also challenged the group's claims that the overdraft charges might violate federal law.
"All of our products and services go through rigorous regulatory compliance review," she said.
The consumer group, which did not respond to a request for additional comment on the report, also criticized Tennessee's prepaid debit unemployment card, which JPMorgan Chase issues. The report claims Tennessee's card had the most "junk fees" and claims that the state does not offer free withdrawals at ATMs.
However, the Tennessee Department of Labor and Workforce Development said cardholders may make withdrawals for free at MoneyPass or JPMorgan Chase automated teller machines. ATM withdrawals elsewhere cost $1 for the first two transactions and 60 cents for each additional withdrawal.
JPMorgan Chase said the states ultimately determine their fee schedules.
The consumer group urged the Consumer Financial Protection Bureau to ban overdraft and other "unfair" fees and to improve transparency and competition by requiring issuers to place all fee schedules in a central location.
It remains unclear how the bureau will address prepaid debit cards. A bureau representative last month said it did not have anything to share yet regarding prepaid cards. The bureau, however, is reaching out to industry players.
Steve Streit, Green Dot Corp.'s chairman, president and chief executive, said last month that the prepaid card provider has been "very positively impressed by [the bureau's] genuine outreach to the industry and their high level of understanding of both our products and the customers we serve."
Green Dot recently was involved in a pilot test with the U.S. Treasury Department to distribute 2010 tax refunds to reloadable prepaid card accounts.
Bonneville Bank, a subsidiary of Bonneville Bancorp, a Provo, Utah, bank holding company, issued the cards. Green Dot has an application to buy Bonneville Bancorp pending regulator approval.
