States already using prepaid debit cards to disburse unemployment benefits likely saw economic and practical reasons to make the switch from distributing checks. Connecticut is the latest state to have similar aspirations.
The Connecticut Department of Labor on Feb. 22 announced that a switch to electronic disbursement of unemployment benefits would save the state $3.6 million per year in unnecessary costs related to check printing and postage. The department was mailing some 140,000 checks per week before the switch to electronic disbursement.
JPMorgan Chase & Co. is issuing the cards. Chase also issues similar cards in 11 other states.
In January, the Connecticut Department of Labor began asking claimants to choose to have their benefits sent as direct deposits to their traditional bank accounts or to accounts tied to Visa-branded prepaid debit cards. The state officially launched the program Feb. 1 and as of Feb. 22 had disbursed some $45 million in payments electronically.
Most claimants are choosing direct deposit (70%) over the prepaid card option (30%), department officials noted in a press release. The state’s unemployment rate as of December was 9%, with some 169,875 residents are out of work, according to the latest figures from U.S Department of Labor.
Representatives from the state’s labor department did not return a request for comment. Chase representatives were unavailable for comment.
Some states have experienced better conversion rates to the prepaid debit card. Last month, for example, the Tennessee Department of Labor and Workforce Development replaced unemployment checks with either the direct deposit or prepaid debit card option. Within the first 20 days, 4,400 recipients chose the prepaid card and 4,600 opted for direct deposit.
Unemployment-benefits recipients often complain about card fees eating into their benefits. In response, Connecticut, Tennessee and other states have published literature online to help recipients avoid as many fees as possible.
Issuers should go a step further, Adil Moussa, an analyst at Boston-based Aite Group LLC, tells PaymentsSource. He suggests banks develop a budgeting tool to show cardholders how their card funds are spent.
“I believe something like that would help make it clear,” Moussa says of card-related fees. “If you can see that 50% of your budget went to groceries and 10% went to fees,” it might help reign in some costs, he says.
Potential cardholders should realize the practical benefits of choosing the card, Moussa says. Cardholders receive their benefits quicker through the card account compared with a traditional bank account, for example.
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