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With so many U.S. workers unemployed, a malaise is hovering over the country. But at least one bright sector exists: Debit cards are working.
Some 25 states issue reloadable debit cards to pay unemployment compensation, according to the National Association of Workforce Development Professionals, which is based in Washington, D.C. The 2010 edition of the EFT Data Book, which publishes as next week's issue of ATM&Debit News, will contain unemployment rates for each state, and there will be a map of the United States to show that states have begun using debit cards to pay unemployment compensation.
Texas is among the states to switch to debit cards from checks. "We launched the program statewide in June 2007, after a test phase in San Antonio earlier that spring," Lisa Givens, a spokesperson for the Texas Workforce Commission in Austin, writes in an e-mail.
JPMorgan Chase & Co. issues the Visa-branded debit card, according to the agency's Web site.
With the U.S. unemployment rate at 9.7% in August, one might believe more states would be converting quickly to debit cards to pay the growing number of consumers out of work more efficiently. However, at least two states, Tennessee and Washington, that had said they either were planning or considering replacing paper checks with debit cards have yet to do so.
With each federal government extension of unemployment benefits, states must reprogram their computers to dispense checks, which has led states to deploy manpower to other areas.
"Each change in benefits causes us to reprogram our computers, and it takes a while because our computers are more than 30 years old," says Sheryl Hutchison, a spokesperson for Washington State Employment Security Department in Olympia. "We never set an actual date for implementation of debit cards, but now it is on the back burner." Washington Tuesday reported an unemployment rate of 9.2%.
Tennessee planned to launch a debit card program this year with Chase, but the state until recently was paying out 20,000 new unemployment claims each week, and the demand overwhelmed the system, says Jeff Hentschel, spokesperson for the Tennessee Department of Labor and Workforce Development.
"Technicians who would have spent their time implementing a debit card program instead have spent all of their time reprogramming the computer system so unemployed state residents can apply for compensation online, Hentschel says. And with each extension of unemployment benefits, technicians have to reprogram the state's mainframe computer to pay additional unemployment benefits.
"We are paying benefits for 79 weeks compared with the normal 26 weeks," says Hentschel, noting Tennessee is mailing 140,000 checks each week. Tennessee recently reported an unemployment rate of 10.7%.
Despite the setbacks, the electronification of unemployment compensation payments is here to stay, says Adil Moussa, an analyst with Aite Group LLC, a Boston-based consulting company.
"Visa and MasterCard are pushing to get into this market, although there is not much money in it," Moussa says. "They figure they will be able to load funds onto cards from other state departments."
States prefer to pay unemployment compensation with debit cards instead of checks for a variety of reasons, the biggest of which is to save money. In Texas, for example, the workforce commission saved $1.5 million in printing, postage and other fees in 2008, the program's first full year, according to Givens.
Recipients also receive funds faster with debit cards, says Michael Volpe, a spokesperson for the U.S. Department of Labor, which in 2006 began encouraging states to switch to debit cards from checks. And those who lack bank accounts avoid the cost of cashing their checks, he says.
Despite such benefits, at least one state does not plan to switch to debit cards.
Montana's unemployed residents rejected debit cards as a way to receive benefits because of the fees banks charge to access the cards, says Roy Mulvaney, administrator of the state's unemployment insurance program.
The state's residents also worried about how many retailers in the state's rural locations would accept a debit card, Mulvaney says. ATM
