Jobless Americans Paying Fees for Unemployment Benefits


OK, brace yourself because I'm about to get on my soapbox again. This time, I'm very annoyed that unemployed workers are receiving their benefits on prepaid cards.

The problem is that they have to pay fees to use the cards. There are fees for using out-of-network ATMs, withdrawals at a teller window, balance inquiries, talking to a customer service rep, and more. If you'd like to see what fees are applicable in your state, you can see the report here: 2013 State-by-State Highlights of Unemployment Compensation Prepaid Card Programs.

I'm sure it's very convenient (and cheap) for state governments to issue unemployment benefits on prepaid cards. But the reason the unemployed need the benefits is because they're hurting for cash. It doesn't seem fair to make them pay fees — even small fees — to access this money. (See also: Beware Celebrities Bearing Prepaid Cards)

At Least the Fees Have Gone Down

A recent survey by the National Consumer Law Center (NCLC) showed that the fees aren't nearly as bad as they were in 2011, when the NCLC did their initial survey about this.

In 2011, workers were paying a ridiculous amount of fees to access their benefits, including overdraft fees. Now, overdraft fees are gone, and according to the new survey, workers are paying less in fees than they did in 2011. It's good to hear that the prepaid cards have improved, but it's still crazy that the jobless have to pay fees at all.

California, according to the NCLC survey, has the best prepaid card. Still, workers there paid nearly $1.8 million in fees in the past year. And that doesn't include ATM surcharges!

Five States Are Breaking the Law

California may have the best prepaid card when it comes to fees, but the state is violating the law by requiring workers to receive benefits via prepaid cards. Kansas, Indiana, Maryland, and Nevada are also breaking the law by requiring that the unemployed receive benefits on prepaid cards. According to the NCLC report, "Workers in five states incur prepaid card fees unnecessarily as those states violate federal law and require use of the prepaid card, without offering the choice of direct deposit to the worker’s own account."

At least in California, Kansas, and Maryland, workers can get an automatic transfer from the prepaid cards into their own bank accounts. But only 21% to 25% do this, and I'm guessing it's due to timing issues. If they set up the transfer, it can delay their access to the funds anywhere from one to four days. If you're unemployed, I can imagine you'd need every penny as quickly as possible.

I'm wondering why this is allowed to continue. I mean, these five states are very publicly breaking the law. So why isn't something being done? I don't get it.

What's the Answer?

The obvious answer, pointed out in the NCLC report, is to allow direct deposit into the worker's bank account. And for heaven's sake, don't turn it into a tedious exercise. This gives workers the money they need as quickly as possible.

To be fair, some states do encourage this as the preferred choice when a worker decides how to receive the benefits. But some states have made it difficult to choose direct deposit as the primary option without jumping through hoops.

Here are the recommendations from the NCLC report:

  • Offer direct deposit to the worker's own account first at the time of application. And make the sign-up easy.
  • Offer a minimum of one free ATM and teller withdrawal for each deposit.
  • Eliminate fees for balance inquiries, customer service calls, and denied transactions.
  • Monitor fees and involve workers and advocates to address the costs.
  • Publicize ways to get fee-free cash access and give information about the location of free ATMs.
  • Offer complete and accurate fee information on the state website. And display it prominently.

The last two bullet points are crucial, especially for those who don't have bank accounts because the prepaid card is their only option. One of the issues I've always had with prepaid cards is that, too often, the fees aren't easy to find. And certainly, it's up to the consumer to read the fine print, so I'm not absolving people from responsibility. But I do know the legal jargon and lack of clarity makes the fine print difficult to understand.

So, what do you think about this? I'd love to hear your thoughts. And yes, even if you disagree with me!

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Guest's picture

Yes! I totally aggree with you! In my career I work with people who are receiving unemployment insurance in one of the states mentioned, and I find it very frustrating that these individuals have to go through the mess of using a pre-paid card. Often they need to access statements in order to receive government services - and accessing those statements is tedious and nearly impossible for those who are not computer savvy. Also - taking away the small amount received in Unemployment Insurance for fees is just bad business.

Beverly Harzog's picture

Hi FakeTillMake -- You make a good point that some people aren't tech savvy and this is especially stressful for those folks. Thanks for weighing in!

Guest's picture

I'm in CA and on unemployment. Yes, it goes to a B of A account and there is a card but I simply set up an automatic transfer. The second it hits the B of A account it gets transfered to my own account at my credit union. To the best of my knowledge I have no fees or any loss at all. I always get the full amount that EDD says I am to get and it shows up in my personal account a day after released from the state. It's fine.

Beverly Harzog's picture

Hi Kim -- I'm very happy to hear that this hasn't been a burden for you. A lot of people have complained about the time lag. CA has one of the better prepaid cards. Only a minority are doing what you're doing and transferring the money to their own account. It would be great if CA could publicize this approach more. Kudos to you for figuring out the system!

Guest's picture
Libby Sanford

Just read this article on a Western Union partnership with prepaid cards:

Beverly Harzog's picture

Hi Libby -- Thanks for sharing that article. Very interesting. Last year, there were some issues with consumers who got tax refunds on prepaid cards. All I can say is that reading the fine print is a must when you get receive money in the form of a prepaid card.

Guest's picture

We live in New Jersey and this was my concern when my wife was receiving Family Medical Leave money, funneled through through the same system as unemployment. We did not pay a single fee. We saw, on their website, that you could schedule an ACH transfer for free. We scheduled a transfer everytime she expected a check, and the next day it was in her bank account. Also, when she was on unemployment in 2011 before, we thought it was direct deposit, not through a card, but maybe things have changed now.

Oh looks like Kim has had the same experience in California.

Beverly Harzog's picture

Thanks for sharing your experience. The states vary a lot when it comes to this issue. They use different prepaid cards, too, which makes it hard to compare.

But I'm very glad it all went smoothly for you. I wish it did for everyone!

Guest's picture
Debbra W

Those fees are not fair. It is also not fair to make the unemployed pay income tax, state or federal. If you have no money why is the Sheriff of Nottingham (IRS and state) collecting taxes?

Beverly Harzog's picture

Hi Debbra -- Thanks for your comment. I chuckled at your comparison of the IRS to the Sheriff of Nottingham!

Guest's picture

Yes I was as angered when I received my unemployment prepaid card and discovered this! Talk about a double whammy!!!! It felt like a sucker punch! I felt like the government was saying, "Here you go dummy! Not only are you out of a job but.....we are going to continue to kick you while you are down and out and penalize you by charging you fees! Good Luck finding a job in this market .....hahahahaha!" Yes direct deposit was an option but what a nightmare to get set up!!!! Thank you for your article and hope it helps others!!!

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