Public Benefits and Prepaid Cards: Key Issues for Consumers

The Next Frontier in Public Benefits: Electronic Benefit Cards

February 3, 2011

Suzanne Martindale

Consumers Union

What This Presentation Covers Prepaid card basics Public benefits issued on prepaid cards Potential benefits Which federal laws apply Fees What needs to be done What agencies can do now Resources

Prepaid Card Basics What is a prepaid card?

Consumer “loads” funds onto prepaid debit card Card funds typically sit in a pooled, third-party

account Who issues them?

Private prepaid companies (e.g., Green Dot) Government agencies Employers (payroll cards)

Prepaid Card Basics How many people use them?

Public Benefits Issued on Prepaid Cards Private, self-arranged cards

Consumers can arrange direct deposit of benefits onto general-use prepaid cards issued by private companies

Government-issued cards Federal benefits (VA, SS, SSI, etc.) State benefits (unemployment, disability, etc.) Some needs-tested (EBT) programs moving toward open-

loop prepaid cards Note: traditional EBT cards (e.g., for food stamps) are different

from reloadable prepaid cards, and subject to different laws

Potential Benefits For Agency Issuing Prepaid Cards:

Paperwork reduction Prevent check fraud

For Consumer: Faster delivery of benefits Can use card on Visa/MC networks Don’t have to carry cash Don’t need to use check cashing No background check (ChexSystems)

Applicable Federal Laws EFTA/Reg E

Covers traditional, bank account-linked debit cards Reg E amended in 2006 to include payroll cards Government-issued cards appear to be covered Private, general-use prepaid cards not covered…yet

[Food Stamp Act – not discussed here] FTC Act/Consumer Financial Protection Act

FTC prohibits unfair and deceptive practices New CFPB will have authority to prohibit unfair,

deceptive, and “abusive” practices

Applicable Federal Laws Some government-issued cards are covered

under EFTA/Reg E Covers “government benefits,” not including

EBT, from an “account” set up by the agency Exemption for EBT does not apply to benefits

such as unemployment, so unemployment and disability benefits should be covered

Unclear whether benefits such as child support would be covered

Applicable Federal Laws EFTA/Reg E governs:

Disclosures Dispute rights re: unauthorized transactions and

billing errors Right of recredit Transaction information Overdraft fees (opt-in protection)

Does not govern fees in general…

Fees Government-issued and private prepaid cards can come with

multiple types of fees Typical fees include:

Monthly maintenance ATM transactions, balance inquiries Teller transactions Bill pay Point-of-sale (POS) transactions Declined transactions (POS or ATM) Dormancy/inactivity Overdraft Customer service

Fees Examples of high fees from government-issued cards

$10-$20 overdraft fee (AR, HI, MN, OH, OR, SD, WY) $1.50 declined transaction fee (MI, NC) $3 customer service fee (1 free) (MI, MN) $2 inactivity fee (US Bank)

Examples of high fees from private prepaid cards $10-$20 activation fee (RUSHCard, NetSpend,Vision Premier, etc.) $1 POS transaction fee (RUSHCard, NetSpend, Vision Premier, etc.) $10 inactivity/dormancy fee (Mi Promesa card) $29.95 overdraft fee (Club América card)

What Needs to be Done Extend EFTA/Reg E protections to all prepaid cards,

regardless of issuer Dispute rights for unauthorized transactions and billing errors Right of recredit Right to receive periodic statements Full Reg E vs. “Reg E Lite” for payroll cards?

Amend EFTA to limit types of fees issuers can charge (Menendez bill) Prohibit fees for ordinary use of a prepaid card Limit to a low monthly fee, and limit all other fees to nominal events

(e.g., second replacement card)

What Agencies Can Do Now Give consumers a choice

Offer direct deposit before prepaid card Permit paper checks for hardship cases

Negotiate good contracts with issuers Treasury Interim Final Rule for federal payments

Individual FDIC insurance for each cardholder No links to lines of credit that offset balance Same consumer protections, by contract, that payroll

cards have under Regulation E

What Agencies Can Do Now DOL Guidance

Makes recommendations for UI cards Five areas to negotiate:

>1 free ATM withdrawal per deposit Unlimited free POS transactions Unlimited in-network ATM balance inquiries No overdraft or decline fees Unlimited free customer service

Look to good examples on the market Federal Direct Express Card for federal benefits California’s EDD Debit Card for unemployment and

disability insurance

Resources Consumers Union – DefendYourDollars website

http://www.defendyourdollars.org/money_topics.html DOL Guidance

http://wdr.doleta.gov/directives/attach/UIPL/UIPL34-09.pdf

Federal Direct Express Card http://www.usdirectexpress.com/edcfdtclient/docs/faq.ht

ml

CA EDD Debit Card http://www.edd.ca.gov/About_EDD/FAQs_The_EDD_De

bit_Card.htm