Fees on State-Issued Prepaid Cards Are Falling: Report

Fees on the prepaid cards that state governments use to distribute unemployment benefits have fallen significantly since 2011, according to a new report from a national consumer group.

The report by the National Consumer Law Center finds that overdraft fees and point-of-service fees on the cards are gone automated teller machine fees are easier to avoid. The advocacy group gave a negative rating to just three states that offer the cards; two years ago it gave thumbs down to 16 states.

But the consumer group also criticized five states — California, Indiana, Kansas, Maryland and Nevada — that it says are violating federal law by failing to offer the option of receiving unemployment benefits via direct deposit.

California, Kansas and Maryland offer a service that enables the transfer of the funds from the prepaid card to a bank account, but that process is no substitute for direct deposit, according to the consumer group. The report says that only 21% to 24% of recipients choose that option, which can delay payments by one to four days.

The National Consumer Law Center first drew attention in 2011 to the high fees that often came with government benefit prepaid cards.

The advocacy group acknowledges that prepaid cards can be a cheaper and safer option than paper checks for consumers who don't have bank accounts. But it has pushed states, which have partnered with banks to provide prepaid cards as a money-saving alternative to checks, to keep fees down.

The group's new report lauds a card that the state of Pennsylvania is issuing with JPMorgan Chase (JPM). The revamped card eliminates certain fees, allows some free transactions at out-of-network ATMs and increases the size of the ATM network.

The NCLC also reports improvements in cards issued by U.S. Bancorp (USB). In 2011, it was the only bank partnering with states on unemployment benefits that was charging opt-in overdraft fees on its prepaid cards.

Since then, a change in federal law banned such overdraft fees, according to the new report, which gave a positive rating to all of the cards that U.S. Bancorp issues alongside state governments.

Still, the report's authors maintain that some fees remain too high, particularly those for balance inquiries and other requests for information.

"Those fees are coming down," says Lauren Saunders, an NCLC attorney who is one of the report's authors, "but not as fast as they need to."

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