Robbing the Unemployed the Benefits They’re Due

March 19, 2009

By Jonathan Cohen:

Despite the fact that millions of unemployed citizens are barely able to make ends meet each month, banks are nickel and diming their already-meager unemployment benefits.  What’s worse, it’s the states that are letting them do it.

According to a recent report from the U.S. Department of Labor, the national unemployment rate rose to 12.5 million last month.  More than 5 million of these individuals have filed for some form of unemployment benefits.

So why then, with unemployment figures still skyrocketing and analysts pledging that we still haven’t seen the worst of it, are banks charging unemployed citizens for the right to access their unemployment benefits?  Because the contracts between the states and the banks allow it. In an effort to streamline unemployment benefit distribution, at least 30 states now offer unemployment benefits to citizens through debit cards.

These cards are issued by contracting banks, such as Bank of America Corp., Citigroup Inc., J.P. Morgan Chase, and U.S. Bancorp. Through these contracts, participating states typically save hundreds of thousands of dollars annually, as they eliminate the need to print and distribute paper benefit checks.

As an added bonus to the states, the banks usually don’t charge states a dime to participate in these debit card programs. Instead, the banks profit from two other sources:

  1. the interest that accrues after the state deposits funds and before unemployment beneficiaries withdraw their money;
  2. by charging cardholders outrageous fees for everything from simple cash withdrawals to balance inquiries to customer service calls.

In some states, unemployed citizens are given the option to either receive benefits by check, which requires a 10-day waiting period, or receive a debit card, which offers instant access to unemployment benefits. In other states, benefit recipients have no choice and must access benefits via debit cards.

Significantly, there are complaints from people registering for unemployment that states are not telling them they subject themselves to a variety of transaction fees, by using a debit card to access their benefits. Such fees are often disclosed only after a person receives his or her debit card.

Most importantly, the fees make it difficult — if not impossible — for the unemployed to ever receive the full benefits to which they’re entitled. While a $1 or $2 transaction fee may not seem like much to some, it can mean the difference between being able to afford a meal to someone relying on government assistance.

Oh, did we mention that these bank fees are paid directly out of your tax dollars? This is money that was specifically set aside to help people in need, not greedy financial institutions.

From a consumer protection standpoint, charging fees for balance inquiries may deter cardholders from ever checking their balances or transaction histories. As a result, unauthorized transactions could go unchecked, denying cardholders their right to timely challenge fraudulent transactions and causing them to lose essential benefit money.

Unsurprisingly, banks have remained silent when asked how much money they generate from fees associated with unemployment benefits.  But considering that more than 5 million Americans are receiving unemployment benefits and the average debit cardholder may use his or her card an average of 10 times per month, it becomes clear just how astronomical the potential profits are for participating banks.

Add to this the fact that the recently-signed economic stimulus plan set aside approximately $40 billion for unemployment benefit programs, and it’s evident that there’s even more potential for banks to collect outrageous fees in the near future.

State officials are also remaining tight-lipped about the contractual arrangements between states and card-issuing banks.  Recently, Pennsylvania’s acting Secretary of Labor and Industry, Sandi Vito, invited CNN reporters to a town hall-style meeting and promised to address questions about debit card fees at the conclusion of the meeting.  At the end of the meeting, Vito bolted for the door, claiming she was too busy to answer any questions.

Banks charging fees for access to unemployment benefits is the very definition of “adding insult to injury.”  But at least it’s understood that banks are in the business of making money. Far more offensive and less forgivable is the states’ contractually permitting these banks to pillage their own citizens at a time when they’re most vulnerable.

Were the participating states so blinded by their own bottom-line savings that they had no problem throwing unemployed citizens to the wolves? In today’s economic climate, states should be helping unemployed citizens however possible, not pinning people down so the banks can go through their pockets looking for lunch money.