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
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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
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What is a prepaid card?
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Consumer “loads” funds onto prepaid debit card
Card funds typically sit in a pooled, third-party
account
Who issues them?
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Private prepaid companies (e.g., Green Dot)
Government agencies
Employers (payroll cards)
Prepaid Card Basics
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How many people use them?
Public Benefits Issued on Prepaid Cards
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Private, self-arranged cards
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Consumers can arrange direct deposit of benefits onto
general-use prepaid cards issued by private companies
Government-issued cards
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Federal benefits (VA, SS, SSI, etc.)
State benefits (unemployment, disability, etc.)
Some needs-tested (EBT) programs moving toward openloop prepaid cards
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Note: traditional EBT cards (e.g., for food stamps) are different
from reloadable prepaid cards, and subject to different laws
Potential Benefits
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For Agency Issuing Prepaid Cards:
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Paperwork reduction
Prevent check fraud
For Consumer:
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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
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EFTA/Reg E
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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
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FTC prohibits unfair and deceptive practices
New CFPB will have authority to prohibit unfair,
deceptive, and “abusive” practices
Applicable Federal Laws
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Some government-issued cards are covered
under EFTA/Reg E
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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
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EFTA/Reg E governs:
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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
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Government-issued and private prepaid cards can come with
multiple types of fees
Typical fees include:
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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
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Examples of high fees from government-issued cards
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$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
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$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
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Extend EFTA/Reg E protections to all prepaid cards,
regardless of issuer
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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)
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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
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Give consumers a choice
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Offer direct deposit before prepaid card
Permit paper checks for hardship cases
Negotiate good contracts with issuers
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Treasury Interim Final Rule for federal payments
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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
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DOL Guidance
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Makes recommendations for UI cards
Five areas to negotiate:
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>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
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Federal Direct Express Card for federal benefits
California’s EDD Debit Card for unemployment and
disability insurance
Resources
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Consumers Union – DefendYourDollars website
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DOL Guidance
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http://wdr.doleta.gov/directives/attach/UIPL/UIPL3409.pdf
Federal Direct Express Card
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http://www.defendyourdollars.org/money_topics.html
http://www.usdirectexpress.com/edcfdtclient/docs/faq.htm
l
CA EDD Debit Card
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http://www.edd.ca.gov/About_EDD/FAQs_The_EDD_De
bit_Card.htm