Most states offer two ways to receive unemployment benefits: debit cards or direct deposit. Both of these options save the cost of processing and mailing paper checks. However, in a report issued Tuesday, January 29, by the National Consumer Law Center they suggest the debit cards unfairly take benefits from unemployed Americans. The NCLC is a nonprofit group that works to protect low-income Americans from unfair financial services products.
Fees incurred with unemployment debit cards
On the front end, unemployment debit cards sound like a convenient option. They can be used at ATMs and to pay for groceries and other goods and services at businesses that accept debit or credit cards. However, in the 41 states that use these cards, they are subject to a wide range of fees.
Unemployment benefits differ from state to state, and use of the debit cards and the fees attached to them also differ. The NCLC report shows these fees often include ATM transaction fees after their first free deposit is made by the state. For instance, in Alaska the ATM transaction fee is $1.50 and going to a bank teller costs $5.00. Fees are also charged for inquiring about the card's balance, and another fee is charged for a denied transaction. Similar penalties are charged in Indiana and Iowa. These cards are issued by third-party banks, and those who have questions about the balance have to go through the bank's customer service department for answers.
People are using the fee-heavy cards instead of getting their payments deposited directly to their bank accounts. That's because states issue bank cards automatically, require complicated paperwork or phone calls to set up direct deposit and fail to explain the card fees. – MSN Money
Who should choose a prepaid UI card?
No one wants to pay heavy fees tied to the prepaid cards, but the NCLC report says the cards are the best option for one group of people -- those who don't have bank accounts. This group often pays even more in fees by using storefront check-cashing services.
Direct deposit a better choice
The NCLC maintains that direct deposit is the better choice. It saves states the cost they once incurred for mailing paper checks and takes the burden of the management and distribution of UI benefits off the jobless. For those receiving unemployment via the debit card option, in most cases they can change to direct deposit to eliminate the problems and fees associated with the card payment method. However, direct deposit is not offered in five states: California, Indiana, Kansas, Maryland, and Nevada. These five states pay UI benefits via debit card only.