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Wednesday, December 7, 2016

How Banks Take A Big Bite Out Of Government Benefits

Consumers witnessed a victory this week when Bank of America backed off its threat to institute a $5 fee for using a debit card, following a public outcry that led most of the other big banks to foreswear similar moves. But not everyone has been spared debit card fees. As Janell Ross pointed out at The Huffington Post yesterday, banks are making nice profits from doling out government benefits through prepaid debit cards.

It’s obvious that in a sour economy like ours, usage of programs like unemployment benefits, food stamps, and cash assistance will skyrocket. It used to be that most of these programs distributed actual money to beneficiaries. Food stamps were quite literally stamps. These days, however, things have been ‘modernized’ so that many benefits come through prepaid debit cards administered by banks like JP Morgan, Bank of America, and other behemoths.

So what’s the problem? Doesn’t this just make it more convenient for users? Isn’t plastic easier than cash?

The first problem is that users, who are clearly already strapped for cash if they’re turning to government benefits, are finding themselves hit with fees for using the cards. As an example, Ross points to one analysis that California families will pay over $16 million in surcharges to access benefits this year. While there has been a lot of action around limiting swipe fees and much outrage at charging customers to use regular debit cards, prepaid debit cards are a whole other animal. Even consumers using them to access their privately earned money may be charged for buying the cards, swiping the cards, and withdrawing money. And people getting benefits through them aren’t any exception: They face charges for withdrawing money too many times, using an out-of-network ATM, drawing more money than is in the account, leaving the card inactive for a certain period of time, and some even charge per purchase.

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