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The Next Frontier in Public Benefits: Electronic Benefit Cards

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Title: Public Benefits and Wages on Prepaid Cards: Protecting Against Hidden Fees and Identity Theft Author: Lauren Saunders Last modified by – PowerPoint PPT presentation

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Title: The Next Frontier in Public Benefits: Electronic Benefit Cards


1
The Next Frontier in Public Benefits Electronic
Benefit Cards
  • Lauren Saunders
  • National Consumer Law Center
  • February 2010

2
Time to Negotiate Prepaid Contracts
  • No UI prepaid yet CT, DE, DC, GA, HI, ID, KY,
    ME, MT, NH, NJ, TN,VT, WA, WI
  • EBT programs, with contract expiration, tracked
    at http//www.fns.usda.gov/snap/ebt/
  • ebt_status_report.htm

3
Overdraft Fees EFTA (Reg E) Limits
  • Reg E doesnt cover needs-tested or private cards
    (yet) does cover UI cards
  • Effective Aug. 2010, consumer must opt in to
    overdraft fees
  • Rule covers card swipe (ATM, merchant, POS), not
    bill pay, recurring transfers
  • Shortage, NSF fees also prohibited. Reg. E
    commentary 17(b)-1.iv

4
Overdraft Fees on Benefits Cards
  • Only on US Bank UI cards 10-20 fees in AR, HI,
    MN, OH, OR, SD, WY
  • DOL overdraft fees on UI cards are inconsistent
    with federal law. Fees cannot be deducted from
    future UI payments to satisfy any private or
    public debt.
  • On July 21, 2012, prepaid cards with overdraft
    fees will lose exemption from new caps on
    merchant interchange fees.

5
And If Overdrafts Arent Covered?Declined
Transaction Fees May Be Unfair
  • Declined transaction fees could raise
    significant fairness issues under the FTC Act,
    because the institution bears little, if any,
    risk or cost to decline authorization of an ATM
    or one-time debit card transaction. Feds Reg E
    overdraft rules, 74 Fed. Reg. 59,033 59,041 (Nov.
    17, 2009)
  • But half of state UI cards have declined
    transaction fees of 0.25 to 1.50

6
Bank Payday Account Advance
  • 2.50 per 20 advance to prepaid card, repaid
    next deposit 120 to 650 APR
  • Was offered by MetaBank on NetSpend cards
  • Urban Trust Bank prepaid cards offered by Arizona
    payday lenders, after AZ payday law expired, to
    gain preemption of state law
  • OTS shut down iAdvance but OTS being abolished
  • Wells Fargo, US Bank, Fifth Third, other banks
    not supervised by OTS still doing on bank accounts

7
Master-Subaccount Arrangements
  • 2010 SSA OIG report nonbank financial service
    companies (check cashers, loan companies)
    controlling accounts to which SS/SSI benefits
    deposited.
  • Deducting loan payments, check issuance, check
    cashing fees
  • 25m/month (35,705 payments) at 5 banks. Nine
    banks total.
  • Highest states IL, CA, GA, NY, PA (KY stopped)

8
Treasury Proposal Prepaid Cards, Subaccounts
Eligible for Federal (SS/SSI) Direct Deposit
Only if
  • Not attached to credit line, loan agreement
    triggering repayment upon deposit
  • Comply with EFTA/Reg E payroll card rule (no
    statements required)
  • FDIC/NCUA insurance payable to individual
  • Comments due April 25
  • No similar rule for state benefits

9
Proposed Rule on Garnishment of Social
Security/SSI in Bank Accounts
  • Treasury issued April 19, 2010 final rule soon.
  • Any exempt federal benefits deposited
    electronically in last 60 days cant be frozen.
  • Orders for alimony, child support included (must
    proceed by offset)
  • Bank garnishment fees cannot be taken from
    protected amount
  • States can extend rule to their benefits, wages

10
For more information
  • NCLC Consumer Banking
  • Payments Manual
  • NCLC website
  • Banking Payment Systems/Prepaid Cards
  • Other Issues/Exempt Benefits
  • For nonprofit advocates and NACA members
    E-payments listserv. Contact LSaunders_at_nclc.org
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