For hundreds of thousands of workers losing their jobs during the recession, there's a new twist to their financial pain: Even as they're collecting unemployment benefits, they're paying bank fees just to get access to their money.
Thirty states have struck such deals with banks that include Citigroup Inc., Bank of America Corp., JP Morgan Chase and US Bancorp, an Associated Press review of the agreements found. All the programs carry fees, and in several states the unemployed have no choice but to use the debit cards. Some banks even charge overdraft fees of up to $20 — even though they could decline charges for more than what's on the card.
"It's a racket. It's a scam," said Rachel Davis, a 38-year-old dental technician from St. Louis who was laid off in October. Davis was given a MasterCard issued through Central Bank of Jefferson City and recently paid $6 to make two $40 withdrawals.
The banks say their programs offer convenience. They also provide at least one way to tap the money at no charge, such as using a single free withdrawal to get all the cash at once from a bank teller. But the banks benefit from human nature, as people end up treating the cards like all the other plastic in their wallets.
The fees are raising questions from lawmakers who just recently voted to infuse banks with taxpayer money to keep them afloat.
Steven Adamske, spokesman for the U.S. House Financial Services Committee, said he wasn't aware of the debit card programs before he was contacted by the AP, but was concerned about card holder fees.
"Our hope ... would be that banks who are getting federal assistance would forgo these kinds of fees as we're trying to help everyone in society deal with this recession," Adamske said.
Some banks, depending on the agreement negotiated with each state, also make money on the interest they earn after the state deposits the money and before it's spent. The banks and credit card companies also get roughly 1 percent to 3 percent off the top of each transaction made with the cards.
Neither banks nor credit card companies will say how much money they are making off the programs, or what proportion of the revenue comes from user versus merchant fees or interest. It's difficult to estimate the profits because they depend on how often recipients use their cards and where they use them.
But the potential is clear.
In Missouri, for instance, 94,883 people claimed unemployment benefits through debit cards from Central Bank. Analysts say a recipient uses a card an average of six to 10 times a month. If each cardholder makes three withdrawals at an out-of-network ATM, at a fee of $1.75, the bank would collect nearly $500,000. If half of the cardholders also dial customer service three times in any given week (the first time is free; after that, it's 25 cents a call), the bank's revenue would jump to more than $521,000. That would yield $6.3 million a year.
http://news.yahoo.com/s/ap/20090220/ap_on_bi_ge/bank_fees_jobless_benefits
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