1. 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

2. What This Presentation Covers  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

3. Prepaid Card Basics  What is a prepaid card? Consumer “loads” funds onto prepaid debit card Card funds typically sit in a pooled, third-party account  Who issues them? Private prepaid companies (e.g., Green Dot) Government agencies Employers (payroll cards)

4. Prepaid Card Basics  How many people use them?

5. Public Benefits Issued on Prepaid Cards  Private, self-arranged cards Consumers can arrange direct deposit of benefits onto general-use prepaid cards issued by private companies  Government-issued cards Federal benefits (VA, SS, SSI, etc.) State benefits (unemployment, disability, etc.) Some needs-tested (EBT) programs moving toward open- loop prepaid cards  Note: traditional EBT cards (e.g., for food stamps) are different from reloadable prepaid cards, and subject to different laws

6. Potential Benefits  For Agency Issuing Prepaid Cards: Paperwork reduction Prevent check fraud  For Consumer: 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)

7. Applicable Federal Laws  EFTA/Reg E 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 FTC prohibits unfair and deceptive practices New CFPB will have authority to prohibit unfair, deceptive, and “abusive” practices

8. Applicable Federal Laws  Some government-issued cards are covered under EFTA/Reg E 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

9. Applicable Federal Laws  EFTA/Reg E governs: 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…

10. Fees  Government-issued and private prepaid cards can come with multiple types of fees  Typical fees include: 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

11. Fees  Examples of high fees from government-issued cards $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 $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)

12. What Needs to be Done  Extend EFTA/Reg E protections to all prepaid cards, regardless of issuer 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) 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)

13. What Agencies Can Do Now  Give consumers a choice Offer direct deposit before prepaid card Permit paper checks for hardship cases  Negotiate good contracts with issuers Treasury Interim Final Rule for federal payments  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

14. What Agencies Can Do Now  DOL Guidance Makes recommendations for UI cards Five areas to negotiate:  >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 Federal Direct Express Card for federal benefits California’s EDD Debit Card for unemployment and disability insurance

15. Resources  Consumers Union – DefendYourDollars website http://www.defendyourdollars.org/money_topics.html  DOL Guidance http://wdr.doleta.gov/directives/attach/UIPL/UIPL34- 09.pdf http://wdr.doleta.gov/directives/attach/UIPL/UIPL34- 09.pdf  Federal Direct Express Card http://www.usdirectexpress.com/edcfdtclient/docs/faq.htm l http://www.usdirectexpress.com/edcfdtclient/docs/faq.htm l  CA EDD Debit Card http://www.edd.ca.gov/About_EDD/FAQs_The_EDD_De bit_Card.htm http://www.edd.ca.gov/About_EDD/FAQs_The_EDD_De bit_Card.htm