The Next Frontier in Public Benefits: Electronic Benefit Cards

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The Next Frontier in Public Benefits Electronic
Benefit Cards

• Lauren Saunders
• National Consumer Law Center
• February 2010

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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

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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

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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.

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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

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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

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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)

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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

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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

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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