The Next Frontier in Public Benefits: Electronic Benefit Cards

Lauren SaundersNational Consumer Law Center

February 2010

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

Overdraft Fees: EFTA (Reg E) Limits

• Reg E doesn’t 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

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.

And If Overdrafts Aren’t 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.” Fed’s 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

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

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)

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

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 can’t 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

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@nclc.org