Banks nickel-and-dime the jobless

I quess banks just can't help being greedy...I hope they get called on the carpet for it....

Banks nickel-and-dime the jobless
Debit-card use incurs various charges, even to check balance
By CHRISTOPHER LEONARD • Associated Press • February 20, 2009

Buzz up! First, Arthur Santa-Maria called Bank of America to ask how to check the balance of his new unemployment benefits debit card. The bank charged him 50 cents.

He chose not to complain. That would have cost another 50 cents.

So he took out some of the money and then decided to pull out the rest. But that made two withdrawals on the same day, and that was $1.50.

For hundreds of thousands of workers losing their jobs during the recession, there's a new twist to their financial pain: Even when they're collecting unemployment benefits, they're paying the bank just to get the money -- or even to call customer service to complain about it.

Thirty states -- not Delaware, but Maryland and Pennsylvania -- have struck such deals with banks that include Citigroup Inc., Bank of America Corp., JPMorgan Chase and U.S. Bancorp, an AP 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.

"They're trying to use my money to make money," said Santa-Maria, a laid-off engineer who lives just outside Albuquerque, N.M. "I just see banks trying to make that 50 cents or a buck and a half when I should be given the service for free."

Bank of America spokeswoman Britney Sheehan said the cards offer convenience, especially for those in rural areas or people without a relationship with a bank who would have to pay fees to cash a check.

Under the company's agreement with New Mexico, cardholders can make one ATM withdrawal a day and have unlimited free use to make purchases, as well as the ability to receive cash back with the purchases with no fees.

The fees the company does charge are consistent with what other banks are charging, Sheehan 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 card companies also get roughly 1 percent to 3 percent off the top of each transaction.

"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.

Profit potential immense
Neither banks nor 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.

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 call customer service three times in any given week, the bank's revenue would jump to more than $521,000. That would yield $6.3 million a year.

Rachel Storch, a Democratic state representative, received complaints about the fees from autoworkers laid off from a suburban St. Louis Chrysler plant. She recently urged Gov. Jay Nixon to review the state's contract with Central Bank with an eye toward reducing the fees.

Another 10 states -- including California, Florida and South Carolina -- are considering such programs or have signed contracts. The remainder use traditional checks or direct deposit.

With the national unemployment rate now at 7.6 percent -- the latest state numbers from December show Delaware at 6.2 percent -- the market for bank-issued unemployment cards is booming. In 2003, states paid only $4 million of unemployment insurance through debit cards. By 2007, it had ballooned to $2.8 billion, and by 2010 it will likely rise to $10.5 billion, according to a study conducted by Mercator Advisory Group, a financial industry consulting firm.

The economic stimulus plan signed by President Barack Obama this week will increase federal unemployment benefits by $40 billion. Subsequently, there will be more money from which banks can collect fees. The U.S. Department of Labor allows the fees as long as states create a way for recipients to get their money for free, spokeswoman Suzy Bohnert said.

"Beyond that, the individual decides how to manage his drawdowns using the debit card," she said in an e-mail.

Some states bargained
A typical contract looks like the agreement between Citigroup and the state of Kansas. The state expects to save $300,000 a year by wiring payments to Citigroup instead of printing and mailing checks.

Citigroup's bill to the state: zero. The bank collects its revenue from fees paid by merchants and the unemployed.

"If you use your card the right way, you're not going to pay fees at all," said Paul Simpson, Citigroup's global head of public sector, health care and wholesale cards.

Santa-Maria, the laid-off New Mexico engineer, said he didn't pay any fees when he was laid off in 2007. His unemployment benefits were paid by paper checks. He found a new job last year but was laid off last fall.

This time, he was issued a Bank of America debit card -- a "prepaid" card in industry lingo -- but he was surprised to learn he had to pay fees to get his money. He asked the bank to waive them. It said no. That's when Santa-Maria called back to ask how to check his account online. He logged on and saw the call cost him a half dollar.

To avoid more fees, Santa-Maria found a Bank of America ATM at a strip mall and withdrew $80 at no charge. When he got back to his car, he decided to take out the rest of his money -- $250 -- and deposit it in his bank account.

Afterward, Santa-Maria logged on to his account and saw a charge of $1.50 for two withdrawals in one day.

New Mexico authorities bargained with Bank of America to get lower fees for unemployment recipients, said Carrie Moritomo, a spokeswoman for the state Department of Workforce Solutions. The state saves up to $1.5 million annually by not printing checks.

Banks could issue unemployment debit cards with no fees for cardholders, but that would likely mean that states would have to pay more of the administrative costs, said Mark Harrington, director of marketing for Citigroup's prepaid card services. If a state demanded no cardholder fees and could pay the difference, Citigroup might enter such a contract.

Simpson noted that the cards can save money for jobless workers who have no bank accounts. In the past, these people had to use corner check-cashing shops that charged fees as high as 2 percent, or $6 for a $300 check. Now, they can swipe their cards at McDonald's, Wal-Mart or elsewhere for free.

Kenna Gortler, a laid-off paper mill worker in Oregon, said her union is advising members to get their benefits through direct deposit.
http://www.delawareonline.com/article/20090220/BUSINESS/902200346/1006/NEWS

I thought most banks offered totally free checking accounts, such as SimplyFreeChecking, offered here in MA banks. There are no pre-qualifiers involved and if you have an existing checking account it can be switched to SimplyFree, for free.

It would be a good idea for depositors to ask their banks if they offer free checking and if they do not, the depositor should switch to a bank that does. The only charge depositors will incur is possible overdraft charges, and that also depends on the bank. Most banks will link the depositor's checking to their savings in order to cover checks that their checking account cannot cover.

You have to shop for a bank like you shop for food. You want the best product at the best price.