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The Next Frontier in Public Benefits: Electronic Benefit Cards. Lauren Saunders National 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

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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

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


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

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