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The Next Frontier in Public Benefits: Electronic Benefit Cards

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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  1. The Next Frontier in Public Benefits: Electronic Benefit Cards Lauren Saunders National Consumer Law Center February 2010

  2. 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

  3. 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

  4. 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.

  5. 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

  6. 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

  7. 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)

  8. 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

  9. 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

  10. 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

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