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 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