What Were They Thinking?

by Scott Loftesness on February 22, 2009

in Banking Industry, Scott Loftesness

In an article titled Maybe This Is Why People Don’t Like Banks?, Broox Peterson writes on his Payments Industry Regulatory Compliance blog about an AP wire story he read this morning:

Apparently 30 states have agreements with the largest banks in this country to issue Visa or MasterCard prepaid cards to recipients of unemployment benefits, and in several states this is the only way that recipients can receive the benefits.

While it is possible to cash out the entire balance at a bank branch free of charge, many recipients use the card like a credit or debit card (many billions of dollars have been spent by the banks and associations to ingrain that habit) , but since it is a prepaid card, incur transaction fees, overdraft fees, ATM fees and balance inquiry fees.

Now I understand the nature of the prepaid card product and the economic rationale for these fees, but does anyone at these banks actually think ahead?

The AP story, reported by Christopher Leonard, notes that a typical contract between one of the states and a card issuing bank charges the state nothing – as the banks collect fees both from the unemployed cardholders as well as via interchange fees they receive from merchants accepting the cards while the states save money by eliminating traditional check printing. So, while both the states and the banks win financially, they suffer from the perception of being unfair to the unemployment benefit recipients.

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