Treasury Department efforts to cut administrative costs by pushing recipients of federal benefits to sign up for prepaid debit cards have ended up shoveling millions of taxpayer dollars to a Texas bank.
The Center for Public Integrity reported Wednesday that Comerica Bank has gotten more than $22 million in federal money as a result of the Treasury Department’s move from paper checks to prepaid debit cards. On the surface, the policy move seems like an example of government moving into the 21st century and shrinking overhead. Electronic transfers costs nine cents, compared to $1.05 for paper checks.
Treasury contracted with Comerica in 2008 after determining they charged lower fees than other vendors and with the understanding that Treasury wasn’t responsible for covering Comerica’s costs should the program fall short of the bank’s revenue expectations. But after Comerica found themselves overwhelmed by card enrollment that far exceeded projections, “Treasury agreed in March 2011 to give Comerica $5 per card” it issued. The shift has triggered an investigation by the department’s inspector general.
For recipients with bank accounts, the change hasn’t meant much and may be an added convenience. But for everyone else – “generally elderly or poor or both” and unwilling or unable to access bank accounts – the shift to electronic transfers means receiving prepaid “Direct Express” cards in the mail. Comerica charges federal beneficiaries fees for transfers, withdrawals, and bill payments. Those fees are not included in CPI’s $22 million figure, which only tallies direct payments from Treasury for distributing the cards in the first place.
And because Treasury was so dogged in marketing the cards, over a million people with bank accounts who could have received a simple direct deposit of benefits had instead enrolled in the Direct Express program. Treasury pushed Direct Express using flyers that implied those who insisted on paper checks would be “out of compliance with the law,” CPI reported. When frightened beneficiaries called the 800 number on the flyer, they spoke to call center employees who were instructed to mislead callers about their options and avoid providing waiver forms except “as a last resort.”
A spokesperson from the Treasury Department disputed CPI’s reporting, saying, “Treasury took great care in implementing the electronic payment initiative, specifically ensuring a viable electronic alternative with strong consumer protections was made available for people without traditional bank accounts… [A]s electronic payments are much less costly than paper checks, the switch to electronic payments provides considerable savings for taxpayers of more than $1 billion over ten years.”
But CPI’s story makes Treasury sound less like a diligent paymaster and more like a McDonald’s in Pennsylvania. Last Thursday, a group of McDonald’s employees led by a woman named Natalie Gunshannon sued the owners of 16 of the fast food franchises in Pennsylvania over their use of debit cards in lieu of standard paychecks or deposits. Those cards are issued by JP Morgan Chase, which charges users $1 just to check their balance, $5 for in-person withdrawal, and a variety of other fees, according to the Associated Press. And like the aggressive sales tactics and misleading call center scripts Treasury used to push Direct Express cards, Gunshannon’s bosses told their employees the cards were the only option.
The rise of prepaid debit cards has been a boon for banks in state-level unemployment insurance programs as well, as the National Consumer Law Center reported in January. While the NCLC found some improvements since the early days of prepaid benefits cards, the numbers remain ugly. Even in California, the group’s highest-rated state, banks charge users $1.8 million in fees each year. The cards “effectively shifted the cost of distributing payments from governments to individuals,” as the Associated Press put it, as the country’s biggest banks “seized on government payments as a business opportunity.”