Since Arkansas began using debit cards for unemployment insurance payments 18 months ago, the money it has channeled through U.S. Bank, the card provider, is significant: more than $1 billion, with more than 6 million payments paid out through a quarter-million cards.
All it costs the state to deliver that dough is 3 measly cents per transaction, about 5 percent of what mailing a benefits check cost. The Department of Workforce Services tallies the savings just in printing, paper and postage at $3.7 million, split between the state and the U.S. Department of Labor.
But U.S. Bank's overdraft fees - $20 a pop - have caught the eye of the Department of Labor. This summer a Labor undersecretary sent memos to Arkansas' and other states' work force agencies recommending that states negotiate overdraft fees out of their contracts with U.S. Bank and other card providers: "A government-issued debit card should not put individuals at hazard for incurring debt."
The terms of DWS' three-year contract with U.S. Bank are set until March 2011, said Ron Calkins, the department's assistant director for unemployment insurance, who considers the debit program a success.
"The only thing we would be looking for to get rid of would be that overdraft in the next contract," he said.
While complaints about overdraft fees are few - "The main thing people need to understand is: Know your balance," Calkins said - they sting a population already strapped for cash. An overdraft fee comes out of an unemployed worker's next benefits payment, which typically is in the low three-figures. The most common ways to overdraw a debit card, according to Calkins and the Department of Labor memo, are through online transactions, by tipping at bars and restaurants and at pay-at-the-pump gas stations.
"For the state's benefit, it's supposed to be a cost saving," said consumer advocate Curtis Arnold of North Little Rock, founder of CardRatings.com. "The problem, though, is for the actual folks who are out of work and struggling, it's a kick-'em-when-they're-down kind of scenario."
The bank declined to disclose specific revenue from its Visa-branded ReliaCard division, which has issued nearly 2 million debit cards through 28 government programs in 16 states. U.S. Bank spokeswoman Lisa H. Clark wrote in an e-mail: "We don't break out how much of total USB revenue is derived from ReliaCard, but we can tell you that approximately 25 percent of USB revenue is from our payments business (which includes global merchant processing, retail and corporate payments, healthcare payments and payment programs we do for other financial institutions)."
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