The Department of Labor (DOL) has recently issued a revised Unemployment Insurance Program Letter to clarify how state workforce agencies should deliver unemployment benefits payments to consumers. This new guidance integrates recent Consumer Financial Protection Bureau (CFPB or Bureau) research on so-called “junk fees” and other consumer risks associated with public benefits and prepaid cards.
In 2023, approximately 12 million unemployment insurance claims were filed. According to the CFPB, recipients often incur fees and face other challenges in accessing their benefits, including inadequate customer service. In some states, recipients lack a choice in how to access their benefits, with payment options limited to a prepaid debit card provided by a financial company contracted by the state. According to the CFPB, while debit cards may offer quicker access to benefits and greater flexibility than paper checks, they can impose fees for things like cash withdrawals and bill payments.
The DOL’s letter reminds states of their obligations to ensure that recipients can choose how they receive their benefits. Highlights of the DOL’s guidance, includes:
- Consumer Choice: States cannot require recipients to receive unemployment payments on a state-administered debit card, even if they have the option to move funds to another account later. Recipients must have at least one alternative to a prepaid card, typically direct deposit into an account of their choice or a paper check.
- Improving Prepaid Card Offerings: The DOL advised that states should avoid revenue-sharing agreements with card providers, as these can create conflicting financial incentives. Instead, states should select debit card providers based on the lowest costs and highest service quality for consumers.
- Reducing Fees: States should negotiate prepaid debit card contracts to minimize or eliminate fees, including fees for ATM usage, balance inquiries, denied transactions, one-time bill payments, and customer service.
In its blog discussing the DOL guidance, the CFPB stated it will continue to monitor the market for prepaid cards used to distribute unemployment insurance and other public benefits. The CFPB requires prepaid card issuers to submit their account agreements, which the Bureau then makes publicly available. The Bureau stated it will analyze how states and prepaid card companies respond to these changes and will continue to work with the DOL.