Unemployed Americans just can’t seem to catch a break. Not only are the unemployed losing money for every day they remain out of work, now they’re also losing money on the very benefits meant to help keep them financially afloat.

Some unemployed workers are being required to pay transaction fees to access their unemployment benefits because a large number of state unemployment agencies now distribute unemployment benefits electronically, making deposits to a bank card rather than issuing a traditional check, FOX News reports (“Labor Department Defends Bank Fees on Jobless Benefits,” Feb. 24, 2009).

At least 30 states administer programs that allow unemployment recipients to collect their benefits via debit cards, and another 10 states are either considering debit card programs or have already signed contracts allowing them to do so.

In some states, unemployed residents still have the option of receiving their benefits through traditional checks or direct deposits, but in several other states the unemployed have no choice but to receive their benefits via a debit card system.

The banks that issue the unemployment benefits debit cards – Citigroup, Bank of America, JPMorgan Chase, and US Bancorp – don’t charge fees for the first transaction, but do charge fees, which vary by bank, for every subsequent withdrawal. They also charge overdraft fees, which can reach as high as $20.

The U.S. Labor Department recommends that unemployed workers receiving unemployment benefits take their money out in one transaction to avoid these transaction fees.

Bank-Issued Unemployment Cards Becoming a Booming Business

Debit cards are a more efficient way for the state to disperse funds since they offer a faster and more convenient way for jobless workers to receive their benefits, said Suzanne Bohnert, a spokeswoman for the Labor Department. But some consumer advocates say these debit card systems are just another way for banks to make money.

Just six years ago, states only paid out $4 million of unemployment benefits through debit cards. By 2007, states used debit cards to give out $2.8 billion, and by next year, states will likely award $10.5 billion in unemployment benefits using the cards, according to a study conducted by Mercator Advisory Group, a financial consulting firm.

Some banks, depending on their agreement with each state, make money on the interest that accrues between the time the state deposits the money and the time the recipient withdraws it, FOX News reports. Banks and credit card companies also make between 1 percent and 3 percent interest from debit card transaction fees.

“I think banks like to hide behind this cloak of convenience,” said Ginna Green, a spokeswoman for the Center for Responsible Lending, a nonprofit organization working to eliminate predatory lending practices. “I can’t see how paying a fee to access a benefit check or walking around with all that cash is convenient.”

“And sorry,” she added, “disbursing the funds on a prepaid credit card is neither effective nor responsible.”

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