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Big Banks Turn Unemployment Benefits Into a Profit Center

Despite big banks putting up a brave front, there’s a good deal of anecdotal evidence that individual managers are trying desperately to stop customers from moving their money. Whether it’s just throwing up additional hurdles like a $10 closure fee, or outright begging customers to stay, or bad-mouthing credit unions or community banks, or simply refusing to allow people to close accounts, it’s clear that at the local level, bank managers are trying to hold onto deposits, which even in this go-go age remains an important tool for maintaining capital requirements and funding the risky bets banks continue to make.

And if you needed any more of a reason to move your money, consider that many firms, such as Bank of America, have turned the truly indigent into profit centers, by making money off of debit card fees for unemployment benefits.

Shawana Busby does not seem like the sort of customer who would be at the center of a major bank’s business plan. Out of work for much of the last three years, she depends upon a $264-a-week unemployment check from the state of South Carolina. But the state has contracted with Bank of America to administer its unemployment benefits, and Busby has frequently found herself incurring bank fees to get her money.

To withdraw her benefits, Busby, 33, uses a Bank of America prepaid debit card on which the state deposits her funds. She could visit a Bank of America ATM free of charge. But this small community in the state’s rural center, her hometown, does not have a Bank of America branch. Neither do the surrounding towns where she drops off her kids at school and attends church.

She could drive north to Columbia, the state capital, and use a Bank of America ATM there. But that entails a 50 mile drive, cutting into her gas budget. So Busby visits the ATMs in her area and begrudgingly accepts the fees, which reach as high as five dollars per transaction. She estimates that she has paid at least $350 in fees to tap her unemployment benefits.

BofA isn’t alone in this practice. US Bank, Wells Fargo, JPMorgan Chase and others have seized control of public benefits in the states, forcing beneficiaries to use their services. And if those banks aren’t available in their areas, or even if they are, they get hit with fees. Banks have seduced state governments with the lure of budget savings from not having to cut checks and mail them out. And they’ve generated this profit center for the banks out of imposing fees on the unemployed and food stamp recipients. For example, the swipe fees that were limited on debit card purchases? Not on the prepaid debit cards used in conjunction with unemployment benefits. The banks can charge whatever they want on those purchases. And that pales in comparison to what they charge the recipients.

Banking experts say the real money lies in the fees the bank collects for a range of services. When (South Carolina) first contracted with Bank of America, the list of potential fees the bank was allowed to collect included a $1.50 charge when a customer visited a bank ATM or teller more than once per week, a $1.50 charge for use of an out-of-network ATM, a $1.50 charge for speaking to a customer service operator more than once per month, and 50 cents for entering the wrong PIN number at an ATM more than four times or requesting more funds from an ATM than remained on the card.

Needless to say, this is a part of the frustration ordinary Americans feel with a banking industry that ruined the economy and now gouges them to make up the difference. It surely animated the Treasurer of the Democratic Party of Georgia to burn his Bank of America debit card, as if it were a draft card in protests gone by. It’s animating the backlash you see with citizens by the tens and hundreds of thousands moving their money.

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David Dayen

David Dayen