When the U.S. Department of Labor learned that some states were experimenting with electronic payments to pay unemployment benefits, the department primed the pump by offering grants. The department so far has supplied funds to 20 states to help them distribute benefits through prepaid debit card accounts, with the average grant being $90,288.
States can use the grant funds to modify their unemployment benefit-processing services and for other costs associated with implementing electronic payments, Michael Volpe, a Labor Department spokesperson, wrote in an e-mail message to ATM&Debit News. Thirty states now use a combination of debit cards and direct deposit into beneficiaries' accounts to pay unemployment benefits, he says.
States began experimenting with electronic payments in the 1990s, and the department began offering them grants in 2006, Volpe says. "Several states found high customer satisfaction with debit cards" he says. "They get benefits to unemployed workers faster than paper checks, avoid the cost of check-cashing fees for beneficiaries that lack bank accounts, and are safer and more secure than cash."
Under the Labor Department's program, states contract with vendors to issue the cards. One of the largest issuers of debit cards that pay unemployment compensation is JPMorgan Chase & Co. New York-based Chase issues prepaid unemployment-benefit cards in nine states, says John T. Murray, a Chase spokesperson.
Chase is flexible in determining cardholder fees, Murray says. "We can support fees paid by the states, cardholders or a combination of both," he says. "A state may choose at any time to subsidize some or all card-usage fees. Most states offer a limited number of free ATM withdrawals per pay period each month, but not in Colorado, Louisiana, New York and Texas."
States' efforts to replace checks with prepaid debit cards to pay unemployment benefits have been successful, according to the National Association of Workforce Development Professionals in Washing-ton, D.C., which expects the number of states that use debit cards to pay unemployment benefits to grow.
Eleven states, the District of Columbia and the Virgin Islands also are moving in that direction, says Bridget Brown, the association's executive director.
Six states, including Montana, and the territory of Puerto Rico, however, are not considering following the debit card trend.
Montana pays unemployment compensation through a combination of direct deposit and checks, says Roy Mulvaney, administrator of the state's unemployment insurance program. "We surveyed the unemployed in 2007, and 75% to 80% preferred direct deposit," says Mulvaney, noting that 56% of Montana's unemployed receive their benefits through direct deposit. The balance receive their benefits by check because some of them do not have bank accounts, he adds.
Montana's unemployed residents rejected debit cards as a way to receive their benefits because of the fees banks access to use the cards, says Mulvaney, who could not elaborate specifically about the charges. They also worried about how many of the rural state's retailers would accept a debit card, he says.
Vermont also does not pay unemployment compensation with debit cards, but that soon will change, Patricia Moulton Powden, commissioner of the Vermont Department of Labor, tells ATM&Debit News.
"In the next year and a half, we plan to move to debit cards," says Powden, explaining that 50% of the state's unemployed have their benefits deposited into their bank accounts. The rest receive checks because many do not have bank accounts.
Like Montana, Vermont is a rural state, and five years ago it did not have enough ATMs where benefit recipients could withdraw funds using a debit card, Powden says. "Now we have the infrastructure in place," she says. "If a person has to drive 15 miles into town, there is usually an ATM."
By moving to debit cards, Vermont hopes to substantially reduce the cost of printing and mailing checks, Powden says. "With printing checks and buying paper, costs add up," she says. ATM