Analysis focuses on fees charged for delivery of public benefits that ‘chip away’ at payments

High fees through financial products that “chip away” at public benefits such as Social Security and unemployment compensation are highlighted by the federal consumer financial protection bureau in an Issue Spotlight made public Wednesday.

The Consumer Financial Protection Bureau (CFPB) said its analysis outlines how governments may choose to deliver public benefits through financial products. The bureau paid particular attention to prepaid cards, which it said may subject recipients to high fees and cut into the amount of funds the consumer receives.

“Differences in states’ decisions about how to deliver benefits can make the receipt of benefits, like unemployment compensation, uneven across similarly situated individuals in different states,” the agency asserted. It added that its analysis also highlights the claim that inadequate customer service can leave consumers unable to rectify problems with their accounts, as well as can render them unable to access critical funds.

Key issues addressed in the analysis include:

  • Fees reduce public benefits by eroding the amount of available funds. “According to the Federal Reserve, in 2020 prepaid card administrators collected $1.3 billion in transaction fees on the $409 billion in public benefits distributed,” CFPB stated.
  • Uneven access to benefits across states result from fees, noting that Temporary Assistance for Needy Families and Unemployment are administered at the state level, and by some county administrators, leading to significant variation in program structure and delivery.
  • Individuals experience inadequate customer service, such as dealing with unrecognized charges and poor customer service card issuers. “A single problem, such as unauthorized charges on a card, can create a cascade of problems when customer service is not available or responsive in a timely manner,” the agency said.
  • Lack of choice and competition may trap consumers by pushing them toward a prepaid card provided by a particular financial institution rather than direct deposit to an account at an institution of their choice. “When recipients have few choices about how they receive their benefits, there is little competitive pressure to update products or provide consumer-centric customer service,” the bureau stated. “This may also create the risk that companies will take unfair advantage of recipients that are locked into a relationship with a particular provider.”

New CFPB Issue Spotlight Examines High Fees that Chip Away at Public Benefits

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