Unemployment benefits switch from paper to plastic
Many states now sending debit cards to recipients instead of checks
With jobless rates rising, more and more Americans are entering their state's unemployment insurance maze. Just don't expect to receive the traditional paper check if you find yourself needing assistance, as nearly half of the country has started delivering these benefits through debit cards.
Since 2005, 21 states have signed contracts with major banks such as J.P. Morgan Chase and Wachovia to provide loaded debit cards for unemployment recipients rather than the standard biweekly paper check. States say this will help people get their money faster and will keep states' costs down -- a crucial point, as demand for assistance is growing in today's economy. Unemployment was up to 5.5 percent in June, according to the Bureau of Labor Statistics, as more than 155,000 Americans joined the ranks of the jobless, and there are few signs that the economy is on its way to a speedy recovery.
Other states are closely watching the debit card trend. "We like it, and we plan to do it eventually, but first, we need to get our staff educated about the program," says Brenda Morgan with the Wyoming Unemployment Insurance Department.
Better and faster, experts say
State officials won't be the only ones with a learning curve. It's a significant change for recipients as well. Traditionally, when you're on unemployment, you fill out a form once or twice a week detailing whether you've received any money from working and whether you've been looking for a job. You then send the form to the unemployment department, where it is processed, and three to five days later, you get your check in the mail. In most states, unemployment checks are sent twice a month
With a debit card system, recipients get a card with a PIN number. They're typically allowed a certain number of fee-free transactions with the card at ATMs contracted by the state. Otherwise, the unemployed can use it like any other debit card at supermarkets and gas stations to buy merchandise and withdraw money. After forms showing work and job search activity have been processed, the card is electronically recharged, which is usually faster than receiving a check in the mail.
"It's a win-win situation for our recipients," says Larry Parker of the North Carolina Employment Security Commission. "Many of them don't have checking accounts and have had to pay $20 or more to cash their unemployment check. Now, their entire benefit is available to them and they're getting their money sooner."
States benefit, too, saving on printing and mailing costs. "Our estimate is that we'll save up to $2 million next year," says Christopher Manlove, a spokesman for the Pennsylvania Department of Labor & Industry. "It's a much more efficient system of delivering people their benefits."
Some questions still remain
There have been some hiccups in the unemployment debit card rollout. Specifically, what happens when you do all your banking at Bank A and the debit card is from Bank B? "We've gotten some pushback from people who feel it's inconvenient since they prefer all of their finances to go through one account at one bank," says Mike Cullen, the director of unemployment insurance for Colorado. "At the end of the year, we're introducing a direct deposit system for those who choose to have their benefits placed in their accounts rather than in a debit card."
Another issue with debit cards is that while they may be more secure than cash or checks because of the pin number that's needed for transactions, they're just as vulnerable to scams. There were reports earlier this year that some unemployment recipients in Pennsylvania received phishing e-mails asking for card and PIN numbers. "We went out of our way to alert people that we would never contact them through e-mail asking for their account numbers," says Manlove.
There's been a little hesitancy, but I think over time people will appreciate it. They won't want to go back to paper checks. It's just too easy.
|-- Norm Isotalo
Michigan Unemployment Insurance Agency
"It's a new area for governments, which is why we need to be vigilant about basic protections," says Maurice Emsellem, policy co-director for the National Employment Law Project in New York City. "These contracts the banks have with states need to be watched, since how much control do they give the bank regarding raising their ATM fees or the issue of privacy?"
Concerns over user privacy
Privacy is an area that many states were concerned about when they looked at switching over to debit card programs. "Our contract is with J.P. Morgan Chase, and we had a few calls early in the program from recipients who got marketing calls from Chase after receiving their cards," says Cullen. "We immediately investigated and found the calls were unrelated. These people had other business with Chase, which led to the calls. We're very strict about misuse of our information."
Another way to protect privacy is by using a funds transfer system, which allows you to move the money in your unemployment debit card to your regular bank account electronically or over the phone. "We didn't want to get involved in collecting and storing people's bank account information, which is what we'd need if we did direct deposit," says Scott Sanders, chief financial officer for the Indiana Department of Workforce Development.
There's also the "embarrassment" problem. Most people on unemployment have a hard enough time with self esteem without going through a checkout line with a card that might identify them as receiving assistance. "We saw that coming," says Sanders. "Our card just has a VISA symbol and ‘Indiana' printed on it, it looks like it comes from any other bank."
The debit card programs are becoming so popular, many states and localities are using them for welfare payments, and the U.S. Treasury has begun a pilot program in 10 states in which Social Security recipients are given the option of a debit card in lieu of a check or direct deposit. "There's been a little hesitancy, but I think over time people will appreciate it. They won't want to go back to paper checks," says Norm Isotalo, a spokesman for the Michigan Unemployment Insurance Agency. "It's just too easy."
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