On March 1, the Consumer Financial Protection Bureau (CFPB) issued an issue spotlight highlighting concerns about prepaid card programs for accessing public assistance benefits. In particular, the spotlight notes “specific recurring issues” related to cash assistance benefits including Social Security, Temporary Assistance for Needy Families (TANF), and unemployment benefits that are provided on prepaid cards. The spotlight focuses on two areas that it claims limit recipients’ access to funds: fees and inadequate customer service. This spotlight follows on the heels of the CFPB’s submission of an amicus brief to the Fourth Circuit on a similar issue, discussed here.
According to the CFPB, in 2020, prepaid card issuers administering public assistance benefits collected around $1.3 billion in fees. These include maintenance, balance inquiry, customer service, and ATM fees. The CFPB found that fees varied between state programs, even when the card issuer was the same. The CFPB finds these fees particularly troubling because even low-dollar fees can pose “outsized harm” to those who rely on public assistance benefits.
The CFPB also highlighted concerns that consumers have with customer service for benefit cards, including “inadequate protections against unauthorized transfers, high costs to replace a card, and insufficient or hypersensitive fraud filters that cause delays and account freezing.” The CFPB observed that if issues such as unauthorized charges are not resolved in a timely manner, recipients may wait weeks or months for access to their funds. The CFPB noted that “the often-acute needs of the populations who receive and rely on cash assistance” make it “critical that beneficiaries have full and timely access to these funds.”
Even with these two highlighted issues, the CFPB acknowledged the merit of prepaid benefit card programs. As the spotlight notes, card programs have advantages over other types of fund transfers, including that prepaid cards are more cost-effective for administrators than printing paper checks and recipients often have faster access compared to check-cashing.
Going forward, the CFPB stressed that it intends to monitor public-benefit prepaid card programs and take action when appropriate to protect consumers. The CFPB also indicated that it plans to collaborate with federal and state agencies that administer public benefits programs in an effort to increase competition and efficiency in the delivery of benefits.
Why it matters: Vendors offering benefit card programs should be conscious of their fees, customer service effectiveness, and the security of the funds accessible through their cards. We expect the CFPB to continue to pay attention to issues affecting recipients of public benefits through prepaid cards.