Keeping junk fees away from workers’ unemployment benefits

The Department of Labor recently released a revised Unemployment Insurance Program Letter to clarify how state workforce agencies deliver unemployment benefits payments to consumers. This new guidance incorporates insights from recent CFPB research on junk fees and other consumer risks in public benefits and prepaid cards, and ensures critical consumer protections under CFPB rules are incorporated into how states deliver these benefits.

Unemployment insurance is a lifeline for millions of Americans when they lose their jobs. About 12 million unemployment insurance claims were filed in 2023. And during the height of the COVID-19 pandemic in 2020, nearly 72 million initial claims were filed—nearly 34 million in one quarter alone.

CFPB analysis has shown that, all too often, recipients incur fees and run into other challenges in receiving these benefits, including inadequate customer service. In some states, recipients lack a choice in how to access their benefits as payment options are limited to a prepaid debit card provided by a financial company that contracts with the state. This lack of choice can add complexity, delays, and unnecessary fees for people already facing financial hardship.

Even when participants do have a choice in how they receive their benefits, debit cards can still chip away at the total amount of benefits received after fees. While potentially providing quicker access to benefits and greater flexibility than paper checks, these cards may impose junk fees on card usage for basic, everyday transactions such as getting cash and paying bills.

When unemployment benefit cards may have high fees or poor customer service, participants whose finances are already fragile are made worse off by being unable to access the full value of their unemployment benefits.

The Department of Labor’s letter reminds states of their obligations to ensure people can choose how they receive their benefits. It also encourages states that administer debit cards to prioritize recipients’ needs over the bottom lines of card issuers.

CFPB rules protect workers’ ability to choose how to receive benefits

The Department of Labor’s guidance reminds states that requiring recipients to receive any unemployment payments on a state-administered debit card, even if they have the option of moving funds to another account later, violates a law the CFPB administers. A consumer cannot be required to have an account at a specific financial institution in order to receive a government benefit. For the vast majority of states that have a prepaid debit card program in place to pay out unemployment benefits, this means recipients must have at least one alternative to a prepaid card. Typically, this alternative is a direct deposit into an account of the recipient’s choice, but in some cases it may be a paper check.

Improving the market for unemployment cards

The guidance also provides a roadmap for states to improve their prepaid card offerings. The Department of Labor’s letter makes clear that state workforce agencies should not enter into agreements that include revenue sharing between the card provider and the state, as revenue sharing can create conflicting financial incentives in selecting a card vendor. Instead, states should choose a debit card provider that provides the lowest costs and the highest service quality to consumers. Eliminating conflicting financial incentives could improve the competition and quality of the products providers offer and ensure that potential prepaid card vendors provide value to states and their consumers.

The Department of Labor’s guidance also makes clear that states should negotiate prepaid debit card contracts to reduce or eliminate junk fees so that all unemployment recipients have reasonable access to the full value of their benefits. In addition to the out-of-network card fees, CFPB research has found that some cards impose fees for ATM usage even when in-network, fees for checking a balance at the ATM, fees for denied transactions, and fees for one-time bill payments. Some cards also contain fees for customer service, which should be available by telephone for free to help recipients who may have difficulty resolving debit card issues online. These fees make it more difficult for recipients to manage their accounts and make the most of their resources—and variation across states shows that unemployment cards can be delivered more affordably.

Holding financial institutions accountable

People receiving unemployment insurance should be able to focus on supporting themselves and their families instead of worrying about accessing the full amount of their funds. The Department of Labor’s new guidance complements recent CFPB enforcement efforts against banks that have mishandled unemployment insurance funds through inappropriate fraud prevention practices. In July 2022, the CFPB issued an enforcement order against Bank of America for its reliance on an automated fraud filter that led to the incorrect freezing or blocking of government benefit cards, including cards used to provide unemployment insurance. Last December, the CFPB issued an order against U.S. Bank for freezing the accounts of tens of thousands of unemployment benefits recipients and leaving them without access to their funds for weeks at a time.

The CFPB will continue to monitor the market for prepaid cards used to distribute unemployment insurance and other public benefits and hold card issuers accountable when they break the law. The CFPB requires prepaid card issuers to submit their account agreements, and we make them publicly available here. We will be analyzing how states and prepaid card companies react to these changes, and will continue to work closely with DOL.

If you encounter a problem with an unemployment prepaid card, you can submit a complaint to the CFPB. If you have questions or concerns about your unemployment benefits, you can contact your state unemployment office .