Jobless payments going plastic
The beleaguered agency that provides unemployment insurance benefits to almost 1.5 million jobless Californians is streamlining its antiquated payment system by introducing electronic debit cards to replace printed checks.
The Employment Development Department wants to begin using the new technology in September, but some critics doubt that an agency often accused of inefficiency and poor customer relations could pull it off so quickly.
The department, burdened by an aging computer system, will join 43 states that have already upgraded to plastic. It mailed a record 41 million checks last year -- nearly triple the previous high -- as layoffs soared and the state’s unemployment rate topped 12%.
“It’s a great idea,” said Yvonne Shine, who lost her job as an executive assistant at a Los Angeles labor union local two years ago. “You can get the benefits much quicker.”
The move to plastic could be a big first step toward burnishing the agency’s reputation for providing poor service to financially strapped Californians, who complain of infuriating delays receiving checks and even getting through to agents on the phone.
Critics, though, worry that a transition would not be smooth, even though the old computer system would not be involved in administering the debit card accounts.
“The idea of setting up a whole new system in the middle of this mess is a real concern,” said Maurice Emsellem, co-director of policy at the National Employment Law Project.
“Obviously, down the road, this is going to save some resources, but to get up a huge system like this statewide is no small feat,” he said.
Distributing unemployment payments electronically -- by direct-deposit for people who have bank accounts or debit cards for those who don’t -- has many advantages and few potential drawbacks, the state agency said.
It sent banks and other interested financial institutions a detailed request for contract proposals in February and wants to sign a contract in May. That would allow it to begin putting new unemployment insurance and state disability claims on debit cards four months later.
“Providing payments electronically is a safer, faster way to get benefit payments to claimants while saving the cost of printing and mailing paper warrants,” according to the request for bids.
Using debit cards would avoid problems caused by late, lost or stolen checks as well as the steep fees charged by commercial check-cashing businesses.
The new system, by design, should be cost-free for both recipients and the state, agency spokeswoman Loree Levy said.
Customers could use the debit cards to withdraw cash from banks and ATMs, as well as to make purchases at stores that honor debit and credit cards.
Any bank that signs a contract with the state would earn interest on huge unemployment insurance payments, which are hitting $100 million a day, deposited in their institutions and would collect fees from merchants for purchases made with the cards.
Consumer groups worry that banks in California may -- as some banks in other states that have already switched to debit cards do -- impose charges for other card functions, such as checking on the balance remaining in the account.
“We want to make sure that anybody receiving unemployment benefits can retain, down to the penny, the amounts they would have obtained if they got a check,” said Michelle Jun, a staff attorney with the West Coast office of Consumers Union, the publisher of Consumer Reports magazine.
Bank fees can range from 50 cents to a few dollars for checking balances, using out-of-network ATMs, account inactivity for a specified time period, calling customer service, receiving printed statements or having a retail transaction denied because of insufficient funds.
U.S. Labor Department officials told state unemployment insurance agencies in August that they were concerned that fees associated with debit card use in some states were unfair. The department issued guidelines aimed at minimizing costs to beneficiaries.
California is trying to leverage its sheer size to get a good deal with a contractor.
“We should be able to negotiate a great program that minimizes, if not eliminates, fees,” Levy said.
The state’s contract conditions require banks to disclose clearly all possible fees and to advise claimants how to avoid paying them. The bidding document stipulates that no fees can be charged for in-network ATM cash withdrawals and for one withdrawal every two weeks from a live teller. In addition, no fees could be charged for withdrawing money twice every two weeks from an out-of-network ATM.
The state agency’s effort follows that of other California departments that administer the Cal-Works welfare program and the federal food stamps program, both of which went electronic in 2002.
The statewide child-support program made the switch in 2007, spokesman Bill Otterbeck said, and the results “have far exceeded our expectations.”
