Banks have found an effective, profitable method to force their prepaid cards upon consumers. Yes... literally force people to use their prepaid cards. When people arrested are released from prison, any cash in their possession at the time of arrest is returned to them in the form of prepaid cards by corrections staff. The Nation reported about the rise in "get-out-of-jail broke cards" and the banks that issue them:
"Numi Financial is one of many for-profit players in an increasingly privatized prison industry... Numi is now in more than 400 jails across the country, including large facilities that house up to 8,500 inmates, and the company issues more than 600,000 cards a year. That’s enough to make Numi one of the top 10 providers nationwide of prepaid cards of all kinds... Richard E. Deloney Jr., vice president of business development at Numi, said Numi’s model is based on “turnover.” “We market to the 3,300 jails in the country,” he said... According to a 2015 Dun & Bradstreet report on Stored Value Cards, Numi’s parent company, its revenue is $3 million a year."
The industry calls these prepaid cards given to prisoners "prison release cards." Arrestees are given the contractual terms and fee schedule when they receive their release cards:
"The terms for the card used in Multnomah County lists 11 possible fees—the $5.95 monthly fee, a $2.95 fee for ATM withdrawals, $0.95 for a declined transaction, $1 to check the balance, and $9.95 to have the balance refunded by check. Some cards have as many as 19 fees, a maintenance fee as high as $15 a month, and higher fees for international transactions."
So, the release cards contain the same multitude of fees found on other prepaid cards. Previously, arrestees were given a mix of cash and checks. Other banks offering prison release cards:
"At least 10 companies now offer release cards or inmate banking services to correctional systems. JPMorgan Chase does not give a card to each and every prisoner, but according to the Center for Public Integrity, it has a “lock” on the Federal Bureau of Prisons population, which currently stands at just under 200,000. At the state level, CPI found that JPay, a company founded in 2002, dominates, generating “well over $50 million in revenue” in 2013. It was acquired for $250 million in 2015 by Securus Technologies..."
There are plenty of issues with prison release cards. First, arrestees are a vulnerable population. They are forced to accept and use release cards since their cash has been confiscated. There is no opt-out, unlike other consumers who can choose other bank services instead. This can create hardship, as the Nation's article highlighted an arrestee released at 2:00 am with no way to get home. Not all taxi-cabs accept prepaid cards.
Second, the cards contain the same multitude of high fees as other prepaid cards. People released from prison may not have jobs to return to, making the high fees a huge burden. Third, claims by Numi executives in 2014 that one-third of cardholders pay no fees and that about one percent of cards aren't used have been debunked. Fourth, the banks offering prison release cards were given no-bid contracts:
"The banks’ exclusive deals came not from the Bureau of Prisons, but from the U.S. Treasury. The agency awarded the contracts using a 150-year-old authority that allows it to sidestep the oversight, transparency and competition typically required for federal contracting. That means that for 14 years, Bank of America has never been required to compete with other vendors who might do the work better or for less money, according to Treasury documents obtained under the Freedom of Information Act. JPMorgan’s no-bid deal to issue debit cards for various federal agencies began in 1998, was extended in 2008 and eventually expanded to include cards for federal prisons. Fees from former inmates make up most of the bank’s compensation for these cards..."
This is absolutely lousy, poor management by government officials with no attempt to lower costs for taxpayers. Competition matters. Competition forces companies to provide better services, lower costs, and ideally both.
Fifth, prison release cards are given to all arrestees when released. That includes both people arrested for just causes wh have served their prison time, and people where law enforcement has dropped all charges. You'd think that people released with charges dropped would simply have their cash returned to them, but they too are forced to use prison release cards.
Many people view this situation as unacceptable. In November 2015, several U.S. Senators including Mark R. Warner (D-Va.) and VP-candidateTim Kaine (D-VA) sent a letter to the Consumer Financial Protection Bureau (CFPB) urging it to re-examine prison release cards:
"Prison release cards are a critical tool for people leaving prisons to transfer their earned wages and/or commissary account balances to a prepaid card. Any reductions to the wages and account balances of formerly incarcerated people could harm their ability to successfully reenter society. Today, some firms charge high fees on prison prepaid cards that create significant barriers to reentry for formerly incarcerated people. Most corrections agencies that report using prepaid cards also report that fees are imposed on cardholders, including unusual fees such as weekly maintenance fees. These cards often also include forced arbitration provisions. As your recent study on arbitration showed, the rights of consumers nationwide are limited by forced arbitration in the financial services industry. As another example, states receive revenue from certain vendors chosen to provide prison release cards. Correctional facilities may also structure their contracts with prepaid card vendors in such a way that costs are entirely passed on to formerly incarcerated people."
The letter listing all 18 U.S. Senators is also here. Sixth, the forced arbitration clauses are typically one-sided, expensive for consumers, and heavily favor the company, as readers of this blog already know.
Some consumers aren't waiting and have filed a class-action lawsuit: Brown versus Numi Financial, No. 3:15-cv-01370-MO (Adobe PDF). The court rejected Numi Financial's motion for arbitration. Good! Other affected consumers may want to join this suit.
What are your opinions of prison release cards?