Prepaid cards could help balance state government budgets

(ARA) - Every state in the union is facing tough choices with respect to cutting spending to balance their budgets. According to the National Conference of State Legislatures, states faced a total budget shortfall of $113.2 billion in 2009 and the forecast for 2010 is a total shortfall of $142.6 billion.

One easy solution that can help close that gap, and save consumers money in the process, is the move from checks to prepaid cards as a way to disperse government payments like unemployment, Social Security and more.

For the past several years, state and federal governments have begun using prepaid cards to replace checks in an effort to reduce fraud, improve efficiencies and save money to shore up growing state budget deficits. Social Security benefits are now offered on prepaid cards and nearly every state is using them to deliver one or more of the following benefits: unemployment, food stamps, workers' comp, child support, Temporary Assistance for Needy Families (TANF) and payroll.

While direct deposit is still the cheapest and most convenient option for many people, there are an estimated 60 million Americans with limited or no access to a bank account. For those people, checks were the only option and they had to be cashed through costly check-cashing services. Government benefits cards are issued by banks or other financial institutions and can be used like a debit card at ATMs or for purchases anywhere the brand (MasterCard, Visa) is accepted. The cards also include the security protections of a credit card, but are available to those without bank accounts and they do not require credit checks.

Government agencies that switch from checks to prepaid cards stand to recoup significant savings for their state. They save the cost of postage since the prepaid cards can be automatically reloaded, and the costs of check processing and dealing with loss and fraudulent checks, all of which can add up to an average savings of $1.50 per payment or $39 or more per benefit recipient, per year. For instance, in 2009, the Nebraska Child Support Payment Center was loading $4 million a month in benefits payments onto prepaid cards issued by U.S. Bank and estimates that the state saved more than $368,000 as a result. In 2008, The Texas Workforce Commission saved $1.5 million by switching its unemployment benefits payments from checks to prepaid cards issued by J.P. Morgan. The United States Treasury is now offering Social Security payments via prepaid cards to millions of recipients. It costs the Treasury Department 98 cents to issue a check and only 10 cents for an ACH deposit or electronic transfer to a card.

While the savings to the states are obvious, consumers are equally happy with the cards. According to the United States Treasury's own survey, in July, 95 percent of cardholders were satisfied with the prepaid card experience, citing convenience and immediate access to their money - something that checks don't provide. Three quarters of cardholders say their fees with the card were equal or less to what they were when using paper checks. Additionally, almost all fees can be avoided with careful and responsible use of the cards, and the first cash withdrawal per pay period is typically free. Both Maryland and Kansas offer free withdrawal at all Citibank locations, Citibank network ATMs and participating retailers such as convenience stores. They also offer free bank transfers, a toll-free interactive voice response system and online account management.

"The world economy is increasingly shifting from cash to digital currency because of the security and convenience it provides," says Kirsten Trusko, president and executive director of the Network Branded Prepaid Card Association. "In this world of electronic payments, prepaid cards offer consumers, businesses and governments an efficient, cost-effective and safe payment tool. We are just starting to see the enormous positive impact they can have on state and federal government budgets, offering meaningful cost savings at a time they are desperately needed."

Courtesy of ARAcontent