Andrea Luquetta, Policy Analyst at the California Reinvestment Coalition, submitted the comments below to Covered California to highlight CRC’s concerns about predatory financial service companies exploiting health care reform to sell prepaid cards (with high fees) to Covered California enrollees.
September 12, 2013
560 J Street, Suite 290
Sacramento, CA 95814
Dear Covered California Board Members,
Please accept these comments from the California Reinvestment Coalition in response to the discussion on Premium Payment Policy at the California Health Benefit Exchange Board Meeting on August 22, 2013. The California Reinvestment Coalition is a non-profit coalition of over 300 organizations from across all of California. We advocate for financial services practices and policies that respond to the needs of low income households, communities of color and other economically and politically marginalized communities in California.
We gratefully welcome the recent federal adoption of requirements that “for all payments in the individual market, [insurers must] accept paper checks, cashier’s checks, money orders, EFT, and all general-purpose pre-paid debit cards as methods of payment and present all payment method options equally for a consumer to select their preferred payment method.” 45 CFR §156.1240.
We believe that Covered California can only be successful if health plans offer and accept all forms of payment for premiums equally, including those listed above. We are heartened to learn that currently, all participating Covered California insurers accept payment methods beyond checks and credit cards, including money orders, debit and pre-paid cards, and that some Covered California Health Plans are planning to include other payment options including the ability for enrollees to make payments with cash or EFT/ACH transactions.
As you know, there are over one million Californians that do not have a bank account; they are known by the Federal Deposit Insurance Corporation and other policy makers as “unbanked.” In addition to the “unbanked”, there are another 2.3 million Californians that are “under-banked”—they own a bank account that does not meet their needs for basic financial services. These unbanked and under-banked households must have access to health insurance that must not be restricted by the financial instruments available to them.
We applaud your sensitivity to the fact that the choice of payment methods will affect selection of plans, as noted in the in the Board Background Brief written for the Board meeting on August 22, 2103. We therefore urge you to take steps to ensure that neither insurers nor enrollers steer families to particular payment tools. Specifically, we are concerned that tax preparers that are certified enrollment entities per 10 CCR §652 be prevented from exploiting the mandate and opportunity to enroll for health coverage to sell expensive financial products.
Unfortunately, there are companies that have proven themselves predators of low income people who need financial services and have limited choices. Jackson Hewitt, H&R Block and Liberty Tax are perfect examples of such predatory companies. Although Jackson Hewitt has recently acted as a champion of unbanked households’ need for health coverage, they and their brethren have proven themselves over many years to be unconscionably exploitative of low income families’ needs. We believe that Covered California should prohibit these companies and all other enrollers from selling financial instruments to pay for premiums to those they enroll.
Low income, unbanked households are vulnerable to exploitation.
Households without bank accounts rely on a variety of financial services to conduct transactions, such as paying cash at in-person payment centers or using non-bank financial instruments, such as money orders and pre-paid cards. These instruments generally cost much more per transaction and can add up to a significant portion of a low income family’s budget.
For example, a mother who takes home $2,000 a month can easily pay 6% of her income, or about $60 monthly using a combination of money orders, in-person payments and a pre-paid card to conduct basic transactions. To cash a paycheck and pay rent, two utility bills, a mobile phone bill, and car insurance at a Western Union payment center, she would pay: 2% of the check being cashed, $1.50 for a money order for rent, $1.50 each for in-person payments for the utility and mobile phone bills, $12 for an in-person payment for car insurance, and about $6 to load a pre-paid card she can use to withdraw money at an ATM once that month.
The lack of a bank account renders households powerless against financial service providers that can charge whatever the market will bear. Unfortunately, many companies use this vulnerability to gouge the very households that can least afford it.
Jackson Hewitt and other tax preparers have consistently exploited this vulnerability.
Like payday lenders, pawn shops and loan sharks, Jackson Hewitt, H&R Block, Liberty Tax Services, and others have targeted these households for many years by exploiting their need for financial services and charging unconscionable prices. For example, until the IRS took action in 2012, Jackson Hewitt and their ilk routinely sold expensive tax refund loans to cash-strapped households.
The scheme took advantage of households’ eligibility for tax refunds through the Earned Income Tax Credit and similar programs that are intended — like the Affordable Care Act- to provide critically needed help to families. Jackson Hewitt and company would provide a loan for the amount of the refund minus a hefty fee. That loan would be repaid in less than three weeks when the IRS processed the tax refund. In 2012, the last year that Jackson Hewitt made these loans, the price for three week tax refund loan of $1,500 was $61.22, translating into an APR of 149%.
Since these loans were effectively banned by the IRS and bank regulators, Jackson Hewitt and other tax preparers have taken to selling refund anticipation checks, also at a heavy cost. Again, the tax preparer uses the refund recipient’s lack of funds and a bank account against her to make a profit. Jackson Hewitt does this by opening a temporary bank account into which the IRS direct deposits the customer’s refund check.
After the refund is deposited, the bank issues the consumer a check or pre-paid card and closes the temporary account, often at a fee. This scheme allows the tax preparer to pay itself through the tax refund for charges such as tax preparation fees and other spurious “add-on” fees, like application fees and document processing. Jackson Hewitt charges $29.95 to $49.95 for these services. The unbanked customer then has the choice of accepting the remaining refund via either a check – which they can cash for a fee – or on a Jackson Hewitt Pre-paid Visa Card, which carries a monthly fee of $5.95 and a $2.50 fee for ATM cash withdrawals.
Covered California should prohibit Jackson Hewitt and all enrollers from selling financial services to those they enroll.
Covered California has adopted rules prohibiting conflicts of interest and that prevents enrollers from, among other things, accepting premium payments from the consumer or inducing or accepting any type of remuneration direct or indirect from the consumer. 10 CCR §664(e)(3)(h)(5) and (8). We strongly urge you to apply these rules to enrollers that would sell payment instruments, such as pre-paid cards, used to pay premiums. Given their track record of exploiting the needs of their customers, Jackson Hewitt, H&R Block, Liberty Tax Services and other for-profit tax preparers acting as enrollers should not be allowed to exploit the aim of Covered California and the needs of unbanked consumers to sell expensive financial services.
To be clear, although we are troubled that pre-paid cards are, to date, wholly unregulated and lacking in price standards such that it is virtually impossible for a consumer to compare costs between cards, we believe that insurers should accept them as premium payment platforms. However, we strongly oppose enrollers selling pre-paid cards to the people they enroll in health plans.
Just as you wisely predict that the choice of payment method will skew enrollment in health plans, we predict that, unless precluded from doing so, for-profit entities selling financial services will skew customer adoption of a payment method that may not be the most affordable for them. The undue selection for these products, above others that may be more affordable to the consumer but not being presented to them as they are enrolling, will drain household resources, undoing the good work that Covered California has done to lower costs and make health coverage more accessible to all Californians.
Jackson Hewitt and others sell pre-paid cards to generate unlimited revenue.
Though pre-paid cards often look like bank-issued debit cards, they work differently, cost much more for customers to use and generate more fee revenue to issuers. Unlike money in bank accounts and spent through debit cards, money loaded on a pre-paid card are not insured by the FDIC for the consumer. Pre-paid cards also do not have the same protections against fraud- if a customer loses her card she may still be liable for purchases made with it even if she reported the loss immediately.
The pre-paid card industry is exploding in size because, while banks can charge merchants a fee of up to a certain amount to process purchases paid for via credit and debit cards, there is no such limitation on fees to process payments via pre-paid cards. Because of this fee loophole, pre-paid card sellers stand to profit not only from the fees charged customers, which vary wildly, but also every time the cards are used to pay for purchases. This is why Jackson Hewitt and others are pushing so strongly not only to have insurers accept payments by pre-paid card, but to allow recurring automatic payments for premiums as well.
Pre-paid cards generally are also unregulated and unstandardized, making them virtually impossible to compare by cost conscious consumers. Some cards appear less expensive at first, for example, by not charging a monthly fee, but ultimately can cost more depending on how they are used, how often they are used and what uses trigger fees. Others will not have use fees but will charge a high monthly fee and ATM fees. By comparison, other cards charge a flat fee and no other fees beyond those charged by ATMs not in the cards network.
The Jackson Hewitt Smart Card costs $5.95 every month, a $2.50 fee each time it is used at an ‘in-network’ ATMs, plus ATM fees charged by the owner of the ATM if it is not in-network. The H&R Block Emerald Pre-paid MasterCard does not charge a monthly fee, but charges a load fee of up to $4.95, also charges $2.50 for all ATM use, in addition to charges imposed by the owner of the ATM if it is different than the one used by the card issuer, and also charges a $1 balance inquiry fee, $1 when the card is declined for purchases and $2.50 monthly for inactivity if the card has not been used for three months.
The Liberty Tax Card, issued by NetSpend, can cost from zero to $9.95 a month depending on which plan you choose, $1 for purchases made with a signature and $2 for purchases made with a PIN under the no monthly service fee plan, $1 for declined purchases and ATM withdrawals, $0.50 for balance inquiries not made online, $2.50 for ATM use not including other fees imposed by ATM owners, and several other fees not charged by the previous two companies.
As you can see, customers using pre-paid cards from Jackson Hewitt and similar companies face a large number of fees, and CRC is concerned that these companies view the Affordable Care Act and Covered California as yet another opportunity to make more money from those who can least afford it.
Enrollers should have the consumers, and Covered California’s best interest in mind, not their desire to generate fee revenue from products sold to customers.
CRC advocates for more access to financial services that are affordable and help people save money rather than exploit their lack of options. We very much appreciate all the work that Covered California has done and continues to do to provide health insurance to all Californians, including making sure that lack of financial services does not impede the ability to obtain coverage.
We urge you to protect that good work by prohibiting enrollers from selling financial services to the households they enroll. We believe that no additional regulation is needed but merely enforcement of the rules prohibiting enrollers from accepting premiums and inducing remuneration.
Jackson Hewitt and others should not both enroll a person, and then sell her a pre-paid card on which she will load money meant for premiums, thereby causing her to generate fees every time she pays a premium using that card. Enrollers should not be allowed to use the trust the state has granted them to serve Covered California customers for private gain, nor should a motivation to make profits compete with the primary goal of providing the best health coverage plan to the consumer.
Andrea Luquetta, Esq.
cc: Sara Soto-Taylor, Manager
Eligibility, Enrollment and Marketing