Should Cities Be in the Business of Issuing Debit Cards?

Looking to help immigrant residents, Oakland becomes the first city to offer a municipal ID card with the option of a pre-paid debit-card function.

National Journal
Emily Badger, The Atlantic
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Emily Badger, The Atlantic
Aug. 13, 2013, 6:36 p.m.

The city of Oak­land already of­fers res­id­ents a mu­ni­cip­al ID card, a form of iden­ti­fic­a­tion thought to help un­doc­u­mented im­mig­rants, in par­tic­u­lar, who might oth­er­wise fear re­port­ing crimes, or labor or hous­ing vi­ol­a­tions. Now, they’ve upped the ante, be­com­ing the first city to add a pre-paid deb­it-card func­tion to its ID.

Res­id­ents can re­load the card at West­ern Uni­on, dir­ect-de­pos­it paychecks to it, with­draw cash from it at ATMs, and shop with it like any oth­er pre-paid Mas­ter­card.

Gov­ern­ing has an in­ter­est­ing look today at how the whole thing is go­ing. With nearly one in 10 house­holds con­sidered “un­banked” in the U.S., Oak­land’s ini­ti­at­ive is part an ef­fort by many cit­ies to broaden the fin­an­cial op­tions avail­able to low-wage work­ers bey­ond check-cash­ing stores and pay­day lenders. The chal­lenges of be­ing “un­banked” are also re­lated to those of be­ing un­doc­u­mented. As J.B. Wogan writes:

A mu­ni­cip­al ID card with a deb­it fea­ture may be the nat­ur­al evol­u­tion of those two move­ments. The same people who lack of­fi­cial iden­ti­fic­a­tion are likely to be un­banked or un­der­b­anked. Un­doc­u­mented im­mig­rants, for in­stance, of­ten be­come tar­gets for rob­ber­ies be­cause they carry cash — in­stead of stor­ing money in banks — and are less likely to re­port crimes to the po­lice. The­or­et­ic­ally, it makes some sense for cit­ies to tackle both is­sues with the same pro­gram.

Oak­land has also couched the pro­gram as a crime-re­duc­tion strategy. But Wogan writes that the ID/deb­it card (you can sign up for the former without the lat­ter) has re­ceived con­sid­er­able cri­ti­cism for the fees at­tached to it: They in­clude a 75-cent trans­ac­tion fee, a $1.50 ATM with­draw­al fee, and a $2.99 monthly ser­vice fee. All of which pretty quickly adds up to a ser­i­ous bur­den on people who re­ceive their weekly pay­day in cash.

Oak­land and the com­pany man­aging the pro­gram sug­gest that the fees will go down as the idea catches on, cre­at­ing eco­nom­ies of scale. Con­sumer ad­voc­ates so far don’t seem sold. Could an im­prove­ment on the same idea work bet­ter some­where else? What would that look like?

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