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News // Bay Area & State
Matthai Kuruvila
March 19, 2013 Updated: March 19, 2013 10:39 p.m.
1of3Oakland Mayor Jean Quan registers for an Oakland municipal identification card with Jaime Suriano on Friday, Feb. 1. The municipal identification doubles as a debit card and is aimed at undocumented immigrants as well as people who wish to not have their gender on the card.James Tensuan/The ChronicleShow MoreShow Less
2of3A sample of the Oakland municipal identification card is displayed on a brochure. The municipal identification doubles as a debit card and is aimed at undocumented immigrants as well as people who wish to not have their gender on the card.James Tensuan/The ChronicleShow MoreShow Less
Oakland residents who use the debit function of the city's long-awaited municipal identification card will be charged much more in fees than they would pay if they chose a comparable prepaid card from a store, according to Consumers Union, the advocacy arm of Consumer Reports.
The organization, which has examined a variety of prepaid cards for several years, says that Oakland's dual-purpose identification and debit card imposes an unusual combination of fees and takes advantage of the poor and disenfranchised population it was intended to help.
For example, if the cardholders enroll the card for federal benefits, they are charged $2. Oakland's card also charges $1 every time money from federal benefits is put on the card via direct deposit.
Michelle Jun, a senior attorney for Consumers Union, said she had never heard of a prepaid card with those fees.
"I've never seen anything like that before," she said. "It seems like they're gouging those recipients."
There are dozens of prepaid debit cards available to consumers for purchase through stores and websites, and the cards typically charge the purchaser a wide range of fees as they're used. The cards are largely used by people who don't have access to traditional bank checking accounts, sometimes because they don't have proper credit or they have a history of bouncing checks. Users load the cards with money at specific locations and then use the cards like debit cards.
Jun said profits off the cards are generally divided among three groups: the card vendor, the issuing bank and the card network - typically Visa or MasterCard.
Oakland's card is unique because it was created by the city to primarily serve as a municipal identification card, largely for undocumented immigrants. City officials decided to add a prepaid debit function in an effort to expand the pool of potential users and give access to banking services to any poor Oaklanders.
Oakland officials and the private contractor running the city's program say the card's fees are lower than the median fees charged by the most popular prepaid cards.
But Jun said she is concerned that Oakland's municipal ID is being promoted by a government entity, which people might trust more, and the debit function is built in.
"It's targeting a very captive audience in the way it's set up," she said. "People who are going to Oakland to obtain a city ID will likely see it has this other aspect to it. It's on-the-spot marketing right there.
"They might not be aware there are similar products with better fees out there in the marketplace."
City Council members wanted to create a card that operated at no cost to the city, which has had to cut employees and costs during the recession. Because the city had no expertise in running a prepaid debit card operation, it contracted with SF Global LLC of Venice (Los Angeles County) to set up the card.
SF Global's operations manager, Jaime Suriano, says the company could not provide the card for free - and that the fees support the program, which brings low-income residents into the modern economy. Raul Hinojosa, SF Global's CEO, said the company plans to release a new set of fees reflecting lower prices.
The prices listed on the current terms and conditions of the card include:
-- 75 cents for each purchase.
-- A $2.99 monthly fee.
-- A $1.50 fee for using in-network, domestic ATMs. Out-of-network ATMs can charge more.
-- A $1.75 fee for every call to customer service.
-- A $1 minimum fee for loading the card at a Western Union.
Typically, prepaid cards charge either a monthly fee or a per-purchase fee, Jun said. But not both, as Oakland's does.
'Egregious' charges
"It is egregious," Jun said of Oakland's card, noting that card networks already charge banks less money to use their networks for prepaid cards than typical debit cards. "The kind of money that they're making off the transactions is higher than a debit card. It seems doubly egregious."
Jun said the customer service fee is problematic.
"Since there isn't a brick-and-mortar location, you can't resolve an issue without incurring a fee," Jun said. "You need to talk to a person to find out what the root of the problem is. To be assessed a phone call to talk to a person is a bit much."
Jun said the per-purchase fee would be costly because a low-income population is unlikely to be using the card for high-end purchases. A 75 cents per-purchase fee is high for, say, a snack at a corner store.
Jun looked at the fees of Oakland's prepaid card at the request of The Chronicle. The city provided her with a copy of the legal terms and conditions and a listing of fees, because they were not initially posted on the official website for the card, www.oaklandcityid.com.
SF Global's Suriano said more than 2,300 applications have been received in less than a month and the first cards are expected to be issued this week.
The issuing bank for the Oakland card is University National Bank of St. Paul, Minn., and the card operates on the MasterCard network.
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No comparable product
Oakland has been working to create this card for more than three years, and Oakland officials and SF Global said that since there is no other dual-purpose card on the market like Oakland's, its fees should not be compared with those of existing prepaid cards.
"This is a prepaid municipal ID card," said Assistant City Administrator Scott Johnson. "That's a very different animal."
Johnson said the City Council, which approved the service, only required that the card charge users no more than 10 percent above the median average for prepaid debit card fees.
Hinojosa and Suriano disputed Consumers Union's characterization of the fees. Company officials said Oakland's card is up to 58 percent less expensive than the median of top prepaid debit cards reviewed by the Pew Charitable Trusts, which examines various financial products for fairness and transparency.
"The argument that there are much cheaper cards out there on the market is misleading," said Suriano. "Nobody is going to be able to provide these services for free. ... This is the first card of its type in the nation. You can't just compare it."
Jun dismissed the argument that Oakland's prepaid card should be judged by standards other than cost.
"A city should provide products that serve consumers best and not rip people off," she said. "There will be a number of cards cheaper than this card."
The Chronicle examined prepaid debit fee structures for Chase Liquid, Green Dot and the Approved Card, each of which had lower fees.
The card has already come under criticism from consumer groups on privacy issues because it includes a person's name, address and date of birth on its front - possibly compromising the card's financial security.
In response to that concern, Mayor Jean Quan, who has signed up for the card, emphasized that users can opt to not activate the prepaid portion of the card. It is not clear if users will understand that. Because Oakland's is the first card in the nation to combine both a prepaid debit function and identification, it has been used as a model by other cities, including Richmond, which is also using SF Global as its vendor.
Los Angeles is developing its own card, said Councilman Richard Alarcón, who introduced the bill to create the card in that city.
Matthai Kuruvila is a San Francisco Chronicle staff writer. E-mail: mkuruvila@sfchronicle.com Twitter: @matthai
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Matthai Kuruvila has been a reporter at The San Francisco Chronicle since 2006. He was The Chronicle's religion and spirituality reporter for three years, during which he explored many of the Bay Area's faith traditions. He wrote about issues ranging from the battle over sexuality in the Episcopal Church, the Catholic and Mormon churches' roles in support of Proposition 8, the Zen of firefighting and the assassination of reporter Chauncey Bailey by members of a small religious sect, Your Black Muslim Bakery.
He currently covers Oakland City Hall. He has written about discriminatory parking ticket practices between the hills and the flats, questionable spending in Oakland's workforce programs as well as the challenges facing Oakland police, including its interactions with Occupy Oakland.
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