A leaked document obtained by the BBC has revealed concerns from the Department of Works and Pensions (DWP) in Scotland that some 'pre-paid card' companies are targeting benefit claimants.
In Central Scotland, the Clyde and Fife Benefits Delivery Centre received 100 requests from claimants asking for their benefits to be paid onto 'pre-paid cards', despite the fact most claimants were unaware of the high level of administrative charges and fees associated with these cards.
It is understood that companies use stalls in local shopping centres, and have been successful in recruiting customers in, for example, Easterhouse and Castlemilk in Glasgow. An example of these products is the 'Go Card'. It costs £10 to buy and a £7.50 annual management fee is charged after the first month. It costs a minimum of £1.25 and a maximum of £2.50 to have each benefit loaded on to the card and the same charges apply for each cash withdrawal.
GLC's Mike Dailly said:
"Pre-paid cards are wholly unsuitable for anyone on benefits or a low income. They come with a whole host of fees and charges and there is nothing that such products offer which cannot be bettered by a basic bank account or post office account. For example, there are at least eleven basic bank accounts which offer debit card facilities to enable online purchases - all without ATM withdrawal or load-on charges. And basic bank accounts are available to those with a bad credit rating".
"Benefits are designed to provide a 'breadline' standard of living and therefore for anyone to seek to financially target or profit from people living in poverty is disturbing and morally reprehensible. If the rules needs to be changed to prevent the DWP paying benefits to pre-paid cards then the sooner the better as far as Govan Law Centre is concerned".
Listen to Mike discuss this issue with Paul Lewis on BBC Radio 4's MoneyBox. Further dicussion of this issue is available on the BBC's Business pages here. If you need help on basic bank accounts, take a look at the FSA's Money Made Clear leaflet on the range of basic bank accounts available in the UK (opens as a PDF).