Earlier this year, Oakland became the first city to offer municipal IDs that also act as prepaid debit cards. The program is novel in that it combines two urban policy ideas that are growing in popularity: issuing city identification cards and offering special banking products for low-income residents. Nearby Richmond, Calif., is scheduled to issue its own ID-debit card this fall, and both Los Angeles and New Haven, Conn., are contemplating similar programs.
In the past five years, cities such as New Haven, Conn., and San Francisco created municipal ID cards that include the holder’s photo, name, address, date of birth and signature. People can’t use the cards for air travel or in place of a driver’s license, but they are accepted at local government facilities, such as libraries, museums and parks. City officials say the cards encourage undocumented immigrants to interact with police without fear of deportation, and increase some citizens' likelihood of reporting labor and housing violations.
At the same time, many of these same cities are also trying to get low-income residents to open and maintain bank accounts. Almost one in 10 American households do not use a bank, according to a 2011 survey by the Federal Deposit Insurance Corporation. Another 20 percent of Americans are under banked, meaning they have bank accounts but also use expensive alternative financial services, such as payday lenders, pawn shops and check-cashing outlets. Both the unbanked and underbanked populations struggle to build credit scores that are critical for buying a house or car.
About seven years ago, San Francisco city officials convinced a number of banks to lower monthly fees, remove monthly minimum balances and accept cards issued by the Mexican and Guatemalan consulate offices as proof of identification. Since then, more than 70 cities have adopted the so-called “Bank on” model from San Francisco, including Oakland.
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.
Despite the growing interest in hybrid debit-ID cards, Oakland's new policy has drawn criticism for being too expensive, especially for a product endorsed by the government. “The municipal ID card is a good policy,” says Lauren Leimbach, executive director of Community Financial Resources, a nonprofit dedicated to the financial empowerment of low-income residents in the Oakland metro area. “Combining that with the banking tool adds almost too much complexity. [It’s] more expensive than if they just did the ID card by itself and then directed people to other products that do the same thing.”
Consumers Union, a policy and advocacy division of Consumer Reports, sent open letters to the National League of Cities and the International City/County Management Association in May, citing Oakland as an example of what governments should not do.
“We are concerned that some prepaid cards issued recently by cities do not provide consumers with the kind of fair deal consumers deserve,” wrote Michelle Jun, a senior attorney with Consumers Union. “As a trusted entity, cities and counties have the added responsibility of providing the most consumer friendly financial products and services.” Jun co-authored a Consumer Reports analysis in July on a variety of prepaid cards, looking at value, convenience, safety and transparency of fees. “I can see what Oakland is trying to do in serving the under served,” Jun said in a telephone interview. “At the same time, it is not the cheapest option.”
When Oakland residents buy their municipal ID, they pay a flat fee of $15. If card holders want to use the debit feature, they have to choose to activate it, which then incurs a host of small ongoing fees, including a monthly service fee of $2.99, a per-call customer service fee of $1.75, a point-of-sale fee of 75 cents, and a $1.50 fee for each in-network ATM cash withdrawal. Consumers Union argues that the best prepaid products shouldn’t charge for customer service calls, cash withdrawals or points of sale.
Cheaper alternatives do exist. Community Financial Resources, the Oakland-area nonprofit, offers a prepaid card through U.S. Bank with no monthly service fee and no fee for in-network ATM withdrawals. However, the Oakland municipal ID is still relatively inexpensive. Pew Charitable Trusts conducted a market study of prepaid cards last year that suggests that the Oakland ID has lower-than-average fees compared to most prepaid cards.
So far, Oakland has received about 4,800 applications for municipal IDS, with 3,000 already in circulation. About two-thirds of current card holders are using the debit feature.
Raul Hinojosa-Ojeda, the founder of SF Global, the company contracted to set up the Oakland municipal IDs, says the cards will cost less as time goes on. As more cities pay for the product, the company plans to lower the price through economies of scale. In fact, SF Global is scheduled to announce a major cost reduction, with a simpler fee schedule, within the next month, he says.