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How private bankers cash in on released prisoners

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A US senator wants to address yet another way private businesses can profit off mass incarceration.

Private prisons are only one way for-profit companies can take advantage of America's prison population, which is the largest in the world. Private entities can also benefit by offering phone calls, hygiene products, banking services, and other goods and services to prisoners.

It's banking services that Sen. Cory Booker (D-NJ) wants to tackle: He will send a letter to the Consumer Financial Protection Bureau on Tuesday asking the agency to put a stop to what his staff described as predatory practices with prepaid debit cards that many jail and prison inmates receive when they're released.

The issue, specifically, is the huge fees that financial companies can charge to these cards: One inmate told Al Jazeera that though he started with $120, only about $70 was actually usable after all the fees and charges he incurred. But the cards are the only option for inmates from at least 15 states' prisons, federal prisons, and many local jails who want to spend earned wages and leftover money deposited by friends and family.

With his letter, Booker joins a wider effort by criminal justice reformers like the Prison Policy Initiative to get the Consumer Financial Protection Bureau to start regulating an industry that has by and large escaped oversight.

How prepaid release cards work

Sen. Cory Booker (D-NJ) at a committee meeting.
Sen. Cory Booker (D-NJ) at a committee meeting.
Chip Somodevilla/Getty Images

When a prisoner is released, some prisons give him money that he saved up while incarcerated, particularly from family and work in prison, in a prepaid card. This is typically money left over from the prison commissary, which inmates can use to buy goods while incarcerated. For some prisoners, the money in these cards can be all they have after a few years or decades of imprisonment.

But the money initially listed on the card can be very deceptive, because all kinds of fees are attached to the service: balance inquiry fees, transaction fees, account maintenance fees, closing fees for transferring the balance to a bank account, and even inactivity fees for not using the card.

Financial service companies like JPay say the fees are necessary to pay for the cost of issuing and managing the cards. The alternative, they say, is to charge prison agencies for the cards, which would cost taxpayers money. Furthermore, these companies claim they don't make much money off the cards and their fees. "[The cards are] not really a revenue-generating or a money-making business for us," JPay CEO Ryan Shapiro told the Center for Public Integrity last year.

But the cards benefit JPay's bottom line in one significant way: Offering the cards for free as part of its portfolio lets the company look competitive in bids for prison financial service contracts, which brought the company $50 million in revenue in 2013, according to the Center for Public Integrity.

But it's not just companies like JPay generating revenue from these types of services. Jail and prison agencies also benefit, as Carl Takei, staff attorney at the American Civil Liberties Union, told Al Jazeera: "These companies compete not by offering the best product to the people who use them, but by offering the biggest commission to [the agencies] that sign the contracts."

Ex-prisoners are uniquely vulnerable to this type of financial abuse

Consumers aren't typically exposed to the stringent fees prison bankers impose on released inmates, in large part because the typical consumer could just go elsewhere, and such exorbitant fees and charges would draw the ire of lawmakers and regulators. But business competition isn't really a problem for prison banking services, which essentially hold a monopoly in many prisons and jails across the country. Regulatory oversight isn't an issue either, because prepaid prison cards are by and large ignored by regulators like the Consumer Financial Protection Bureau.

All of these problems are further compounded by poor financial literacy. A study of inmates in Arkansas found that only 33.1 percent of inmates could correctly answer the question, "If you put $100 in a bank account paying 5 percent interest, how much will you have in your account after one year?" In comparison, 79.6 percent of non-incarcerated men got the same question right. This makes ex-prisoners particularly vulnerable to predatory banking practices, since they're unlikely to know what good financial services should be like.

Booker is asking for the Consumer Financial Protection Bureau to step in and directly address this issue by imposing stricter regulations on the prepaid cards. CFPB already proposed regulations to require stronger disclosure requirements for the cards and to strengthen safeguards for inmates who get government benefits. But Booker, like other criminal justice reform advocates, wants much stronger protections that put an end to the excessive fees altogether.

This is just another way the criminal justice system makes it harder to reintegrate into society

The effort to repeal these fees is part of a broader effort to reduce other barriers to reintegration after prison, which are widely known as the "collateral consequences." For example, it's legal for employers to ask in job applications about someone's criminal record, and not hire someone for a prior crime — even something as minor as a marijuana possession offense. But this can make it much more difficult for inmates to reintegrate into society: If they can't get a job, they're much more likely to turn to criminal activities to make ends meet. So reformers started "ban the Box," which seeks to stop employers from asking about criminal records in job applications — although they can do criminal background checks later on in the hiring process.

Collateral consequences apply to all sorts of other issues, as well: People who have served out felony convictions often can't apply for public housing or Pell Grants. They can't vote in many states. They can't receive welfare benefits. All of these things can make it more difficult for a former inmate to get a job and legally make a living, or at the very least signal to him that society will never accept him, making him much more likely to turn to a life of crime.

Dismantling the collateral consequences of prison is, of course, not an idea without controversy. Many people genuinely believe that prisoners, especially those convicted of violent crimes, should face lifelong punishments for their misdeeds.

But that's shortsighted. Most prisoners are going to be let out at some point. If they face enormous barriers once they're out, they're going to be more likely to reoffend. Not only does that cost taxpayers even more money as they pay for that inmate's incarceration, but it defeats one of the purposes of prison in the first place — to stop and deter crime.

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