> Posted by Allyse McGrath, Senior Associate, CFI

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The Facebook page of JPay, a Florida-based company that provides a range of services to inmates in the U.S. prison system, is calling for visitation pictures – photos of families and their incarcerated loved ones. Happy images seem to echo the company’s statement that JPay is “the most trusted source for connecting incarcerated individuals with family and friends”. Money transfers are one primary element of the connection that JPay and others like it provide. JPay is one of the largest providers in the burgeoning field of financial services for the 2 million-plus inmates in the U.S. prison system. These providers are changing the way that families send money to their incarcerated loved ones and also the way in which inmates receive money upon their release. But has this change been good?

For those that might not know, money sent to inmates can be used in prison for things like making phone calls, sending emails, and buying food, toiletries, and winter clothes. To give you a sense, at the Clallam Bay Corrections Center in Washington State, phone calls begin at $3.13, and emails are 33 cents. When prisoners are released, money accumulated from work in prison or sent from family and friends can be transferred onto stores of value like debit cards.

The new companies shift inmates and their families from money orders and checks to presumably more convenient electronic and mobile payment options. However, they charge a high price for this convenience. In a division of the financial services industry where common consumer protection laws do not apply, fees are bloated and partnerships between providers and prisons are increasingly restricting options in what is far from a free market.

In some states JPay money transfers cost up to 45 percent. For example, the cost of sending $10 to an inmate’s account at the Southeast Correctional Center in Charleston, Missouri is nearly $4. At the Illinois Youth Center in Chicago the cost is almost $6. Traditional means of purchasing and sending a money order can run about $2.

Over the past couple of years, many families have heard about the new way to transfer funds to their family members and friends in prison. For most, this message has centered on JPay, which first made electronic payments possible in prisons, and now covers about 70 percent of prisoners in the United States. While many can still use more traditional money transfer options or smaller competing providers, 40 percent are restricted to JPay as the only method of sending money, thanks to exclusive services partnerships.

Effectively, families are forced to bear these greater costs, and prisons take greater slices of revenue (“commissions”) from these payments. The Center for Public Integrity found that in some cases, prison operators receive up to $2.50 per payment – a sweet deal since they pay JPay nothing for their services.

Even after inmates leave prison, they face disproportionately high fees that remain unregulated by traditional consumer protection systems. Many prisons have switched from checks to “release cards”, debit cards which provide access to the funds that prisoners have accumulated up to their release. A variety of companies provide these cards, but they all feature high fees. As a snapshot, one card includes the following: $3 withdrawal, $1.50 balance inquiry, $2.50 maintenance, $30 closing fee if the funds are transferred to a bank account. (It’s typical for mainstream prepaid debit cards not to charge for balance inquiries, and only to charge a few dollars for out of network withdrawals.) Al Jazeera highlighted the case of a man who was only able to use $70 of his accumulated $120 after these fees. In most cases, inmates are not informed of these fees before their release.

It might feel natural to dismiss these facts, thinking “these are criminals who hardly deserve our compassion.” However, the punishment meted out by the justice system should not include financial services exploitation for the benefit of companies that often win contracts not for the rates they can charge inmates, but the commission they can offer prisons! Do we want this already disproportionately poor population segment to be finally crippled as they try to start anew? A U.K. study found that in a sample of inmates who opened a traditional bank account, about 34 percent had re-offended within 12 months of their release – well below the national average of 47 percent. In recent years, the U.S. Federal Communications Commission has started to clamp down on the phone rates being charged to prisoners. On financial services for prisoners, release cards have faced criticism and litigation in at least two states, and the New York Department of Financial Services’ consumer division is reportedly reviewing JPay’s practices. Regulation needs to step up and bring this financial services area into the fold.

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