For this study, we looked at all fifty state departments of prisons to see which organizations have contracts to provide money-transfer services and the fees for using these services. We found that the following companies held the contracts:
Due to the increasing expectation that people in prison pay for everyday expenses (food, hygiene supplies, communication, and so on), how people send money to incarcerated persons is becoming increasingly important. Family members used to mail a money order to a post office box, and the money would arrive in the recipient’s trust account within a day or two of the order being received. ] The phrase “trust account” refers to a pooled bank account that keeps funds for inmates whose individual balances are often recognized as subaccounts in the penal sector. In this context, the term “trust” is employed since the correctional facility typically holds the account as a trustee on behalf of the individual beneficiaries (or subaccount holders).]
In those days, the most common complaint from family members and incarcerated recipients was that money orders were taking too long to be delivered to their destinations. A whole industry evolved to provide faster—but significantly more expensive—electronic money transfers to incarcerated persons, taking advantage of consumer psychology to make a profit.
This “correctional banking” industry includes specialized services such as release cards. Still, at its foundation, the company makes money by arranging payments from friends and family members to incarcerated recipients, which is an essential (but highly profitable) business. Even though the industry often brags about the rapidity of electronic transfers, it conveniently ignores the hefty fees typically associated with these services. To gain a better understanding of the landscape, we examined all fifty state departments of prisons. We attempted to determine which businesses (if any) owned contracts to provide money-transfer services to each prison system in the country. We attempted to find out how much it would cost to use these services when it was possible.
Our findings are presented in the following section, along with some noteworthy trends in the field and recommendations for how families of people who are incarcerated and regulators, procurement officials, and businesses can make money transfers more convenient and affordable and easy to understand.
The fees for transferring money between prisons are incredibly hefty.
A credible explanation for why prison money transfers are so much more expensive than standard “free world” services such as Venmo has yet to be discovered, yet.
We live in an era characterized by financial technology (often known as “fintech”). Individuals have grown accustomed to sending and receiving money from friends and family via digital means at little or no expense. Personal transfers from bank accounts or debit cards are made possible through Zelle or Venmo, which charge no fees (payments from a credit card are subject to a 3 percent fee). Other businesses that provide similar services charge fees that are generally equivalent to ours. [Paypal’s free transfers are only accessible for payments made from bank accounts; for payments made using a credit or debit card, Paypal charges 30 cents + 2.9 percent in fees. CashApp does not disclose its fees. However other services have reported that their rates are similar to Venmo’s.]
Fee information was accessible for 33 state prison systems, so we looked at them. According to our research, Rates for internet transfers ranged from 5 percent to 37 percent. According to the Federal Reserve, the average price for a $20 internet transfer is 19 percent, with a minor decrease for higher-dollar transfers (the average fee for a $50 transfer is 12 percent). In general, fees for phone or in-person payments were higher than fees for online payments (options that were more likely to appeal to low-income people who did not have a bank account).
Three companies have a monopoly on the market.
In the custodial money-transfer business, at least as prisons are concerned (although there may be smaller “fringe” players who provide this type of service to jails), three corporations dominate the market. One of the three prominent firms is JPay (a Securus subsidiary that was recently fined $6 million for unlawful activities in its release-card business), the other two are Global*Tel Link (which occasionally goes by the tradename “Touchpay”), and the third is Access Corrections.
A few smaller businesses were also represented in our survey: In addition to the contracts held by JailATM (which is also a minor player in the electronic messaging industry), the Arizona prison system contracts with three different companies: commissary operator Keefe Group, commissary operator Cashless Systems, Inc., and a company called Premier Services. Cashless Systems, Inc. is a closely-held corporation that operates out of a residence in Raleigh, North Carolina, headquartered in Raleigh, North Carolina.
In this market, there is a small bit of competition
Most jails choose a monopoly on money-transfer services, but at least eleven states (22 percent) enable inmates to select from two or more alternative companies to use.
The reason we say “at least” eleven states is because of the ambiguous role played by companies such as Western Union and MoneyGram. A large number of jurisdictions mention Western Union, MoneyGram, or a similar money-transfer provider as one of several options for sending money, but this does not imply that there is genuine competition. Consider the following scenario: A jail system could contract with JPay to handle all money transfers, and JPay could subcontract with Western Union to handle all personal in-person cash payments. Although the prison’s website may state that inmates can pick between sending cash through JPay’s website or sending cash through any Western Union facility, in this hypothetical, Western Union is operating as an agent for JPay rather than as a rival. We believe that Western Union is an independent and competitive choice for transferring money to people who are jailed in the prison systems of Colorado, Connecticut, Illinois, Iowa, and Washington, based on a range of parameters that we have considered. In other states, it is possible that Western Union or a similar company is a legitimate competitive choice, but based on publicly accessible information, this cannot be determined at this time.]
Prisons like awarding monopoly contracts for services including as phone service and the operation of the commissary. Administrators frequently claim security issues as a justification for hiring only one vendor to perform all of the necessary work. Although a quick scan of corrections-department websites suggests that prison officials have a number of security concerns about money transfers, this does not appear to be the case when it comes to inmate money transfers.
Prison officials, in particular, tend to spend a significant amount of time worrying about money being delivered to inmates that has been laundered or otherwise illegitimately obtained. It’s not that these concerns are always unfounded, but we are concerned about how widespread the problem actually is. The latest major example of this narrative occurred in June, when the Washington Post, possibly acting on a leak from the federal Bureau of Prisons, published a story claiming that “there are more than 20 [federal] inmate accounts holding more than $100,000 each for a total exceeding $3 million.” Although this makes it sound like illicit trust-account activity is some sort of massive problem, the BOP has all of the instruments necessary to examine suspicious transactions and take corrective action if there is a problem. The same article also points out that there are over 129,000 inmates detained in Bureau of Prisons institutions, with a total balance of approximately $100 million in all trust accounts. This is significant because The average account amount is $752 (i.e., $97 million divided by 128,980 people). If you subtract the $3 million in the 20 high-value accounts, you arrive at an average account balance of $3 million. Even so, it’s not a lavish sum of money (and keep in mind that this is a mean average, so it’s likely to skew high due to the very small number of people whose trust accounts receive pension or other income distributions).
Indicative of this is the fact that, when it comes to enabling the flow of money into prison, several prisons agencies have abruptly opened their doors to competition.
It is uncertain how much competition is beneficial to consumers in the long run.
The fees charged by states that offered more than one option were examined in greater detail, with the results showing that those states had slightly lower money-transfer fees. For example, the average charge for a $20 transfer in the 11 states with various options was 16 percent, compared to an average fee of 20 percent in the 26 states that issued monopoly contracts (see table 2). When transferring $50, the cost difference was smaller, with an average price of 11 percent in states with numerous options vs 13 percent in states with only one option in the case of monopoly states. This, however, just reveals a portion of the story. Consumers often find it incredibly difficult to determine which option is the most cost-effective in states where there are multiple options.
Consider the California Department of Corrections as an illustration of the complexity that might result from a variety of solutions being considered (which houses over 130,000 people). California has agreements with all three of the major money-transfer companies (JPay/Securus, GTL, and Access Corrections), who are all based in the state. If you want to transfer $20 to someone, JPay is much less expensive than the other firms. However, if the amount of the transfer is increased to $50, JPay becomes the most expensive alternative. What’s worse is that the prison department’s website doesn’t display a chart of the different companies’ respective fees, which means that the only way a family member can figure out the different fee options is to create accounts with three different companies, initiate test transactions in each system, and then manually compare the different fees they charge (or maybe hunt around vendor websites for a fee table buried in some non-obvious place). Table 3 illustrates the degree of difficulty associated with the various options. Furthermore, keep in mind that this is merely an example based on two different amounts; if you wanted to give $30, you’d have to do another round of test transactions to determine which choice was the cheapest. This level of obscurity appears to be intentional, with the goal of preventing buyers from identifying the most cost-effective alternative.
Prisons do not have to rely on outside contractors.
Despite the fact that the vast majority of jail systems appear to have outsourced money transfers, there are still some that handle these transactions internally. Money order payments sent through the mail are still accepted in a few jurisdictions. Four states (Arkansas, Maine, Montana, and Texas) have also been identified as accepting online payments through a general-purpose online payment platform managed by the state.
A unique development is that Arkansas has lately offered Access Corrections as an alternate payment platform to the state-operated one. It is worth noting that Access Corrections’ fees in Arkansas are 25 cents less than those charged by the state-run system, and they are by far the lowest fees we have seen Access Corrections charge in any prison system—suggesting that companies set rates based on what other options are available, and that they can provide low-cost transfers when forced to do so.
Many states still allow for the submission of payments via mail.
The vast majority of states (about 45) continue to allow customers to mail a money order without incurring any fees. Some states urge people to mail their money orders to the accounting office of the department of prisons, while others outsource the processing to third-party contractors such as JPay and Access Corrections, among others. Just because there is no fee does not imply there is no cost; between the money order and a stamp, the sender will most likely pay roughly $2; nonetheless, this is significantly less than the costs charged by most online services these days. A money order (with a face value of up to $500) costs $1.45 from the United States Postal Service, while a $1 money order from Walmart costs up to $1. A first-class stamp is presently priced at 58 cents.]
The problem, of course, is one of speed. The vendors who have been awarded correctional banking contracts make their money from the fees that are levied for payments made online or over the telephone. Do we have confidence in them to handle money orders on time, even when they receive no fee revenue? If their terms of service are any indicator, the corporations appear to reserve the right to purposefully delay the processing of money orders in their favor.
Remember to read the fine print.
The terms and conditions imposed by the prominent money-transfer vendors are loaded with unpleasant, deceptive, and unfair clauses and restrictions. We’ve divided some of the more difficult provisions into five groups, which are described more below.
Deceptive practices, such as publicizing a specific service (such as money transfer) and then employing fine print to disclaim any responsibility to actually perform that service, are prohibited under numerous consumer protection laws.
Companies appear to go out of their way to make money-order payments as onerous as possible and as fraught with ambiguity as possible.
- Deterioration of money-order payments that appears to have been done on purpose. As previously stated, sending a money order is significantly slower than completing an internet transfer, but it can be significantly less expensive in many circumstances. Companies, on the other hand, appear to go out of their way to make money-order payments, which are notoriously delayed and fraught with uncertainty. In the terms of JPay, for example, the company guarantees that payments will be “transmitted” within 1 or 2 business days, with the exception of money orders, which “are generally processed within ten (10) business days” (most people would refer to 10 business days as two weeks, which is an inexcusably long amount of time for processing small-dollar consumer payments). [See, for example, JPay’s “Terms of Service” on page 6 (emphasis added).
Both JPay and Access Corrections disclaim any responsibility for money orders that are received but are not credited to the recipient’s account as a result of their actions. JPay’s “Terms of Service” page 7 and Access Corrections’ “Terms & Conditions” page, specifically the part under “Money Orders,” are examples of such agreements.
- The right to privacy and the rights of consumers. Companies’ terms of service and privacy policies are packed with elements that are unclear or difficult to understand when it comes to the usage of consumers’ data. Here are a few illustrations:
• JPay wants clients to consent to a credit check, which makes no sense given that the company does not provide credit and it is unclear why the company seeks this type of personal information from customers. For further information, see the following: Aventiv Technologies, “Privacy and Data Processing Policy,” section under “Business purposes for the collection of personal information” (dated May 5, 2021; accessed Oct. 19, 2021) [Aventiv is the parent firm of Securus and JPay, among other companies.]
• Access Corrections asserts that it has the right to use any client communications for the purpose of marketing its services, without providing the customer with prior notice or compensation. [See the “Terms & Conditions” section of the Access Corrections website, including the item labeled “Use of information submitted.”] (Consumer groups successfully sued Facebook in 2011 for utilizing customers’ likenesses without their consent, but Access Corrections appears unconcerned about running afoul of the same regulations that brought down the behemoth Facebook.)
- Services that are poorly developed. These companies’ operations are carried out in a terrible manner, as evidenced by several miscellaneous provisions. For example, the terms of JPay stipulate that the only cost associated with sending money is a “service fee,” which must be paid prior to the transfer taking place. [See, for example, JPay’s “Terms of Service” on pages 5 and 9.]
According to another paragraph in JPay’s terms of service, if the company owes money to a customer (for example, for a refund), and the customer does not claim the money, JPay will eat up the amount of the refund by levying a “monthly service fee” (the amount of which is not specified on any of JPay’s fee disclosure pages, nor does the company’s website specify how much the monthly service fee is). [See, for example, JPay’s “Terms of Service,” page 13.]
Before cancelling a recurring payment, JPay demands two weeks’ notice in advance (this is likely not allowed under Visa’s standards, which specify a maximum advance notice requirement of seven days and require a “simple” procedure for cancelling recurring payments). The Visa Core Rules and Product & Service Rules 126.96.36.199, tbl. 5-18 (Oct. 16, 2021) provide additional information.
For its part, JailATM mandates that users consent to arbitration by the National Arbitration Forum, a notorious organization that was compelled to cease conducting consumer arbitrations in 2009 as part of a lawsuit deal with the federal government (in fact, we pointed out this problem in our 2016 report on electronic messaging, but JailATM apparently has not bothered to update their terms in the intervening five years). [See, for example, JailATM’s “Terms of Agreement,” which includes a section under “Governing Law” (undated; accessed on October 25, 2021).]
Other problematic conditions that are not related to arbitration include one-sided indemnification provisions [See: JPay “Terms of Service,” page 16; Access Corrections “Terms & Conditions,” section labeled “Indemnity.”] and one-sided restitution provisions. as well as limitations periods for disputes that are far shorter than the statutes of limitations for contract claims in the majority of states.
[JPay and Access Corrections both demand that claims be filed within one year of the date on which the claim was made. JPay’s “Terms of Service” are on page 15; Access Corrections’ “User Agreement,” section entitled “Disputes,” is on page 15. It is particularly difficult to understand JPay’s provision because it defines the time limit as 12 months from the customer’s “constructive knowledge” of the claim, without defining the term “constructive knowledge” (as a result, it is unrealistic to expect consumers to understand the meaning of the term), and because JPay requires customers to give the company 30 days’ notice before filing a claim, effectively shortening the time limit even further.
Suggestions for making things better
In the existing system, everything is difficult, inconvenient, and costly. As will be detailed further below, different persons have varied opportunities to address these issues.
Family relatives of those who are jailed
Although it may appear that family members have little influence in this unfair system, there are some things they may do to urge for change.
• Express dissatisfaction with high rates or bad service. There is an easy-to-use online complaint system provided by the Consumer Financial Protection Bureau (“CFPB”) that is specifically created for financial services such as money transfers. It is also possible that your state’s attorney general will be able to investigate specific abusive or misleading activities. Please also send a copy of your complaint to the ombudsman or the office of family support if the relevant prison system has such a department.
• Speak with your legislators. Due to a lack of governmental control, money-transfer companies take advantage of the situation. Money-transfer vendors are subject to regulation as “money-transmitters” in nearly all states; nevertheless, money-transmitter rules are primarily concerned with the financial health of the firm (known as “prudential regulation”) rather than the protection of customers. However, legislators have the power to close this loophole. Make sure your state legislators (or, in the case of jails, your county commissioners) are aware of the economic toll that money-transfer fees are having on your community, and urge them to pass legislation requiring regulatory agencies to enact rules protecting customers of correctional money-transfer services.
• Try to send a money order in advance, if at all feasible, to avoid fees. It is important to inform facility management if there are problems with money orders (such as slow processing or out-of-state mailing addresses) and to emphasize that the response “just send money online” is not a sufficient solution due to the high cost of the online option.
While selecting or using a consumer financial service, financial service providers are prohibited from taking unfair advantage of a consumer’s inability to safeguard his or her own interests under federal law. See, for example, Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203 SS 1031(d)(2)(B) and 1036(a)(1)(B) (July 21, 2010), which were codified as 12 U.S.C. 5531(d)(2)(B) and 5536(a)(1)(B) respectively. The fact that users of correctional money-transfer services must either use a monopoly provider picked by the facility or choose from two or three options, all of which appear to set outrageous costs in comparison to their competitors, means that they are powerless to protect their own interests. The Consumer Financial Protection Bureau (CFPB) is responsible for enforcing this rule, and it should use its investigative and enforcement authorities to crack down on unreasonable money-transfer fees.
Aside from that, the Federal Trade Commission (“FTC”) is entitled to establish rules prohibiting certain unfair trade practices that cause consumers reasonably foreseeable harm. [See, for example, 15 U.S.C. 45(a)(1) and (4).] The FTC should take advantage of this jurisdiction, either on its own or in collaboration with the Consumer Financial Protection Bureau, to adopt rules limiting maximum permitted fees and the types of contractual obligations that vendors can (and cannot) impose on their clients.
Officials in charge of prison procurement
• Some jail systems require or accept “commissions” (sometimes known as “kickbacks”) from vendors, which accounts for at least a portion of the high costs of money transfers. Prisons, like phone companies, can help to reduce expenses by denying commissions on goods and services.
• Investigate in-house solutions from other departments within the state government. State governments have departments in charge of prison administration. Other state agencies are accustomed to collecting payments through the internet (for vehicle registrations, hunting licenses, tuition, or any number of purposes). Any of them have come up with low-cost, in-house solutions to handle the processing of these payments. And, if so, are those solutions capable of being modified for use in prisons as well? It has been sorted out in Arkansas, Maine, Montana, and Texas; additional states should follow their lead in this regard.
Most states do not charge for sending a money order over the mail, but the utility of this option is severely limited when sellers purposefully extend the amount of time it takes to execute money orders. There are a variety of methods in which states can improve this situation. Try to retain the processing of money orders within the company if at all possible. If the state chooses to outsource the processing of money orders, there are two requirements that the state should include in its contract with the money-transfer provider. The seller should be obliged to process money orders within one business day of receipt if they are to be accepted. Second, all money order payments should be sent to an in-state postal address, which should be provided by the seller.
In recent months, the issue of mailing distance has risen in relevance as a result of a plan undertaken by the United States Postal Service to slow down the mail, particularly mail going vast distances. For example, even under the stricter postal-delivery criteria, mail sent in Minnesota should get at the majority of state prisons within two days, according to the Federal Communications Commission. It takes twice as long to send a money order to someone in the Minnesota jail system if the money order is sent via JPay’s office in Florida, rather than directly to the Minnesota prison system itself. States can reduce the likelihood of this unreasonably long wait by barring vendors from using out-of-state addresses for the reception of money orders.
• Publish all fees on the Department of Commerce’s information page: As previously stated, some states enter into contracts with several vendors but do not publish the fees charged by each company in a single location. The fees associated with money transfers should be clearly stated on every Department of Corrections homepage, ensuring that all family members and all DOC staff members are aware of the fees associated with money transfers.
• Provide particular information regarding garnishments and necessary deductions. The payment of obligatory fines, child support, restitution, the cost of detention and other fees is deducted by many prison systems from incoming transfers to pay for these and other fees. Unsurprisingly, money-transfer suppliers disclaim all responsibility for the deductions made throughout the transfer process. Since the state is responsible for the creation of these deductions, the state must also share the obligation of explaining them. In the case of someone in prison who requires $20 to pay for hygiene supplies, a relative sending money must know how much to send so that after statutory deductions, the recipient receives the whole $20. The amount of money that is removed from your account and which deposits are susceptible to garnishment should be clearly stated on any webpage that offers information on how to send money. In this section, you should include information on which deductions are available to everyone and which deductions (such as child support) are only available to a certain group of recipients. In an ideal world, the webpage would also feature a calculator, which would allow users to enter a transfer amount and quickly see how much will be delivered to the receiver.
Last but not least, money-transfer suppliers themselves have the greatest ability to fix issues that arise in the market that they have helped to develop. While it is certainly impossible to expect these organizations to lower costs on their own initiative, if they are serious about their marketing efforts, there are some basic actions they may do to make customers’ life a little simpler. If firms are serious about their marketing bluster, they should consider taking other basic actions to make their customers’ lives more convenient as well.
It’s difficult to reconcile the claims of JPay’s parent company, Aventiv Technologies, that it “delivers superior value and service to all of our customers nationwide” (see Aventiv Technologies, “Privacy and Data Processing Policy,” introduction paragraph), with the company’s real-world pricing and user contracts.
To the extent that money-transfer rates are inflated in part as a result of commissions paid to correctional facilities, vendors should include a commission-free option in all bids.
Every vendor includes ambiguous language in their terms of service stating that transfers from a customer’s credit card “may” be construed as a cash advance in certain circumstances. The vendor, while unable to provide a definitive answer (because the bank or entity that issues the credit card that the consumer is using has some discretion in how these transactions are handled), is the one who creates and maintains the transaction record, and thus is familiar with how it is coded.
[Some card networks do not even use the phrase “cash advance” to describe what they are doing. In the Visa guidelines, for example, the terms “account funding transactions” and “manual cash disbursement” are used to represent two different types of cash-like transactions that are mutually exclusive.]
• Vendors should offer customers with the correct transaction coding that applies to their payment so that customers are fully aware when they inquire with their own bank about the transaction’s treatment.
• It is quite inexpensive to write contracts that are fair and easy to understand. Arbitration provisions, two-week processing waits for mailed payments, and disclaimers of any and all guarantees should all be eliminated from vendor terms and conditions, according to experts.