HRDC response to CFPB re JPay release debit cards - Sept. 2015
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Human Rights Defense Center DEDICATED TO PROTECTING HUMAN RIGHTS September 10, 2015 Submitted Online Monica Jackson Office of the Executive Secretary Consumer Financial Protection Bureau 1700 G Street N.W. Washington, DC 20552 RE: Response to JPay’s May 27, 2015 Filing, re: Notice of Proposed Rulemaking to Amend Regulation E – Docket No. CFPB-2014-0031, RIN 3170-AA22 Dear Ms. Jackson, The Human Rights Defense Center (HRDC) submits this letter in response to a comment by JPay Inc. (JPay), dated May 27, 2015, which posted to the CFPB docket on June 3, 2015 – more than two months following closure of the comment period on proposed rulemaking to amend 12 C.F.R. Part 1005 (Regulation E). In addition to the extreme untimeliness of JPay’s filing, information contained in the company’s ex-parte submission is not consistent with the terms of their contracts with correctional agencies, as explained below in greater detail. Further, a recent significant development was not mentioned by JPay. On July 31, 2015, JPay was purchased by Securus Technologies for $250 million.1 Securus is a prison telecom company owned by ABRY Partners, a private equity hedge fund, that pays correctional agencies millions of dollars in “commission” kickbacks in exchange for monopoly phone contracts. Consumers seeking to communicate with imprisoned loved ones have no choice but to pay extortionate and outrageous rates for telephone communication with prisoners. 1 “Securus Technologies, Inc. Completes Transaction to Acquire JPay Inc.” See https://www.virtualpressoffice.com/publicsiteContentFileAccess?fileContentId=2089779&fromOtherPageToDisabl eHistory=Y&menuName=News&sId=&sInfo _____________________________________________________________________________________ P.O. Box 1151 Lake Worth, FL 33460 Phone: 561.360.2523 Fax: 866.735.7136 Paul Wright, Executive Director: firstname.lastname@example.org Page |2 As examples, a 15-minute intrastate call from the Lincoln County Jail in Montana costs $14.44 ($4.09 connection fee + $0.69/min.) and a 15-minute intrastate call from the Kimball County Sheriff’s Office in Nebraska costs $13.52 ($3.75 connection fee + $0.65/min.). Four 15-minute calls per month from either of these facilities will cost more than what many of us pay for monthly cell phone plans with unlimited calling. Faced with the prospect of regulatory action by the Federal Communications Commission which may limit its ability to continue to price gouge and exploit prisoners and their families via prison and jail phone systems, Securus has purchased JPay with the express intention of expanding its predatory business model into areas that are not regulated, including release debit cards. See Attachment A. How much is the ability to continue financially exploiting prisoners and their families worth to Securus? At least $250 million – JPay’s purchase price. This illustrates the urgent need for the CFPB to protect prisoners, ex-prisoners and arrestees who are exploited by having release debit cards foisted on them with no choice in the matter. Consumer choice is a key issue in these pending regulations. JPay’s recent merger illustrates that their priority is in securing the ability of hedge funds to profit at the expense of the poorest and most vulnerable members of our society. This re-affirms our efforts to ensure regulations are in place to protect consumers from exploitive products such as their release cards. After reviewing contracts and related public records from several states which JPay cites in its ex-parte filing, not only have we been unable to verify statements the company presents in its defense, we have found outright contradictions in the existing contracts obtained by HRDC through public records requests in close proximity to the date of JPay’s ex-parte letter. For example, on page 4 of its filing, JPay says it has “not charged for customer service and account cancellation in any state for over one year.” Yet current contracts which include fee schedules do not indicate this is the case. Georgia Department of Corrections (GDOC) contract information provided to HRDC on April 28, 2015 indicates that JPay charges a customer service fee of either $0.25 per minute (automated) or $1.00 per minute (live) for phone calls. If JPay has voluntarily removed this fee over the past year it has not stated that in any amendment to the contract, which the GDOC was required to produce pursuant to our public records request. See Attachment B. The most recent amended JPay contract made available by the Colorado Department of Corrections (CO DOC) also indicates a customer service charge of $.25 if automated and $1.00 for live customer service (not specified as “per minute”). This contract also includes a $1.50 “print statement” fee which is not listed in JPay’s ex-parte letter. See Attachment C. JPay alleged: “In some states, including Florida and Louisiana, no fees apply to activating or using JPay's release cards.” Additionally, the Louisiana Department of Corrections fee table in Page |3 the ex-parte letter indicates there are no fees aside from $5.00 for a replacement card, yet the contract language we received from the Louisiana DOC pursuant to a public records request includes a $12.95 “fee per card issued.” See Attachment D. We found no specific mention either way regarding activation fees in Florida’s JPay contract. These fees could easily amount to a significant cost to release debit card users, particularly if they are not receiving accurate information about the fees they are being assessed for basic functions of debit card use. Even if JPay has changed or reduced certain fees as alleged – essentially admitting that its prior practices were predatory – the absence of contractual language related to those changes offers no assurance that consumers will be protected in the future. While misrepresenting multiple fee schedules may be telling of JPay’s business practices, the broader issues relating to the proposed regulation are much larger than specific fees associated with individual contracts between correctional agencies and private companies. It is the compulsory nature of release debit cards which HRDC’s initial filing was intended to address. JPay is the only company in the release card industry to attempt to defend itself, untimely as it was. In our review of the 6,000+ filings on the docket, we found no other company which was listed in our initial comment that weighed in on the propriety of the regulation they are facing. As such, we are responding to JPay’s comment broadly, viewing it as representative of the prepaid prisoner release debit card industry at large. JPay states in its ex parte filing: “HRDC's statements illustrate that they have not thoroughly investigated the details of JPay’s release card program and have a general lack of understanding regarding the facts and circumstances underlying the need for states to utilize release card programs such as those offered by JPay.” We beg to differ, and trust that our research into the matter speaks for itself. Yet at the same time, there are significant questions about this industry that remain unanswered. Despite our extensive research on the topic, we’ve found that many important financial details needed to fully understand the scope and scale of the problem with release debit cards are simply not being made available by the privately-held companies that hold exclusive monopoly contracts with correctional agencies to provide released prisoners with prepaid debit cards. The following issues cited in JPay’s ex-parte letter deserve to be explored further in the process of the much-needed rulemaking to amend Regulation E, and we urge the CFPB to look into these matters when determining language for these rules. JPay claims that “released prisoners are forced to pay excessive check cashing fees, which can amount to over 10% of the face value of the check,” that “[c]hecks are often issued days and sometimes months after inmates are released,” and that “release cards should not be subject to the compulsory use provision because the other primary Page |4 options for disbursing release funds – cash or check – have proven to be problematic for correctional agencies and released inmates.” If there is data to indicate that the extent of these allegations provides justification for the compulsory and predatory business practices of release debit cards, HRDC has not seen it. JPay provides no source or citation to these extraordinary claims. In HRDC’s experience, released prisoners are typically provided with cash or a check upon their release from prison or jail. We have yet to hear of cash being a problem in America for anyone, much less newly-released prisoners. Checks can be problematic, especially for prisoners released from jails outside of business hours. Regardless, this is not an excuse to foist release debit cards on prisoners when they have no choice in the matter and must pay fees to access their own money. JPay states a hollow opinion that “extending Regulation E's compulsory use provision to release cards would not provide significant, if any, additional protection for inmates.” Since prisoners currently have no protection from JPay and the release debit card industry’s predatory and compulsory use practices, this is demonstrably false. We have found that, to the contrary, current and former prisoners who communicate with HRDC about this issue, like all consumers, would prefer options on how to receive their money upon release. We have also reviewed consumer reports for pre-paid debit card options which should be available to prisoners, who may choose the option of a pre-paid card upon release rather than being forced, or pressured, into a contract that is not of their choosing.2 The current reality is that the vast majority of prisoners have no choice in the matter. They simply have debit cards foisted on them whereby private companies charge exorbitant fees to access their own money. 2 JPay explains, “[c]ardholders who may be subject to a service charge are given a grace period of seven to sixty-two days before the first service fee is charged.” We found no other pre-paid cards on the market advertising a seven-day service charge “grace period.” This appears to be a practice that is only associated with compulsory cards which target vulnerable people in low-income communities. JPay claims that, “In any given state in which JPay distributes release cards, the total cost of unavoidable fees is often $0.00, but never greater than $3.00.” The $0.00 fees only appear to be the case in Florida, but may not be bound by contract. As mentioned previously, the Louisiana DOC has an unavoidable $12.95 activation fee in the contract. What is totally clear from the contracts HRDC has reviewed is that JPay and other debit card companies view the prisons and jails, with whom they sign monopoly contracts, to be their real “customers” – not the prisoners who are forced to use the debit cards, who have no choice in the matter and who are the consumers actually paying the fees. It is telling that none of the debit card companies are willing, or able, to make their 2015 Best Prepaid Debit Card Comparisons and Reviews: http://prepaid-debit-cards-review.toptenreviews.com Page |5 arguments on the virtues of their products directly to the affected consumer. They can only survive and thrive in an artificial “market” that relies on the government to force their products on a captive population that has no say in the matter and who must pay fees to have their own money returned by a private, for-profit company after the government has taken it from them upon their arrest or incarceration. Not surprisingly, there is a dearth of comments on the docket from prisoners and consumers who have had release debit cards foisted on them praising the cards or telling the CFPB how delighted they were to pay fees to receive their own money and having no choice in the matter. And JPay, with its hundreds of thousands of captive “customers,” cannot cite a single satisfied customer, not employed by a prison or jail agency, who can say anything positive about their experiences with the company’s release cards. Businesses that actually deal with consumers who have marketplace choices can generally provide customer testimonials when needed. Not so with the prison and jail release debit card industry, only because they do not need to. JPay claims “there are significant costs incurred ... in order to operate the release card program” (Pg. 4), but they will not share how much they profit in relation to those costs (as is required of a public agency, and should be of a company doing the business of a public agency, as JPay is doing at prisons and jails around the country). Nothing says they need to provide the business. As a for-profit company, JPay is in business to make money for its owners, not to provide public services. That being said, they should not be allowed to profit off the backs of prisoners and their families. The lack of transparency with which JPay and its new owner, Securus, operate is legendary. JPay states that “any fees generated under the program are used to offset these costs”; that “Requiring cardholders to ‘opt in’ would increase the regulatory burden and compliance costs for card issuers and correctional agencies, without providing significant, if any, countervailing benefit to releasing inmates”; and that “HRDC does not consider the fact that banning all such fees will effectively end the provision of a release card program.” The critical issue here is consumer choice. The prisons and jails forcing these debit cards on released prisoners are not the ones paying the fees associated with them. JPay and its fellow debit card companies could ask the government agencies to pay their fees and pad their corporate coffers. Instead, they want to use the coercive power of the government, free from regulation, to require people to pay debit card fees, making their investors even richer than they already are. Their greatest fear is having to go before informed consumers who have choices because they know if prisoners have a choice they will not choose their exploitive products. If this business model cannot exist without forcing or unduly pressuring customers into using it, and the companies have not established data to justify these compulsory and often predatory arrangements, then HRDC suggests that an end to release debit card programs is appropriate. Indeed, we can think of no circumstance in which exploitation of a vulnerable, impoverished Page |6 population that has no choice in their exploitation is appropriate. If requiring prisoners to “opt in” and choose to use release debit cards and pay the related fees effectively ends the industry, then we can say that the marketplace has spoken and consumers have chosen. That is what happens in a competitive market. JPay claims that they “must offer a low cost release card program in order to remain competitive” in the bidding process for their state contracts. They then go on to say the company has competitive rates compared to other pre-paid cards, comparing their fees to those for similar products available at convenience stores, where people have the freedom to make conscious choices as to what they choose to do, or not do, with their money, and what financial contracts they enter into. Ultimately, as we have stated previously, the matter of fees is secondary to the issue of compulsion. The critical flaw with JPay’s claims is they are not competing for business with the people actually paying their fees. They are seeking contracts from government agencies that hold prisoners involuntarily and give them no choice. If JPay were charging these fees to the government agencies, their claims might have credence. Since they charge the government nothing and only make prisoners and arrestees pay fees to access their own money, their claims have no validity. Finally, JPay mentions that “HRDC incorrectly states that correctional agencies receive commissions (or “kickbacks”) from release card providers. Not one state agency collects a commission from JPay’s release card program.” This may be true, but only as a technicality. Based on JPay’s financial records that have been produced to HRDC by government agencies in response to public records requests, the commissions they pay to state prison systems in which they supply other services provide some context about the nature of their arrangements with those governmental agencies. o For instance in Florida, where JPay boasts of its lowest fees on release debit cards, the Florida DOC reported receiving $8,947,335.80 in commission kickbacks on JPay money transfer services between 2010 and 2015. See Attachment E. o According to commission data reported from March 2014 – March 2015, JPay provided over $720,000 in kickbacks to the Georgia DOC for its various contracts with that state prison system, including money transfer services.3 o In the month of March 2015 alone, the Louisiana DOC received kickbacks from JPay totaling $47,880.07, including for money transfer services.4 3 4 Table of commissions from JPay to GA DOC, dated April 20, 2015. Commission data provided in LA DOC public records request, pp. 182 – 212, dated April 24, 2015. Page |7 o JPay’s 2013 contract with the Tennessee DOC includes a commission schedule that lists the many services and products that result in kickbacks from the company to the correctional agency, including money transfers, email services, video visits, MP3 downloads, MP3 players and tablets. See Attachment F. JPay’s comments are not submitted under oath and, as the above examples indicate, it appears they are at best misleading. While the company may not provide kickbacks for its release debit cards, it does so for most of its other services – which serves as an inducement for correctional agencies to “bundle” release cards when they contract with JPay for money transfer services, video visits, email services, etc. Thus, release cards are the proverbial tip of the iceberg. Also, note that with JPay’s purchase by Securus we can expect additional bundling of the combined companies’ contracts and the rapid expansion of the exploitive release debit card model to the 1,600 detention facilities that currently contract with Securus for phone services. Based on the foregoing and our original comment, we reiterate our request that the CFPB ban the compulsory use of release debit cards for prisoners, arrestees and other detention facility populations, and ban all fees associated with such cards when consumers do opt in to use them. We ask that you consider these matters with respect to the rulemaking to amend Regulation E, Docket No. CFPB-2014-0031, RIN 3170-AA22. Please don’t hesitate to contact us if you have any questions concerning this response. Thank you for your continued time and attention in this matter. Sincerely, Paul Wright Executive Director, Human Rights Defense Center ATTACHMENT A Prisoners Pay Millions To Call Loved Ones Every Year. Now This Company Wants Even More. Ben Walsh email@example.com Posted: 06/10/2015 1:54 pm EDT Updated: 09/08/2015 5:59 pm EDT A captive market, no competition and government contracts that make monopoly-enabled price gouging the industry standard -- it’s never been in doubt that the prison phone business is a very profitable model. A presentation that the privately-held prison telecom company Securus made to investors that The Huffington Post obtained shows just how much money there is to be made as the statesanctioned middleman between prisoners and the outside world: $404.6 million last year alone. Securus, which provides phone services to 2,600 prisons and jails in 47 states, made $114.6 million in profit on that revenue in 2014. Securus’ gross profit margin -- a measure of the difference between the cost to provide its services, and what it charges for them -- was a whopping 51 percent. And Securus, with a 20 percent market share, isn’t even the biggest prison phone company. That would be Global Tel-Link, or GTL, which has a 50 percent market share, the New York Times reported. GTL drew national attention for its prominent role in the 2014 viral podcast Serial. While Securus is already making massive profits off of prisoners and their families, they are also looking for other, faster-growing revenue streams. In an April 15 presentation to investors, the company sought $205 million in debt to fund its purchase of JPay, a telecommunications company that provides banking, electronic communication and entertainment to over a million prisoners in 29 states. Buying JPay will allow Securus to move beyond the analog world of voice phone calls, and into faster-growing businesses like money transfers, email and video chat, and selling prison- approved tablets that allow inmates and families to purchase music and games. (Securus announced on April 14 that they had successfully reached an agreement to purchase JPay.) Securus has already seen major earnings growth in recent years. When the current management team took over in 2008, earnings were at $41.7 million. Since then, they’ve grown roughly $10 million each year between 2008 and 2013. Profits soared between 2013 and 2014, jumping from $87 million to $114.6 million in a single year. Acquiring JPay allows Securus to increase its valuation substantially. Securus was sold to Boston private equity firm ABRY Partners in 2013 for $640 million. The company’s 2014 earnings suggest the company alone is now worth around $950 million. Add in the successful acquisition of JPay, plus the 20 percent annual profit growth they’ve seen in recent years and a good banker to talk the whole thing up, and a valuation of $1.5 billion to $2 billion isn’t outlandish. Securus and ABRY did not immediately respond to requests for comment. JPay declined to comment. Like most acquisitions, it is also a boon for jargon: Securus notes that it is excited about the “cross-sell / up-sell opportunities (alongside combination cost-savings)” which will increase Securus’ “growth and broaden its revenue base.” More than most mergers, however, the jargon quickly becomes nauseatingly detached from the human reality of the business both companies are in -- forcing prisoners to pay high rates to talk to family and friends, listen to music or play video games. The acquisition is attractive, Securus says in the presentation, because the approximately $75 billion the U.S. spends annually on the entire corrections industry represents “a large, recessionresistant and stable market.” In the U.S., “inmate population and corrections expenditures,” the company notes, “have grown steadily for 3 decades.” By acquiring JPay, the company will be able to more fully exploit the business opportunity of mass incarceration, Securus leaders pitched: “The acquisition of JPay results in a comprehensive communication and tech-enabled solution provider” that is “well positioned for organic growth.” As uncomfortable as that sort of business-school jargon may sound in the context of the forprofit prison telecom industry, illustrating what Securus does using stock photos only reinforces the unease. Here’s a cheerful Securus representative and a bank of computers between a smiling mother and children, and a faceless inmate. Debt investors aren’t the only intended audience for this sort of management rhetoric. In an April 14 petition to The New York State Public Service Commission requesting permission to take on the additional debt, Securus said its acquisition of JPay “will serve the public interest” by generating market efficiencies. That petition was approved by default on May 29. In another slide, Securus cringingly declares that it “provides a best in class set of business attributes for facilities, inmates, friends/family members, and investors.” Inmates, family and friends would have a less positive view of the hundreds of millions of dollars a year they are paying to Securus. ATTACHMENT B Georgia Department of Corrections JPay Fee Table, produced on April 28, 2015 in response to public records request. ATTACHMENT C Colorado Department of Corrections JPay Fee Table produced on May 2, 2015 in response to public records request. ATTACHMENT D Louisiana Department of Corrections JPay Fee/ Commission chart produced on April 24, 2015 in response to public records request. ATTACHMENT E Florida Department of Corrections JPay commission summary produced on June 4, 2015 in response to public records request. ATTACHMENT F JPay commission table excerpted from contract with Tennessee EXHIBIT C - FEE SCHEDULE. PRICING AND SERVICES Department of Correction, dated Dec. 28, 2012. SUBSCRIPTION TDOC COMMISSION TDOC Cost per eMessaging stamp 4% $ 40 (Wlth discount for volume purchases) Cost per Inmate Grievance 0 $0.00 Video Visit (30 minute call) $0 25 per completed v1s1t $9 95 Inmate Scheduling Module 0 $0.00 MP3 Price; per song 4.5% (on song sale price, not including sales tax (if applicable) Range from $1 06 to $1 99 (plus sales tax if applicable, other fees included) MP3 Price; per album (or mini-album) 4 5% (on album sale price, not includmg sales tax (rf applicable) Varies - however, the inmate Will recerve a discount for a full album purchase vs. purchasmg the songs that are on the album rndivrdually. Sales tax (rf applicable} wrll be additional JP3 Player (4GB) Not Available Not Available JP4 Player (8GB) $5.00 per player sold $47.99 JP4 Player (16GB) $5 00 per player sold Not Available at this time JP5- Tablet $10.00 per player sold TBA Via Money Transfer www JPay.com I Vra800 phone number Credit I Debit Card $0.01 - $20.00 $0 50 per transaction $3.90 I $4.90 $20.01 - $100.00 $0 50 per transaction $6.90 I $7.90 $100.01 • $200.00 $0 50 per transactron $8.90 I $9.90 $200.01 • $300.00 $0.50 per transactron $1090 / 11 .90 $0 50 per transactron $8 95 Walk-In Location (Cash Deposit) $0.01 • $5,000.00 Lobby Kiosk (up to $100) Cash Fee $0.50 per transactron Credit Card Fee $0 50 per transaction $6.95 flat rate 0 Free Lockbox $0/01 - $1,000.00 RFS 32901-31188 JPay, Inc. 12 28 2012