Bank of America Corp.'s Little-Known Revenue Source: U.S. Prisons

The federal prison system has its own economy, whereby inmates establish personal accounts into which money from family members and prison-based jobs are deposited. Over time, the government has turned the administration of these accounts over to banks such as Bank of America  and JPMorgan Chase , both of which have been awarded no-bid contracts from the Treasury Department to manage various facets of this confined economic system.

No-bid contracts worth millions
Federal prison inmates have had access to in-house accounts since 1930. For decades, relatives used money orders to send monetary gifts to loved ones on the inside, which involved a very small fee for the sender. Beginning in 2000, however, Bank of America was awarded a $14.4 million contract to manage prisoners’ accounts, a task previously handled by the Treasury Dept. According to the Center for Public Integrity, the department invoked a Civil-War era law in order to sidestep public bidding requirements.

The Center for Public Integrity shows how that original contract for a little over $14 million has mushroomed into its present value of more than $76 million in 14 years. While many of the amendments simply entailed increasing the bank’s remuneration, some created new “services” such as an e-messaging system for prisoners that levied fees by the minute.

While Bank of America handles money management on the inside, JPMorgan takes over once inmates leave the facility. Through its own no-bid contract, the bank provides a fee-laden prepaid debit card to released prisoners, which allows them to access their own prison savings account. 

JPMorgan provides a slew of prepaid debit cards for 15 federal agencies, including the Justice Department’s Bureau of Prisons. According to a report in August by Treasury’s Bureau of the Fiscal Service (link opens a PDF), the U.S. Debit Card program for nonbenefit payments, with the aid of “financial agent” JPMorgan Chase, has issued more than 92,000 cards for released prisoners.

Among other “perks,” recipients of these debit cards enjoy domestic ATM withdrawal fees of $2 apiece — pricey, but cheap compared to the $7 price for over-the-counter withdrawals. Losing a card and requesting a quick replacement will set the cardholder back $24.50. 

New scrutiny?
Do these kinds of bid-free agreements save the government money? According to the Fiscal Service report, debit card programs like those administered by JPMorgan promote the goals of “efficiency, better transparency and dependable accountability.” The only actual savings mentioned entail the $1.03 cost per check that the U.S. Debit Card program now precludes, and the fact that JPMorgan Chase, not the government, mails the cards to recipients. 

As for Bank of America’s handshake deal with Treasury, a ranking member of the Senate Judiciary Committee is asking Secretary Jacob Lew to explain how much this long-standing no-bid agreement has cost taxpayers, noting that the lack of competitive bidding raises “significant questions.”

Will investors care that this little corner of big-bank revenue generation is being illuminated? Some probably won’t, since the banks are making money, while others might find the method distasteful. In any case, investors might wonder about how many other segments could exist across these vast banking empires — areas about which they have little knowledge, if any.

For taxpayers, this is another example of how deep and unfathomable the relationship between government and the banking behemoths has become. Too big to fail, it seems, lives on.

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The article Bank of America Corp.’s Little-Known Revenue Source: U.S. Prisons originally appeared on Fool.com.

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Amanda Alix has no position in any stocks mentioned. The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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