Life isn’t supposed to be easy for prisoners, but should the punishment extend to their families? A new report highlights the ways in which some financial institutions appear to be benefiting from the bad fortunes of others while prisoners’ families fall into debt trying to provide necessities like underwear and toothpaste to their loved ones behind bars.

The Center for Public Integrity has released the first in a two-part series investigating how private financial companies have made millions from the families of prisoners.

Over a six-month investigation CPI found that prison bankers collected tens of millions of dollars every year from inmates’ families in fees for basic financial services. As a result, some families have gone without medical coverage, paying bills or even staying in contact with their imprisoned family members.

So how did this happen? According to CPI, these problems can be traced back several years to the point when private financial firms, like Florida-based JPay, began to dominate the market for prisoners’ finances.

While families once could spend as little as $3 to send a traditional money order to inmates and have the funds transferred to their prison accounts, now they must pay upwards of $8 per transfer to have transfers made in a timely manner.

Although families can opt to continue sending paper money orders through companies like JPay, CPI found that many have converted to costly electronic transaction after waiting weeks or even a month for the funds to be made available to their loved ones.

JPay, which provides money transfers to more than 70% of the inmates in U.S. prisons, is often the only option for families to send money. And some consumer advocates say it would appear the company has taken advantage of its position by charging exorbitant fees.

In 2013, JPay processed 7 million transactions for families of inmates and made more than $50 million in revenue.

Those revenues come from the high fees many families begrudgingly pay to have funds readily available to their loved ones.

CPI reports that depending on how much a consumer sends and in which state they are sending the funds the fees administered by JPay can reach as high as 35% to 45%. While that may not touch the triple-digit interest rates levied by often predatory financial services like payday loans, the fee does take a huge chunk out of inmate funds.

One woman reported that in order to send her son in a Virginia correctional facility $50 she had to pay an additional $20 to JPay.

And that’s not the only place families are being hit with fees, some states will take as much as 15% of a transfer for mandatory savings accounts. While inmates receive those funds upon release, the Department of Corrections keeps any interest accrued on the account.

Ryan Shapiro, CEO of JPay, tells CPI the fees charged by the company are necessary and the lowest they could possibly be.

However, CPI found that competitor NIC Inc. charges significantly lower fees for transfers in Maine, Florida and Arkansas.

Shapiro also tells CPI he believes that the fees charged aren’t high enough to make a difference for inmates’ families.

“We go out of our way to make sure that they feel comfortable — that, you know, you’re spending money with a company that cares about you,” Shapiro says.

Yet, families that have had to use the company say their experience was wildly different.

When Jewel called JPay’s phone center to ask why payments to her son were delayed and why she must submit extensive paperwork each time she makes a money order transfer, she says she was hung up on.

Despite families’ displeasure with JPay’s high fees and lack of customer service, prisons have continued to use the company, thanks in part to beneficial profit-sharing arrangements.

Through the arrangements with JPay, states often receive between $0.50 and $2.50 for each payment the company accepts on behalf of their prisoners.

While that might sound like a thinner margin compared to the high fees often charged by JPay it certainly adds up.

For example, Illinois received about $4,000 per month from JPay last year.

Alex Friedmann, associate director of prisoner advocacy group the Human Rights Defense Center, tells CPI that these profit-sharing arrangements often represent legal kickbacks for the prisons.

“They charge exorbitant fees then kick back a percentage of their revenue. … The company doesn’t need that for profit,” Friedmann says.

Yet, Shapiro says the arrangements reflect a commission that is going back to the benefit of inmates by using the funds to purchase things like basketball hoops or other sports equipment.

CPI reports, however, that over the past few years tight prison budgets have resulted in the funds being used to cover the cost of X-ray machines and ice machines.

The prisons and their top officials also personally benefit from JPay’s often extravagant convention parties and awards.

Back in 2012, JPay threw a party during the American Correctional Association convention. The party included tequila, hand-rolled cigars, a live mariachi band and free shuttles all night long.

The company also fetes state corrections directors by funding the individuals’ trips and awarding them with an expensive crystal bowl.

Unlike other financial services that have come under regulatory scrutiny for taking advantage of consumers by charging high fees, JPay and other prison financial companies have faced few hurdles.

CPI reports that federal regulators with the Consumer Financial Protection Bureau, which can sue companies for offering unfair, deceptive and abusive financial services, and the Federal Trade Commission declined to comment on specific issues related to prison financial services.

Still, regulators from some individual states have attempted to rein in JPay. Seven states have levied fines totaling $408,500 against the company for operating without a license.

Prison bankers cash in on captive customers [Center for Public Integrity]

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