People are using the fee-heavy cards instead of getting their payments deposited directly to their bank accounts. That’s because states issue bank cards automatically, require complicated paperwork or phone calls to set up direct deposit and fail to explain the card fees, according to a report issued Tuesday by the National Consumer Law Center, a nonprofit group that seeks to protect low-income Americans from unfair financial-services products. An early copy of the report was obtained by The Associated Press.

Until the past decade, states distributed unemployment compensation by mailing out paper checks. Some also allowed direct deposit. The system worked well for people who had bank accounts and could deposit the check without paying a fee.

It also cost states millions of dollars each year to print and mail the checks.

Banks including JPMorgan Chase & Co., U.S. Bancorp and Bank of America Corp. seized on government payments as a business opportunity. They pitched card programs to states as a win-win: States would save millions in overhead costs because the cards would be issued for free. And people without bank accounts would avoid the big fees charged by storefront check cashers.

However, most of the people being hit with fees already have bank accounts. The bank-state partnerships effectively shifted the cost of distributing payments from governments to individuals. The money needed to cover those costs is deducted from people’s unemployment benefits in the form of fees.

Consumer advocates like NCLC are focused on ensuring access to the direct-deposit option so that people can avoid the card fees.

The trouble, the new report says, is that many states make it difficult for people to sign up for direct deposit. The rate of people using direct deposit ranges from a national high of 82 percent in Minnesota to a low of 16 percent in Arizona, the report says.

Minnesota offers direct deposit to people when they apply for benefits, and allows them to change their payment method online or over the phone, the report says.

In Arizona, by contrast, people are automatically enrolled in the card program. After they receive the card, they must find a paper form, fill it out, and submit it by mail. There is no way to change payment methods online or over the phone.

“The difference in direct-deposit rates among states seems primarily due to how hard or easy the state makes it for workers to choose direct deposit,” the report says.

In five states — California, Indiana, Kansas, Maryland and Nevada — unemployed people aren’t offered direct deposit at all. The report says that setup is illegal under a federal law that bars states from requiring benefits recipients to open an account at a particular bank.

The federal government recommended in 2009 that people with bank accounts receive payments via direct deposit. Nearly four years later, the report says, “there is no excuse for any state not to be offering direct deposit as the first choice for payment of unemployment benefits.”

Banks make more money when more people use the cards. In the past, some of their deals with states prevented states from offering direct deposit, or required states to promote the card program as a first option.

To cover the cost of issuing cards and running the programs, banks charge a plethora of fees, including charges for balance inquiries, phone calls to customer support, leaving an account inactive for a period of months, or making a purchase using a personal identification number.

Many states have eliminated some fees and improved consumer protections in the two years since NCLC published its first comprehensive review of state unemployment payments. Banks no longer charge overdraft fees, which skimmed up to $20 from the benefits of card users whose spending exceeded the balance on the card.

Pennsylvania was singled out for praise in the report. Residents of that state will save $5.2 million in card fees each year because the state switched to a lower-fee card.

In part because of the recent improvements, the report says, prepaid cards often are the best option for people who don’t have bank accounts. Those people would often pay even bigger fees to storefront check cashing services.

“A well-designed prepaid card is safer, cheaper and more convenient than paying to cash a paper check,” said Lauren Saunders, one of the report’s authors, in a prepared statement. But she said “it is no substitute for direct deposit to an account of your own choosing.”