BILL ANALYSIS Ó
AB 1280
Page 1
Date of Hearing: April 30, 2013
ASSEMBLY COMMITTEE ON HUMAN SERVICES
Mark Stone, Chair
AB 1280 (John. A. Pérez) - As Introduced: February 22, 2013
SUBJECT : Public assistance payments and unemployment
compensation benefits: electronic fund transfer: qualifying
accounts
SUMMARY : Extends federal consumer protection standards to state
benefits deposited into prepaid card accounts. Specifically,
this bill :
1)Requires that unemployment compensation benefit payments only
be deposited into an account that meets the requirements of a
qualifying account for deposit of public assistance payments,
as specified, when direct deposit is requested by a recipient
of unemployment compensation benefits.
2)Requires direct deposit of CalWORKs benefits, when direct
deposit is requested by a recipient, to only be made to the
recipient's "qualifying account" at a financial institution.
3)Defines qualifying account as one of the following:
a) A demand deposit or savings account at an insured
financial institution in the name of the person entitled to
receipt of public assistance payments; or
b) A prepaid card account that meets all of the following:
i. The account is held at an insured financial
institution;
ii. The account is set up to meet the requirements
for pass through deposit or share insurance so that the
funds accessible through the account are insured for
the benefit of the person entitled to the receipt of
public assistance payments, as specified;
iii. The account is not attached to any credit or
overdraft feature that is automatically repaid from the
account after delivery of the payment; and
AB 1280
Page 2
iv. The issuer of the card complies with all of the
requirements and provides the holder of the card with
all of the consumer protections that apply to a payroll
card account under federal law, as specified.
1)Prohibits a person or entity that issues, maintains or manages
a prepaid card account from accepting or facilitating direct
deposit of unemployment compensation benefits or public
assistance benefits to a prepaid card account that does not
meet the definition of qualifying account, as specified.
2)Defines financial institution as a state or national bank, a
state or federal savings and loan associations, a mutual
savings bank, or a state or federal credit union.
3)Defines a payroll card account as an account that is
established through an employer and to which electronic funds
transfers of the consumer's wages, salary or other employee
compensation are made on a recurring basis, as provided in
regulations implementing the federal Electronic Funds Transfer
Act (EFTA).
4)Defines issuer as a person or entity that issues a prepaid
card.
5)Provides that prepaid card or prepaid card account shall have
the same definition as provided in EFTA regulations regarding
general use reloadable cards, or shall be defined as a card,
code or other means of access to a recipient's funds that is
usable at automated teller machines, or for goods or services
from multiple, unaffiliated merchants.
EXISTING LAW
1)Establishes under federal law the Temporary Assistance for
Needy Families (TANF) program to provide welfare-to-work
services to eligible families. In California, TANF funds for
welfare-to-work services are administered through the
California Work Opportunity and Responsibility to Kids
(CalWORKs) program.
2)Establishes the maximum monthly amount of cash aid (maximum
aid payment) that can be provided to a family eligible for aid
under the CalWORKs program.
AB 1280
Page 3
3)Requires the State Department of Social Services (DSS) to
cooperate with county treasurers and private financial service
providers, as specified, in developing and implementing an
electronically based system for delivering public assistance
payments to recipients of benefits who do not have individual
deposit accounts with financial institutions.
4)Allows a recipient of CalWORKs cash aid payments to authorize
those payments to be directly deposited by electronic funds
transfer into the recipient's account at a financial
institution of his or her choice.
5)Requires each county to make an agreement with one or more
financial institutions participating in the Automated Clearing
House, and requires counties to provide direct deposit by
electronic fund transfer of payments to any person entitled to
the receipt of public assistance benefits who authorizes the
direct deposit of benefits into an individual account at a
financial institution of his or her choice.
6)Provides that an unemployed person is eligible for
unemployment insurance (UI) benefits if that person becomes
unemployed through no fault of his or her own, has worked in
UI-covered employment, is able and available to work, and is
totally or partially unemployed during the week for which a
claim is filed.
FISCAL EFFECT : Unknown
COMMENTS : This bill seeks to align state law with federal law
governing the transfer or deposit of federal benefits into
prepaid card accounts. By aligning with federal requirements
and establishing criteria for prepaid card accounts used for
this purpose, this bill protects families receiving state cash
benefits, and helps them avoid being subject to the
inappropriate practices of certain financial institutions.
California Work Opportunity and Responsibility to Kids
(CalWORKs)
The CalWORKs program provides monthly income assistance and
employment-related services aimed at moving children out of
poverty and helping families meet basic needs. Federal funding
for CalWORKs comes from the Temporary Assistance for Needy
Families (TANF) block grant. The average monthly cash grant for
a family of three (one parent and two children) on CalWORKs is
AB 1280
Page 4
$465. CalWORKs grants are used to pay rent, buy clothing, pay
utilities bills, and pay for other basic needs to ensure
children can be cared for at home and remain safely with their
families. According to January 2013 DSS data, 564,041 families
rely on CalWORKs, including over one million children. Nearly
half of the children on CalWORKs are under age six.
Electronic Benefits Transfers (EBT) Act
AB 1542 (Ducheny), Chapter 270, Statutes of 1997, which
implemented federal welfare reform and established the CalWORKs
program, also conformed to federal law in establishing the
Electronic Benefits Transfer (EBT) Act, which makes the
following declarations:
1)The development of incompatible systems for electronic
benefits transfer will create significant hardships on
recipients of public social services and businesses that
accept electronic transactions as payment for goods and
services; and
2)The goals of electronic benefits transfer are to reduce the
cost of delivering benefits to recipients, to ensure that all
systems within California are compatible, and to afford public
social services recipients the opportunity to better and more
securely manage their financial affairs.
California's official move from a paper-based system to an
electronic system for the distribution and use of public
assistance benefits occurred in 2002. This shift was essential
in helping the CalWORKs and CalFresh (then Food Stamps) programs
keep pace with technological advances in point-of-sale and
automated teller systems.
EBT programs
An EBT program is one in which needs-tested benefits are
distributed by a government agency through accounts that can be
accessed electronically by recipients through automated teller
machines (ATMs), and point-of-sale (POS) terminals. EBT cards
are not authorized for payment of employment-related payments,
such as salaries, unemployment benefits, pension benefits, or
retirement payments from federal, state or local governments.
(15 U.S.C. 1693(b))
In California, recipients of CalWORKs cash aid often receive
their benefits on an EBT card and use the card as they would any
AB 1280
Page 5
other debit card for ATM withdrawals and purchases to meet their
families' basic needs. Unlike CalFresh benefits, which can only
be accessed through use of an EBT card and are not eligible for
cash withdrawal or purchase of basic necessities that don't
qualify as food, CalWORKs benefits can also be directly
deposited into a personal bank account at the request of a
CalWORKs recipient.
While EBT cards provide much of the same access to purchases and
withdrawals as commercial debit cards, there are federal and
state restrictions on EBT transactions in certain locations.
The federal Middle Class Tax Relief and Job Creation Act of
2012, signed into law on February 22, 2012, required all states
receiving a TANF block grant to prevent EBT transactions in
liquor stores that do not also sell food; casinos, gambling and
gaming establishments; and any retail establishment that
provides adult-oriented entertainment. Prior to this federal
policy change, DSS had already responded to Executive Order
S-09-10, issued by Governor Schwarzenegger, and by September
2011, had blocked EBT usage at more than 6,000 ATM machines.
These machines were located in adult entertainment businesses,
smoke shops, tattoo and piercing parlors, nightclubs, taverns
and bars, liquor stores, cannabis shops, a gun dealership, bingo
halls, racetracks, two cruise ships, and spa and massage salons.
It is important to note that DSS moved to remove EBT access for
ATM machines at these establishments although there was no
record of EBT withdrawals at all of these locations.
Additionally, EBT cards are very different from commercial
credit cards in that they do not carry a credit line, and the
withdrawals or purchases a recipient makes cannot exceed the
amount that is available on the card. Because grant levels keep
families at or below 40% of the Federal Poverty Level, access to
any additional funds during the month would help families better
meet their basic needs and potentially exit CalWORKs sooner.
However, lack of overdraft potential is an important feature
that helps poor families have access to their minimal benefits
as they become available each month without the threat of a
future month's aid payment having to be used to pay back debts
or overdraft fees
Although funds distributed through EBT cards are protected from
some of the fees imposed on commercial credit cards, there are
still four types of surcharges that impact EBT card usage for
CalWORKs recipients. These include ATM surcharge fees that are
AB 1280
Page 6
applied at some ATMs and POS machines when cash is withdrawn,
ATM balance inquiry fees, POS machine surcharge fees for getting
"cash back" on a purchase, and an $0.85 transaction fee to the
state's EBT vendor that is applied when cash is withdrawn from
an ATM or POS machine more than four times within a single
month. According to data obtained by the Coalition of
California Welfare Rights Organizations through a Public Records
Act Request, nearly $18 million in cash aid benefits to CalWORKs
families went towards surcharges and fees in 2011. Prior
relevant legislation, AB 756 (Mitchell), 2011, would have
prohibited fees or surcharges for EBT cash withdrawal at ATMs,
POS machines or similar cash withdrawal devices.
Unemployment insurance (UI) benefits
Employers report each of their employees' wages to the
Employment Development Department (EDD), which is then used by
EDD to determine whether an unemployed person has earned enough
wages to file a UI claim. In order to be eligible for payment
of UI benefits, an individual has to meet a number of
eligibility criteria for each week he or she claims benefits,
including being unemployed through no fault of his or her own,
and being physically able to work and actively looking for work.
Unless extended by Congress or the Legislature during a time of
high unemployment, a UI claim is effective for one year, during
which a claimant can receive from 12 to 26 weeks of full
benefits. The benefit amount for each week in which a claimant
receives a payment can range from a minimum of $40 to a maximum
of $450, based on the claimant's quarterly earnings. The most a
claimant can be eligible to receive for the year the claim is
effective is $11,700.
Debit card for UI benefits
EDD began paying UI benefits through the EDD Debit Card in July
2011, which, like EBT for CalWORKs benefits, offers a direct
deposit or electronic transfer option of funds that would
otherwise be accessible through the card. The EDD Debit Card
was also a major shift in accessing benefits for UI claimants;
it eliminated both check disruption due to mail delays and check
cashing fees for people without personal bank accounts.
Additionally, the EDD Debit Card grants claimants the same
access to POS purchases and ATM withdrawals as people with
commercial debit cards.
Prepaid cards
Under the federal Electronic Funds Transfer Act, a prepaid card
AB 1280
Page 7
is generally defined as a card or other payment code or device
that is purchased or loaded, on a prepaid basis, and is
redeemable for the purchase of goods or services, or cash
withdrawal at an ATM. In some cases, prepaid cards can be
reloaded for purchases or withdrawals. Many people who have
exhausted credit cards or the ability to obtain new credit
cards, or even those who don't feel comfortable using
traditional bank accounts, have turned to using prepaid cards as
a means of keeping their spending within feasible limits while
having the purchase and withdrawal freedom of a commercial debit
or credit card.
Why some people use prepaid cards
The appeal of prepaid cards for a CalWORKs recipient may be the
flexibility the card allows to meet basic needs. For example,
whereas an EBT card cannot be used to make an online utility
bill payment, a prepaid card often can be used for that purpose.
Because this would also allow a CalWORKs recipient to complete
this necessary transaction without having to make a cash
withdrawal at an ATM or other POS machine, the recipient may be
able to avoid the fees charged as a result of that withdrawal;
fees that reduce the already minimal amount of funds available
to the recipient's family.
Additionally, some prepaid cards are sold to consumers as
credit-building products. With the understanding that having a
decent credit score can help families get rental housing
applications approved and obtain greater access to employment
opportunities, the promise of credit improvement is attractive.
What many people don't understand is that prepaid card activity
is not considered by any of the main credit reporting agencies,
and therefore does not affect a person's credit score with
normal use within the allotted funds. According to the Network
Branded Prepaid Cards Association (NBPCA), "Prepaid cards help
the consumer control their budget and avoid interest charges,
running up debt and overdraft fees." However, the details in
some prepaid card agreements, which frequently go unread, often
show that they are not always as secure as other cards or bank
accounts for cardholders. This lack of security can be due to
multiple high fees, inadequate protection against theft of
funds, and overdraft or "shortage" fees that are charged when
the known, prepaid limit is allowed to be exceeded on a purchase
or withdrawal. Although activity on a prepaid card is not
reported to credit agencies, overdraft or shortage fees that go
unpaid may ultimately be subject to collections, which can
AB 1280
Page 8
negatively impact a prepaid card user's credit.
Federal Electronic Fund Transfer Act
The Electronic Fund Transfer Act (EFTA) (15 USC 1693 et seq.)
was established in 1978 to protect individual consumers engaging
in fund transfers through an electronic terminal, telephone,
computer, or magnetic tape that instruct a financial institution
to either credit or debit a consumer's asset account
electronically. Within what's commonly referred to as
"Regulation E" of the Board of Governors of the Federal Reserve
System, the EFTA establishes the rights, liabilities, and
responsibilities of consumers who use electronic fund transfer
services and of financial institutions that offer such services.
In 2010, the federal Department of the Treasury ruled to allow
the receipt of federal payments through an electronic method.
In response to concerns about which electronic means, and
essentially which types of card accounts, would be eligible for
the receipt of federal funds, the new rule contained a number of
criteria that prepaid cards would have to meet to be qualified
to receive the delivery of federal funds. Those criteria
include not having an attached line of credit or loan feature
that would cause automatic repayment from the card account and
providing for liability protections for loss, theft, or
unauthorized charges. This bill applies these and other
criteria included in the ruling for purposes of transferring or
depositing state benefits into prepaid card accounts.
Need for the bill
According to the author, "The lack of consumer protections for
families receiving work supports or basic needs assistance not
only endangers the subsistence of California families
experiencing hardship, it undermines the security of the State's
investment. By applying federal standards, AB 1280 will ensure
federal protections exist for state investments and low-income
families alike."
One of the bill's co-sponsors, Western Center on Law and
Poverty, states, "Both CalWORKs and UIB are intended to
stabilize families when an adult member of the household loses
employment or reduce their hours substantially. Additionally,
CalWORKs continues to serve working parents whose wages are very
low and to help families in which a disabled family member
requires care. California issues these supports using
electronic payment cards. These cards comply with federal
AB 1280
Page 9
consumer protection laws. While CalWORKs and UIB recipients
both have the right to direct deposit their benefits into their
own account, either a bank account or a privately selected
prepaid card, neither of these benefits have the same
protections as the federal benefits when being deposited into a
prepaid card account that does not have the federal
protections."
PRIOR LEGISLATION
AB 2035 (Bradford), Chapter 319, Statutes of 2012, protects
against electronic theft of benefits delivered electronically.
AB 756 (Mitchell), 2011, would have prohibited fees or
surcharges for EBT cash withdrawal at ATMs, POS machines or
similar cash withdrawal devices.
AB 1542 (Ducheny), Chapter 270, Statutes of 1997, implemented
federal welfare reform and conformed to federal law in
establishing the electronic benefits transfer system to deliver
CalWORKs and CalFresh (then Food Stamps) benefits.
REGISTERED SUPPORT / OPPOSITION :
Support
Western Center on Law and Poverty (Sponsor)
Asian Law Alliance
Coalition of California Welfare Rights Organizations
AB 1280
Page 10
Opposition
None on file
Analysis Prepared by : Myesha Jackson / HUM. S. / (916)
319-2089