BILL ANALYSIS Ó
SENATE HUMAN
SERVICES COMMITTEE
Senator Leland Y. Yee, Chair
BILL NO: AB 1280
A
AUTHOR: John A. Pérez
B
VERSION: February 22, 2013
HEARING DATE: June 11, 2013
1
FISCAL: Yes
2
8
CONSULTANT: Mareva Brown
0
SUBJECT
Public assistance payments and unemployment compensation
benefits: electronic fund transfer: qualifying accounts
SUMMARY
This bill would authorize a recipient of public assistance
payments to authorize payment to be directly deposited by
electronic fund transfer to a qualifying account, as
defined, at a financial institution of his or her choice.
The bill would require qualifying accounts to meet
specified requirements, and would require that if a
recipient of unemployment benefits elects to receive
payments by direct deposit, the payments only be deposited
to a qualifying account, as defined.
ABSTRACT
Existing law:
1) Establishes legislative intent that it is
considered to the public good and the general welfare
of the citizens of California to set aside funds to be
Continued---
STAFF ANALYSIS OF ASSEMBLY BILL 1280 (John A. Pérez)
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used for a system of unemployment insurance to provide
benefits for persons who are unemployed through no
fault of their own, as specified. (UIC 100 et seq.)
2) Defines the circumstances under which a California
resident may be eligible for unemployment insurance
benefits. (UIC 1253 et seq.)
3) Requires the Employment Development Department
(EDD) to pay unemployment compensation benefits
through public employment offices or such other agency
as may be prescribed by authorized regulations of the
director. (UIC 1339 (a))
4) Establishes in federal statute the Electronic Fund
Transfer Act, which declares that the use of
electronic systems to transfer funds provide the
potential for substantial benefits to consumers and
provides a basic framework establishing the rights,
liabilities and responsibilities of participants in an
EFT transfer. (15 USC § 1693 et seq).
5) Establishes in California statute the Electronic
Benefits Transfer Act to disburse public assistance
benefits through electronically issued means, such as
automated teller machines, point-of-sale devices or
other devices that accept electronic benefits transfer
transactions. (WIC 10072 et seq.)
6) States legislative intent that 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. (WIC 10065 (b))
7) Defines "benefits" to mean financial and food
assistance provided to, or on behalf of, those
Californians who, because of their economic
circumstances or social condition, are in need, as
specified. (WIC 10066 (b))
8) Establishes the responsibility of the state
Department of Social Services (DSS) to maintain
STAFF ANALYSIS OF ASSEMBLY BILL 1280 (John A. Pérez)
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uniform public social service programs, administered
by the counties, and to administer the payment of
grants for all aid programs. (WIC 11050)
9) Requires DSS to cooperate with county treasurers
and private financial service providers, including
depository institutions, licensed check sellers, data
processing service vendors and retail merchants in
developing and implementing an electronically based
system for delivering public assistance payments to
those recipients who do not have individual deposit
accounts with financial institutions. (WIC 11006.2
(b))
10) Permits a recipient of public assistance payments
to authorize direct deposit by electronic fund
transfer into the recipient's account at the financial
institution of his or her choice under a program for
direct deposit by electronic transfer established by
the county treasurer. The direct deposit shall satisfy
DSS's obligation for the payment. (WIC 11006.2 (c)(1))
11) Requires each county treasurer to make an agreement
by December 1, 2001, with one or more financial
institutions, as specified, and to establish a program
for the direct deposit by electronic fund transfer to
any person entitled to the receipt of public
assistance benefits who authorizes direct deposit.
(WIC11006.2 (c)(2))
This bill:
1) Requires that if a recipient of unemployment
compensation benefit payments elects to receive the
payments by direct deposit to an account of the
recipient's choice, that the payments may only be
deposited into an account that meets the requirements
of a qualifying account for deposit of public
assistance payments, as specified in WIC 11006.2.
2) Requires that a person or entity that issues a
prepaid card or maintains or manages a prepaid card
account shall not accept or facilitate direct deposit
of unemployment compensation benefits to a prepaid
card that is ineligible under this section.
STAFF ANALYSIS OF ASSEMBLY BILL 1280 (John A. Pérez)
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3) Deletes the requirement that DSS cooperate with
county treasurers and private financial service
providers, including depository institutions, licensed
check sellers, data processing service vendors and
retail merchants, in order to develop and implement an
electronically based system for delivering public
assistance payments to recipients who do not have
individual deposit accounts with financial
institutions.
4) Adds the requirement to existing statute that a
direct EFT deposit into an account be made only into a
qualifying account.
5) 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.
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 by the Federal Deposit
Insurance Corporation in accordance with Part 330
of Title 12 of the Code of Federal Regulations,
or the National Credit Union Share Insurance Fund
in accordance with Part 745 of Title 12 of the
Code of Federal Regulations.
(iii) The account is not attached to any credit
or overdraft feature that is automatically repaid
from the account after delivery of the payment.
(iv) The issuer of the card complies with all of
STAFF ANALYSIS OF ASSEMBLY BILL 1280 (John A. Pérez)
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the requirements, and provides the holder of the
card with all of the consumer protections, that
apply to a payroll card account under the rules
implementing the federal Electronic Fund Transfer
Act (EFTA) or other rules subsequently adopted
under the EFTA that apply to prepaid card
accounts.
6) Requires that a person or entity that issues a
prepaid card or maintains or manages a prepaid card
account that does not comply with the definition of a
qualifying account shall not accept or facilitate the
direct deposit of public assistance payments to the
prepaid card account.
7) Establishes the following definitions in statute:
a. "Financial institution" means a state or
national bank, a state or federal savings and
loan association, a mutual savings bank, or a
state or federal credit union.
b. "Issuer" means a person or entity that
issues a prepaid card.
c. "Payroll card account" shall have the
same meaning as that term is defined in the
regulations implementing the federal Electronic
Fund Transfer Act.
d. "Prepaid card" or "prepaid card account"
means either of the following:
i. A card, code, or other means
of access to funds of a recipient that is
usable at multiple, unaffiliated merchants
for goods or services, or usable at
automated teller machines.
ii. The same as those terms or
related terms are defined in the regulations
adopted under the federal Electronic Fund
Transfer Act regarding general use
reloadable cards.
STAFF ANALYSIS OF ASSEMBLY BILL 1280 (John A. Pérez)
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FISCAL IMPACT
An Assembly Appropriations Committee analysis noted that
costs associated with this legislation should be minor and
absorbable within existing resources.
BACKGROUND AND DISCUSSION
Purpose of the bill
The author states that AB 1280 would require the consumer
protection standards used by the federal government for
their public benefit programs to be applied to the state's
cash assistance benefits that are delivered on electronic
payment prepaid cards.
The bill would create these consumer protection standards
by requiring deposit insurance, providing protection from
theft and unauthorized charges and prohibiting overdraft
fees and other credit-related features to be applied to the
benefits delivered on electronic payment prepaid cards.
Public and unemployment benefits
Congress and the California Legislature have variously
declared the importance of preserving a family's ability to
raise and nurture children in a supportive environment and
the intent of public benefits to provide support to allow
families the opportunity to support families while
providing an opportunity to pursue self-sufficiency through
work or education.
The California Work Opportunity and Responsibility to Kids
(CalWORKs) program provides a monthly benefit and
employment-related services with the goal of moving
children out of poverty and helping families meet basic
needs. As of January 2013, more than 500,000 families,
including more than one million children, were aided by the
CalWORKs benefit. Nearly half of the children on CalWORKs
are under age six. The average monthly cash grant for a
family of three (one parent and two children) on CalWORKs
is $465, according to DSS data. Recent changes to state law
limit eligibility for the CalWORKs program to 24 months,
although benefits to families may be extended if families
meet federal work participation requirements and benefits
STAFF ANALYSIS OF ASSEMBLY BILL 1280 (John A. Pérez)
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solely for children may be extended beyond that date if the
family continues to meet income eligibility.
Unemployment insurance benefits may be provided to a
California wage earner who becomes unemployed through no
fault of their own as long as they are physically able to
work and are actively seeking work, as well as meeting
other criteria. Benefits are effective for one year, and
can range from $40 to $450 per week based on prior
quarterly earnings.
While CalWORKs and Unemployment Benefits are provided as
cash aid to allow beneficiaries to pay rent, utilities and
other expenses, others benefits, such as CalFresh, can be
used only for specific purposes such as to purchase food.
Electronic Fund Transfers
The federal Electronic Fund Transfer Act (EFTA) was
established in 1978 to protect individual consumers who are
engaging in fund transfers. It establishes the rights,
liabilities, and responsibilities of financial institutions
that offer such services and of the customers who use them.
(15 USC 1693 et seq.) In 2010, the federal Department of
the Treasury mandated that federal benefit payments such as
social security, veterans benefits and others be delivered
through an electronic transfer.
Electronic Benefit Transfer (EBT) cards
Food benefits for CalFresh recipients are distributed
through an EBT system, which allows recipients to access
funds at point-of-sale terminals, automated teller machines
(ATMs) and other electronic fund transfer devices. EBT
cards look similar to ATM debit cards, and are swiped
through the same machines using magnetic strips to transfer
information.
While the EBT system was designed in California to deliver
CalFresh benefits, all of California's 58 counties also
STAFF ANALYSIS OF ASSEMBLY BILL 1280 (John A. Pérez)
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deliver either CalWORKs or General Assistance benefits, or
both, through the EBT cards. According to DSS, in May 2012
there were nearly 22.5 million EBT transactions to purchase
food through the CalFresh program and nearly 3 million cash
purchase or withdrawals at point-of-sale or ATM machines
through the cash benefit programs, CalWORKs and General
Assistance. The vast majority of participants receive
CalWORKs benefits via their EBT cards - about 97 percent in
LA County. Virtually all of the rest are issued through
direct deposit. A very small number are issued by check.
An EBT card cannot be used to pay bills online or to make
online purchases.
Unemployment Insurance Debit Cards
EDD began paying Unemployment Insurance (UI) benefits
through the EDD Debit Card in July 2011 to eliminate
payment delays due to mailed checks and check cashing fees
for people without personal bank accounts. The debit card,
issued by Bank of America, permits users to swipe their
card to make point-of-sale debit purchases or to use the
credit function to the extent that funds are available in
the account. Beneficiaries can receive cash back from
point-of-sale purchases at grocery stores, drug stores and
at U.S. Post Office locations. Withdrawals at non-Bank of
America ATMs may be subject to fees. Users can have funds
directly deposited into another banking institution from
Bank of America.<1>
Prepaid Debit Cards
According to a July 2011 report to Congress on
"Government-Administered General-Use Prepaid Cards by the
Board of Governors of the Federal Reserve System," these
cards are used by state and federal governments to replace
the time-consuming and less-precise method of distributing
funds by check or voucher through the mail or in person. In
-------------------------
<1> http://www.edd.ca.gov/about_edd/The_EDD_Debit_Card.htm
STAFF ANALYSIS OF ASSEMBLY BILL 1280 (John A. Pérez)
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most instances, these prepaid cards are used when funds are
not or cannot be deposited directly into beneficiary
accounts at financial institutions. The cards can be used
to provide payments such as Social Security benefits,
veterans' benefits, disability benefits, pensions,
unemployment benefits, worker's compensation, emergency
disaster relief, and child support disbursements. Examples
of federal, state, and local government-funded programs
that use general-use prepaid cards include Social Security;
Temporary Assistance for Needy Families (TANF); Women,
Infants, and Children (WIC); state unemployment; and
court-ordered payments.<2>
However, the prepaid, reloadable cards have been the
subject of controversy for several years over some cards'
charging of excessive fees. Card users have complained that
a lack of protection for theft recovery have meant that
stolen funds are unrecoverable, according to news
articles.<3> Amid many stories of consumers who were
charged repeated fees for making inquiries of
irregularities in their accounts, a 2009 New York Times
article described one consumer's ordeal in this way:
Mr. Saxton said that when he punched the
wrong code into an A.T.M., the bank charged
him $2.95 for a declined A.T.M.
transaction. When he called to complain, he
said, they charged him an additional $1.95.
When someone got hold of his card number
and racked up several hundred dollars in
shortage fees, (the financial institution)
covered the fees with Mr. Saxton's tax
return, which was directly deposited onto
-----------------
<2>
http://www.federalreserve.gov/publications/other-reports/fil
es/government-prepaid-report-201107.pdf
<3>
http://redtape.nbcnews.com/_news/2013/05/15/18255097-surpris
e-prepaid-debit-cards-actually-a-good-deal-for-consumers?lit
e
STAFF ANALYSIS OF ASSEMBLY BILL 1280 (John A. Pérez)
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the card, he said. <4>
In 2012, the Federal Reserve Board issued a request for
comment on its proposed change to "Regulation E," which
governs Electronic Fund Transfers. The rulemaking, as well
as annual reports to Congress, were required by the
Dodd-Frank Wall Street Reform and Consumer Protection Act
of 2010, which among many other protections, require
regulation of general purpose reloadable prepaid cards.
In its comments on the proposed rules, the Bureau of
Consumer Protection of the Federal Trade Commission (FTC),
argued that additional consumer protections were necessary
for general purpose reloadable (GPR) prepaid cards.
Currently, a variety of different payment card
options exist including credit cards, traditional
debit cards, electronic benefits transfers
(EBTs), payroll cards and gift cards that have
some form of federal protections regarding costs
and terms. Although GPR cards are expanding in
usage, consumers who use these cards do not have
similar protections, and they may not realize
that these protections are lacking. In the
discussion below, FTC staff focuses in particular
on four protections that have applied to other
payment cards:
1) Limits on liability for fraud and
unauthorized use;
2) Disclosure requirements for card fees and
expiration dates;
3) Error resolution procedures; and
4) Authorization standards for recurrent
payments.
The FTC, in its role as the nation's consumer protection
agency, noted in its comments that it has brought many law
enforcement actions against those who injure consumers by
-------------------------
<4>
http://www.nytimes.com/2009/10/06/your-money/06prepay.html?p
agewanted=all&_r=1&
STAFF ANALYSIS OF ASSEMBLY BILL 1280 (John A. Pérez)
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engaging in practices that anticompetitive, deceptive or
unfair to consumers. Specifically, it said its regulators
have brought a number of actions against defendants
engaging in unfair or deceptive practices involve the sale
of prepaid cards, including some cases alleging that
companies used plans that violated federal law through
unauthorized recurrent debiting of bank accounts. The
Dodd-Frank Act assigned the FTC new enforcement authority
for payment cards.
Of particular concern to consumer advocates is those cards
that offer an attached line of credit or loan feature that
would cause automatic repayment from the card account.
In its comments to the federal government on the proposed
new rules for prepaid cards, the National Consumer Law
Center cited a number of specific cases in which lenders
used deceptive or unfair banking practices to charge
low-income customers high or recurring fees and
specifically mentioned the need for restrictions on
overdraft fees, deposit insurance and credit features.
Prepaid credit features will undo the elimination
of rent-a-bank payday lending that was laboriously
achieved a decade ago and be much more difficult
to control if left to spread. Prepaid credit
features are already being used to circumvent the
law but it is early enough to nip this trend in
the bud. <5>
Related legislation
AB 2035 (Bradford), Chapter 319, Statutes of 2012, protects
recipients against the loss of EBT benefits that are stolen
electronically.
AB 756 (Mitchell), 2011, would have prohibited fees or
surcharges for EBT cash withdrawal at ATMs, POS machines or
similar cash withdrawal devices.
-------------------------
<5>
http://www.ftc.gov/os/2012/07/120730cfpbstaffcomment.pdf
STAFF ANALYSIS OF ASSEMBLY BILL 1280 (John A. Pérez)
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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.
COMMENTS
This bill provides protections for beneficiaries who use
prepaid debit cards similar to those protections enacted in
federal statute. While there have been some improvements in
lenders' use of fees and other harmful consumer practices
with prepaid cards, the author argues that continued
concern indicates a need to establish protections in this
state for recipients of public benefits.
In order to clarify concerns that current language could be
interpreted to require counties to certify the validity of
qualified accounts and to clarify that this language
conforms with federal rules, the author requests and staff
recommends the following amendments:
1339.1.
(a) Notwithstanding any other provisions of this part, if a
recipient of unemployment compensation benefit payments
elects to receive the payments by direct deposit are
directly deposited to an account of the recipient's choice,
as authorized under the federal Electronic Fund Transfer
Act (15 U.S.C. Sec. 1693 et seq.), the payments may only be
deposited to an account that meets the requirements of a
qualifying account for deposit of public assistance
payments as set forth in Section 11006.2 of the Welfare and
Institutions Code.
(b) A person or entity that issues a prepaid card or
maintains or manages a prepaid card account shall not
accept or facilitate direct deposit of unemployment
compensation benefits to a prepaid card account that is
ineligible under this section.
(c) The department has no obligation to determine whether
an account at the financial institution of the recipient's
STAFF ANALYSIS OF ASSEMBLY BILL 1280 (John A. Pérez)
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choice is a qualifying account, as described in subdivision
(a). For purposes of this section, the department shall not
be held liable for authorizing a direct deposit of
unemployment compensation benefit payments into a prepaid
card account designated by the recipient that does not
comply with paragraph (3) of subdivision (b) of Section
11006.2 of the Welfare and Institutions Code.
11006.2.
(b) (2) Each county treasurer shall make an agreement with
one or more financial institutions participating in the
Automated Clearing House pursuant to the local rules, and
shall, by December 1, 2001, establish a program for the
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 the benefits
into the person's qualifying account at the financial
institution of his or her choice. Each county treasurer has
no obligation to determine whether the account at the
financial institution of the person's choice is a
qualifying account, as defined in paragraph (3).
11006.2.
(b) (5) For purposes of this section, each county treasurer
and county welfare department shall not be held liable for
authorizing a direct deposit of public assistance payments
into a prepaid card account, designated by the person
entitled to receipt of public assistance benefits, that
does not comply with paragraph (3).
(5) (6)
PRIOR VOTES
Assembly Floor: 74 - 0
Assembly Appropriations: 17 - 0
Assembly Human Services: 5 - 2
POSITIONS
Support: National Consumer Law Center (Sponsor)
Western Center on Law and Poverty (Sponsor)
Coalition of California Welfare Rights
STAFF ANALYSIS OF ASSEMBLY BILL 1280 (John A. Pérez)
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Organizations, Inc.
Oppose: None on file
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