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---




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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  





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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.





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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  





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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.






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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  





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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  





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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






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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







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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&






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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




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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  





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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  





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          Organizations, Inc.

          Oppose:   None on file






                                   -- END --