BILL ANALYSIS �
AB 756
Page 1
Date of Hearing: April 26, 2011
ASSEMBLY COMMITTEE ON HUMAN SERVICES
Jim Beall Jr., Chair
AB 756 (Mitchell) - As Introduced: February 17, 2011
SUBJECT : Electronic Benefits Transfer System
SUMMARY : Makes Automated Teller Machine (ATM) withdrawals or
Point-of-Sale (POS) transactions free of surcharges for welfare
recipients in the California Work Opportunity and Responsibility
to Kids program (CalWORKs) when they use their state-issued
Electronic Benefits Transfer card (EBT card).
1)States that a CalWORKs recipient shall not be charged a
surcharge or similar fee for cash withdrawal transactions at
ATM machines, POS devices, or similar cash withdrawal devices.
2)Specifies that the fee charged for an EBT transaction is a
"transaction fee" and not just a "fee" and also specifies that
the transaction fee is charged by the "electronic benefits
processor."
3)Deletes an expired code section regarding a required
legislative report.
EXISTING LAW :
1)Established a statewide EBT system to administer a recipient's
CalWORKs cash grant and/or CalFresh (formerly known as Food
Stamps) benefit allotment. Welfare & Institutions Code (WIC)
10072
2)Allows, only for CalWORKs cash grant transactions, an
electronics benefit processor to charge a fee after the fourth
transaction but the fee cannot exceed the amount allowed by
applicable state and federal law and customarily charged to
other customers. WIC 10072 (k)
3)States that participating retailers in the EBT system will not
be charged a fee. WIC 10072(j)
FISCAL EFFECT : Unknown
COMMENTS : Electronic Benefit Transfer (EBT) is an electronic
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system that automates the delivery, redemption, and
reconciliation of issued public assistance benefits such as
CalWORKs. EBT is also the method for distributing California
Food Assistance Program, or CalFresh, benefits (formerly known
as Food Stamps and currently known federally as Supplemental
Nutrition Assistance Program (SNAP). EBT is currently used in
all 50 states, the District of Columbia, Puerto Rico, the Virgin
Islands, and Guam. In California, CalWORKs and CalFresh
recipients access their benefits via what has been named the
Golden State Advantage EBT card.
Like a bank-issued ATM card, the cardholder slides this card
through a POS device, or uses the card at an ATM. The card is
convenient, secure, and reduces the stigma sometimes associated
with public assistance. According to the state Office of
Systems Integration (OSI) web site, EBT food and cash aid
benefits can be redeemed at more than 80,000 locations in
California.
Current Law
Under existing law, the electronics benefit processor cannot
charge a recipient a fee for cash transactions until after the
fourth transaction within a month. In California, the
electronic benefits processor contractor is ACS State & Local
Solutions, Inc. (ACS), which holds the contract until 2014. The
statutory fee that ACS is allowed to charge for cash withdrawals
is $.85 but, reportedly, ACS has very few ATMs where those
charges would take place. In contrast, OSI states that ATM
owners such as banks or retailers are permitted to charge
surcharges on EBT transactions at their ATMs. These surcharges
currently range from $1.00 to $3.50 with no requirement that
banks or retailers must forego the first four transactions.
This bill would prohibit all surcharges from being assessed by
ATMs and POS devices or other similar devices where an EBT card
is used.
Purpose of the bill
The Western Center on Law and Poverty (WCLP), the sponsor of
this bill, argues that charging fees to recipients of public
assistance is unfair to the families and hinders their ability
to meet their basic needs. WCLP cites a recent San Francisco
Chronicle article illustrating how much of the public assistance
funding was diverted from families and added to a bank's
earnings.
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WCLP cites that in 2008:
Banks took $8.8 million in ATM fees from CalWORKs
grants, while the same banks were receiving
unprecedented federal bailout funds and instigating a
landslide of housing foreclosures, they increased
their surcharges, making October 2009 a record month
for the amount of CalWORKs funds diverted by big
bankers by breaking the $1 million mark. In 2010,
monthly surcharges were projected to soar over $15
million, a 77% increase since 2008."
WCLP adds that "When electronic benefits were first
implemented in California, many banking institutions
offered surcharge-free ATM access. However, a review
shows that by 2009, 8 of the 17 largest ATM providers
had dropped their surcharge-free access to CalWORKs
funds. Meanwhile, surcharge fees of the largest ATM
networks increased their fees by an average of 47%
from 2007 to 2009. According to a survey conducted by
the California Reinvestment Corporation, all but 3
statewide banks are levying ATM surcharges on
CalWORKs. Some of the banks that refuse to offer
surcharge-free access in California provide it readily
in other states.
The surcharge effect on the "Unbanked"
Studies show that banks rarely locate in low-income
communities, making banking services difficult if not
non-existent to this group. Sometimes referred to as the
"unbanked," low-income families have limited access to conduct
their banking. While banks routinely waive surcharges for
their own customers, EBT cardholders do not automatically enjoy
the privilege of surcharge-free cash access at any banking
institution and must make "foreign" transactions. These
surcharge fees have a negative impact on a low-income
household's net disposable income. For example, according to
the Department of Social Services, a household of three
receives an average CalWORKs grant of $504 per month. This
means that, even if they only make two withdrawals per month
with a $3.00 surcharge for each, over one percent of the grant
goes to banking fees. That amount may not make a difference
for many families, but it is significant when one considers
that, according to the Insight Center for Community Economic
Development, a family of three living in Los Angeles (where
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approximately 1/3 of the CalWORKs caseload resides), in order
to meet its basic needs, requires over $4,000 per month.
Lastly, these monies are being taken out of local communities
and are instead being diverted to banks and other ATM
providers.
Opposition
The California Bankers' Association (CBA), the California
Independent Bankers, and the California Credit Union League
oppose this bill on the basis that the bill's provisions: 1) May
reduce the number of ATMs serving EBT customers; 2) are
inequitable when compared to the transaction fee rules governing
the EBT processor, ACS; and, 3) would be costly toengineer their
ATM machines to block the surcharge should this bill become law.
CBA states that,
By requiring that these EBT transactions be immune to
any fees for service, you may have the perverse effect
of limiting access points. If banks and other ATM
operators cannot charge foreign ATM fees, then EBT
cards may not be accepted at these ATMs. For areas
that already have limited access to financial
institutions and merchants, this can have a
devastating impact on beneficiaries, which we believe
would be the polar opposite of your intent.
In addition, this bill establishes price controls on
financial institutions and ATM network operators to
offset costs the EBT contractor should rightfully
bear. Under current law, transaction fees may be
charged after the fourth transaction per month. This
measure prohibits other businesses from ever charging
a fee for service. This is an inequitable solution
and these issues should rightfully be addressed
through the EBT contractor.
State discourages surcharges
According to the OSI web site, financial institutions are
encouraged by the state to consider waiving surcharges to
CalWORKs recipients as a service to low-income members of the
community. The OSI web site also highlights the benefits of EBT
to financial institutions as: 1) Ability to reach and establish
brand loyalty with future customers that may be seeking a
banking relationship as they move off of public assistance; 2)
card usage will increase at ATMs and the bank will receive a
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competitive interchange fee for each cash withdrawal; and 3)
supporting the EBT program in underdeveloped urban communities
will be positively viewed under the Community Reinvestment Act
services test.
Who charges and who doesn't
OSI also maintains an updated (January 2011) list of "EBT
surcharge-free ATMs" and "Surcharging ATMs." Among the
approximately 50 banks that are surcharge-free are: Citibank,
Wachovia, and Umpqua Bank. The approximately 70 surcharging
banks include Bank of America, Chase, and HSBC, each charging,
as mentioned earlier, surcharges typically ranging between $1.00
and $3.50.
CBA states that "its clients are being squeezed" with regulation
at the federal level, implying that this bill would further
affect its member banks' bottom line. However, the OSI list
clearly indicates that a significant number of banks have made
the decision to offer surcharge-free transactions to EBT users
and engineer their ATM systems to implement the change. Indeed,
CalWORKs recipients are being squeezed as well as the last
several years saw their cash grants cut by 13%, their maximum
time on aid reduced from 60 to 48 months, cost-of-living
adjustment eliminated, and employment and child care services
reduced.
REGISTERED SUPPORT / OPPOSITION :
Support
Western Center on Law and Poverty (sponsor)
California Commission on the Status of Women
California Food Policy Advocates
California Partnership
Catholic Charities of California United
Coalition of California Welfare Rights Organizations
County Welfare Directors' Association
JERICHO
National Association of Social Workers, California Chapter
(NASW-CA)
Opposition
California Bankers Association (CBA)
California Credit Union League
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California Independent Bankers (CIB)
Analysis Prepared by : Frances Chacon / HUM. S. / (916)
319-2089