BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2013-2014 Regular Session
AB 2252 (Perez)
As Introduced
Hearing Date: June 10, 2014
Fiscal: No
Urgency: No
NR
SUBJECT
Child Support Payments: Electronic Fund Transfer: Qualifying
Accounts
DESCRIPTION
This bill would require that child support payments directly
deposited into an account of the recipient's choice, only be
deposited into a qualifying account, as defined. This bill
would provide that a qualifying account that is also a prepaid
card account must meet specified criteria, including that the
account is held at an insured financial institution, and that
the account is not attached to any credit or overdraft feature
that is automatically repaid from the account after delivery of
the payment.
This bill would also exempt the Department of Child Support
Services from liability for authorizing a direct deposit of
child support payments into an account that does not meet the
requirements of a qualifying account.
BACKGROUND
Existing law provides that a child's parents share equal
responsibility to support the child in a manner suitable to the
child's circumstances. (Fam. Code Sec. 3900.) Child support is
generally awarded when parents do not live together with the
child, and the amount is based on a number of factors, including
the time a child spends with each parent and each parent's
earnings. Child support can either be determined by agreement
of the parents or by court order. In California, the child
support program is administered by the Department of Child
(more)
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Support Services (DCSS), and carried out at the county level.
Recipients of child support may receive payments by check,
direct deposit into a bank account, or by the state's Electronic
Pay Card.
Last year, the Legislature authorized members of the California
Work Opportunity and Responsibility to Kids (CalWORKS) program
to receive monthly payments by electronic funds transfer only
into qualifying accounts. That bill responded to fees and other
penalties recipients had been charged for using various
electronic cards connected to their benefits by extending
important federal consumer protections such as deposit
insurance, safeguards from theft and unauthorized charges, and
prohibitions against overdraft fees and other credit-related
features. This bill would extend those same protections to
persons who choose to receive child support through electronic
fund transfers into qualifying accounts.
CHANGES TO EXISTING LAW
Existing law provides that parents have an equal responsibility
to support a minor child. (Fam. Code Sec. 3900 et seq.)
Existing law requires each county to maintain a local child
support agency responsible for establishing, modifying, and
enforcing child support obligations. (Fam. Code Sec. 17400.)
Existing law establishes the California Child Support Automation
System to provide timely and accurate payment processing and
centralized disbursement from a single location in the state.
(Welf. & Inst. Code Sec. 10080 et seq.)
Existing federal law , the Electronic Funds Transfer Act (EFTA),
provides a basic framework establishing the rights, liabilities,
and responsibilities of participants in electronic fund and
remittance transfer systems. (15 U.S.C. Sec. 1693 et seq.)
This bill would require that child support payments deposited
directly into an account of the recipient's choice, only be
deposited into a "qualifying account."
This bill would define a qualifying account as (1) a demand
deposit or savings account at an insured financial institution
in the name of the person entitled to the receipt of child
support payments, or (2) a prepaid card account that meets all
of the following:
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the account is held at an insured financial institution;
the account is set up to meet the requirements for passthrough
deposit or share insurance so that the funds are eligible for
insurance by the Federal Deposit Insurance Corporation, as
specified;
the account is not attached to any credit or overdraft feature
that is automatically repaid from the account; and
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 the
rules implementing the EFTA or other rules subsequently
adopted under the EFTA that apply to prepaid card accounts.
This bill would prohibit entities that issue prepaid cards or
maintain prepaid card accounts, which do not comply with the
qualifying provisions above, from accepting or facilitating the
direct deposits of child support payments.
This bill would exempt the Department of Social Services from
liability for authorizing a direct deposit of child support
payments into a prepaid card account that is not "qualifying,"
as defined above.
This bill would define the following terms:
"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;
"issuer" means a person or entity that issues a prepaid card;
"payroll card account" shall have the same meaning as that
term is defined in the regulations implementing the EFTA; and
"prepaid card" or "prepaid card account" means either of the
following:
o 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; or
o the same as those terms or related terms are defined
in the regulations adopted under the EFTA regarding
general use reloadable cards.
COMMENT
1.Stated need for the bill
According to the author:
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AB 2252 applies federal consumer protections such as deposit
insurance, safeguards from theft and unauthorized charges, and
prohibitions against overdraft fees and other credit-related
features to the child support payments delivered on electronic
payment cards. In doing so, AB 2252 will ensure children and
families that rely on these payments are not the victims of
fraudulent practices.
2.Better protects recipients of child support from fraudulent
creditor practices
This bill, which would require compliance with the federal
Electronic Funds Transfer Act (EFTA) (15 U.S.C. Sec. 1693 et
seq.), addresses issues related to prepaid, reloadable cards
that have been the subject of some controversy. Many card users
have complained about a lack of protection for theft recovery
and fees charged for making inquiries related to irregularities
in their accounts. Accordingly, this bill would provide that
child support may only be directly deposited into a qualifying
account. Qualifying demand deposit or savings accounts would be
required to be held at an insured financial institution.
Qualifying prepaid card accounts, used mainly when funds cannot
be directly deposited into beneficiary accounts at financial
institutions, would have to be (1) held at an insured financial
institution, (2) not be attached to any credit or overdraft
feature, (3) meet certain federal guidelines for passthrough
insurance, and (4) meet all EFTA requirements. The sponsor of
this bill, the Western Center on Law and Poverty, writes in
support that:
Federal law protects government benefits from being direct
deposited into accounts that lack deposit insurance, do not
comply with protections for electronic payments, or have
credit features that are automatically repaid upon deposit of
the benefits. Just this year, California unanimously passed,
and the Governor signed, legislation to extend these
protections to state funded benefits. However, there are no
similar protections for state-dispensed child support
payments.
The lack of consumer protections for families receiving child
support payments dispensed by DCSS shortchanges California
families with children, some of whom have very low incomes,
and undermines the security of the State's investment in child
support compliance and payment administration. By applying
standards already established in federal and state law for
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similarly dispensed funds issued through Unemployment
Insurance Benefits and the CalWORKS program, AB 2252 will
protect our investments and consumers alike.
3.Exempts Department from liability for authorizing direct
deposit into a non-qualifying account
This bill would provide that the Department of Child Support
Services (DCSS) shall not be liable for authorizing a direct
deposit of child support payments into an account that is not
"qualifying" under the bill. However, under existing law,
government departments are generally immune from suit, so it is
not clear what liability the department is trying to avoid.
(See Gov. Code Sec. 815.) Furthermore, it is not clear what
type of liability DCSS could incur from approving deposit into a
non-qualifying account. Presumably, liability would be limited
to any service fees associated with that account. However,
given that many recipients rely heavily on child support to
provide necessities for minor children, compliance with the
protections extended under this bill are arguably very
important, and relatively easy for DCSS to ensure. The
following amendment would remove the provision exempting DCSS
from liability, thereby promoting full compliance with the
provisions of this bill.
Suggested amendment:
Page 3, strike lines 10-13.
4.Concerns raised by private company
NetSpend, a provider of general purpose reloadable (GPR) prepaid
debit cards, writes that eliminating overdraft protection for
consumers limits consumers' ability to manage their funds and
limits consumer choice. They argue that overdraft protection
should be an "opt-in" and that the services they offer provide
consumers with substantially the same protections as any other
bank-issued debit card. NetSpend writes:
We believe our overdraft program is among the most
consumer-friendly ways for consumers to meet short-term needs.
NetSpend provides its GPR cardholders with the ability to
incur small overdrafts (up to $10) without incurring any fee.
We also offer a Regulation E-compliant optional overdraft
program designed to responsibly meet the need expressed by
some of our cardholders to incur a negative balance on an
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opt-in basis. ? We provide our customer a 24-hour grace period
in which they can repay the overdraft and avoid any fee, and
we do not charge a fee if the overdraft is less than $10.
In response, the author writes, "the State collects and
distributes child support payments - it is not in the business
of converting these payments to payday loans, which is
NetSpend's goal. NetSpend's major partners are pay day loan
companies. NetSpend handles the prepaid card for Advance
America (the biggest payday lender in the country) and their
cards now have the same opt-in overdraft fees available on the
ACE Cash Express and other NetSpend cards. The card can be used
to preauthorize an electronic payment in place of a check to
secure a payday loan. This means that those who use opt in can
be hit with an additional $15 for every payday loan transaction
that is overdrawn. Consumers who overdraft can incur up to $45 a
month in extra fees on NetSpend's payday lender and other
general use reloadable cards and up to $125 per month on
NetSpend's Skylight payroll card. NetSpend focuses on overdraft
as a way to avoid federal law regarding the use of credit cards.
By using overdraft, NetSpend can charge very high fees and
multiple fees. It is the equivalent to providing a short-term,
high-interest, high fee loan - but by calling it overdraft they
can skirt federal lending laws.
Support : American Federation of State, County and Municipal
Employees (AFSCME); National Consumer Law Center; Western Center
on Law and Poverty
Opposition : None Known
HISTORY
Source : Author
Related Pending Legislation : None Known
Prior Legislation :
AB 1280 (J. Perez, Chapter 557, Statutes of 2013) extended
federal consumer protection standards to state benefits
deposited into prepaid card accounts.
AB 2035 (Bradford, Chapter 319, Statutes of 2012) protects
recipients of benefits through the electronic benefits transfer
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(EBT) system from a loss of benefits through the practice of
skimming.
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.
Prior Vote :
Assembly Floor (Ayes 75, Noes 0)
Assembly Human Services Committee (Ayes 7, Noes 0)
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