California’s Welfare Recipients Lose Millions In Fees Just To Access Their Benefits

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"California’s Welfare Recipients Lose Millions In Fees Just To Access Their Benefits"

Farm Scene Markets Food Stamps

CREDIT: AP

About $19 million in public benefits from California’s welfare program CalWORKS goes not to recipients, but instead to pay their ATM fees for accessing benefits, according to a new report from the California Reinvestment Coalition.

After federal law required that food stamp benefits be distributed through Electronic Benefit Transfer (EBT) cards, many states moved to disburse welfare benefits the same way, including California. Although residents have the right to request that funds be given to them through direct deposit into a bank account, very few do: more than 96 percent of Californians use cards. They are allowed four withdrawals per month, after which they have to pay 80 cents for each withdrawal.

On top of that, many banks and ATM owners charge a fee, usually about $2 to $3 per transaction. Check cashing stores also charge a fee of about 1 to 2 percent of the withdrawal. Nearly a third of ATM transactions were at five banks that all charge for EBT use, and they got more than $9 million in welfare funds through those fees last year.

Given that the average monthly benefit is just $510, or $6,120 a year, these fees can erode benefits quickly.

On top of the money lost to ATM fees, welfare recipients without bank accounts face fees for using prepaid debt cards, money orders, and check cashers to pay bills and make purchases. “We estimate that an additional $6.7 million of the state’s CalWORKs funds is going to pay for these services,” the report notes, which means that $25.7 million in public benefits is lost to financial institutions, all told.

EBT cards also come with few consumer protections: California doesn’t have to reimburse benefits if cards are stolen. They also don’t help recipients build a financial history. But they are lucrative for Xerox, whose subsidiary that is contracted to administer them has a $69 million seven-year contract with three year-long possible extensions.

There are plenty of other ways EBT card users can face fees when using them for either welfare benefits or food stamps. If they make withdrawals or balance inquiries at out of network ATMs, they could face fees that range from 75 cents to $1.50. Most states also allow a charge for replacing cards — in Arizona, recipients get one free replacement a year and then pay $5 each time after that. Customer service calls often also come with fees. JP Morgan, which is contracted to administer EBT cards in 21 states, charges $1.50 per ATM withdrawals after the first one is made each month, $5 to replace a card, 40 cents for balance inquiries, and 50 cents each time a card is declined for insufficient funds.

The move to dole out money through cards has meant other people are similarly faced with fees. The unemployed have had to pay millions of dollars in fees to access their benefits. When the Treasury Department moved to distribute benefits on cards instead of through checks, recipients who couldn’t access direct deposits were hit with fees for withdrawals, account transfers, and bill payments. The problem even plagues workers trying to get their paychecks, as low-wage employers such as Walmart, Taco Bell, and Walgreens have switched from direct deposit and checks to prepaid cards that charge an average $2 fee to withdraw money.

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