September 11, 1998
Mr. Fred Schack
California Department of Social Services
Program Technology Bureau
744 P Street, MS 14-52
Sacramento, CA 95814
Re: Policy issues in the design of the California electronic benefit transfer system
Dear Mr. Schack:
Consumers Union, San Fernando Valley Neighborhood Legal Services, the Legal Aid Society of San Diego, and the Legal Aid Foundation of Los Angeles write to express key concerns about policy judgments that must be made by the State before it releases its final request for bids for the creation of California’s statewide electronic benefit transfer (EBT) system. The design of the EBT system is of critical importance for the over two million Californians who receive food stamps, since it will deliver food stamp benefits electronically. It is also critically important for California families receiving CalWORKS cash assistance payments. Each county will have the option to deliver these cash payments through EBT.
We urge the State to incorporate these five key elements in the final bid request (the ITP-2 ) for the creation of this new government-sponsored, quasi-banking system for the poorest of the poor:
1) Set strict standards on access locations and fees to guarantee reasonable geographic access to four cash withdrawal transactions without any surcharge or other fee;
2) Adopt a standard for broad language access to customer service that requires at least ten languages in the pre-recorded portion of the customer service phone line;
3) Ask bidders to bid the cost of providing EBT card holders with the same protection after loss or theft of the card and PIN that the private market gives to private debit card holders — that is, no loss to the card holder if the loss of the card is promptly reported, and no more than $50 in losses if the report of loss is delayed;
4) Require the contractor to track and make publicly available direct deposit utilization statistics by bank and by county; and
5) Require the contractor to maintain and consult with a client/advocate Consumer Advisory Council in all phases of the project.
1. Ensure reasonable access to the four free cash withdrawal transactions guaranteed by statute
A. Need for strong standards measuring access to the network of locations where free transactions can be made
The statute requires four free cash withdrawal transactions. These transactions must be available at a wide array of ATMs that can be used without a surcharge. A transaction for which the recipient/consumer must pay a surcharge is not a free transaction.
The network of locations where cash withdrawals can be made without surcharges or other fees must be adequate independent of the availability of other locations that surcharge. The State should develop and use a specific yardstick for measuring adequate geographic access to free locations. We suggest the following yardstick: there must be at least four devices where a cash withdrawal transaction can be made, without a surcharge or other fee on the consumer/recipient, within a maximum of 15 minutes of travel time by foot or by established public transit lines, or within 1.5 miles of the recipient’s residence. A different standard, or criteria for waiver, might be developed for use in sparsely populated rural counties.
B. Need for caps on all fees and surcharges
California law allows fees to be imposed after the first four free transactions. Any fees, including surcharges, imposed upon a recipient/consumer should meet all of these tests:
1) the fee should be reasonable;
2) the fee must not exceed the fee charged to consumers in the private market for similar services; and
3) the fee should be based on the cost of providing the service, not on what the market will bear.
No fees should be permitted to be imposed on recipients unless each fee is specifically identified and justified in the bid. In addition, the level of any allowable fee charged to an EBT consumer/recipient should not exceed the level of the fee for the same service which is charged to the State or county when, under the law and the contract, it is the state or county rather than the recipient who pays the fee.
C. Ease of finding free cash withdrawal locations
A cash withdrawal location is not free if the consumer/recipient must pay a surcharge to use it. All surcharges and other fees for the first four cash withdrawal transactions should be absorbed by the contractor and built into the contract price, since the EBT statute permits fees to be charged to EBT consumers only after the first four cash withdrawal transactions in a month. Welfare and Institutions Code §10072(k); Assembly Committee Analysis of AB 1542, Aug. 4, 1997.
While we believe that the law requires that all fees, including surcharges, be built into the contract price for the first four cash withdrawal transactions, we realize that the State might want to permit access to benefits through additional locations which impose a surcharge. This raises the possibility that EBT consumers may be offered two different ways to withdraw cash: a network of locations for four no-fee, no-surcharge cash withdrawal transactions per month and additional locations that are available only with a surcharge. If some cash access locations will be free while others will surcharge, at least four important conditions must be met:
1) There must be reasonable access to benefits from the network of free locations without regard to the availability of additional, surcharging, locations.
2) It must be easy for EBT consumers to find the places where they can make the four free cash withdrawal transactions per month guaranteed by statute. An EBT consumer must be able to get oral and written information showing the free locations in his or her county at no charge. This information should be available through the customer service telephone line. Brochures listing free locations should also be distributed by the County office and available by mail from the contractor. Consumers should also be able to learn how many free withdrawals they have left by using the customer service phone line.
3) There must be clear, standardized signs at each cash withdrawal site showing whether or not it is a free location. ATMs and other machines that provide the four free cash withdrawal transactions should clearly state “EBT free – first four transactions” or bear some other recognizable sign showing that they are free transaction locations for the first four cash withdrawals.
4) There must be excellent and effective training for EBT consumers/recipients in how to avoid fees. If some devices will be free to the consumer when used for one of the first four cash withdrawals but then add a fee or surcharge for later transactions, this information must be emphasized in the training materials, on the machine signage, and in the on-screen instructions.
2. Use a strong standard for language access for the pre-recorded customer service phone line, requiring at least ten languages for the automated portion of the customer service line
The bid request should define a standard for broad language accessibility for the customer service phone line. At a minimum, the pre-recorded customer service phone line should provide customer service in all languages for which, in any covered county, there are at least 3,000 non-English speaking recipients within a county, 1,000 within a zip code, or 1,500 within two contiguous zip codes that speak that language. This standard comes from the standard now in use for the Medi-Cal managed care program. Today, that standard as applied in Los Angeles County for Medi-Cal yields ten languages: English, Spanish, Armenian, Russian, Cambodian, Chinese, Vietnamese, Farsi, Hmong, and Laotian.
Good language access to customer service is important both for EBT consumers and for retailers. One of the most common reasons for consumers to call the customer service line will be to check the remaining balance in their cash or food stamp accounts before doing the family shopping. Since EBT consumers won’t receive regular account statements, the customer service phone line will be a key way to check balances. The EBT system must allow monolingual consumers to check their balances by phone before going to the store. Not only will this help the consumer, it will also reduce the cost and inconvenience to grocers that is bound to occur if an EBT user who doesn’t know her account balance tries to buy more groceries than the remaining account balance can cover.
We believe that at least six languages are required by the Dymally-Alatorre Bilingual Services Act, and we have expressed in other correspondence our deep concerns about the need for both training materials and customer service to be available in more languages than that minimum. We believe the issue of multi-language accessibility to the telephone automated response line, or ARU, is both the most critical of the language issues, and the least costly to address, since recording the ARU responses in additional languages would be a much smaller, one-time expense than the cost of ongoing multi-lingual operators. The ARU should offer at least pre-recorded language service in a minimum of ten languages.
The absence of a range of languages for the pre-recorded customer service line would expose EBT consumers to an increased risk of theft of benefits and to a loss of financial privacy. To use the telephone ARU, consumers will have to enter their account number and a personal identifier. If only a few languages are offered, more EBT consumers will have to give this highly confidential information to a translator. This compromises consumer financial privacy and exposes the consumer to a risk that the translator could access the account information again later, or the translator could even try to use the account information to steal benefits. This risk would be particularly harmful because federal and state law leaves the risk of theft of benefits by a translator or any other third party entirely on the recipient until the loss is reported.
California law permits EBT to be used for any benefits under the Department’s authority “as long as the recipient has reasonable access to his or her benefits.” Welfare and Institutions Code §10071. The “reasonable access” required by statute will not exist if monolingual consumers will be unable to learn their remaining balance in a cost effective way without giving a third party access to confidential information. We believe that the State’s obligations under the Dymally-Alatorre Act in fact extend beyond pre-recorded multiple language service. However, at the very least, the pre-recorded service should be provided in at least the ten languages in use in the MediCal arena, using a standard that requires a language if there are a significant number of affected persons who speak only that language in a geographic area.
Other state-sponsored programs have recognized the importance of multiple language service. In addition to the wide array of languages available in the Medi-Cal managed care program, the Healthy Families health insurance program prints its pre-enrollment postcard in these ten languages, and also provides telephone service in ten languages. The Medi-Cal for Children/Healthy Families telephone lines can be sampled in all ten languages by calling (800) 880-5305 and (888) 747-1222.
3. Provide a bid option for the bidder to provide to EBT card holders the same protection from loss or theft of benefits that the private market gives to private debit card holders
The law gives an EBT card holder significantly less protection in the event of a lost or stolen card and PIN than either law or practice gives to private debit card holders. If an EBT card holder loses control of the card and PIN, she is responsible for all lost benefits until reporting the loss. By contrast, federal law protects a private debit card holder from any loss above the first $50 if the consumer reports the loss within two business days. Moreover, VISA and Mastercard, the two major debit card issuers, have voluntary policies in place that eliminate even the first $50 in loss if the consumer reports the loss within one day to Mastercard or two days to VISA. For reports made after this time, both debit card companies limit the loss to $50.
We urge the Department to ask bidders to bid the cost of providing loss protection to EBT card holders which is equal to the protection provided to private debit card holders by industry policies in the private market: $0 if reported within two days; $50 if the report comes in after two days. EBT recipients need this protection even more than private debit card holders. A family of three receiving food stamps is receiving only about $180 for a month’s food benefits. The cash EBT recipient is receiving an average grant of only $565 a month in Los Angeles and other urban counties to support a family of three. It makes no public policy sense to expose poor consumers to a level of risk — the loss of all benefits when a thief empties the account before the consumer is even aware of the theft — that has proved unacceptable to consumers in the private debit card market.
The need for strong loss protection for EBT is even greater than the need in the private market because recipients can’t exercise a fundamental choice available to consumers in the private market — to change providers if unhappy with the mix of services, cost, and protection.
Limited loss exposure is a basic marketplace protection for consumers holding private debit cards. The stronger protection was added to debit cards for middle income consumers after a public outcry in the summer of 1997 — without any increase in fees to debit card holders. This new protection in the private market increases the discrepancy between middle-income debit card holders and poorer EBT card holders. The shift in the private market also suggests that the costs to the contractor of providing the added protection may be less than originally feared when the State first resisted federal Regulation E protection for recipients.
We understand that EBT must be cost-effective. It would be a serious missed opportunity, however, not to ask bidders to provide, as a bid option, the cost of loss protection for EBT card holders equal to that provided to other debit card holders by the private market. The State cannot make an informed choice about the cost/benefit equation for equal treatment of EBT consumers with private market debit card consumers if it does not ask bidders to bid this option.
4. Track direct deposit use by financial institution and by county
For cash EBT, a voluntary direct deposit of the benefit amount into a bank account is good for both recipients and the counties. Direct deposit removes the recipient from the EBT system, giving that consumer all the rights and obligations of a bank account holder. Direct deposit also reduces the administrative costs because the county has to make or arrange only one deposit per month per direct deposit recipient.
We recommend that the bid request require the contractor to gather and make publicly available statistical information about the use of direct deposit. The more information gathered about direct deposit, the more effectively the State, counties, advocacy and grass roots organizations will be able to educate EBT consumers about direct deposit and the more effectively all concerned can work to expand the use of direct deposit as a “win-win” option.
We recommend that the EBT contractor be required to report the number of EBT transfers by county and by financial institution on a quarterly and an annual basis. Ideally, for each county using EBT for cash benefits, the report would show the number of cases with direct deposit and the financial institutions to which the direct deposits were made. It would be even better for a breakdown to be prepared by branch, allowing all to see which branches are doing the best job of bringing cash assistance recipients into the banking system. An annual comparison, by zip code, of where recipients live and where they bank would also be data that could inform and improve future attempts to expand banking services of the type that will be used by recipients.
Publicly available periodic reports, by county, about which financial institutions are receiving direct deposits (and for what numbers of recipients) will help the State, federal banking regulators, community advocates, and the banking marketplace determine which products best meet recipients’ needs. Breakdowns by branch and by financial institution would help in evaluating where financial institutions are meeting recipients’ needs, geographically, and where they are not. It would also help financial institutions, counties, and advocates learn of and replicate successful products and effective programs to encourage voluntary use of direct deposit. For example, if a quarterly vendor-prepared “direct deposit report” showed high direct deposit participation with one bank in Los Angeles, but low participation with the same bank in Oakland, this could spark examination of whether the bank offers different products, or more effective marketing, in one area than in another.
Financial institutions covered by the federal Community Reinvestment Act are evaluated by their regulators on whether they are attempting to serve the whole community, including the low income community. Today, these financial institutions sometimes satisfy their regulators by pointing out that they have a low-cost checking account product, even if there is no evidence that poor consumers actually use that product, or that the financial institution markets the account to poor consumers. Publicly available data on which financial institutions recipients are choosing for direct deposit would help federal banking regulators to evaluate the banks’ commitment to design useful products. Such data might also create some competition among banks and thrifts to try to develop products for EBT consumers and to market their products effectively to these consumers.
5. Require a Client/Advocate Consumer Advisory Council
Unanticipated problems are bound to arise in the design, pilot, and implementation of EBT. We encourage the State to continue to seek input from the advocacy community and from recipients, as well as to require the contractor to do so. The State should require the contractor to maintain a “Consumer Advisory Council.” Such a panel should include recipient and advocate representatives from Northern, Central, and Southern California, with a mix of rural and urban members. To promote workability, the total membership would be small, about twelve. Administrative support for the Council would be provided by the State or the contractor. For the initial implementation period, the Consumer Advisory Council should meet monthly. After rollout, quarterly meetings might be sufficient. The meeting locations should rotate throughout the State and the State or vendor should cover the transportation and out-of-pocket costs for recipients in a manner that does not affect their eligibility for aid or create a tax liability. To hold down costs, some meetings could be conducted by telephone conference calls hosted by the contractor.
The contract should require that the contractor provide to and discuss with the Consumer Advisory Council reports on issues such as busy signals; system downtime; problem trend reports; types of inquiries received by the customer help phone line; number and types of complaints received, if any, by the contractor; levels of fees imposed on recipients; and retailer availability. The contractor also should be required to discuss proposed program changes with the Council before proposing them to the State during the rollout phase of the contract. The Council would also bring forward problems in implementation and ideas for improving the program.
The absence of consumer choice in the EBT market heightens the importance of a Consumer Advisory Council. An EBT contract essentially selects a private entity to build and maintain a quasi-banking system for a group of consumers who can’t “vote with their feet” by changing to another contractor. Since the State, not the recipient, chooses the contractor, other steps must be taken to build in consumer/recipient input and feedback. Requiring the contractor to maintain a client/advocate Consumer Advisory Council is one way to build in the customer feedback that should be provided naturally in a well-functioning private market, but that is absent when the State selects the service provider.
There is broad precedent at the state and federal level for the use of consumer advisory committees by governmental entities. For example, the Federal Reserve Board of Governors has a Consumer Advisory Council; the Commissioner of Corporations maintains advisory committees on issues ranging from mortgage banking to managed care; and the Commissioner of Insurance maintains an advisory committee for the California Organized Investment Network (COIN).
The Consumer Advisory Council we propose differs from these committees in that it would be composed solely of actual EBT consumers and recipient and consumer advocates, not of a mix of industry and consumer representatives. The function of a mixed committee is already served by the statutory EBT Committee. In addition, the participating industries will hold some market power in their relationship with the contractor, since the contractor needs retailers to participate and ATM network owners to contract with in order to have a successful system. The market will not, however, provide input and feedback from EBT recipients/consumers. This is a key reason why the contract should require the vendor to maintain a client/advocate Consumer Advisory Council.
EBT presents an opportunity to build a system that will enhance recipient independence by bringing the poorest Californians closer to the economic mainstream. For those who receive benefits, EBT can provide increased flexibility and dignity, even as it improves the State’s and counties’ delivery systems. For CalWORKS recipients moving from assistance to work, EBT services and training on how to use those services can be an additional stepping stone on the path to economic independence.
Building a good EBT system is a tremendous challenge. We look forward to working with the Department to meet that challenge.
Very truly yours,
for Consumers Union of U.S., Inc.
Laura C. Fry
for Legal Aid Foundation of Los Angeles
for Legal Aid Society of San Diego
for San Fernando Valley Neighborhood Legal Services
Mr. George Christie
Mr. Cal Rogers
Mr. Chris Dunham