The “Preemption Problem” – How TANF Blocking Could Get Out of Hand

It’s been about 15 months since Congress passed a bill that included a requirement that welfare cash assistance (TANF) be blocked at ATMs and point-of-sale devices located in liquor stores, casinos and adult entertainment establishments. The law specified that states submit TANF blocking plans to the federal government by 2014 or be subject to reductions in the program’s block grant assistance.

Last April, the U.S. Department of Health and Human Services sought public to understand the challenges states and vendors may have implementing these plans. EFTA wrote DHHS and the Office of Family Assistance in June. HHS has yet to publish any final rule.

Congress did not invent the TANF blocking idea. As in most cases of federal law making, Congress adopted the approach taken in some states (California notably here). Congress must decide during the legislative process whether to preempt the states from passing stronger (and in many cases different) laws than the federal standard. It’s not the chicken and egg debate, but more of a the ceiling and floor debate. With apologies to Bard William Shakespeare, to preempt or not to preempt, that is the question. In the case of TANF blocking, Congress opted to preempt current and future states laws on TANF blocking. Thus, we have a floor and not a ceiling.

Many state legislatures were already well into their respective sessions when the TANF blocking law was enacted last year. So, state legislative action on TANF blocking was light in 2012 at best. However, 2013 has been a different story. State legislatures have had time to prepare for the issue and may have viewed enacted legislation as an important step in certifying to HHS that a TANF blocking plan indeed does exist. That’s all well and good. But, Houston, we are beginning to see a problem.

Certain states have proposed to expand the scope of the current federal law. This makes compliance and operational execution more and difficult and costly for companies who contract with states to deliver Electronic Benefit Transfer (EBT) cards services. Let’s take the case of Indiana. Last year, Indiana passed a law merely requiring signage at ATMs and POS terminals that cash assistance could be not be drawn at the following locations: liquor stores, race tracks, off-track betting sites, casinos, gun stores, nightclubs, bars and bingo halls.

 Just recently, Gov. Mike Pence signed into law a bill requiring ATM and POS owners, vendors and third party processors to disable access to EBT benefits at these venues or suffer stiffen penalties (possibly even criminal penalties). To make matters more difficult, the Indiana law is giving a very short (and impossible) timeframe to comply with the law (July 1, 2013). One state greatly expanded the scope the banned locales, imposed harsher penalties and gave an impossible compliance timeframe. One state down and 49 more to go.

I’m not predicting Armageddon here. I’m not suggesting that limiting access to public assistance funds at certain locations isn’t a worthy debate. Legislators and businesses providing EBT services to states serving needy individuals need to be active dialogue on what works best and is most cost-effective. Complying with a patch-quilt of state laws is never easy. There’s a solution out there and it’s not in arbitrary deadlines and stiff penalties.

A Landmark Day in Payments-No, not the Sequester

Mandatory budget cuts, known as the sequester, are scheduled to go into effect later today.  While this is dominating the news, another issue of importance to EFTA members also goes into effect.  Beginning today ALL federal benefit payments will be made electronically, as the government will cease to make benefit payments by check.

In December 2010, Treasury adopted a final rule to gradually end the practice of issuing paper checks for federal benefit payments. In May 2011, all people newly applying for benefits had to opt for either direct deposit or Treasury’s recommended prepaid card (DirectExpress®).  Benefit programs at issue here are: Social Security, Supplemental Security Income, Veterans Affairs, Railroad Retirement, Office of Personnel Management and Department of Labor (Black Lung).

Other important federal benefit programs are not affected directly by the Treasury mandate but have already made great strides in eliminating the issuance of paper checks. These are Supplemental Nutrition Assistance Program (SNAP), formerly known as food stamps (Agriculture Department), Temporary Assistance for Needy Families (TANF) (Health and Human Services) and Unemployment Insurance (Labor).

Treasury has established a website that includes more information on the March 1 deadline.

Returning the issue of sequestration, its impact on the financial services industry and EFTA members ought to be minimal. The Federal Reserve, FDIC and OCC are all exempt from budget cuts. Thus, bank examinations and most rule-making should not be impeded.  

Although the Consumer Financial Protection Bureau (CFPB) receives its funding from the Federal Reserve, according to a February 22 article in The Hill newspaper, the CFPB will face cuts of $34M from its $448M budget. On the program front, SNAP and TANF are exempted from automatic cuts but not the Women, Infant & Children (WIC) program.

Sequestration issues could be addressed in March when Congress addresses the continuing resolution to fund the government through the end of the fiscal year (September 30, 2013). Never a dull moment in our nation’s Capitol.

Yet another state is moving to block the access and use of TANF benefits. Oklahoma State Sen. Rob Standridge has introduced a bill that mirrors the 2010 federal law that restricts were TANF EBT benefits can be accessed or used. Commonly called welfare or public assistance, TANF is the federal program that provides cash subsidies to eligible families. The bill would also limit where a range of other state cash programs also delivered on the state EBT card could be accessed.

Like the federal legislation the Oklahoma bill would prohibit TANF EBT benefits in liquor stores, casinos and "[a]ny retail establishment which provides adult-oriented entertainment in which performers disrobe or perform in an unclothed state for entertainment." 

Welfare Fraud: Let's Get the Story Right

By now you’ve probably heard or read the news stories about the use of state Electronic Benefits cards in vice locations like liquor stores, gaming halls, and strip clubs. Bill O’Reilly of Fox News, the New York Post the National Review and influential blogger Michelle Malkin have all weighed in on this misuse of taxpayers’ dollars this week.

Let me say from the start, I think it’s reprehensible that an adult would take money intended to help poor children—to provide clothing, shelter and the necessities of life—and use that cash for their own gratification-booze, broads and bingo.

But to read or see the stories this week you would think that 435 Congressmen, not to mention countless staff in multiple executive agencies, the White House, states, contractors and program regulators neither knew nor cared about what was going on. Nothing could be further from the truth.

The Electronic Funds Transfer Association and its eGovernment Payments Council have worked diligently with various government agencies over an extended period of time to solve this problem. Here’s the backstory you didn’t hear from the media this week:

In December 2011 EFTA and eGPC representatives met with the General Accountability Office to define the problem of misuse of welfare funds and talk about what solutions would be practical in solving it.

In January 2012 eGPC launched a survey of the 50 states to determine the extent of the problem and steps that states had taken to resolve it, since states are empowered by law to administer the electronic benefits programs.

In February 2012 eGPC began work on a white paper, Restricting Access to Tanf Funds at Specific Merchant Locations. Tanf is the acronym for the program that distributes cash subsidies to poverty-stricken families.

Also, in February Congress passed, and the president signed, the Middle Class Tax Relief and Job Creation Act.  Section 4004 of that bill specifically made accessing or using Tanf benefits in liquor stores, casinos or strip clubs illegal.

On April 17 of last year EFTA met with regulators from the Department of Health and Human Services, the federal agency in charge of the Tanf program to discuss how DHHS would work with states to enforce the law. Chairing the meeting was Mark Greenburg, Deputy Assistant Secretary for Policy, Administration for Children and Families. ACF is the branch of DHHS responsible for Tanf.

A week later, EFTA hosted a webinar on the issue to explain to explain the new law and what states could do to comply with it. Mr. Greenburg, who would be in charge of regulating states’ compliance with the law, participated in the webinar, a sign that DHHS considered this a serious regulatory matter.

On April 25, 2011 DHHS published a request for public comment on the new law and how states should go about enforcing it.

Two days later eGPC released Restricting Access to TANF Funds at Specific Merchant Locations.

In May, the eGPC conducted another survey of states, this time to gauge exactly the extent of the problem on a state level.

On June 4, 2012 EFTA, on behalf of itself and its eGovernment Payments Council, responded to DHHS’ request for public comment with a 12-page reply. The comment letter included the results of the May survey of states, technical information, and recommendations on how to best enable compliance with Section 4004.

In addition, scores of interested groups, companies and individuals submitted commentary to DHHS on compliance with Section 4004.

Finally, in July of last year the GAO issued its long-awaited report, Tanf Electronic Benefit Cards: Some States Are Restricting Certain TANF Transactions, but Challenges Remain.

Since then DHHS regulators have been engaged in the federal regulatory process: drafting regulations to ensure compliance with the law, reviewing them, putting them out for public comment one last time, and issuing the final regulations. This isn’t bureaucracy. It is part of our system of getting laws enacted and enforced in a fair, transparent and democratic way. I’m sure enactment of laws is faster and easier in Cuba or China.

So images of pole dancing, cheap liquor and slot machine tendonitis  may make for good copy, but they do very little to inform the debate on welfare fraud. And while most sane people want these tax dollars spent the way Congress intended them, stories of Tanf-financed strip trips do nothing to advance that cause.

Next time one of these stories comes up let’s hope the media takes 20 minutes to dig in and find the real backstory.  

Welfare Card Restrictions Redux

An update on the status of implementing restrictions on where and how EBT payment cards used for the federal/state TANF program, known colloquially as welfare, has been posted at the EFTA's eGovernment Payments Council website, www.electronicbenefitstransfer.org, You can access the information there or by clicking this link.

GAO Weighs in on Congressional Effort to Block Use of Welfare in "Sin" Locations

As followers of PaymentTrends and its sister blog, The Wall, on the website of the eGovernment Payments Council know, EFTA and eGPC have been very active in working with states, transaction processors, the Department of Health and Human Services and the Government Accountability Office on the issue of restricting access and use of TANF, commonly called welfare, payments at businesses inconsistent with the mission of the TANF program.

In its Middle Class Tax Relief and Jobs Creation Act earlier this year, Congress restricted the use of TANF payments, prohibiting their access or use in liquor stores, casinos or adult-entertainment establishments. The GAO launched a study back in December 2011 of the issue. Recently the Office released the results of its study. You can find those results and corresponding analysis over on our sister blog, The Wall, part of the eGPC's website www.electronicbenefitstransfer.org.

May Legislative Roundup

There are a wide variety of legislative and regulatory initiatives in which EFTA is involved this spring. These include a movement to change the Electronic Funds Transfer Act to eliminate the requirement that usage fees be posted on the outside of an ATM. This is a vestigial requirement that has outlived its usefulness as modern ATM technology permits a much more detailed, convenient notice on the ATM screen itself as part of an ATM transaction.

Also on the EFTA legislative and regulatory calendar are regulations governing the restrictions on the use of TANF benefits at liquor stores, casinos and adult-oriented entertainment clubs, cybersecurity and overdraft protection.

In an informal interview Kurt Helwig, EFTA CEO, and Dennis Ambach, the organization's senior director for government relations, discuss prospects and strategies for these issues.

We pick up the interview with a discussion about pending legislation in the Senate and House (S. 3204 and H.R. 4367) that would eliminate the dual ATM notice requirement. Can the bills, now under consideration, become law?

Restricting Access to TANF Benefits

EFTA and its eGovernment Payments Council have provided their comments to the Department of Health and Human Services on the agency's impending rules for restricting access to TANF benefits. To see the EFTA/eGPC comment letter, click here.

eGPC has spent a great deal of time over the last six months on this issue. This included two nationwide surveys, a white paper, and a webinar. Our goal has been to inform the rules-making process so that the rules developed by DHHS actually accomplish the goals of the legislation in such a way that the administration of public funds for eligible households is not adversely affected.

Our fear has been that without a firm understanding of the problem and how public benefits are administered any resulting restrictions on TANF use may be only sporadically effective and could be discriminatory against TANF participants who play by the rules. Compliance with the Section 4004 requirements, as they're called, could also sap valuable resources from the administration of public aid in many states.

We believe that the most effective way to achieve the goals of the Middle Class Tax Relieve and Job Creation Act (Section 4004) is to give states maximum flexibility in developing and managing their own plans that work best for their states and their program participants This is definitely not a situation where one size fits all.

That's how we see it. Check out our comments and let us know if you agree.