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Empire Justice Memo on EBT Restriction: Support the Governor’s Article VII Proposal with Added Client Protections

February 28, 2014

 

Governor Cuomo’s 2014-15 Executive Budget proposal includes legislation that would impose new limitations on the use of the cash assistance Electronic Benefits Transfer (EBT) card.  This is intended to comply with recently enacted federal requirements.  Empire Justice Center recognizes the need to respond to changes in federal law, and we generally support the Governor’s approach to doing this, however we have a one critical recommendation, specifically around the penalties imposed on clients, which is outlined below.

We also want to note that we strongly oppose the harsh Senate EBT restriction bill (S.966), which goes far beyond what is required by the federal government and would create a host of significant problems for merchants, cash assistance recipients and other households who have EBT cards but do not receive cash assistance (SNAP, Medicaid and SSI recipients).

The federal legislation simply requires restriction of EBT transactions based on location, not on items purchased.  States do have the ability to block ATMs and point of sale (POS) devices in the prohibited locations, or to prohibit the use of TANF EBT funds at these locations. [1]  However, there is absolutely no requirement to do so.

Article VII Proposal Detail

Part J of the Article VII ELFA bill seeks to amend the Social Services Law to prevent cash EBT transactions at ATMs and point of sale (POS) terminals in liquor stores, casinos, gaming establishments and adult-oriented entertainment venues.

The Executive Budget proposal is being made to comply with Section 4004 of the Middle Class Tax Relief and Job Creation Act of 2012 (Public Law 112-96), which requires states to adopt policies and practices to restrict TANF and MOE EBT access in liquor stores, casinos and adult entertainment venues.  States are required to have an EBT restriction plan in place by February 22, 2014, and to outline their restriction plan to HHS via the state plan amendment process. [2]

The Executive Budget language prohibits use of TANF and Safety Net EBT transactions at the federally mandated locations, as well as at gaming establishments, through a new provision in Social Services Law sec 145-b, and amendments to SSL sec 21-a and sec 151.  These changes codify the federally prohibited transactions as “unauthorized use of public assistance” and carry progressive sanctions and penalties for both recipients and retailers.

For TANF and Safety Net recipients, the new SSL sec 145-d imposes disqualification periods which start at one month for the first offense, a two month sanction for second offense, a 3 month sanction for the third offense and a 6 month sanction for any subsequent offense.  Retailers face a fine for the first offense and potential suspension, cancellation or revocation of their license for any subsequent offense.  Adult entertainment venues also face criminal charges for any violation.  There is an exception carved out for EBT transactions at certain casinos and gaming establishments, including establishments where groceries are sold in the same building and establishments where gaming is incidental to the principal purpose of business.
   
Our understanding is that New York has chosen not to require OTDA to implement a mandatory blocking system because it would be almost impossible to implement and enforce.  The e-Government Payments Council noted that there are significant hurdles to enacting and enforcing EBT access restrictions because of this fundamental challenge: “the merchant categories at which access is being restricted are not controlled or regulated in any way by the agencies charged with enforcing the [EBT restriction] law.” [3]  However, retailers should be able to easily comply with the new law by implementing a voluntary blocking system.  As explained in a New York State Liquor Authority memo:


Licensees can simply request their third party processors to also block the NYS EBT card’s unique Bank Identification Number (BIN), 600486, from being able to complete a transaction in the licensed premises. Third party processors routinely add and block BINs via software updates on a regular basis as part of the service they provide to retail businesses. Most third party processors do so as part of their service agreements. Once blocked, an EBT cardholder would receive the same message that any other customer with a non-participating debit/credit card would receive – “your debit card is not accepted by our system”. The card would simply be declined. [4]


We believe prohibited transactions can and will successfully be prevented through the blocking mechanism.

We oppose the client sanctions portion of the bill.  There is no federal requirement for states to sanction clients.  Moreover, client sanctions disproportionately affect people with disabilities, cause serious financial hardship and are often erroneously imposed.  Client sanctions would unfairly punish individuals who make an honest mistake.  The state could adopt other measures (such as a warning letter or requirement to appear at the agency to explain how the funds were spent) if it is discovered that an individual has redeemed EBT benefits at a prohibited location.
 
The Senate has passed its own EBT restriction bill (S.966), which contains similar restrictions on the use of EBT cards in liquor stores, casinos and adult entertainment facilities – but the bill is much, much harsher.  S.966, known as the Public Assistance Integrity Act, makes it illegal to use any public assistance benefits to purchase alcohol, tobacco or lottery tickets.  The bill defines public assistance benefits as any federal- or state-funded benefits administered through the New York State Office of Temporary and Disability Assistance; meaning not just Family Assistance and Safety Net Assistance, but also the SSI state supplement (as of October 2014).  Client penalties for non-compliance range from a 1 month sanction (1st offense) to permanent disqualification (3rd offense).  

Banning the purchase of specific items like alcohol, tobacco and lottery tickets may sound like it’s an easy thing to do.  In reality, it is extremely challenging to implement, monitor and enforce. [5]  The Senate bill puts the burden on the clients and the merchants to understand the rules.  Checkout clerks in grocery and convenience stores will have to assume the role of “welfare police.”  There are very real possibilities of inadvertent violations and bias in enforcement.  It will also stigmatize welfare and SSI recipients, as well as anyone else who has an EBT card, such as SNAP and Medicaid recipients. 

Recommendation:   

The Assembly should adopt a modified version of the Governor’s EBT bill.  Banning EBT transactions at the same locations as spelled out in the Governor’s bill and encouraging voluntary blocking would bring New York into compliance with federal requirements.  


End Notes:
 [1] See CLASP PowerPoint presentation TANF EBT Access and Restrictions, dated September 10, 2013, at https://peerta.acf.hhs.gov/uploadedFiles/Lower-Basch%20EBT%20Access%20and%20Restrictions(2)-_kf_11_md.pdf
 [2] HHS issued proposed implementing regulations on February 7, 2014, after the Governor’s budget was released.  See http://www.gpo.gov/fdsys/pkg/FR-2014-02-06/pdf/2014-02488.pdf
 [3] See page 7 of the e-Government Payment Council’s report Restricting Access to TANF funds at Specific Merchant Locations at http://www.efta.org/currentissues/BLOCKI~1.PDF
 [4] See NYS State Liquor Authority advisory #2014-3 dated January 28, 2014 at http://www.sla.ny.gov/system/files/Advisory_2014-3_-_EBT_Transactions.pdf
 [5] See http://www.clasp.org/news-room/clips/rooting-out-ebt-fraud-more-complex-than-it-seems  http://www.clasp.org/news-room/clips/maine-struggles-with-welfare-misuse-at-atms