Dollars and Censure

Last week concluded “Financial Capability Month,” an Obama administration effort affirming a national commitment to “equipping individuals with the knowledge and protections necessary to secure a stable financial future for themselves and their families.”

A fundamental element of financial capability is financial access. And, as the issuers of benefits to millions of Americans without a traditional bank account, federal and state governments provide this point of access through a range of products and tools. For its part, the Treasury Department unveiled a new app for people using the Direct Express card—the government-issued MasterCard debit card used to distribute Social Security to the 5.5 million recipients without a bank account. The app allows users to check their balances, view transactions, and find ATMs using their smartphones.

Arkansas, however, opted out of the festivities.

The very same day as the Treasury’s announcement, the Arkansas Legislature moved to establish unprecedented restrictions on their state’s own government-issued benefit card, which is used to disburse cash assistance under the Temporary Assistance for Needy Families (TANF) program. Under an amendment to HB 1017, Arkansas’ TANF households would no longer be able to withdraw cash with their Electronic Benefit Transfer (EBT) card at any ATM. Instead, they would only be permitted to use their EBT cards to pay directly for a short list of necessities, including food, housing, clothing, utilities, and childcare.

The ATM restrictions themselves clearly fly in the face of “financial capability,” reveal some fundamental misunderstandings about both daily financial needs and how EBT cards work, and mean Arkansas’s poorest families will be out of luck if they need to access cash in an emergency. All of that is problematic. But the incongruence here—between the actions taken by the Treasury and Arkansas—is not only troubling, but also reflective of a pattern pervasive in the delivery of government benefits. A consumer-friendly approach to disbursing government assistance is reserved exclusively for higher-income populations; for people in poverty, benefits come laden with punitive rules and restrictions that undermine financial access and inclusion.

This phenomenon has been described by some as “two-tier welfare”: universal programs, including Social Security and Unemployment Insurance, come with less red tape and less intentional stigma than programs that target low-income families. The less well-off one is, the more intrusions and indignities one has to endure to get what is generally a paltry—and ever dwindling—amount of assistance.

In Arkansas, a mom and two children who qualify for TANF receive only $204 per month, or around 12 percent of the poverty line—one of the lowest benefit levels nationwide. In the words of State Sen. Joyce Elliot, who is opposed to the amendment, it’s “a small amount of money to help people with big needs.” And in exchange for being underserved, these families are expected to over-deliver. TANF households in Arkansas are required to work or volunteer for 35 hours per week—well above the federal requirement of 20 hours.

Also disconcerting is that while benefit levels keep dropping, new rules and unnecessary costs make this meager assistance harder to access. When electronic payment methods—a significant improvement over paper checks—were first introduced for TANF in the nineties, the shift signaled a tacit understanding that it should be easy for all households to participate in the economy and conduct basic financial transactions. This was a step in the right direction. Yet over the past two decades, the contrast between the products and policies governing TANF disbursement, as opposed to benefits that go to higher-income households, has become increasingly stark. Despite commonly being referred to as “just like a debit card,” EBT cards, the default method of distributing TANF in most states, are often accompanied by significant fees, limited functionality, and inadequate consumer protections. Even if TANF recipients have their own bank accounts, having their assistance directly deposited to those accounts is not always an option, despite the fact that it could provide access to a broader fee-free ATM network and better support the transition to full employment and financial independence.

In contrast, for Unemployment Insurance the Department of Labor has recommended “payment of benefits by direct deposit rather than debit cards for individuals with bank accounts,” and urged states to “offer the opportunity to elect direct deposit as soon as possible during the claims process.” Whereas TANF recipients are defaulted into subpar financial products, the default for unemployment is the method that would provide recipients with the greatest ease and control over their funds. Similarly, rather than equipping TANF households with the tools to find fee-free ATMs, à la the Direct Express app, federal policy has vastly curtailed the number of ATMs available to EBT users, and states have used this as an excuse to enact even wider-ranging restrictions.

The good news is that Arkansas’s proposed prohibition on ATM withdrawals, despite an endorsement by the Joint Budget Committee on Tuesday, is highly unlikely to withstand federal scrutiny even if it does make it into state law. Under new guidance published by the Administration on Children and Families the day before these new restrictions were proposed, states must “minimize or eliminate restrictions on the frequency or number of cash withdrawals and the amount that a recipient may withdraw at any one time.” When Kansas tried something nearly as egregious last year—limiting TANF households to withdrawing $25 per day, conventional ATM logistics aside—the federal government shut it down, noting that it would prevent households from having adequate access to their cash assistance, as required by federal law. Arkansas legislators have stated that they’ll apply for a waiver from the federal government to move forward with their plan—but on what basis remains unclear.

More encouragingly, there’s been some progress at the state and local levels in terms of boosting fee-free ATM access, consumer protections, and indeed, “financial capability.” In California, advocates have succeeded in strengthening consumer protections for EBT cards, and more recently, secured a new EBT contract that will give households access to a broader surcharge-free ATM network. Pilots in Pennsylvania and Washington State have sought to connect TANF households with free or low-cost bank accounts and financial coaching, as part of an overall strategy to support the transition to full employment.

Advocates have called the amendment “part of a continued attack on the poor” by the Arkansas Legislature, which mere weeks ago imposed a drug-testing requirement on TANF households, despite overwhelming evidence from other states that this is a massive waste of taxpayer money. And they’re right. Rather than taking advantage of an opportunity to promote “financial capability,” legislators are aiming to strip Arkansas’ lowest-income households of any ability to conduct basic transactions. As “Financial Capability Month” makes clear, there’s no confusion about what we all need—safe, affordable financial products and adequate consumer protections—to successfully participate in the economy. The government has shown its capacity to leverage the safety net to connect certain underserved households with the tools and products to meet that need. Extending that commitment to everyone, rather than singling out the lowest-income households with patronizing and counterproductive policies, would go a long way towards fulfilling President Obama’s stated goal of ensuring “every American has the tools they need to get ahead and contribute to our country's success.”