Oklahoma Plan Implementation of Federal and State laws to Prevent
Use of TANF Benefits in Specified Locations
The federal Middle Class Tax Relief and Job Creation Act of 2012 directs states to take measures to prevent access to TANF (Temporary Assistance to Needy Families) funds at liquor stores, casinos, and adult entertainment facilities and to report those measures by February 2014.
Oklahoma Senate Bill 667, effective July 1, 2013, broadened the federal prohibition to include debit cards and electronic benefit transfer cards that contain state or federal funds from programs including, but not limited to, TANF. This law prohibits use of these funds at:
Casinos and gaming establishments
Retail establishments which provide adult-oriented entertainment in which performers disrobe or perform in an unclothed state for entertainment
Retail establishments whose principal business is selling cigarettes, cigars or tobacco products
This legislation has tasked the Oklahoma Department of Human Services (DHS) with implementing and enforcing a law involving private businesses over which the agency has no regulatory or enforcement authority. The only penalties included in the Oklahoma law are against TANF recipients. State legislators declined to include in the law a prohibition against these businesses from accepting state-issued cards or any penalties. Had the law put the enforcement responsibility on the prohibited businesses, the implementation of the law would have been much faster and would have been less costly for taxpayers.
Despite these challenges, DHS has worked diligently to fulfill this responsibility in a fiscally responsible manner. Learning from other states’ experiences, the agency has incorporated what works best using a phased-in approach. For example, because these laws became effective in the middle of an existing contract period with the state card processor, Xerox, DHS chose not to immediately make extensive system changes estimated to cost in excess of a million dollars.
Instead, DHS started with voluntary cooperation of the businesses, education of TANF clients, and manual monitoring of the restricted locations. The current DHS contract with Xerox to process benefit transactions expires on September 10, 2015. The new contract with Xerox in 2015 will include a line of MasterCard branded debit cards that are restricted by vendor type and a line of cards that are unrestricted. This will enable the blocking of the restricted cards at prohibited locations.
Although DHS was able to avoid more costly changes by negotiating new contract provisions, this solution will still be expensive as it involves manual and electronic monitoring and programming by the state card processor. Early estimates are that it may cost DHS $10,000 more a month for these services.
To restrict the use of TANF cards far more cheaply and without spending more taxpayer dollars for vendor services, DHS will continue to advocate for a law preventing the prohibited businesses from accepting cards with TANF funds. Liquor stores, bars, casinos and adult entertainment clubs already are required to turn away minors and face penalties if they do not. Refusing to swipe a TANF card should be no different.
Scope of the problem
In order to craft solutions appropriate to the problem it is important to understand the scope of the issue. In the State of California, one of the first states to restrict benefit access at prohibited locations, reports showed less than one-tenth of one percent of ATM benefit withdrawals were occurring at adult entertainment businesses.
The State of Colorado, which has had an access restriction program in place for some time, reports that approximately three-tenths of one percent of ATM benefit access transactions are initiated in casinos.
Because Oklahoma is in the process of establishing these restrictions, DHS uses other state’s experiences to estimate the scope of the issue.
For example: Oklahoma’s TANF cash payments from December 1, 2013 through November 30, 2014 total $19,411,729.32. Three tenths of one percent is $58,235.19. The estimated cost for electronic and manual monitoring and programming will be approximately $120,000.00 per year, paid by DHS.
So the number of transactions that will be affected by the state and federal restrictions is relatively small, given the scope of the benefit programs. The cost of compliance solutions should also be taken into account when examining this issue.
Enforcement Challenges Nationally
In many other states where human services agencies are responsible for enforcing restricted access to TANF benefits, the directors report challenges identifying the prohibited businesses for monitoring compliance with the law. For example, liquor stores on a state level are typically licensed or monitored by some sort of alcoholic beverage commission, not by a department of human services. In many states, a state official’s only way of locating these businesses is the Yellow Pages.
In addition, the ATMs in these locations may or may not be owned by the liquor store or casino owner. It is common practice for owners of small ATMs, the kind used primarily to dispense cash, to move the machines around from location to location for various business reasons.
The blending of merchant categories, the reuse of terminal IDs on ATMs and the movement of terminals from one location to another all make enforcement of restriction laws a highly subjective, manual process for the state officials called on to enforce the law.
The following flow chart details the level of complexity involved in attempting to block EBT (Electronic Benefit Transfer) or state-issued debit cards from specific merchant classifications or locations.
Another issue state directors raised is the categories of prohibited businesses all offer low-wage employment, such as clerks, janitors and servers. It is not beyond possibility that these workers might receive various forms of public assistance. However, federal and state laws restrict their access to those funds though ATMs on the premises where they work.
Perhaps the biggest state challenge to enforcement is the fact that those responsible for enforcement—state departments of social or human services—have no enforcement mechanism over any of the categories of prohibited businesses. Even if they knew exactly where TANF benefits were being spent, department officials would have nothing to compel those businesses to deny access or use of TANF funds.
Some have suggested that enforcement of the law at a state level should be the responsibility of whatever state agency is responsible for licensing that category of business. For example, an alcoholic beverage commission should be responsible for overseeing enforcement of the ban at liquor stores that the commission regulates. A gaming commission would be responsible for enforcement at casinos, bingo parlors and similar gaming businesses.
However, this solution would require additional legislation on the state level. This type of legislation would be subject to attack by lobbying groups representing these industries.
In addition to the fact state human services agencies have no regulatory authority over gaming establishments program managers in other states have reported two other significant problems restricting access at casinos. The first is that casinos located on, and operated by, Independent Tribal Organizations have sovereignty over gaming operations on their land. The second is that in many rural areas, including tribal lands, there are no banks or independent ATMs. The closest ATMs in these cases are those located in casinos operated by tribes.
Xerox assisted the California Department of Social Services (CDSS) and the Office of Systems Integration (OSI) in complying with their 2010 Executive Order and identified challenges with meeting requirements of the Federal Act. After this experience, Xerox shared some the lessons learned with other states contracting with Xerox for their electronic payment systems.
Xerox can block access of state-issued cards at inappropriate locations. A point to consider is that once cash is accessed at an allowed ATM or POS location through a cash back with purchase transaction, there is no way to determine how these dollars are spent. Theoretically, a cardholder may withdraw cash at a gas station or bank, for example, and then use these funds at a casino, at a liquor store, or at an adult entertainment venue.
Xerox also learned, for ATMs, no reliable identifier exists to identify the business category of a location where an ATM has been placed. Research revealed that most ATMs are identified with a Merchant Category Code (MCC) of Financial Institutions. For this reason, inappropriate locations are identified by:
Location name (part of transaction record) – a manual, time-consuming process. This is mostly an intuitive, thus, not a reliable process.
Location address (part of transaction record) – to the extent possible, a list of addresses for the inappropriate locations (primarily adult entertainment venues and casinos) has been obtained from the Internet. This list is manually compared to a given month’s ATM activity report in an effort to identify inappropriate locations. This is also not reliable, as it depends on accuracy of addresses posted on the Internet and, if an address is in a strip mall and a location name is not clear, it is difficult to identify.
The whole process is labor intensive and time consuming, mainly because there is little opportunity for automation as the Regulation E information attached to a transaction (source of location name and address information in the monthly ATM Activity Report) contains spelling errors and/or inconsistent abbreviations of location name, address, and/or city name. Additionally, some records contain ATM owner name in the location name field, making it impossible to identify location type by name.
It should be noted, however, the Xerox process has been relatively successful. Although Xerox reports it is impossible with the current strategy to restrict access at 100 percent of all inappropriate locations in each category, their process has very few instances where a location not identified by Xerox has been cited by the state as a location that should have been blocked.
Since March 2007, Oklahoma’s DHS has issued cash assistance benefits through an Electronic Payment Card (EPC), namely debit MasterCard, or by direct deposit into clients’ bank accounts. Switching from mailing paper checks to putting cash benefits on a MasterCard debit card has saved the state of Oklahoma millions in administrative costs as well as lost benefits and fraud. The cash benefits on the debit card includes: TANF, foster care payments, adoption subsidy payments, State Supplemental Payments, and child support. Due to banking regulations (Regulation E) and state privacy laws, DHS has been unable to track transactional usage of this card at targeted business locations except on a very limited basis. (See Differences between EPC and EBT systems).
When the federal and state laws were passed to restrict use of TANF and other funds at prohibited locations, DHS was tasked with enforcing those restrictions. One of the issues the agency immediately encountered, as had other states, was that non-restricted funds, namely child support payments, were on the same debit MasterCard. Child Support is collected by DHS on behalf of custodial parents but is not considered state assistance and not subject to the state or federal restrictions on TANF.
Another problem was the cost of enacting immediate change. The state and federal laws became effective in the middle of an existing contract with the state’s electronic payment processor, Xerox. DHS would have had to pay XEROX to issue a separate card for the restricted funds, institute extensive systems changes, and perform manual and electronic monitoring to block the use of those cards. Since none of these actions were included in the existing contract with Xerox, the cost to DHS and taxpayers would have exceeded a million dollars.
Instead, DHS chose a more fiscally responsible approach beginning with voluntary cooperation of the businesses, education of TANF clients, and manual monitoring of the restricted locations. Several other states had already proven successful with voluntary compliance of prohibited vendors.
DHS Adult and Family Services (AFS) and Financial Services Electronic Payment Systems (EPS) Unit staff moved forward with a plan to restrict access to the Oklahoma debit MasterCard for TANF funds. The plan included a two-prong, phased-in approach in dealing with prohibited businesses, client notifications and expectations, as well as electronic blocking of the cards at targeted locations.
In October, 2013, DHS EPS staff requested a list of all identifiable prohibited businesses from the Oklahoma Tax Commission (OTC). In December 2013, OTC provided a list to DHS containing over 4,000 business entities. The list of names included many non-restricted businesses. In less than one month, DHS EPS staff performed exhaustive manual reviews of the 4,000 businesses to remove those that were not restricted by the law.
This manual effort proved challenging as many business names did not indicate the true nature of their services. The keyword search was imperfect at best. For example, some of the convenience store names did not indicate the store was connected to or operated by a casino. Or a business with the word “smoke shop” turned out to be a barbeque restaurant. EPS staff eventually narrowed the list down to 2,151 Oklahoma businesses that were prohibited by law.
In January, 2014, DHS sent letters to the prohibited businesses (2,151 letters) advising them of federal law and state statutes restricting where TANF cash assistance cards may be used and informing them the products or services offered by their businesses must be restricted. The letter recommended the businesses contact their debit card processor to request the Oklahoma MasterCard bank identification number (BIN) be blocked in all credit card and automated teller machines (ATMs) at their business location. With the letter, businesses were also sent a sign to post for education of their cashiers and customers that the business does not accept this particular Oklahoma MasterCard. The sign shows a picture of the Oklahoma debit MasterCard and states: "We do not accept this card. State and federal laws prohibit use of this card at this location." Reminder letters were sent every other month to businesses that continued to accept the cards.
However, since there were no regulatory requirements for or penalties against the prohibited businesses for accepting the state MasterCard debit card, DHS could only request their voluntary compliance.
DHS requested Xerox provide a list of businesses each month where the Oklahoma debit MasterCard was used. EPS staff members have been manually monitoring that list and comparing it to the OTC list to look for prohibited businesses that continue to accept the Oklahoma debit MasterCard. DHS has continued to send reminders to businesses requesting their compliance.
Many of the businesses voluntarily stopped accepting the debit MasterCard. Some of the businesses even contacted their debit card processor which handles transactions for Point of Sale (POS) machines, and requested the debit MasterCard be automatically blocked. Unfortunately, the card processors reported to the businesses that their POS machines did not have these programming capabilities and could not block specific cards.
The table below shows the results of the voluntary compliance effort. In the “New” column are the numbers of letters sent to vendors suspected of being in a prohibited category. If a future transaction was recorded for that vendor, another letter warning of the law was sent. While no transactions were blocked electronically at that time, by the declining numbers of state debit card usage at the prohibited locations, the education of TANF recipients as well as the voluntary compliance of the businesses seems to have been effective, with just a few problem vendors.
|January||2151|| || || |
|February||508||565|| || |
|April ||16||23||31|| |
TANF recipient notifications and penalties:
As part of the compliance plan, DHS Adult and Family Services:
Sent a special notice to TANF recipients on January 22, 2014 informing them it is illegal to use the TANF benefit on their Oklahoma debit MasterCard in the prohibited locations and if they do so, they may be subject to penalties (6,440 letters sent);
Is modifying the certification notice sent to TANF applicants upon approval for TANF benefits to include the warning not to use TANF funds in prohibited business locations;
Is modifying the comprehensive benefit application to include the following statement: "I understand that I may not use my cash benefit card at any liquor store, gambling casino or gaming establishment, or retail establishment which provides adult-oriented entertainment in which performers disrobe or perform in an unclothed state or whose principal business is that of selling cigarettes, cigar, or tobacco products;"
Is placing posters in DHS county office lobbies informing everyone of the prohibition; and
Is requesting Xerox add information about the prohibition to the information they send clients when new or replacement debit MasterCards are issued.
In 2014, the Oklahoma Legislature passed an amendment to the law which imposes penalties if a client uses the debit card containing TANF benefits in a prohibited location. Those penalties are as follows:
25 percent reduction in TANF cash assistance for three months for the first violation,
35 percent reduction for six months for a second violation,
50 percent reduction for 12 months for a third violation, and;
Removal of the adult from the TANF benefit for a fourth or subsequent violation.
The law went into effect November 1, 2014. DHS is implementing TANF rule changes to include these penalties. Clients will receive notice of adverse action
before case closure informing them of their legal right to an appeal of the penalty and the procedure to request the appeal.
Differences between Electronic Benefits Transfer (EBT) and Electronic Payment Card (EPC) systems
Oklahoma uses an EBT system for SNAP (Supplemental Nutrition Assistance Program) and Child Care Subsidy benefits. Both of these benefits are on the same card that can only be used at federally approved Food and Nutrition Services (FNS) grocery retailers and at Oklahoma licensed and approved child care centers.
This EBT system requires merchants and child care centers to have special machines for customers to use their card and benefits. All other cash benefit programs in Oklahoma are on an EPC, the MasterCard branded debit card, or directly deposited into a client’s personal bank account.
The differences between EBT and EPC systems are:
Only used at certain merchants
Only used at selected ATMs
Vendors are paid in arrears after accepting cards
States can view individual transactions
Clients pay fees after some free transactions
State pays fees associated with each card per case month
EPC (debit cards)
Accepted anywhere the branded card is accepted
Money available to client when funds sent to the payment contractor
States cannot view individual transactions because of privacy laws and banking regulations
Clients pay fees after some free transactions
No cost to the state for cards or transactions
Reduces the stigma associated with being recognized as being on public assistance
Offer consumer protection to clients for funds on the cards
Some of the information in this document was obtained from the eGovernment Payments Council, “Restricting Access to TANF Funds at Specific Merchant Locations: The experience of State EBT Directors in restricting benefits”, and the Xerox Corporation white paper “Restricting TANF Benefit Use”.
ABOUT THE EGOVERNMENT PAYMENTS COUNCIL
The eGovernment Payments Council is an association of public and private sector professionals involved in the design, development and operation of payment systems that deliver government benefits or payments to consumers.
The mission of eGPC is to inspire and promote business practices favorable to the adoption of government-driven electronic payment systems. It does this through collaboration, cooperation and inclusion in its meetings, teleconferences, white papers, task forces and an annual conference.
The eGPC is a service of the Electronic Funds Transfer Association, the nation’s leading inter-industry professional association promoting the adoption of electronic payment systems and commerce.