Profiting at the Expense of the Poor, Electronically

Recently, I was in San Francisco and made a small purchase for about $5.00. While waiting in line, I watched the customer before me use one of the new EBT cards. EBT (Electronic Benefit Transfer) cards have replaced checks and food stamps for that segment of the population receiving government assistance.

The clerk behind the counter asked me whether I wanted to use credit, or debit and I said credit (I hate those pesky ATM fees). Much to my surprise, he put it through as a debit and handed me the PIN pad. I noticed that the amount (taking into consideration sales tax) had increased by $2.00.

When I confronted him, he claimed his command of English wasn't very good. Of course, I demanded a refund (out of principle) and left the store. Interestingly enough, he refunded my money in cash and declined to give me a receipt (which didn't exist).

The reason there was no receipt is that he used a calculator to figure the amount of the purchase. Please note, there was a cash register right in front of him. The only receipt available was from his handy debit card processor, which only accounts for the total dollar amount taken and doesn't break down the transaction.

Pretty handy and makes me suspect he was also skimming sales tax proceeds, which pay for needed government services.

The gentleman with the EBT card was standing near my car so I asked him about the fees. He told me that he gets charged wherever he goes. I mentioned that larger retailers don't charge to use the cards and he informed me that they were too far away and he didn't have a way to get there.

I started to think about it and what amazed me is that someone had just tried to charge me a 40 percent surcharge for using my debit card. Then I reflected on the plight of that poor individual using his EBT card. What was a minor inconvenience to me (I got in my car and drove to a reputable retailer) is something that he is forced to deal on a daily basis.

EBT cards were heralded as a means to reduce fraud and ensure that our tax dollars reached the poor. If they are being charged outrageous fees every time they use the card, it seems to me that this new system isn't helping the poor. Besides paying higher prices at inner city markets, they are getting dinged for a fee every time they use their card.

Alameda County (near San Francisco) has an interesting web page on how people on assistance can avoid surcharges. Please note that it is illegal to add a surcharge on the "food stamp" portion of the card.

A lot of this information is good stuff, but it is unlikely that poor people in inner cities are going to find the places that don't charge the extra fees easy to get to.

Small retailers aren't the only ones profiting from all of this. In fact, most states allow a legal surcharge to administer the cards. This means that certain financial institutions are profiting from processing the transactions. One example of this is Citibank, who contracts nationally to administer EBT. I wonder how profitable this is to their bottom line? At the .53 cents a transaction quoted on the Missouri Poverty at Issue site, it must make a lot of money for them.

Granted, most of this is based on a personal observation, but to me it doesn't seem fair. In fact, it reeks of "welfare reform" gone bad. I wonder how much of our tax money was spent thinking up this program and how many pockets it's lining?

The sad thing is that it probably takes money away from those, who need it the most.

Of course, this happened in California, where welfare reform has been criticized for other abuses. Here is a post, I wrote on that:

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