EBT Card Administration Is a Highly Profitable Business
In a 2011 Shriver Brief post, we discussed the new phenomenon of banks profiting off of administering Electronic Benefit Transaction (EBT) cards in public benefit programs such as Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF), and Women, Infants and Children programs (WIC). A recent Government Accountability Institute (GAI) report, “Profits from Poverty: How Food Stamps Benefit Corporations,” provides new data on the massive amount of earnings, as well debatable assertions of unsavory political dealings, with regards to the administration of SNAP benefits.
The Players. The report reveals that only three third-party contractors provide all state SNAP EBT services in the U.S. JP Morgan, the largest contractor, contracts to provide EBT services for 24 states and two U.S. territories. Affiliated Computer Services (ACS) has 15 state contracts, and eFunds Corporation contracts with 10 states and one U.S. territory.
The Earnings. In 2004, 18 out of the 24 states contracting with JP Morgan Chase paid $560,492,596.02 to administer their SNAP EBT programs. New York’s contract with JP Morgan Chase alone was worth $126,394,917.
The Contracts. According to the report, the standard SNAP EBT contract allows the third-party contractor to earn money in five distinct ways. In the first two ways, the state and retailers pay the contractor directly. In the final three ways, the contractor can earn money directly from public benefit program recipients.
- The bulk of a contractor’s profits come from the state payments of between $0.65-$1.45 (depending on the contract) per public benefit recipient enrolled in the program for each month. This fee can be higher if a person is in enrolled in multiple programs at once, but uses one EBT card for all programs.
- Point of Service (POS) machines that process transactions at retailers when beneficiaries use their cards also generate revenue for an EBT contractor. Federal regulations allow only federally authorized retail establishments to accept EBT cards, so states typically rent a POS machine (the machines used to make EBT purchases and transmit the purchasing information) for each authorized retail location and pay a monthly fee to the contractor for use of the machine. As an example, Arizona pays a monthly fee of $14.95 per month per machine.
- ATM fees are the first way that contractors earn money directly from enrollees in benefit programs. As discussed in a recent Shriver Brief post, 88% percent of TANF recipients are subject to transaction fees when accessing their benefits. The most troubling aspect of this ATM fee is that the money is being diverted from poor people to wealthy institutions like JP Morgan Chase.
- Another way that contractors earn money directly from public benefit recipients is through card replacement fees. Replacement fees for lost or stolen cards are typically around $5.
- The final way that contractors earn money from benefit recipients is by charging for customer services phone calls. In New York, for example, benefit recipients are charged $0.25 per customer service phone call.
The Politics. SNAP is administered by the Department of Agriculture; therefore, the House and Senate Agriculture Committees are influential in the SNAP program. The report reveals that JP Morgan Chase significantly increased its political donations to members of both the Senate and House Agriculture Committees since becoming a SNAP EBT service provider. Between 1998 and 2002, JP Morgan Chase’s total contribution per election cycle was $82,897 on average; however, that amount ballooned to an average cycle contribution of $215,120 between 2004 and 2010. The report implies that these political dealings in Washington, D.C., directly affect state contracting decisions, however the report offers no evidence to support this claim.
The report goes onto to argue that JP Morgan Chase bought out President Obama. JP Morgan Chase donated $807,000 to the 2008 Obama campaign, which was substantially more money than was donated to the McCain campaign. The GAI report argues that Obama was thus driven to expand SNAP because he knew it would benefit JP Morgan. While there has been an expansion of SNAP benefits under Obama’s presidency, it seems unlikely that Obama’s social policymaking was motivated by a desire to please JP Morgan Chase. Instead, it is more likely the result of a deep recession in which more families needed the food safety net support that SNAP provides.
Conclusion. People enrolled in SNAP are enrolled because they do not have enough money to pay for food. Is it fair that these essential public benefit funds are being paid to third-party administrators, both by states and recipients? While contracting EBT administration to third-parties theoretically saves states more money than it they were administering EBT services internally, the hundreds of millions of earnings by private entities, including JP Morgan Chase, which received a $12 billion dollar bailout back in 2008, raises the question of whether these fees are reasonable. Are the ATM, lost card, and phone call fees necessary for JP Morgan Chase to meet its bottom-line? Does that bottom-line include large bonuses and profits? These and other questions must be answered in order to determine whether SNAP benefits are unfairly enriching companies at the expense of poor families. And, if so, how do we design a system where benefits actually reach those they are intended for?
This blog post was coauthored by Alex Hoffman.
