ATM fees rip off $19 million from California’s public-assistance recipients

Big banks lifted more than $19 million out of the wallets of poor people in California in 2012, by charging them unnecessarily high fees for withdrawing cash from their EBT [Electronic Benefit Transfer] cards.

That’s the conclusion reached by a just-released study of ATM fees charged to Californians who receive benefits under CalWORKS –the state’s public-assistance system. The study was conducted by the California Reinvestment Coalition [CRC], an organization that advocates for the right of low-income communities and communities of color to have fair and equal access to banking and other financial services.

From what I can see by reading the report, the ATM fee structure is bad on two levels: It nickel-and-dimes economically disadvantaged people out of nickels and dimes that are significant in their monthly budgets. And it constitutes a not-so-subtle form of corporate welfare, in which big banks reap undue profits by transferring public money to their private coffers.

Here’s how it works

In California, individuals who qualify for benefits under TANF [Temporary Assistance for Needy Families] can opt to receive their assistance via an EBT card, and 96.4 percent of them do. The average TANF allotment per family in California is about $510 month.

TANF recipients can use the cards like cash at supermarkets and convenience stores, or the recipient can withdraw cash from the card by using an ATM machine. Some ATMs charge only minimal fees, such as 50 cents per transaction. Some of the biggest banks—namely Bank of America, Wells Fargo, JPMorgan Chase, Rabobank and Union Bank—charge $2,  $3 or even $4 per use. Check cashing stores also charge a fee to withdraw money using EBT cards—usually 1 to percent of the amount withdrawn. [Do the math: For a typical recipient, that can be as much as $5.] The big banks have far more locations than the low-fee outlets, so they are more convenient and therefore are more frequently used by EBT card holders.

Together, these charges totaled over $19.4 million in 2012 going to fees instead of the intended purpose of the benefits.

According to the report:

The amount spent [on ATM fees] in just one month is enough to buy a year of school supplies, estimated at $688, for 2,349 children. In Alameda County alone, families lost $60,000 in CalWORKs funds a month to ATM fees in 2012- enough for over 25,500 round trip bus rides on [public transit]. In Los Angeles County, one month’s worth of ATM fees on EBT cards could cover the co-payment on 90,000 prescriptions.

“For families trying to escape poverty, these fees siphon away money that could be used for school supplies, transportation or medicine,” says Andrea Luquetta, the author of the report. “The current system leads too many people to pay fees just to access the very benefits they need to survive. It is a diversion of taxpayer dollars away from their intended use of supporting families.”

Subtler shenanigans

There’s also a lesser known, behind-the-scenes ripoff that the report doesn’t delve into:  When someone swipes an ATM card—whether it’s a bank card or an EBT card–the machine reads the information on the magnetic strip and knows which bank is the source of the money. If it’s a card from a different bank, Bank A charges Bank B a nominal fee for the money transfer and the cost of communicating. Usually, the charge is 25 cents or so. [This interbank fee is not seen by the customer, and is not part of the visible ATM fee.]

But here’s the twist: In California, all of the CalWORKS money is held by Bank of America. So, if someone goes to a Bank of America ATM to get cash from an EBT card, Bank of America doesn’t have to communicate with any other bank at all. Bank of America handles 12 percent of all EBT withdrawals in the state—making it the largest processor of EBT withdrawals. And yet, the bank is charging the state the interbank fee. Those 25-cent fees add up, too–or should I say subtract?–and it’s all pure profit for Bank of America.


CRC recommends that state and county governments work to increase CalWORKs recipient’s knowledge that they can opt to have their benefits direct-deposited into a bank account, thereby avoiding ATM withdrawal and check-balance fees.

In addition, says CRC, banks should offer inexpensive, safe bank accounts for recipients to receive their benefits via direct deposit without incurring fees, while also building a financial history.

Also, California can and should renegotiate its contract with vendors who provide EBT services so that beneficiaries are not losing money to ATM fees. This outcome is doable, said Luquetta, noting that CitiBank has already agreed to waive its ATM fees for EBT users.

The bottom line—and it’s a big one—is that big banks are reaping free profits by sucking up taxpayers’ dollars via ATM fees on EBT cash withdrawals. The CRC report focuses only on California, but EBT cardholders face similar issues in other states.

It’s another example of the massive, American corporate welfare system that politicians don’t want us to know about, while at the same time deriding public assistance programs and cutting supportive services and financial aid for people who actually need help. Worst of all, this form of corporate welfare is being financed by the poor people it directly affects.