Thursday, December 6, 2018

Has the Community Reinvestment Act outlived its usefulness in the 21st century

Has the more-than-40-year-old Community Reinvestment Act outlived its usefulness. Congress authorized the CRA in 1977, at a time when the banking landscape was far different than it is today.

An article in the December 3, 2018 American Banker by Diego Zuluage of the Cato Institute’s Center for Monetary and Financial Alternatives examines this question.

The Office of the Comptroller of the Currency has initiated a study of the CRA. One issue that bears review is the degree to which the CRA in the world of 21st century banking can accomplish the goal that Congress set for it in 1977 .

The CRA mandates that banks make credit available in the communities in which they take deposits. The laudable goal of the law is that banks serve historically underserved low and moderate-income communities.

The law fails to guide regulators on exactly how to to encourage such lending. It done not address, for example, sanctions, fines or threats of charter-revocation. It does allow regulators to block bank expansion including mergers, so much a part of the new banking landscape. One of those regulators, the Federal Deposit Insurance Corporation, back when the CRA made its way through Congress, oversaw 14,000 banks, but now supervises about 5,000. This attrition, to a great extent is due to bank mergers. 

For 4 decades the CRA has provided guidance for regulators on assessing how well banks have met their CRA obligations. However, although we live in a metrics-driven world now, 40 years ago Congress failed to provide guidance on how to measure CRA performance.

Another important issue raised by Zuluage is whether the CRA’s 40-year-old goal could have contributed to the 2008 financial crisis. He posits that the crisis illustrate that for many financial vulnerable households the problem was not so much a lack of mortgage credit as it was too much easy credit. 

Thursday, November 29, 2018

Medicare for All

The first rule of business that I learned in a thirty year career was that if something seems too good to be true, it probably is.

The Democrat party did a masterful job this past mid-term election of reshaping the electoral dialogue around healthcare, a strong issue for them and a weak point for their Republican adversaries. 

On this issue, some key Democrat politicians have been beating the drum for “Medicare for All” attempting to capitalize politically on the fact that in the five years since the party passed the Affordable Care Act, health insurance premiums have doubled for individuals and increased 140 percent for families. At the same time deductibles have also risen.

As care providers continue to escape the Affordable Care  Act (aka Obamacare), 3/4 of insurance plans are now highly restrictive. Many of those providers who have yet to flee Obamacare have consolidated their practices, as conservatives predicted they would, further restricting access to healthcare and raising consumer costs as fewer providers compete for the same customers.

To clean up the mess they have created, some Democrats believe the solution may be to enroll every man, woman and child in America in Medicare. By most estimates the cost of this free healthcare will be north of 30 trillion dollars. The tab in one state alone, California, is estimated at 400 billion dollars.

Beyond the cost issue, Americans will confront the same quality of care issues that have faced citizens of other countries that thought they could nationalize healthcare without any adverse effects including long waits for service.

What remains to be seen is how Americans, not a people known for their patience or willingness to take the long view on policy issues, will react to long lines and waits for service. 

To clean up the mess they have created, some Democrats believe the solution may be to enroll every man, woman and child in America in Medicare. By most estimates the cost of this free healthcare will be north of 30 trillion dollars. The tab in one state alone, California is estimated at 400 billion dollars.

For a dispassionate view of what is also called single payer healthcare, I commend to you “The False Promise of ‘Medicare for All’”, an opinion piece by Scott W. Atlas, that ran in the November 13 issue of the Wall Street Journal

Tuesday, November 27, 2018


At last month’s  EBT-The Next Generation conference, sponsored by the Electronic Government Payments Council, I was honored along with my colleague, John Pfeuffer of Conduent State and Local Solutions to present the Council’s 2018 Leadership Award to Art Burger, the President and CEO of Burger Carroll and Associates. ( What follows is a summary of our comments while making the award to Art.

BCA is a national public sector information technology consultancy based in Santa Fe, New Mexico. Some 100 Federal, State, Territorial and Tribal government agencies have consulted with BCA.

BCA is a charter member of the Council. Art has served as the Council’s chairman as well as chairing a number of its work groups and committees.

Perhaps more than any other EBT professional, Art has been responsible for the successful adoption of EBT technology by state- managed Woman, Infants and Children nutrition programs.

In addition to advising WIC state agencies on EBT technology he was instrumental in explaining to the EBT industry what a WIC EBT transaction would look like.

He also brought WIC-facing organizations into the Council to help speed the migration of EBT technology to the WIC program, one of the most efficient federal programs, in terms of outcomes.

In addition to helping birth the technology of WIC EBT, Art is a master at understanding the public policy and funding issues of WIC and EBT.

Perhaps his crowning achievement came when he met with a team of Congressional aides and explained the many benefits of WIC EBT. More than anyone else Art Burger was responsible for Congress agreeing to fund the conversion of state WIC programs to EBT.  This culminated in a Congress mandating that all state must adopt EBT technology for their WIC programs by 2020.

An accomplished and trained debater, he demonstrated for Congress the absurdity of the paper-based system that WIC programs used prior to EBT by showing the congressional representatives a fistful of more that 30 paper vouchers that a typical WIC shopper would have to negotiate each time she shopped with WIC benefits.

This time-consuming process in the grocery store or supermarket slowed throughput at the cash register lines and contributed to higher food costs.

Today, because of Art’s effort, WIC EBT enjoys widespread support within Congress and the food retailing communities

Friday, November 16, 2018

The War on Poverty

The War on Poverty

An opinion piece in the October 11 Wall Street Journal entitled “Government Can’t Rescue the Poor” authored by Phil Gramm and John F. Early traced the effectiveness of the so-called War on Poverty from its inception in the mid-1960s to the current day.

Messrs Gramm and Early state that in the 20 years prior to 1966, without the massive spending that was soon to follow the poverty rate dropped from more than 32 percent to less than 15.

The authors point out that since 1966, the first year with a significant increase in anti-poverty spending, the rate of poverty has been virtually unchanged, according to the Census Bureau.

The Census Bureau classifies as poor everyone in families whose incomes are lower than the
the established thresholds for their respective family size and composition.

The Census Bureau has said that in 2016 nearly 13 percent of Americans lived in poverty.

Gramm and Early also note that it is not possible to reconcile this rate, which has remained virtually unchanged over the last 50 years, with the fact that government-transfer payments to lower income families have risen steadily.

According to the authors’ research, from 1965 to 2016 the value of transfer payments in real dollars targeted to low-income families has increased from about 3,000 to 34,000 dollars.

Gramm and Early conclude that even given the magnitude of this increase, the numbers fail to reflect the true growth in transfer payments to low-income families since they exclude Medicare and Social Security which help subsidize low-Income retirees in the bottom quintile of earners.

They postulate that the lowest quintile of earners can receive as much as 10 times the lifetime benefits received by the top fifth of earners.

The stasis in the poverty rate according to the authors is due to the fact that since the start of the War on Poverty the Census Bureau has not counted transfer payments as income. The Bureau measures poverty using what it refers to as “money income”

Money income includes earned income and payments like Social Security and unemployment insurance which a person receives as a result of having been employed. Excluded in the calculation are transfer payments like SNAP (formerly known as food stamps), Medicaid, CHIP (The Children’s Health Insurance Program) and nearly 90 other means-tested federal payments and most state means-tested assistance programs.

Gramm and Early opine that these uncounted transfer-payments amount to some 1.5 trillion. And that  if the government were to count them as income, the true poverty rate today would be below 3 percent.

The 3 percent rate would drop even further if the Census Bureau included as income the estimated 500 billion in private charitable donations given to the poorest Americans.

Gramm and Early write that system of transfer-payments has failed to accomplish the goal of the War on Poverty as stated by the president who launched the War, Lyndon Johnson. President Johnson’s goal was to allow America’s poorest citizens “to develop and use their capacities”

It is impossible to say that this goal has been realized when 85 percent of the disposable income of the poorest Americans comes from transfer-payments, according to the authors.

Monday, November 12, 2018

Disrupting EBT

Disrupting EBT

The world of technology is undergoing unprecedented disruption across multiple industries and has not only changed the ways we have traditionally conducted business, but how we look at business as well.  From Airbnb to Amazon, from Uber to Zelle, technology and creative thinking have disrupted the status quo and created market efficiencies.

There is a great meme on the Internet with a picture of Amazon founder Jeff Bezos in 1998 looking more than slightly nerdy and computer geeky, with his receding hairline and goofy smile, wearing an ill-fitting brown sweater and saying “I am Jeff Bezos and I sell books”; to a pic in 2017 where the same Jeff Bezos, nearly unrecognizable from the 1998 pic, with a shaved head, cool sunglasses, the requisite down vest and golf shirt showing off his biceps, seemingly channeling Vin Diesel and saying  “I am Jeff Bezos and I sell whatever I want.”

 Getting there required not only technology but vision, guts and a willingness to look at something completely differently.  The question The Lobster is exploring here is whether we can we bring these factors together to bring about a needed disruption in EBT?

Do EBT professionals have that Bezos vision, guts and willingness to disrupt established methodologies or would we rather rest on our laurels having invented a new payment system some 35 years ago.

Prior to WIC EBT, the last significant disruption in EBT was the Congressional mandate that all state EBT systems be interoperable with each other. Congress issued this directive in 1999, 16 years after the dawn of EBT technology.

The use of electronic benefits transfer for the distribution of government benefits dates back to 1983. EBT has been one of the most successful public-private partnerships in American government history. But it is clearly an industry that at times focuses on what a good job we have done at the expense of looking objectively at how we can do better.

It seems that an opportunity to look forward is before us.  Mobile payments, smart phones, big data and blockchain all seem to have elements that could be brought to bear in EBT.

 Can we challenge our assumptions?  The prevailing assumption underlying EBT has been that we measure success by the number of people on our EBT systems.  But a growing counter assumption holds that we can quantify success by a decline in those numbers as program benefits relieve economic pressure on beneficiaries and allows them to seek employment and no longer need the benefits that EBT delivers.

Along these lines, the Trump Administration has proposed plans to convert a portion of each eligible household’s monthly benefit to what it dubbed “America’s Harvest Box.” The box would contain shelf-stable food products.

Whether it is good or bad, the Harvest Box concept is a disruption in our thinking about food delivery.  Opposition to the plan was swift and strong and failed to appreciate the new and creative thinking that went into the proposal or the fact that after 35 years technology has passed us by and that EBT is a market more than ready for disruption.  The question becomes what might that disruption look like?  And, do we need to change fundamental assumptions in order to make it happen?

Monday, October 29, 2018

Families who receive benefits from the Supplemental Nutrition Assistance Program (formerly known as food stamps) use fewer discount coupons and allot more money for spending on food than they would without assistance, according to a soon-to-be-released study

Families who receive benefits from the Supplemental Nutrition Assistance Program (formerly known as food stamps) use fewer discount coupons and allot more money for spending on food than they would without assistance, according to a forthcoming study by Justine Hastings and Jesse Shapiro, professors of economics.

Why would they go through the time and trouble of couponing and shopping for the best deals when they are playing with "house money".

Hastings and Shapiro found that “every $100 in SNAP benefits leads to between $50 and $60 extra dollars of food spending each month,” Hastings wrote in an email to the Brown University Daily Herald.

According to the study, cash benefits of the same amount don't predict the same effect, Hastings added. Furthermore, the study found that SNAP beneficiaries are slightly less likely to buy less-expensive store brands and redeem discount coupons on SNAP-eligible food products.

 Understanding if “SNAP has larger effects on food spending than cash benefits would is important for understanding its effects on the economy and on the lives of recipients,” she wrote.

According to Shapiro, the authors’ ability to more accurately calculate estimates for the effect of SNAP on food spending sets this research apart from similar studies. Hastings and Shapiro analyzed over six billion data points, including POS scanner data, in their study.

 Scanner data is composed of any data collected when an individual checks out at a grocery store — including payment method and loyalty program history — and can be analyzed to compare the behaviors of SNAP recipients with other shoppers.

A key concept that the study explores is "mental accounting" a term devised by University of Chicago economics professor and Nobel Laureate Richard Thaler to describe a consumer's tendency
to budget specific amounts of money for various categories of spending.

Italicized text indicates our editorial comments.

Friday, October 12, 2018

Mobile Security in EBT

There have been many efforts to add mobile delivery of EBT services to a payment system which up to now has exclusively offered over-the-counter delivery of benefits. As with any payment system, a mobile dimension added a new layer of security concerns.

 The EBT Mobile Security Working Group of the eGovernment Payments Council has produced a white paper entitled Mobile Security in EBT. The paper is a definitive study of the security issues that would be involved if EBT beneficiaries are ever allowed to redeem their benefits via their mobile phones. The Council is a service of the Electronic Funds Transfer Association. The EBT mobile security white paper was edited and prepared for publishing by Chaddsford Planning Associates.

Topics covered in Mobile Security in EBT include the challenges of securing EBT digital identities, the challenges of establishing proof of digital identity in EBT, adopting 2 factor authentication for mobile EBT, regulatory issues surrounding mobile digital EBT, controlling data access, security while making the transition to mobile ID, the value proposition for secure mobile digital EBT. Mobile Security in EBT also includes 3 use cases for secure mobile program delivery.

Wednesday, September 19, 2018

USDA uses "common-sense flexibility" in authorizing the purchase of hot and prepared foods by SNAP beneficiaries who were victims of Hurricane Florence

The deprivation and pain caused by the recent Hurricane Florence flooding almost exceeds our ability to comprehend.

One group that has comprehended it and is doing something about it is the Food and Nutrition Service of USDA. FNS runs an assortment of food programs that include SNAP (formerly known as Food Stamps)

Because of the Hurricane Florence-induced hardships inflicted on North Carolina, including disruption in power supplies which limits the ability to cook during the recovery phase of the hurricane, FNS is allowing SNAP participants to use their electronic benefits to purchase hot and prepared foods.

FNS’s waiver of its regulation against using SNAP benefits to buy previously heated and prepared food will be in effect in North Carolina (where the hurricane first came ashore) until October 31 of this year.

In announcing the waiver, USDA Secretary Sonny Perdue took into account that SNAP beneficiaries who have been evacuated to shelters lack the ability to store fresh food and probably lack access to cooking facilities.

In a news release, Secretary Purdue called the policy “common-sense flexibility”

Under ordinary circumstance,beneficiaries are forbidden from using their electronic benefits for pre-heated and food prepared for immediate consumption.

USDA notes that food stores authorized to accept SNAP benefits may requirer a day or two to prepare for accepting the electronic SNAP benefit in exchange for hot and prepared food.

On September 16, USDA also approved another waiver that extends the time period that North Carolina SNAP beneficiaries have to submit reimbursement claims for food spoiled or otherwise lost due to Hurricane Florence. That deadline to report food loss is now October 15.

USDA may consider additional policy waivers or procedural changes to ease the burden of North Carolina SNAP participants adversely affected by Hurricane Florence. For up-to-date information on FNS assistance, visit

Monday, September 10, 2018

States as the incubators of fraud-fighting policy in safety net programs

States because of their proximity to people served have the ability to act as incubators of proposed public policy.

This is the case when tackling the thorny issue of fraud in the Supplemental Nutrition Assistance Program (formerly known as food stamps).

The federal agency charged with managing SNAP, the Food and Nutrition Service, is partnering with 10 states on what it calls the SNAP Fraud Framework which combines analytics with innovative electronic-payments industry fraud-fighting concepts and techniques to defeat potential SNAP fraudsters.

The Framework provides states with fraud-fighting tools that include analytics and data management, fraud detection, performance measurement, and investigation tools.

This collaborative effort, combining Federal resources with state knowledge  is a good example of the concept of federalism the Framers intended in the Constitute.

Another cooperative fraud-fighting area has been the Food and Nutrition Service’s long campaign to replace the paper food stamp benefit with electronic-benefits transfer systems which use plastic electronic cards with personal identification numbers, similar to bank cards. It is more difficult to scam the system with EBT cards than it was with paper food coupons.

FNS sets guidelines for EBT technology and the states are responsible for running the systems. In another cooperative action, Congress funds the ability of state EBT systems to be interoperable, so that EBT cardholders in one state can use their cards in another state. Cooperatively, the federal agency and the states share the administrative costs of these electronic systems.

The topic of waste, fraud and abuse in the nation’s safety net for poorer Americans has been a never-ending debate among lawmakers and the public for decades, but no program has garnered more attention in this area than SNAP. Anecdotes of program misuse true or not abound in the media.

This much we know is true, the program provides essential nutrition to over 40 million Americans each year at a cost of some 70 billion dollars. SNAP has attracted attention because its cost has almost doubled over the last decade, a period that has seen significant economic turmoil.

That is not to say that abuse doesn’t occur. As the program’s expenditures have grown for legitimate reasons, so too has fraud as criminals have tried to capitalize on the nation’s goodness. Nevertheless law enforcement pursues the fraudsters. In the early 1980s the work of a federal task force of 900 G men led to almost 1400 indictments. From that time to now the rate of fraud has dropped from about 4 cents on the dollar in the early 1990s to about 1 cent in the mid-2000s. Today, the fraud rate is less than 1.5 today.

However, that 1.5 fraud rate represents a lot of money. In 2012 the cost of fraud was estimated at nearly 370 million dollars, a sum that a short 4 years later was estimated to have risen to almost 600 million.

During this 4 year span the number of fraud investigations rose by some 30%. almost half of those investigations were in one state, New York.

 Pinning down program fraud, is a difficult venture. during this 4 year period the number of eligible beneficiaries declined while fraud rose. Normally, we would expect the two rates to rise or fall together. 

Wednesday, September 5, 2018

Is the new iPhone worth mortgaging your financial future

On September 12, Apple will launch its new iPhone. A survey by the personal finance website, WalletHub, released today shows that some 28 million people think that getting one of the new iPhones is worth going into debt for.

  1. Millennials were 5 times more likely to agree that possessing the new iPhone is worth going into debt.
  2. According to WalletHub, nearly 30 percent of those shopping for a cell phone don't realize that they might have to undergo a credit check when trying to purchase the phone.
  3. Almost 187 million Americans trust Apple and Google to handle their personal data more than they trust the government.
  4. Nearly 20 percent of people would rather have unlimited phone data than an excellent credit score.

In that same vein, 44 percent of millennials think that their cell phone has more of an impact on their live than their credit score.

The stock market is booming, not in small part due to Apple and its signature product.  Veteran investor, Warren Buffett's whose Berkshire Hathaway company owns a big stake in Apple has called the iPhone "indispensable" to many people.

Has the iPhone craze gone to far when consumers are willing to risk debt to acquire one. Not that long ago in the US, debt was a condition to be avoided at all cost. Apparently no longer.

However, an iPhone which also functions as a miniature computer can be viewed as an investment in the future of what in becoming an increasingly mobile economy, according to the WalletHub piece.

Thursday, August 23, 2018

EBT-The Perfect Public-Private Partnership

EBT-The Perfect Public-Private Partnership

I recently had the opportunity to attend the semi-annual meeting of the eGovernment Payments Council in Washington.

Among the Council’s work at the meeting were the following tasks.

1 A review by several government-relations analysts of legislative and regulatory issues facing EBT payment systems.
2 A deep dive into the current federal farm bill which includes language for modernizing EBT through technology like mobile commerce and online shopping.
3 The Council also received a report from its own task force proposing long-term strategies for EBT.
4 Also reporting in was a Council work group of state agencies that process both SNAP and TANF transactions through EBT systems.
5 Another internal Council group is advising EBT stakeholders on mobile technology and EBT.
6 The Council’s agenda also included an update on EBT processing rules and specifications.

EBT has been driven by three main engines, the desire to reduce the opportunity for fraud in lifeline assistance programs and a desire to reduce the cost of delivering these benefits, and a desire to make the delivery of these benefits a simpler, more humane process for food retailers and their customers, the beneficiaries of these programs.

The Council, which I am proud to have co-founded some 25 years ago, is comprised of representatives of private-sector organizations, state government agencies that use electronic-benefits transfer to dispense payments to eligible beneficiaries, and employees of the Agriculture Department’s Food and Nutrition Service. FNS administers two of the largest users of EBT technology, the SNAP (formerly known as the Food Stamps Program) nutrition program and the Women, Infants and Children (also known as WIC) nutrition program.

I was proud to see that agencies from 20 states  and territories have joined the group. I will be even prouder when the other 30 states, American Samoa, the District of Columbia, and the Commonwealth of Puerto Rico join their EBT colleagues from around the table.

Private sector Council participants include all EBT transaction processors, equipment manufacturers, leading EBT consultants, software developers and card manufacturers among other industry segments.

All Council members are united behind the three engines of EBT. This makes EBT one of the most successful public-private partnerships

Wednesday, July 18, 2018

When the old meets the new, something has to give

When the old (farmers markets) meets the new (electronic commerce) something has to give. Recently, a major supplier of mobile EBT technology (which allows farmers markets to accept SNAP EBT cards as a payment for for food covered by the SNAP program informed the federal government that it will no longer provide this technology.

As a result, thousands of SNAP cardholders have been unable to use their cards at these remote, unwires sites around the country and farmers markets, farm stands and route sellers will be deprived of a significant portion of their revenue until the problem is resolved.

The US Agriculture Department in a statement acknowledged the role that farmers markets plays in providing nutritious food for Americans as well as economic opportunities for farmers.

Brandon Lipps, the administrator for USDA’s Food and Nutrition Service which manages the SNAP program, explained that the agency’s focus is mitigating the impact of losing the technology provider on SNAP beneficiaries and farmers.

Administrator Lipps points out that current law requirers states to provide no-cost options for farmers markets to accept SNAP benefit cards. But the law doesn’t requirer that the mechanism be a wireless connection although the Food and Nutrition Service strongly encourages states to support wireless technology.

Because of the costs involved in providing wireless technology to farmers markets and the fact neither that farmers nor markets can be charged for the cost of the wireless equipment, Congress approves 4 million dollars every year to subsidized the use of wireless at farmers markets. With this funding, FNS since 2012 has enabled the purchase of wireless equipment for use by eligible farmers and markets.

Still, the economics of equipping thousands of farm markets with cutting edge technology may not work. Only a couple of companies are willing to provide this service.

FNS is continuing to look at ways to work through this economic conundrum by modernize the delivery of SNAP benefits at Farmers Markets.