For the past two years it’s been nearly impossible to turn
the page of the newspaper or channel surf through the cable news stations
without seeing some story about welfare fraud. Whether it’s a Maine woman
indicted on 20 counts of welfare
fraud or a Massachusetts state agency sending
benefits to dead people, there’s no shortage of news on this topic.
In 2012 Congress decided to crack
down on fraud by forcing states to tighten up on misuse of federal benefits
or risk losing a portion of their welfare block grant from Washington. Shortly
thereafter state lawmakers around the country decided to get into the action by
passing their own get-tough welfare fraud laws. Currently there are over 40
such bills that have been introduced in state capitals from Olympia to
Tallahassee.
Which brings us to Indiana, where Governor Mike Pence last month signed an anti-fraud
measure that could result serious unintended consequences.
Senate
Bill 559 would do a couple of things to tighten up on welfare fraud. First,
it would prohibit beneficiaries from getting their benefits through ATMs or POS
terminals located in certain prohibited locations. These include horse tracks,
casinos, gun shops, liquor stores, or strip clubs. No problem there. I
personally find the thought of someone using the kids’ lunch money to drop a
two buck bet or tip a stripper personally revolting.
But the real problem with 559 is that it places the primary
burden on the owners of the electronic payment systems, not on the retailer or
the recipient of the cash. The exact language of the bill is:
The owner, vendor, or third party
processor of an
automated teller machine or point of
sale terminal shall disable or
have disabled access to electronic cash
assistance benefits in a
location described in subsection (b)
unless the location has been
approved by the federal Food and
Nutrition Services.
But the real trouble with this bill will come on July 1,
2013, three weeks from now, when ATM and POS operators are supposed to begin
complying with the law. That’s not nearly enough time to make the changes to
the electronic payment systems necessary to comply with the law.
Electronic payment systems are complex, interdependent
systems that connect multiple large scale mainframe computers from disparate
sources. These include both the public and private sectors, the EBT processor
in a particular state, and downstream third parties like merchant processors
and switches. Making the changes called for in 559 will require coding by all
parties, testing and retesting of each interconnected system, end-to-end
testing and retesting, and regression testing to make sure the changes didn’t
mess up any other systems that have access to those particular terminals.
If that happens you
can envision a scenario on July 1 when ordinary Hoosiers find out that their
bank cards won’t work in particular ATMs, or retail checkout lines slow to a
crawl as befuddled cashiers try to figure out why some cards don’t work while
the lines back up. It could be a nightmare. One processor says it will take
about a year to make, test and implement the changes the bill will require. The
law gives owners and processors less than two months.
This is a case where the bill’s sponsors should have
consulted with the payments industry to find out the unintended consequences of
their law. Holding open and transparent hearings might have helped avoid this potential
mess.
The only way to remedy this is for the governor, the General Assembly and the state agency
responsible for implementing the law to get together and push back the
implementation date. July 1, 2014 sounds good to me.
I’m all for reforming the way we do public assistance in
this country. Payment technology can go a lot to ensure that the money that we
allocate for the relief of hunger or lack of shelter goes where it should go. I’m
sure Indiana lawmakers feel the same way. But in their rush to judgment, they
ignored the one stakeholder group that could help them and instead saddled them
with the liability.