The world's largest bank, Citigroup, is under fire for the lack of
availability of its atm's to low-income persons receiving food stamps.
Citigroup is forcing low income persons to spend the limited amount they
have on atm fees that make rich bankers richer instead of on food.
citygroup's atm's are inaccessible to the blind. By October 1, five
machines, spread between San Francisco and Los angeles, will have speech
synthesis for the blind and learning disabled throughout the world.
citigroup has not committed to making any more than these five accessible.
Local groups working on atm access issues might wish to join efforts on
reform based on the outrage that is brewing from articles like the one
today on the front page of the New York Times.
kelly
August 16, 1999
THE WELFARE WEB: A SPECIAL REPORT
A.T.M. Cards Fail to Live Up to Promises to Poor
By DAVID BARSTOW
NEW YORK -- A few months ago, seemingly with good intentions, the
state of New York gave a new electronic banking card to Margarita O.,
an 18-year-old from Mexico and the mother of a baby boy. It is an
unusual debit card. On the front is a picture of her smiling shyly.
The familiar black magnetic stripe on the back gives her access not to
a checking account but to $448 a month in government food credits and
cash.
The card held much promise. She would have the same access everyone
else had to all those automatic teller machines. No more waiting in
lines at check-cashing stores. No more demeaning food stamps. And just
a short walk from her rented room in East Harlem waited Banco Popular,
a cheery neighborhood bank with two gleaming ATMs.
But for now, her card is useless at Banco Popular. In fact, it has not
been accepted at most ATMs in East Harlem and throughout New York
City.
Out of frustration, Margarita O., who asked that her last name not be
used, because she is an illegal immigrant, simply walks up the street
to the same check-cashing store where she used to get her benefits
free.
Only now she pays up to $2.35 for each withdrawal -- $1.50 to the
store and 85 cents to Citigroup, the financial conglomerate hired by
the state to distribute welfare benefits through ATM cards. That
money, she has come to realize, is being deducted from the welfare
benefits of her son, who was born in the United States.
"I don't understand," she said, "why they are taking away money from
my child."
She is enduring the unintended consequences of a sweeping
transformation in the way the nation's poorest citizens receive cash
and food credits from the government. In the last few years, 39 states
and the District of Columbia have hired corporations to distribute
welfare benefits through the nation's vast web of ATMs and
grocery-store debit machines.
The states hoped to reduce fraud, save money and draw poor people into
the financial mainstream. They wanted to encourage better money habits
and to provide convenience and simplicity.
But the emerging system has pitted profits against service in a way
that has created new vulnerabilities for millions of welfare
recipients across the country.
They are assessed ATM fees that regular customers do not have to pay
-- fees that are deducted from their welfare benefits. The number of
free withdrawals is severely limited, sometimes to two a month.
Balance inquiries at ATMs are forbidden in many states, including New
York. By the thousands, welfare recipients have learned at the cash
register that their cards often do not work across state lines.
Presiding over most of this system is Citigroup, the parent of
Citibank and the nation's largest financial-services company. About 12
million Americans in 29 states, including New York, now get welfare
with Citigroup ATM cards. At the end of 1998, Citigroup was
distributing $640 million in welfare benefits each month.
Citigroup's dominance is growing. As welfare rolls shrink, competitors
have backed off because there is far less money to be made. This has
strengthened Citigroup's position as it pursues new contracts and,
once it wins contracts, in deciding how welfare money is delivered.
New York vividly illustrates how the states, by handing off the
cumbersome and politically sensitive task of providing aid to the
poor, have given broad new control over welfare policy to private
corporations, primarily Citigroup.
For months, as Citigroup has struggled for profits in the welfare
business, the company did not provide hundreds of thousands of New
York City welfare recipients with access to 23,000 ATMs in the NYCE
network and 40,000 ATMs in the MAC network, the two largest in the
Northeast.
Citigroup, which will be paid about $80 million by the state over the
next four years to distribute benefits, blocked access by refusing to
pay the full fee charged by other banks for each transaction. Payment
of the full fee would have allowed poor people to use the same range
of ATMs as Citigroup's regular customers.
In interviews over several weeks, Citigroup officials defended their
decision, saying New York City's poor had adequate access to cash.
State welfare officials, while expressing disappointment, said their
contract with the bank gave them little power to tell Citigroup what
to do. "I really don't have any authority at all to direct them one
way or another," said Brian Wing, the state's commissioner of
temporary and disability assistance.
And yet this situation is just as Wing and other welfare officials
planned it. Despite warnings from one state justice who reviewed the
contract, state officials willingly embraced an ambiguous contract
that gave Citigroup a free hand to decide how New York's poor get
access to their benefits.
On Friday afternoon, Citigroup's control was again on display. After
being informed that this article was imminent, Citigroup officials
abruptly announced that starting next month they would allow access to
the NYCE network, though not the MAC network.
They also said they would install 25 ATMs in poor neighborhoods and
embark on an educational program. The measures will cost Citigroup
nearly $2 million this year, the officials said. "We succeed when the
program succeeds," said Brian Claire, senior director for welfare ATM
cards at Citigroup.
Claire said Citigroup delivers welfare at a saving to taxpayers, and
with greater convenience. "We have a great track record," he said.
Likewise, he dismissed concerns that Citigroup exerts undue control
over the welfare system, saying, "The states will dictate what
services they require."
Despite the changes announced Friday, the bank's welfare customers
will still have access to fewer ATMs than regular customers and they
will continue to pay special fees.
And around the country, Citigroup faces mounting criticism. Benjamin
Cayetano, the governor of Hawaii, recently complained in a letter to
Citigroup that its policies have resulted in higher costs for his
state's welfare population.
In Pennsylvania, a food merchants' association blamed Citigroup for
costly system crashes, and one state senator, citing mass confusion
and reduced access to benefits in poor neighborhoods, demanded a
return to paper food stamps.
While Citigroup is subject to a variety of reporting requirements and
oversight, an association of state auditors has called for more
rigorous reviews of Citigroup and other corporations entrusted with
billions of welfare dollars.
"We need more assurance that the companies handling these transactions
are handling them properly," said Kathryn Schwerdtfeger, special
assistant to the Texas state auditor.
Government officials, including some who helped create the system,
have become increasingly uneasy with Citigroup's influence over the
nation's welfare system.
"We're really concerned about this," said Shirley Watkins, who
oversees the nation's food-stamp program as the Department of
Agriculture's undersecretary for food and nutrition. "If there's a
monopoly on a program like this, it puts us in real jeopardy. There is
no competition. And where there is no competition, people charge you
what they want."
Citigroup's growth has implications beyond welfare. The Treasury
Department is pushing hard to use electronic banking for all federal
government payments: Social Security checks, veterans' checks, tax
refunds. While Citigroup has yet to make money distributing welfare,
it is now positioned to become the conduit for hundreds of billions of
dollars in other government payments.
In addition to questions about Citigroup, there are other difficulties
with the new welfare ATM cards. Federal welfare officials once
projected $250 million a year in administrative savings. No longer.
Officials once projected billions in savings from reduced fraud. No
such savings have been shown.
Federal officials once predicted that welfare recipients would get
unlimited access to the country's ATMs "at little or no cost."
Instead, for the first time, the nation's poor are paying millions of
dollars in ATM fees and surcharges.
The Promise: Paperless Payments for Greater Efficiency
The idea behind welfare ATM cards was to "ride the rails" of
electronic banking and end all the sorting and mailing that go with
distributing mountains of food stamps and welfare checks.
For taxpayers and budget cutters, there was the prospect of efficiency
and cost saving. The new system, championed by Vice President Al Gore
beginning in the early 1990s, was given a clunky bureaucratic name --
electronic benefits transfer, or EBT. The banks cast it as a way to
help the needy.
"The most important benefit," Citigroup officials told regulators, "is
that EBT allows low-income individuals a point of entry into the
mainstream of electronic banking."
There was money to be made, too. With federal and state governments
paying out about $100 billion a year in public assistance, companies
would earn sizable fees for handling the transactions, and generate
new ATM surcharges and new customers.
While other banks showed interest in welfare ATM cards, including
First Union, Nationsbank and Chase Manhattan, Fleet, none went after
the business more aggressively than Citigroup. Still, Citigroup's
selection by New York in 1996 was controversial.
Citigroup was the low bidder, but evaluators ranked the company third
for its ability to handle the technical demands of the job. Getting
food and money to poor people is a complex undertaking. It requires
sophisticated software capable of tracking hundreds of thousands of
people. A telephone line offering help must be staffed, debit cards
issued, recipients trained, equipment installed.
In 1997, after challenges from Citigroup competitors, a state judge
threw out the New York contract, noting that Citigroup had been rated
inadequate in "two of the most important technical criteria" --
ensuring enough access to cash and recruiting retail stores to
participate.
But appellate courts overturned the ruling on technical grounds, and
this year the first welfare ATM cards were mailed, first to Staten
Island and then to Manhattan and the Bronx. By November, the cards
will be in Brooklyn and Queens, and the rest of the state will get
them soon after.
Under its contract, Citigroup must demonstrate in each ZIP code that
access to cash under the new ATM system is at least as good as it was
under the old system, in which welfare recipients could go to any one
of hundreds of check-cashing stores, show identification and get their
food stamps and cash. They paid nothing.
For months, Citigroup boasted that it had improved access dramatically
in New York City. According to Citigroup reports, welfare households
in Manhattan have access to 867 free "ATM cash access points" -- a
seemingly dramatic improvement over the old network of 102 free
check-cashing stores.
But those 867 access points are in 221 locations. In the 10012 ZIP
code in Greenwich Village, for example, Citigroup lists 13 ATM access
points. Twelve of them are in one spot, a Citibank in Washington
Square.
When neighborhood wealth is taken into account, Citigroup records show
that ATM access increased for poor people who live in wealthy areas,
but decreased in the poorest neighborhoods.
In the three Manhattan ZIP codes with the highest median family
incomes, a total of 461 welfare households may choose from 43 free ATM
locations.
In the three ZIP codes with the lowest incomes, all in Harlem, 14,027
welfare households have access to six free ATM locations. Under the
old system, those families could pick from 15 check-cashing stores
where they could get their benefits free.
Next month, though, when Citigroup makes the NYCE network available to
New York City welfare recipients, access to ATMs will more than
triple.
The Reality: Malfunctioning Cards and Scarce Machines
On a recent morning in the Bronx, hundreds of welfare recipients,
mostly women and children, crowded into a stifling city welfare center
near Crotona Park. Most were there because of their new welfare ATM
cards.
Hermenegil Nunez, a mother of three, said she had spent five maddening
days trying to use her card. The welfare workers said the numbers on
the card were wrong, she said. Twice she was sent to Manhattan to get
replacement cards. Those did not work either. Now her eyes are filled
with anxiety. "I don't have anything," she said. "My sister, thank God
she made me a little shopping."
In the lobby, a welfare worker stood by a model of an ATM, telling a
small crowd how the cards work. Paul Hayes, a welfare recipient,
interrupted. "I've tried four places and it kept saying the same
thing: 'Try again, try again,"' he said. The welfare worker said the
magnetic strip on Hayes' card appeared to have been damaged. A common
problem, the worker explained. "But I only used it for the first time
yesterday," Hayes protested.
The biggest complaint at the center is that no one knows which stores
or banks will take them. No one knows what the fees are.
"Convenient my foot!" Gail Saunders, another welfare recipient, said
bitterly.
For months, Citigroup has avoided doing for New York welfare
recipients what it has done all along for 117,000 welfare recipients
in Connecticut, Massachusetts, Rhode Island and Vermont: provide
access to NYCE, the dominant ATM network in New York state and a
ready-made vehicle for distributing money for the poor. In New York
City alone, there are 3,200 ATMs connected to the NYCE network.
It boiled down to a dispute over 13 cents.
The problem is an arcane ATM transaction charge that banks pay to one
another. Under NYCE rules, a bank must pay 38 cents when one of its
customers withdraws money from another bank's ATM. Until Friday,
Citigroup said it would pay only 25 cents for withdrawals by New York
welfare recipients.
That kept Margarita O. from using her neighborhood Banco Popular,
which is part of NYCE.
Citigroup's policy prompted its banking rivals to charge that the
company is using its control over the flow of welfare money to steer
customers away from their ATMs. They have also accused Citigroup of
trying to increase its profits at their expense. Citigroup saved an
estimated $130,000 a month by prohibiting access to NYCE.
"Citicorp Services Inc. is sacrificing EBT recipient access in
exchange for increasing the profitability of its contract with the
state of New York," Denis O'Leary, executive vice president of Chase
Manhattan Bank, wrote in June to state welfare officials.
Before changing their policy on Friday, Citigroup officials portrayed
their competitors' unwillingness to accept the lower fee as a failure
to fulfill their obligation to help the needy. On Friday, Citigroup
officials said they relented to further enhance service to welfare
recipients.
The poor in New York have been stymied by another important link in
Citigroup's system of delivering welfare. To augment their ATM
network, Citigroup officials said they have arranged for hundreds of
grocery stores to allow cash withdrawals by welfare recipients -- just
like regular bank customers.
Citigroup lists nearly 400 "cash back" stores in Manhattan alone. But
on a recent evening in East Harlem, managers in a dozen small grocery
stores on the list all said the same thing: Yes, they accept welfare
ATM cards as payment for food. No, they do not allow cash withdrawals.
They explained that they start the business day with $100 and would be
drained of cash if they allowed withdrawals.
The New York Immigration Coalition, an advocacy group, surveyed 84
stores in Harlem -- all on the Citigroup lists. Forty-four said they
did not allow cash withdrawals. Of the rest, most charged a fee or
imposed other limits. (Late last week, Citigroup officials
commissioned their own survey of 44 grocery stores in Manhattan and
the Bronx -- with opposite results. Every single store, they said,
agreed to allow cash withdrawals.)
In the confusion, welfare recipients have been returning to
check-cashing stores, which now charge fees for withdrawals using ATM
cards. Citigroup benefits when welfare recipients use its cards at
check-cashing stores, because it does not pay to check-cashing stores
or groceries the fees it must pay to other banks.
As a result, Citigroup's system has shifted some costs to welfare
recipients themselves.
Last month, nearly two-thirds of all welfare ATM withdrawals in the
city were made not at free ATMs but at small grocery stores or
check-cashing stores or machines that charged recipients a fee, state
records show. Those fees totaled $275,709.
Wing, the state's top welfare official, acknowledged that welfare ATM
cards shift some costs of welfare to the recipients themselves.
"But it's a voluntary shift," he said, because welfare recipients can
avoid all fees by finding a free, participating ATM and limiting
withdrawals to four a month. (For each additional withdrawal,
Citigroup charges recipients 85 cents.)
Finding the right ATM can be tough for those unable to log onto the
state Web site that lists the free ATMs. As a test, Liz Krueger,
associate director of the Community Food Resource Center in Manhattan,
said she recently called the Citigroup telephone help line to find the
nearest free ATM. No such information available, she said the operator
told her. Ms. Krueger tried nine more times over several days. The
response never varied.
The help line itself is one barometer of the confusion. In July, the
help line logged 680,342 telephone calls -- many from people trying to
find out how much they had left to spend. (With the approval of state
officials, Citigroup officials decided to prohibit balance inquiries
at ATMs by welfare recipients because of the expense.)
The phones of local politicians have been ringing, too. Virginia
Fields, the Manhattan borough president, and Fernando Ferrer, the
Bronx borough president, have appealed for better access and
education.
Wing, asked a few weeks ago for his overall assessment of how the
welfare ATM cards are working in New York City, replied, "It's going
exceedingly well."
The Future: Profit Outlook Dims as Welfare Rolls Shrink
Whatever the shortcomings of welfare ATM cards, few people want to go
back to paper. The future is electronic, government officials say.
They acknowledge the confusion, but blame much of it on the inevitable
pain of transforming a complicated system. As problems are ironed out,
they contend, poor people will come to appreciate the cards. Surveys
in some states have shown just that.
Some shortcomings persist. Under federal law, regular ATM customers
are liable for a maximum of only $50 in losses if their cards are
stolen. Those protections do not apply to welfare recipients.
Meanwhile, many of the heady predictions of the early 1990s have not
come true. Hopes are fading that the electronic system will reduce
administrative costs by much, if at all. One early estimate projected
$1 billion in savings over five years.
"It will probably be cost-neutral," acknowledged Ms. Watkins, the
Agriculture Department undersecretary.
As for cutting welfare fraud, one federal study concluded, "EBT alone
has not effectively deterred fraud in the delivery of food-stamp
benefits." Welfare ATM cards have no effect on the largest source of
fraud -- payments to people who misrepresent their financial
circumstances. Billions are lost this way.
By contrast, from 1991 to 1997, welfare ATM records enabled the
Agriculture Department to prosecute 234 fraud cases involving a grand
total of $27 million.
The electronic system has fallen short for another constituency --
Citigroup and the other companies that jumped into the business. The
problem lies in two numbers.
Five years ago, 28 million Americans were on food stamps. Today, the
number is 18 million. The trouble is that it is a volume business. So
in New York, where Citigroup is paid $1.47 a month for every household
on cash assistance, its revenue diminishes with each family that
leaves welfare. A few years ago, Citigroup expected to generate $145
million in revenues over the life of the contract in New York. Now
that hundreds of thousands of people have left New York's welfare
rolls, revenue might not exceed $80 million.
Claire declined to reveal Citigroup's earnings from welfare ATM cards.
He said the company had built only a "very modest profit" into its bid
proposals. "To date, our EBT business has yet to realize an operating
profit," he said. E-Citi, the Citigroup unit responsible for welfare
benefit transfers and other electronic-banking projects, lost $142
million in 1998 and another $80 million in the first half of 1999,
company reports show.
Deluxe Government Services, a Milwaukee-based company that holds
welfare ATM contracts in eight states, set aside $36.4 million last
year to cover anticipated losses. A third company, Transactive Corp.
of Texas, is pulling out of the business. "Not profitable," a
spokesman explained tersely.
Citigroup, armed with patience and deep pockets, seems intent on
expanding its electronic-welfare business. Last year it agreed to buy
Transactive for $11.5 million, a move that caught the interest of the
Justice Department's antitrust lawyers. The department measures market
dominance with something called the Herfindahl-Hirschman Index. A
score of 1,800 means that the market is "highly concentrated."
The Justice lawyers scored Citigroup at 4,225. (Late Friday, a
Citigroup spokesman produced an expert on antitrust law to challenge
the relevance of this score.)
Warning that Citigroup would raise prices and cut services if it were
allowed to buy its "only substantial competitor," the Justice
Department filed a lawsuit to stop the takeover. Though Citigroup
backed off, and the lawsuit was withdrawn, it was not much of a
victory for the department. Transactive is still pulling out, and
Citigroup is negotiating new contracts with several states.
As state after state switches to electronic welfare, the poor
increasingly find themselves voiceless. Many of the rules governing
the welfare ATM cards are set by an obscure organization called the
EBT Council. An arm of the National Automated Clearing House
Association, a financial trade group in Virginia, the council includes
57 representatives of major banks, ATM networks, grocery chains and
states.
It does not have a single member from a welfare advocacy group.
"We're not blocking them from joining -- if they pay the membership
fee," a spokeswoman for the EBT Council said.
The fee is $6,000 a year. Plus a $3,000 initiation charge.
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