If you have "no place to go," come here!

It's official, California is a banana republic.

In an effort to save operational costs, California's Employment Development Department will no longer issue checks for unemployment, disability, or paid family leave payments. Instead claimants will receive a pre-paid Visa debit card. The sole issuer of these debit cards is Bank of America:

“We’re pleased to help the state of California provide an easier and more efficient way for unemployed individuals, as well as customers with disabilities, to receive their benefits,” said Margaret Scopelianos, Treasury Solutions executive for Specialized Industries, including government card programs, at Bank of America.

I bet they're pleased! Some context:

A record $22.9 billion in total unemployment benefits were paid in
2010, along with approximately $4.3 billion in Disability Insurance and Paid Family Leave benefits. Initially the savings will be approximately $4 million a year....

That was a total of $27.2 billion last year. (This year it will be even more.) I checked out BofA's merchant services website, but they don't post any specific information on how much they charge for merchant fees. However, typical merchant fees for Visa transactions are around 2%, with the issuing bank taking the lion's share of 1.75%.

Do the arithmetic: 1.75% of $27.2 billion is $476,000,000. Just to be clear, in order to save $4 million the state of California has given one (criminal, albeit as of yet un-indicted) bank a monopoly to extract nearly half a billion dollars in rents. Nothing I could find on EDD's website addresses any conditions or limitations, if any, the state will impose on BofA in return for the monopoly. I would have thought a better deal could have been negotiated with a sizable chunk of that 1.75% going back into the state's coffers. Neither could I find anywhere any explanation of how BofA was chosen. This appears to be a bald-faced case of legalized corruption. I suspect some government official(s) will soon resign--or retire with their pension(s)--and move into a very comfortable sinecure within BofA, the fucking fucks.

Who pays? First, that $476 million comes out of the pockets of California businesses. Second, claimants will be susceptible to additional fees associated with debit cards. More and more small businesses are charging a debit card transaction fee at the point of sale. This will transfer some or all of the merchant fee rents onto claimants. Card holders will also face fees if they withdraw cash from ATMs other than those owned by BofA.

To be fair, claimants, once they are issued a card, can avoid using it for purchases by having the funds direct deposited into their own bank accounts, though it is not clear from reading EDD's information whether or not a fee will be charged for this option.

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Think Liberally's picture
Submitted by Think Liberally on

Thanks for the info!

The sad thing is that five years ago I wouldn't have seen, and today I believe many other "mainstream" liberals won't see this as a bad thing. It's modernization, doncha know, cash is so 20th Century.

It requires a whole worldview shift that, given Obama's approval rating among liberals, isn't going to happen anytime soon.

Joe's picture
Submitted by Joe on

You calculate 1.75% of $27.2 billion but 27.2 billion is what was paid across the entire US. The population of California is about 10% of the US. So take a zero off and that's roughly 47 million. That's still a lot. But let's try not to be wrong by a factor of 10, when possible.

Also, I'd imagine that the state of California is not paying the same fee per transaction as individuals/companies do. I'd bet it was way lower.

We really need to refrain from just "guessing" at numbers. I'm sure the info you're after is on the internet somewhere.

Submitted by jm on

If you read the pdf linked you'll see this:

Last year at the height of the recession, EDD issued approximately 41.2 million unemployment checks, a record number.

EDD is a California state agency. Divide $27.2 billion by 41.2 million checks and you get $660.19. The average weekly unemployment benefit is $293. Benefits are paid bi-weekly. That works out to an average unemployment check of $586. The remaining $74 discrepancy most likely can be accounted for with the fact that average weekly disability benefits and paid family leave benefits are substantially higher than unemployment benefits, $466 and $488. Theses claims are also paid bi-weekly.

On the bright side, you're absolutely correct about the info being on the internet somewhere.

Also, you raise a valid point about the cut BofA will take off of every benefit payment. It may well be lower than the 1.75%. I pointed out, however, that the information is not available on EDD's website. This is public information and should be readily available to citizens. Transparency and all that. Suppose, for the sake of discussion, that the figure is lower. Let's really low-ball it and say 0.5%. That still works out to $136 million in rents. For doing what? Saving the state $4 million? Sorry, this deal still stinks.

Finally, the point of posting a polemic argument is to motivate action by stirring up controversy. In such cases, it's not unreasonable to highlight the upper end of the range of possible numbers.

carissa's picture
Submitted by carissa on

Merchant fees are not paid by the person with the card. They are paid by the merchant accepting the card. I'm guessing that the person collecting the unemployment benefits who deposits the money into their own bank account likely will turn around and use their own bank card to make purchases that the merchant would also pay fees on. I'm not sure what the issue is here.

Food stamps have been dispersed to debit cards for years. Getting rid of the added cost of printing and mailing benefits checks, not to mention getting rid of the added risk that the mailed check can be stolen, seems like a no brainer to me.

Submitted by jm on

I didn't write that claimants paid the merchant fees. I did write, "Who pays? First, that $476 million comes out of the pockets of California businesses."

The default in this new dispersal system is to automatically issue a BofA debit card to claimants. They don't have to do anything. Indeed, they don't have a choice initially. They have to accept the card. After receiving the card, claimants can have subsequent benefit payments deposited directly to their bank accounts. But think about it. How many will go through the trouble of printing out an additional form, filling it in and mailing it. People will already have the card. If they do nothing their benefit amount will be added to their card's balance every other week. I strongly suspect that most people will just use the card. It is easier.

The point here is rent extraction. This is how the big boyz like BofA are sucking the life blood out of our economy. Yes, they are offering a service. This is how they lure people in. But is what they're offering really worth hundreds of millions of dollars annually? Really? I don't think so. And I really, really, r-e-a-l-l-y resent being forced to do business with a bank I despise. How did they end up with the monopoly?

Finally, in California the debit cards issued in lieu of food stamps are not bank issued cards. The money is paid through the state itself. (I suspect this is because the total amount of money paid out is substantially less than that for unemployment, disability and paid family leave.) That makes all the difference in world. The vast majority of the food assistance benefits stays in state where the multiplier effect can work its magic. In the case of the BofA cards, a large percentage of the bank's take, at minimum, leaves the state.

Again, it's all about the rents.

carissa's picture
Submitted by carissa on

Bank of America is not getting any money from the State of California for the payments.

No payment to Bank of America for the electronic payments - Bank of America will earn money through interchange fees paid by businesses that honor the debit cards.

Submitted by jm on

I didn't write that California would be paying BofA anything.

Again, it's all about the rents. BofA is going to make hundreds of millions of dollars annually off of California businesses in the form of merchant fees. Other ATM owners, most of whom are banks, will be making additional money in fees charged to claimants using those machines. Claimants will also face fees at some, mostly small, merchants who are increasingly adding a markup on purchases made with debit cards in order to recoup some or all of the merchant fees. These are all external costs to the economy of the state as a whole. In total, are these external costs greater than the $4 million the state will save in lower operational costs? I don't know, but I strongly suspect they are.

And again, why was BofA granted a state sanctioned monopoly to issue the debit cards? This whole deal stinks to high heaven.