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.