In 2010, President Obama signed into law the Healthy, Hunger-Free Kids Act. The bill added $4.5 billion to child-nutrition programs over the next decade, put in place nutrition standards for school lunch programs and vending machines, and implemented training for the cafeteria workers who feed 31 million students a day through the National School Lunch and School Breakfast programs. It received bipartisan support, and was hailed as a compassionate victory for America’s poorest children.
The bill was also, however, a potentially good development for mega bank JP Morgan Chase. Why, you may be wondering, would one of the nation’s biggest banks benefit from a bill meant to feed poor children? A closer look at the legislation reveals the answer. The bill mandates that “all state agencies implement Electronic Benefit Transfer (EBT) systems by October 1, 2020” for those receiving money through the Women, Infants, and Children (WIC) program. And which company administers nearly half of all states’ EBT programs? You guessed it: JP Morgan Chase.
We seldom think of poverty programs as profit centers, preferring to discuss them as matters of ideology. Liberals view programs like WIC—which provides food to both pregnant mothers and mothers of young children—as the mark of a compassionate nation. Conservatives see them as a gateway to government dependency.
Arguably, they may fit either of those descriptions. But as with so many other government programs in Washington, both WIC and its close cousin, the federal food stamp program, have morphed into something else: cash cows for powerful corporate interests.
At one point, food stamps were actual stamps: Those participating in the program handed retailers pieces of paper in exchange for goods. Today, the process has been digitized and the social stigma minimized. The 1996 welfare reform law required all states to implement debit-like cards, known as EBT cards, no later than October 1, 2002. EBT cards allow states to make Supplemental Nutrition Assistance Program (SNAP) benefits—the official name for the food stamp program—and direct cash assistance programs such as Temporary Assistance for Needy Families (TANF) accessible at retail locations in each state. (TANF benefits are also accessible through ATM machines.)
According to the website of the Agriculture Department—which oversees the food stamp program—three companies administer the bulk of EBT card programs in 49 states (the state of Montana runs its own program) through multi-year contracts ranging from five to seven years. JP Morgan Electronic Financial Services, Inc. (a subsidiary of JP Morgan Chase), which entered the welfare market in 2004 by acquiring Citicorp Electronic Financial Services, has contracts with 24 states and two U.S. territories. Affiliated Computer Services (ACS), a subsidiary of Xerox, has 15 state contracts. And eFunds Corporation, a subsidiary of Fidelity National Information Services (not connected to Fidelity Investments), handles the EBT cards for 10 states and one U.S. territory.
“This business is a very important business to JP Morgan,” Christopher Paton, the company’s managing director of treasury services, told Bloomberg News in 2011. “It’s an important business in terms of its size and scale. We also regard it as very important in the sense that we are delivering a very useful social function. We are a key part of this benefit delivery mechanism. Right now volumes have gone through the roof in the past couple of years or so … The good news from JP Morgan’s perspective is the infrastructure that we built has been able to cope with that increase in volume.”
Just how lucrative JP Morgan’s EBT state contracts are is hard to say, because total national data on EBT contracts are not reported. But thanks to a combination of public-records requests and contracts that are available online, here’s what we do know: 18 of the 24 states JP Morgan handles have been contracted to pay the bank up to $560,492,596.02 since 2004. Since 2007, Florida has been contracted to pay JP Morgan $90,351,202.22. Pennsylvania’s seven-year contract totaled $112,541,823.27. New York’s seven-year contract totaled $126,394,917.
These contracts are transactional contracts, meaning they are amendable based on changes in program participation. Each month, the three companies that administer EBT receive a small fee that can range from $.31 to $2.30 (or higher depending upon the number of welfare services on an EBT card and state contractual requirements) for each SNAP recipient.
EBT processors charge for other services as well. For example, any time TANF recipients withdraw their cash benefits or make balance inquiries through out-of-network ATM machines, the user may incur ATM transaction fees generally ranging from $.75 to $1.50. In addition, most states allow EBT processors to charge card replacement fees. Arizona cardholders, for example, are permitted one free replacement a year, after which a $5 per card fee is imposed. The same goes for customer service calls: After an EBT cardholder exceeds the state’s maximum number of free calls, EBT processors typically tack on a $.25 per call fee.
With states paying EBT processors so much, one might think that these companies would be expected to tenaciously prevent and investigate fraud and abuse. But according to state officials and a review of a sampling of these contracts, they do not task EBT providers with aggressive fraud prevention. That job is left to states’ EBT fraud investigation units (which police recipients of benefits) and the Agriculture Department (which polices retailers). According to the USDA’s website, the federal food stamp program has “over 100” inspectors to police the nearly 200,000 retailers nationwide that accept EBT cards. For its part, the state of Florida has 63 positions allocated to police over 3 million EBT users. JP Morgan is currently involved in an eight-month pilot project with Florida focused on EBT fraud and abuse. The total staff? Just one JP Morgan employee and five to ten state employees, according to Florida officials. Moreover, critics, such as author James Bovard, say that under President Obama the federal government has tried (unsuccessfully) to thwart states like California, New York, and Texas from implementing commonsense anti-fraud measures, such as requiring those applying for an EBT card to provide finger images.
The administration has, to be sure, signed on to some EBT restrictions. After a spate of recent news stories revealed that EBT cards were used to withdraw millions of dollars from ATM machines at strip clubs, casinos, liquor stores, and even aboard cruise ships, Obama signed a law banning EBT cardholders from receiving cash at ATM machines in strip clubs, casinos, and liquor stores.
Still, EBT scams continue to flourish. Earlier this year, a Los Angeles CBS affiliate conducted a hidden-camera investigation to demonstrate the ease with which California welfare recipients can sell their EBT cards on Craigslist. Meanwhile, a 2011 investigation by the Milwaukee Journal Sentinel uncovered widespread selling of Wisconsin EBT cards on Facebook. And, according to the paper, “nearly 2,000 FoodShare recipients claimed they lost their card six or more times in 2010 and requested replacements.”
(A spokesperson for Xerox said that the company’s anti-fraud measures “are industry standard and guided by federal regulations,” but added that “because the techniques used to protect cardholders are proprietary, we’re unable to discuss them in detail.” A JP Morgan spokesperson declined to comment, and two eFunds spokespersons did not return requests for comment.)
The rapid growth of welfare enrollments—and concomitant issuance of EBT cards—can be partially explained by America’s moribund economy and bleak jobs picture. It is also attributable to the fact that, in recent years, more and more states (the number is now up to 43) have begun to operate under “broad-based categorical eligibility” rules—which allow poor individuals who qualify for TANF, Supplemental Security Income, and state-financed government assistance programs to be automatically eligible for food stamps. That means households which were previously ineligible to receive SNAP benefits may now receive them.
But there may be one more reason the food stamp industrial complex continues to balloon: because wealthy corporate interests have been filling the campaign coffers of politicians who control the program’s trajectory. Prior to the 2002 EBT implementation mandate, JP Morgan’s political donations to members of the House and Senate agriculture committees were modest. But since 2002, they’ve been on a steady climb upward, rising from $82,302 to $332,930 in just the span of eight years. Adding to the unseemliness is the fact that three senators and six representatives who are agriculture committee members had, as of 2010, investments in JP Morgan; one senator, meanwhile, had money invested in Xerox. And in March 2012, the White House disclosed that President Obama has money in a JPMorgan Chase private client asset management checking account.
Of course, it’s impossible to say whether all these dollars influence the decisions made by politicians. But the appearance is certainly unbecoming. And one thing is for sure: The decisions that have been made on food stamps in recent years, however they are reached, have often benefited the corporations that administer the EBT program. Indeed, even if the U.S. economy improves, the future for EBT processors looks bright: The Healthy, Hunger-Free Kids Act’s requirement to move all WIC recipients onto EBT systems means they have plenty of new customers waiting in the wings.